<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 [Fee Required]
For the fiscal year ended              December 31, 1994 
                          ---------------------------------------------------
                                               or
[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _________________ to _______________________

                                          1-9518
Commission file number_____________________________________________________  


                       THE PROGRESSIVE CORPORATION
- ---------------------------------------------------------------------------- 
            (Exact name of registrant a 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)

                                (216) 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
- ------------------------------------                   -----------------------

9 3/8% Serial Preferred Shares, Series A (Cumulative,
    Liquidation Preference $25.00 per share)           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 February 28, 1995:  $2,366,844,235.38

The number of the registrant's Common Shares, $1.00 par value, outstanding as
of February 28, 1995: 71,358,294

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Annual Report to Shareholders for the year ended
December 31, 1994 are incorporated by reference in Parts I, II and IV hereof.
Portions of the registrant's Proxy Statement dated March 24, 1995, for the
Annual Meeting of Shareholders to be held on April 28, 1995, are incorporated
by reference in Part III hereof.

<PAGE>   2
INTRODUCTION


The Progressive Corporation and subsidiaries' (collectively, the "Company")
1994 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 24, 1995, for the Annual Meeting of Shareholders to be
held on April 28, 1995 (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 Corporation, an insurance holding company formed in 1965, has
60 operating subsidiaries and one mutual insurance company affiliate.  The
Progressive Corporation's insurance subsidiaries (collectively, the "Insurance
Group") provide personal automobile insurance and other specialty
property-casualty insurance and related services throughout the United States
and in Canada.  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.

Of the approximately 250 United States insurance company groups writing private
passenger auto insurance, the Company estimates that Progressive ranks seventh
in size for 1994.  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.  For 1994, the estimated
industry premiums written, which include personal auto insurance in the United
States and Ontario, Canada, as well as insurance for commercial vehicles, were
$119 billion, and Progressive's share of this market was approximately 2.0%.

 (b)  Financial Information About Industry Segments

   Incorporated by reference from Note 12, SEGMENT INFORMATION, on page 47 of
the Company's Annual Report.

 (c)  Narrative Description of Business

INSURANCE SEGMENT
- -----------------

The Insurance Group underwrites a number of personal and commercial
property-casualty insurance products primarily related to the use and operation
of motor vehicles.  Net premiums written were $2,457.2 million in 1994,
compared to $1,819.2 million and $1,451.2 million in 1993 and 1992,
respectively.  The underwriting profit was 8.3% (11.5% including the
elimination of the supplemental reserve; see MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS beginning on 
page 12 for further discussion) in 1994, compared to 10.7% in 1993 and 
3.5% in 1992, respectively.

The Insurance Group's core business writes insurance for private passenger
automobiles and small commercial and recreational vehicles.  This business
frequently has more than one program in a single state, with each targeted to a
specific market segment.  The core business accounted for 95% of the Company's
1994 total net premiums written.





                                       1

<PAGE>   3
The bulk of the Insurance Group's core business consists of nonstandard
automobile insurance products for people cancelled or rejected by other
insurers.  The size of the nonstandard automobile insurance market changes with
the insurance environment.  Volume potential is influenced by the actions of
direct competitors, writers of standard and preferred automobile insurance and
state-mandated involuntary plans.  The total 1994 nonstandard automobile
insurance market was about $20 billion, compared to $18 billion in 1993 and $17
billion in 1992.  Approximately 330 companies, many of which belong to the same
insurance group, wrote an estimated $15 billion of nonstandard auto premiums in
1994.  In this market, the Insurance Group ranked fourth in 1993 in direct
premiums written and near the top in underwriting performance.  Although final
data has not been published, the Company estimates that its 1994 ranking and
underwriting performance will be consistent with 1993.

The core business is continuing its experiment of writing standard and
preferred automobile risks in many states.  These experiments accounted for
between five and ten percent of the Company's total private passenger auto
premiums in 1994.  The strategy is to build towards becoming a low-cost
provider of a full line of auto insurance and related services, distributed
through whichever channel the customer prefers.  The Insurance Group's goal is
to compete in the standard and preferred market, which comprises 80% of the
personal automobile insurance market.

The Insurance Group's specialty personal lines' principal product is motorcycle
insurance.  Other products offered include recreational vehicle, mobile home
and boat insurance.  The Insurance Group'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 a significant participant in this market.

Nonstandard commercial vehicle insurance covers commercial vehicle risks that
are rejected or cancelled by other insurance companies.  Based on the Company's
analysis of this market, approximately 40 companies compete for this business
on a nationwide basis.  State assigned risk plans also provide this coverage.

The core business insurance products are marketed by thirteen divisions
headquartered in or near the markets served:  the Florida and Southeast
divisions in Tampa, Florida; the North East, New York, Central States, Ohio,
Commercial Vehicle and National Accounts divisions in Cleveland, Ohio; the
South Central division in Austin, Texas; the Mountain division in Colorado
Springs, Colorado; the Mid-Atlantic division in Richmond, Virginia; the Canada
division in Ontario, Canada; and the West division in Sacramento, California.
Each division is responsible for its own marketing, sales, processing and
claims.

In 1994, over 90% of the core business' net premiums were written through a
network of more than 30,000 independent insurance agents located throughout the
United States and in Canada.  Subject to compliance with certain
Company-mandated procedures, these independent insurance agents have the
authority to bind the Company to specified insurance coverages within
prescribed underwriting guidelines.  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
Company also markets its products through intermediaries such as employers,
other insurance companies and national brokerage agencies, and direct to
customers through employed sales people and owned insurance agencies.  The core
business currently markets personal automobile insurance directly to the public
by direct mail, television and radio advertising throughout Florida and in Ohio
and Texas.

The Insurance Group's diversified businesses - the United Financial Casualty
Company (UFCC), Professional Liabilities Group (PLG) and Motor Carrier division
- - accounted for 5% of total volume in 1994.  These businesses, which are
organized by customer group, are headquartered in Cleveland, Ohio.  The choice
of distribution channel is driven by each customer group's buying preference
and service needs.  Distribution channels include financial institutions,
equipment lessors and vehicle dealers.  Distribution arrangements are
individually negotiated between such intermediaries and the





                                       2

<PAGE>   4
Company and are tailored to the specific needs of the customer group and the
nature of the related financial or purchase transactions.  The diversified
businesses also market their products directly to their customers through
company-employed sales forces.

UFCC 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 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 loans, finance companies
and credit unions.  Based on 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.  The program is
sponsored by the American Bankers Association.  This program represented less
than 1% of total 1994 net premiums written.

The Motor Carrier division primarily manages involuntary Commercial Auto
Insurance Plans.  See SERVICE OPERATIONS on page 6 for further discussion.

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 costs.  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 and claim adjustment are also important factors in the
Company's competitive strategy.

LICENSES
- --------

The Insurance Group operates under licenses issued by various state or
provincial insurance authorities.  Such 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.  One or more of the subsidiaries are licensed
and subject to regulation in each of the 50 states, in each Canadian province
and by Canadian federal authorities.  The nature and extent of such regulation
and





                                       3

<PAGE>   5
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 principal insurance subsidiaries are
domiciled in the states of Florida, Mississippi, Missouri, New York, Ohio,
Pennsylvania, 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 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 to ensure 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, 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 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 such dividend limitations.

Under state insolvency and guaranty laws, regulated insurers can be assessed
for, or be required to contribute to state guaranty funds to cover policyholder
losses resulting from insurer insolvencies.  Insurers are also required by many
states to provide coverage to certain risks as a condition of doing business in
the state.  Such programs 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 have laws and regulations that limit a company'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 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
insurance rate development, rate determination and the ability of insurers to
cancel or renew insurance policies, reflecting concerns about availability,
prices and alleged discriminatory pricing.

In some states, such as California and Georgia, the automobile insurance
industry has been under pressure in recent years from regulators, legislators
or special interest groups to reduce, freeze or set rates at levels that are
not necessarily related to underlying costs, including initiatives to roll back
automobile and other personal lines rates.  This 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.





                                       4

<PAGE>   6
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, the United States
Congress and certain federal agencies are investigating the current condition
of the insurance industry to determine whether federal regulation is necessary.

STATUTORY ACCOUNTING PRINCIPLES
- -------------------------------

The Insurance Group'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 deferred and amortized over the period
    in which the related premiums are earned, rather than expensed as incurred,
    as required by SAP.

2.  Direct-response advertising costs, which consist primarily of direct mail,
    television and radio expenses, are capitalized and amortized over the
    estimated period of the benefits, rather than expensed as incurred, as
    required by SAP.

3.  Certain assets are included in the consolidated balance sheets, rather than
    charged against retained earnings, as required by SAP.  These assets
    consist primarily of premium receivables over 90 days old and furniture and
    fixtures.

4.  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.

5.  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.

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

During 1994, the insurance subsidiaries began to reduce loss reserves for
anticipated salvage and subrogation recoveries in accordance with statutory
accounting principles.  Previously, salvage and subrogation was not reflected
in the statutory financial statements until actually recovered.





                                       5

<PAGE>   7
SERVICE OPERATIONS
- ------------------

The Motor Carrier division currently processes business for the Commercial Auto
Insurance Plans (CAIP) in 28 states and the Florida Joint Underwriters
Association (FAJUA), which are part of the involuntary residual market.  As a
CAIP servicing carrier, the division processes about one-third of the premiums
in the involuntary residual market, without assuming the indemnity risk.  It
competes with approximately 17 other providers nationwide.  In 1995, the
division began processing business for the FAJUA and competes with
approximately five other carriers in the state.  The Company's subsidiaries
also provide claim services to fleet owners and other insurance companies.
Revenues from all service businesses are derived primarily from fees and
commissions.  Total service revenues were $41.9 million in 1994, compared to
$43.7 million in 1993 and $53.3 million in 1992.  Pretax operating profits were
$10.0 million and $6.8 million in 1994 and 1993, respectively, compared to a
pretax operating loss of $4.3 million in 1992.

INVESTMENTS
- -----------

The Company's approach to investing is consistent with its need to maintain
capital adequate to support the insurance premiums 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 $3,186.3 million at December 31, 1994, compared to
$2,805.2 million at December 31, 1993.  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 (losses) on
security sales, before expenses and taxes was $182.3 million in 1994, compared
to $242.4 million in 1993 and $153.5 million in 1992.  See MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
beginning on page 12 herein for additional discussion.

EMPLOYEES
- ---------

The number of employees, excluding temporaries, at December 31, 1994, was
7,544.

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
property-casualty and life insurance subsidiaries.  The life insurance
operations are in run-off.  Total loss reserves are established at a level that
is intended to represent the midpoint of the reasonable range of loss reserves.
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.

During 1994, based on a review of the adequacy of its total loss reserves, the
Company eliminated its $71.0 million "supplemental reserve." See MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
beginning on page 12 for further discussion.  The elimination of the
supplemental reserve is reflected in the Reconciliation of Net Reserves for
Losses and Loss Adjustment Expenses table on page 7 and the Analysis of Loss
and Loss Adjustment Expenses Development table on page 8.

The accompanying tables present an analysis of property-casualty losses and
LAE.  The following table:  (1) provides a reconciliation of beginning and
ending estimated liability balances for 1994, 1993 and 1992, and (2) shows the
difference between the estimated liability in accordance with GAAP and that
reported in accordance with SAP.





                                       6

<PAGE>   8


<TABLE>
RECONCILIATION OF NET RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES

<CAPTION>
 (millions)                                                  1994                 1993                1992
                                                         ---------------------------------------------------
 <S>                                                     <C>                 <C>                  <C>
 Balance, January 1                                      $1,012.4             $  956.4             $ 861.5
 Incurred losses and LAE:
       Current accident year                              1,539.8              1,126.7               981.7
       Prior accident years                                (142.5)               (98.5)              (51.5)
                                                         ---------------------------------------------------
                                                          1,397.3              1,028.2               930.2
                                                         ---------------------------------------------------
 Paid losses and LAE:
       Current accident year                                894.0                605.4               481.9
       Prior accident years                                 417.0                366.8               353.4
                                                         ---------------------------------------------------
                                                          1,311.0                972.2               835.3
                                                         ---------------------------------------------------
 Balance, December 31                                     1,098.7              1,012.4               956.4
 Add: Reinsurance recoverable on
       unpaid losses and LAE1                               334.2                334.8                  --
                                                         ---------------------------------------------------
 Balance, December 31, GAAP                               1,432.9              1,347.2               956.4
 Adjust: Reinsurance recoverable on
       unpaid losses and LAE1                              (334.2)              (334.8)                 --
    Net salvage and subrogation2                               --                 39.9                37.2
                                                         ---------------------------------------------------
 Balance, December 31, SAP                               $1,098.7             $1,052.3              $993.6
                                                         ===================================================
</TABLE>


1In 1993, the Company adopted Statement of Financial Accounting Standards
(SFAS) 113, "Accounting and Reporting for Reinsurance of Short- Duration and
Long-Duration Contracts"; prior years were not restated.

2During 1994, the Company changed its method of accounting for salvage and
subrogation.  See STATUTORY ACCOUNTING PRINCIPLES on page 5 for further
discussion.

The reconciliation above shows a $142.5 million redundancy, which emerged
during 1994, in the 1994 liability and a $98.5 million redundancy in the 1993
liability, based on information known as of December 31, 1994 and December 31,
1993, respectively.

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.





                                       7

<PAGE>   9


<TABLE>
ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSES DEVELOPMENT
<CAPTION>
(millions)
YEAR ENDED                         1984     1985     1986    1987   1988    1989    1990    1991    1992   1993      1994
<S>                              <C>     <C>      <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>      <C>
LIABILITY FOR UNPAID 
- ---------------------
LOSSES AND LAE                   $146.5   $215.3   $323.8  $471.0 $651.0  $748.6  $791.6  $861.5  $956.4 $1,012.4  $1,098.7
- --------------                                                                                                             

PAID (CUMULATIVE) AS OF:
- ----------------------- 
  One year later                   68.6    104.7    142.7   195.0  283.1   293.1   322.4   353.4   366.8   417.0
  Two years later                 101.4    151.9    204.4   294.9  393.7   446.8   490.8   518.8   520.0      --
  Three years later               121.3    175.4    238.9   339.5  465.0   539.8   570.4   583.2      --      --
  Four years later                128.8    187.2    255.7   369.9  514.0   588.2   600.0      --      --      --
  Five years later                132.8    194.1    264.3   383.5  540.7   603.1      --      --      --      --
  Six years later                 135.8    197.7    268.7   389.1  545.1      --      --      --      --      --
  Seven years later               136.8    200.7    270.1   381.9     --      --      --      --      --      --
  Eight years later               138.9    201.3    261.3      --     --      --      --      --      --      --
  Nine years later                139.1    191.6       --      --     --      --      --      --      --      --
  Ten years later                 129.4       --       --      --     --      --      --      --      --      --
LIABILITY RE-ESTIMATED 
- -----------------------
AS OF:
- ----- 
  One year later                  146.9    218.7    300.6   446.6  610.3   685.4   748.8   810.0   857.9   869.9
  Two years later                 150.2    213.6    293.6   422.2  573.4   677.9   726.5   771.9   765.5      --
  Three years later               144.0    205.3    282.8   402.4  581.3   668.6   712.7   718.7      --      --
  Four years later                140.4    203.4    274.1   403.9  575.1   667.1   683.7      --      --      --
  Five years later                139.0    200.9    275.6   399.6  578.4   654.7      --      --      --      --
  Six years later                 139.3    204.4    275.8   400.2  582.2      --      --      --      --      --
  Seven years later               142.0    205.2    277.5   408.5     --      --      --      --      --      --
  Eight years later               142.9    206.7    285.7      --     --      --      --      --      --      --
  Nine years later                144.5    215.3       --      --     --      --      --      --      --      --
  Ten years later                 153.0       --       --      --     --      --      --      --      --      --
                                                                                                            
CUMULATIVE REDUNDANCY
- ---------------------
(DEFICIENCY)                     $ (6.5)  $   --   $ 38.1  $ 62.5 $ 68.8  $ 93.9  $107.9  $142.8  $190.9   $142.5
- ------------                     ------   ------   ------  ------ ------  ------  ------  ------  ------   ------
PERCENTAGE1                        (4.4)      --     11.8    13.3   10.6    12.5    13.6    16.6    20.0     14.1
                                                                                                           
<FN>
1Cumulative redundancy/(deficiency) [divided by] liability for unpaid losses and LAE.

</TABLE>


The above table presents the development of balance sheet liabilities for 1984
through 1993. 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.  Similar
reserves for the life insurance subsidiary, which are immaterial, are excluded.
This liability represents the estimated amount of losses and LAE for claims
arising in all prior years 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 becomes known about
the frequency and severity of claims for individual years.  For example, as of
December 31, 1994, the companies had paid $191.6 million of the currently
estimated $215.3 million of losses and LAE that had been incurred through the
end of 1985; thus an estimated $23.7 million of losses incurred through 1985
remain unpaid as of the current financial statement date.





                                       8

<PAGE>   10
The "Cumulative Redundancy (Deficiency)" represents the aggregate change in the
estimates over all prior years.  For example, the 1984 liability has developed
a $6.5 million deficiency 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 7 as the "prior years" provision for incurred
losses and LAE.

In evaluating this information, note that each cumulative redundancy
(deficiency) amount includes the effects of all changes in amounts during the
current year for prior periods.  For example, the amount of the redundancy
related to losses settled in 1987, but incurred in 1984, will be included in
the cumulative deficiency or redundancy amount for years 1984, 1985 and 1986.
Conditions and trends that have affected development of the liability in the
past may not necessarily occur in the future.  Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based on this
table.

The data in the Analysis of Loss and Loss Adjustment Expenses Development table
on page 8 are constructed slightly differently than the data in the Current
Estimate of Total Redundancy column in the chart on page 48 of the Company's
Annual Report.  The data in the former table are based on Schedule P from the
1990 through 1994 Consolidated Annual Statements, as filed with state insurance
departments, and Schedules O and P filed for years prior to 1989.  The reserve
accuracy percentages reported in this table differ from the percentages
reported in the Annual Report.  The primary reason for the difference is the
method of apportioning loss adjustment expenses to accident years.  The
Consolidated Annual Statement, Schedule P, Part-1,  specifies how to distribute
unallocated loss adjustment expenses to accident years.  The Company disagrees
with this arbitrary approach and, therefore, uses a different approach for the
Annual Report.  It believes that both apportionment methods give the same
result when viewed over several years.

A second reason is that the data reported in the Annual Report includes results
for life insurance products previously sold by the Company's life insurance
subsidiary.  Life insurance reserves are less than 1% of total reserves.  Given
the uncertainty inherent in establishing life insurance loss reserves, the
Company's life insurance reserves have proven to be quite accurate.

In addition, the development table on page 8 differs from the development
displayed in Schedule P, Part-2.  Schedule P, Part-2, excludes unallocated loss
adjustment expenses and reflects the change in the method of accounting for
salvage and subrogation.

      (d)    Financial Information about Foreign and Domestic Operations

The Company operates throughout the United States and in Canada.  The amount of
Canadian revenues and assets are approximately two percent of the Company's
consolidated revenues and assets.  The amount of operating income (loss)
generated by its Canadian operations is immaterial with respect to the
Company's consolidated operating income.





                                       9

<PAGE>   11

I
TEM 2.      PROPERTIES

OWNED PROPERTIES
- ----------------

In 1994, the Company completed its new corporate office complex on a 42-acre
parcel in Mayfield Village, Ohio, owned by a subsidiary.  The new facility
consists of 517,800 square feet of space and replaces office space held under
leases in a number of locations in the Cleveland, Ohio area.  The cost of the
project is $75.5 million and is being funded through operating cash flows.  As  
of December 31, 1994, $71.7 million of the project's costs had been paid.  The
Company's central data processing facility occupies a modern, three-story brick
building containing approximately 107,000 square feet of office space on this
same parcel.

The Company owns two adjacent two-story brick buildings in Highland Heights,
Ohio, which contain an aggregate of 233,000 square feet of office and warehouse
space.  The property was purchased in August 1994 for approximately $6.7
million.  The buildings are currently being leased to a third party until late
1995, at which time the buildings will be renovated to accommodate the
Company's operations.

The Company owns a modern three-story building containing approximately 96,700
square feet of office space in Mayfield Heights, Ohio.  The property was
purchased in December 1993 for approximately $6.5 million, and is occupied by
the Company's Northeast Division.

The Company's Florida Division is headquartered in a modern, two-story building
containing approximately 60,000 square feet of office space in Tampa, Florida.
The property was financed with, and is held subject to a mortgage granted in
connection with, industrial development revenue bonds bearing interest equal to
79.45% of a specified prime commercial lending rate.  The remaining annual
principal amounts payable are $368,000 in each of 1995 through 1997 and $92,000
in 1998.

The Company owns a modern, two-story building containing approximately 39,000
square feet of office space in Tampa, Florida; this building is leased to a
non-affiliated tenant.

The Company also owns a one-story brick building containing approximately
92,000 square feet of training facilities, office and warehouse space in
Mayfield Village, Ohio.

LEASED PROPERTIES
- -----------------

The Company leases approximately 660,000 square feet of modern office space at
various locations throughout the United States for its other business units and
staff functions.  In addition, the Company leases approximately 261 processing
and claim offices at various locations throughout the United States.  Two
offices are leased in Canada.  These leases are generally short-term to
medium-term leases of standard commercial office space.



ITEM 3.      LEGAL PROCEEDINGS

Incorporated by reference from Note 6, LITIGATION, on page 43 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 of
this Annual Report on Form 10-K.





                                       10

<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 New
York Stock Exchange.


<TABLE>
<CAPTION>
                                                                                                     Dividends
Year                  Quarter                                 High                   Low             Per Share
- --------------------------------------------------------------------------------------------------------------
<S>                   <C>                                 <C>                   <C>                     <C>
1994                  1                                    $40 1/2               $27 3/4                 $.050
                      2                                     35 5/8                28 1/2                  .050
                      3                                     38 7/8                33 1/4                  .055
                      4                                     38 3/8                32 1/4                  .055
                                                  ------------------------------------------------------------
                                                           $40 1/2               $27 3/4                 $.210
                                                  ============================================================



1993                  1                                   $ 36 1/8              $ 26 5/8                $ .050
                      2                                     36 1/4                27 1/2                  .050
                      3                                     44 1/4                31 3/4                  .050
                      4                                     46 1/8                38 3/8                  .050
                                                  ------------------------------------------------------------
                                                           $46 1/8               $26 5/8                 $.200
                                                  ============================================================
</TABLE>



The closing price of the Company's Common Shares on February 28, 1995 was
$38 7/8.

  (b)        Holders

There were 4,871 shareholders of record on February 28, 1995.

  (c)        Dividends

Statutory policyholders' surplus was $949.2 million and $701.9 million at
December 31, 1994 and 1993, 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, 1994, $102.1 million of 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 of $177.0 million in 1995
out of statutory policyholders' surplus, without prior approval by regulatory
authorities.





                                       11

<PAGE>   13


<TABLE>

ITEM 6.      SELECTED FINANCIAL DATA

(millions - except per share  amounts)
<CAPTION>
                                                  For the years ended December 31,
                                 1994             1993              1992                 1991             1990
                    ------------------------------------------------------------------------------------------
<S>                          <C>              <C>               <C>                  <C>              <C>
Total revenues1              $2,415.3         $1,954.8          $1,738.9             $1,493.1         $1,376.2
Operating income                212.7            197.3             129.8                 85.1            137.8
Net income2,3                   274.3            267.3             153.8                 32.9             93.4
Per share:
 Operating income4               2.76             2.61              1.72                 1.19             1.73
 Net income2,3,4                 3.59             3.58              2.05                  .41             1.19
 Dividends                       .210             .200              .191                 .172             .160
Total assets3,5               4,675.1          4,011.3           3,440.9              3,317.2          2,912.4
Funded debt
 outstanding                    675.6            477.1             568.5                644.0            644.4
<FN>
All per share amounts have been adjusted for the December 8, 1992 3-for-1 stock
split.

1Total revenues for 1992 include $106.0 million ($70.0 million after taxes), or
$.97 per share, for the Company's California Proposition 103 reserve reduction.
See MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS set forth in Item 7 of this Annual Report on Form 10-K for further
discussion.

2During 1994, based on a review of the adequacy of its total loss reserves, the
Company eliminated its $71.0 million "supplemental reserve" ($46.2 million
after tax), resulting in a one-time increase in earnings of $.62 per share.
See MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS set forth in Item 7 of this Annual Report on Form 10-K for further
discussion.

3Effective January 1, 1992, the Company adopted SFAS 109 and is able to
demonstrate that the benefit of deferred tax assets is fully realizable.  The
cumulative effect of adopting SFAS 109 increased net income $14.2 million, or
$.20 per share.  In 1991, the deferred tax asset writedown, as required under
SFAS 96, was included in the Federal income tax provision.

4Presented on a fully diluted basis.

5Pursuant to SFAS 113, amounts for 1990 through 1992 were restated.

</TABLE>



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 and other outstanding
securities, to redeem debt and for other business purposes.  In 1994, the
Company sold $200.0 million of its 6.60% Notes due 2004.  During 1994, the
Company repurchased .1 million of its Serial Preferred Shares, Series A, at a
cost of $2.3 million and 1.1 million of its Common Shares at a cost of $34.0
million.





                                       12

<PAGE>   14
During the three-year period ended December 31, 1994, the Company sold
4,950,000 Common Shares for net proceeds of $177.0 million and repurchased 3.1
million Common Shares at a total cost of $142.3 million (average cost of $24.21
per share, split adjusted) and .5 million Serial Preferred Shares at a total
cost of $12.1 million (average cost $27.37 per share).  The Company also sold
$350 million of notes, repaid $170.0 million borrowed under its credit
facilities, and redeemed the entire $70.0 million of its 8 3/4% Debentures.
During the same period, The Progressive Corporation received $299.8 million
from its insurance subsidiaries, net of capital contributions made to these
subsidiaries.  The regulatory restrictions on subsidiary dividends are
described in Item 5(c) on page 11 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.  The Company also has available a $20.0 million
revolving credit agreement.  The Company believes it has sufficient borrowing
capacity and other capital resources 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, 1994, operations generated a positive cash flow
of $925.4 million, and cash flow is expected to be positive in both the
short-term and reasonably foreseeable future.  The Company's substantial
investment portfolio is highly liquid, consisting almost entirely of readily
marketable securities.  The Company does not expect any material changes in its
cash requirements and is not aware of any trends, events or uncertainties that
are reasonably likely to have a material effect on its liquidity.

Capital expenditures for the three years ended December 31, 1994, aggregated
$130.3 million.  In 1994, the Company completed its new corporate office
complex in Mayfield Village, Ohio.  The new facility consists of 517,800 square
feet of space and replaces office space held under expiring leases in a number
of locations in the Cleveland area.  The cost of the project was $75.5 million
and is being funded through operating cash flows.  As of December 31, 1994,
$71.7 million of the project's cost had been paid.

In June 1992, the Company reached an agreement with the California Department
of Insurance to refund approximately $50 million of premiums (including
interest) on business written between November 8, 1988 and November 7, 1989 to
approximately 260,000 policyholders, thereby settling all rollback and refund
exposure since Proposition 103 was adopted in November 1988.  As a result, the
Proposition 103 premium refund and rollback reserve was reduced by $106.0
million.

During 1992, the Company changed its financial arrangement with Progressive
Partners Limited Partnership (Progressive Partners), its investment manager, as
part of its strategy to compete more effectively for private passenger auto
insurance by lowering costs.  Under the new arrangement, Progressive Partners'
people, now employed by a wholly-owned Progressive subsidiary, continue to
provide the Company with investment and capital management.  The transaction
involved paying Progressive Partners a one-time fee for terminating the
investment management contract, and an additional incentive fee for the period
ended June 30, 1992, in the aggregate amount of $54.6 million.  This
transaction reduced the Company's costs for investment and capital management.

In December 1992, Mr. Alfred Lerner, then Chairman of the Company, converted
his $75.0 million Floating Rate Convertible Subordinated Debenture due 2008
into 9,000,000 Common Shares and sold 5,175,000 of those Common Shares in an
underwritten public offering.  The public offering was completed pursuant to
the registration rights provisions of the convertible debenture, under which
the Company paid $5.1 million in underwriting and other expenses of the
offering.  These expenses were charged directly to shareholders' equity in
accordance with generally accepted accounting principles.  On the same date,
Mr. Lerner agreed to a termination of his employment agreement with the
Company, and, in connection with these transactions, the Company paid Mr.
Lerner $10.0 million.





                                       13

<PAGE>   15
INVESTMENTS
- -----------

The Company invests in fixed maturity, short-term and equity securities.  The
Company's investment strategy recognizes its need to maintain capital adequate
to support its insurance operations.   Therefore, the Company evaluates the
risk/reward trade-offs of investment opportunities, measuring their effects on
stability, diversity, overall quality and liquidity of the investment
portfolio.  The majority ($2,319.4 million, or 72.9%, in 1994 and $2,135.1
million, or 76.6%, in 1993) of the portfolio was in short-term and
intermediate-term, investment-grade fixed-income securities.  A relatively
small portion ($476.3 million, or 15.0%, in 1994 and $453.9 million, or 16.3%,
in 1993) of the investment portfolio was invested in preferred and common
equity securities providing risk/reward balance and diversification.  The
remainder of the portfolio was invested in long-term investment-grade
fixed-income securities ($245.0 million, or 7.7%, in 1994 and $77.6 million, or
2.8%, in 1993) and non-investment-grade fixed-income securities ($139.3
million, or 4.4%, in 1994 and $119.8 million, or 4.3%, in 1993).  The
non-investment-grade fixed-income securities, although constituting only a
small portion of the portfolio, offer the Company high returns and added
diversification without a significant adverse effect on the stability and
quality of the investment portfolio as a whole.  These securities may involve
greater risks often related to creditworthiness, solvency and relative
liquidity of the secondary trading market.  Financial instruments with
off-balance-sheet risk are used to manage the risks and enhance the yields of
the available-for-sale portfolio.  This is accomplished by modifying the basis,
duration or interest rate characteristics of the portfolio, or hedging
securities.  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; unless otherwise
noted, collateral is not required to support the credit risk.  The weighted
average fully taxable equivalent book yield of the portfolio was 6.7%, 6.8%,
and 7.9% for the years ended December 31, 1994, 1993 and 1992, respectively.



<TABLE>
The quality distribution of the fixed-income portfolio is as follows:
<CAPTION>
                                             Percentage at                             Percentage at
              Rating                       December 31, 1994                         December 31, 1993
              ------                       -----------------                         -----------------
          <S>                                   <C>                                       <C>
                AAA                              58.4%                                      61.8%
                 AA                              20.9                                       23.6
                  A                              11.8                                        8.4
                BBB                               3.7                                        0.6
          Non Rated/Other                         5.2                                        5.6
                                               ------                                     ------
                                                100.0%                                     100.0%
                                               ======                                     ======  
</TABLE>


As of December 31, 1994, the Company's portfolio had $41.1 million in
unrealized losses, compared to $70.2 million in unrealized gains in 1993.  This
decrease was due largely to the adverse impact on the Company's fixed-income
portfolio of rapidly rising interest rates throughout 1994.

As of December 31, 1994, the Company held $154.6 million of Collateralized
Mortgage Obligations ("CMOs"), which represented 4.9% of the total investment
portfolio.  There are two types of securities held in the CMO Portfolio.  As of
December 31, 1994, sequential bonds represented 61.3% of the portfolio ($94.8
million) and had an average life of 2.1 years.  Planned  Amortization Class
bonds represented 38.7% of the portfolio ($59.8 million) and had an average
life of 2.0 years.  The portfolio contains no residual interests.

CMOs held by the Company are highly liquid with readily available quotes and,
at December 31, 1994, had an average life of 2.0 years.  Eighty- five percent
of the CMOs held by the Company are rated AAA by Moody's or Standard & Poor's.
As of December 31, 1994, the Company's total CMO portfolio had an unrealized
loss of $6.6 million.  The single largest unrealized loss in any CMO security
was $.9 million, or only 9.2% of such position.





                                       14

<PAGE>   16
Investments in the Company's portfolio have varying degrees of risk.  Equity
securities generally have greater risks than the non-equity portion of the
portfolio since these securities are subordinate to rights of debt holders and
other creditors of the issuer.  As of December 31, 1994, the mark-to-market net
losses in the Company's equity portfolio were $4.7 million ($3.1 million, net
of taxes), as compared to net gains of $20.7 million ($13.5 million, net of
taxes) in 1993.

The 1994 marketable equity portfolio consisted of three principal components:
(i) $15.6 million, or 3.3%, of standard adjustable rate preferreds, (ii) $338.0
million, or 71.0%, of perpetual preferreds with mechanisms that may provide an
opportunity to liquidate at par, and (iii) $122.7 million, or 25.7%, of common
stocks.  The 1993 marketable equity portfolio consisted of three principal
components; (i) $73.0 million, or 16.1%, of standard adjustable rate
preferreds, (ii) $283.4 million, or 62.4%, of perpetual preferreds with
mechanisms that may provide an opportunity to liquidate at par, and (iii) $97.5
million, or 21.5%, of common stocks.

The Company continually evaluates the creditworthiness of each issuer for all
securities held in its portfolio.  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.  Evidence reviewed may include the recent operating results and
financial position of the issuer, information about its industry, recent
announcements and other information.  The Company retains a staff of
experienced security analysts to compile, review and evaluate such information.

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.  It is the
Company's general policy to dispose of securities when the Company determines
that the issuer is unable to reverse its deteriorating financial condition and
the prospects for its business within a reasonable period of time.  In less
severe circumstances, the Company may decide to dispose of a portion of its
holdings in a specific issuer when the risk profile of the investment becomes
greater than its tolerance for such risk.


RESULTS OF OPERATIONS

Operating income, which excludes realized gains and losses and one-time items,
was $212.7 million, or $2.76 per share, in 1994, $197.3 million, or $2.61 per
share, in 1993 and $129.8 million, or $1.72 per share, in 1992.  The GAAP
combined ratio was 91.7 (88.5 including the elimination of the supplemental
reserve discussed below) in 1994, 89.3 in 1993 and 96.5 in 1992.

Direct premiums written increased 35% to $2,645.1 million in 1994, compared to
$1,966.4 million in 1993 and $1,636.8 million in 1992.  Net premiums written
increased 35% to $2,457.2 million, compared to $1,819.2 million in 1993 and
$1,451.2 million in 1992.  The difference between direct and net premiums
written is largely attributable to premiums written under state-mandated
involuntary Commercial Auto Insurance Plans (CAIP), for which the Company
retains no indemnity risk, of $115.4 million in 1994, $98.0 million in 1993 and
$142.2 million in 1992.  The Company provided policy and claim processing
services to 28 state CAIPs in 1994 and 1993, compared to 26 in 1992.  Premiums
earned, which are a function of the amount of premiums written in the current
and prior periods, increased 31% in 1994, compared to 17% in 1993 and 11% in
1992.





                                       15

<PAGE>   17
The Company's core divisions' net premiums written grew 38%, 25% and 18% for
1994, 1993 and 1992, respectively, driven by an increase in unit sales,
resulting from the Company's ability to keep rates relatively flat over the
last three years.  The Company continues to experiment with writing standard
and preferred auto risks which represented between five and ten percent of
total core business volume in 1994.  The Company anticipates continued growth
in its core business in 1995, which could result from an increase in the number
of states where the Company seeks to insure all auto risks, from working with
independent agents dedicated to regaining market share and from integrating
other buying options.  The core divisions generated underwriting profits of 7%
in 1994, 10% in 1993 and 8% in 1992.  The Company's strategy is to achieve a
four percent underwriting margin; the Company cannot predict the timing and
pace of the decrease in underwriting margins, nor the rate of growth, but
monitors each program to ensure that rates are adjusted promptly and
adequately.

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.  Claims
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 collected.
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 64% in 1994, compared to 62% in 1993 and
65% in 1992.

During 1994, based on a review of the adequacy of its total loss reserves, the
Company eliminated its $71.0 million "supplemental reserve," resulting in a
one-time increase in earnings of $.62 per share, a 3.2 percentage point
increase in the underwriting profit margin and a $46.2 million increase in
capital.  The Company historically established case and IBNR reserves by
product with the objective of being accurate to within plus or minus 2%.
Pricing has been based on these estimates of reserves by product.  Because the
Company desired a very high degree of comfort that aggregate reserves were
adequate, aggregate reserves were established near the upper end of the
reasonable range of reserves, and the difference between such aggregate
reserves and the midpoint of the reasonable range of case and IBNR reserves was
called the "supplemental reserve."  The Company concluded, after examining its
historical aggregate reserves, that the practice of setting aggregate reserves
at the upper end of the range of reasonable reserves provided an unnecessarily
high level of comfort.  Even without the high level of comfort provided by the
"supplemental reserve," the Company's reserves have historically been redundant
by approximately 2% to 4% over the most recent 5 years.  The Company believes
that this change in the estimate of its reserves will place it more in line
with the practices of other companies in the industry.

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, results of operations or financial condition.

During 1994, the Company settled the dispute, arising out of its 1985
acquisition of American Star Insurance Company (since renamed National
Continental Insurance Company), over the seller's refusal to pay certain losses
on pre-sale business written by American Star.  Under the settlement, National
Continental received $10.1 million from the seller and agreed to be solely
responsible for the next $20 million of gross losses.  The seller will
thereafter be responsible for half the losses, net of reinsurance, if it
achieves certain minimum net worth requirements.  In addition to the $10.1
million, National Continental will be entitled to the proceeds of various
treaty and facultative reinsurance policies that had been purchased by American
Star.  National Continental has established reserves for these exposures, which
are mainly for product liability and environmental claims, in amounts it
believes to be adequate based on information currently available to it,
including a recent study by independent actuaries.  Total reserves on this
business are $29.7 million, of which $9.9 million is





                                       16

<PAGE>   18
recoverable from reinsurers.  The Company will continue to monitor these
exposures, adjust the related reserves appropriately as additional information
becomes known and disclose any material developments.

Policy acquisition and other underwriting expenses as a percentage of premiums
earned were 25% in 1994, compared to 28% in 1993 and 31% in 1992.  The decrease
reflects cost-cutting measures, as well as process improvements, changed
workflows and lower commission programs.

Service businesses generated a pretax operating profit of $10.0 million in
1994, compared to a pretax profit of $6.8 million in 1993 and a pretax loss of
$4.3 million in 1992.

Recurring investment income (interest and dividends) increased 18% to $158.5
million in 1994, compared to $134.5 million in 1993 and $139.0 million in 1992,
primarily due to an increase in the average investment portfolio.  Net realized
gains on security sales were $23.8 million in 1994, $107.9 million in 1993 and
$14.5 million in 1992.  A significant portion of the 1993 realized gains
resulted from the sale of certain equity securities held in the Company's
investment portfolio.

President Clinton signed the Omnibus Budget Reconciliation Act of 1993, which,
among other items, increased the statutory tax rate to 35%.  Effective January
1, 1992, the Company adopted SFAS 109.  The cumulative effect of adopting SFAS
109 increased net income $14.2 million, or $.20 per share.  The Company is able
to demonstrate that the benefit of deferred tax assets is fully realizable.



I
TEM 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 1994 Annual Report, pages 33
through 53.



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

None.





                                       17

<PAGE>   19

                                    PART III
                                    --------


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

A description of the directors, including those nominated for election as
directors at the 1995 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.

A description of the executive officers of the Registrant and its subsidiaries
follows.  These descriptions reflect the Company's termination of its
officership program and consequent elimination of many officer positions,
effective December 31, 1993.  Unless otherwise indicated, the executive officer
has held the position(s) indicated for the last five years.


<TABLE>
<CAPTION>            
                                                Offices Held and
    Name                  Age          Last Five Years Business Experience
    ----                  ---          -----------------------------------
<S>                       <C>    <C>
Peter B. Lewis            61     Chairman since April 1993; President, Chief Executive Officer 
                                 and a director of the Registrant and Progressive Casualty 
                                 Insurance Company ("Progressive Casualty"), the principal 
                                 subsidiary of the Registrant.
                     
Charles B. Chokel         41     Treasurer of the Registrant since December 15, 1994; Chief 
                                 Financial Officer of the Registrant since April 1991; Senior 
                                 Vice President - Finance of Progressive Casualty from April 
                                 1991 to December 1993; President of the California Division 
                                 and Vice President of Progressive Casualty prior to April 1991.
                     
Allan W. Ditchfield       57     Chief Information Officer of the Registrant since March 1991; 
                                 Senior Vice President - Information Services of Progressive 
                                 Casualty from March 1991 to December 1993; Senior Vice 
                                 President of Systems Engineering at MCI Telecommunications 
                                 Corporation, Washington, D.C. (telecommunications) prior to
                                 March 1991.
                     
Bruce W. Marlow           46     Chief Operating Officer of the Registrant; Executive Vice 
                                 President of Progressive Casualty prior to December 1993.
                     
Michael C. Murr           43     Chief Investment and Capital Officer of the Registrant since 
                                 February 1993; President of Progressive Partners, Inc., a 
                                 subsidiary of the Registrant since July 1992; President of 
                                 Progressive Partners Limited Partnership prior to July 1992.
                     
David M. Schneider        57     Chief Legal Officer and Secretary of the Registrant; Senior 
                                 Vice President of Progressive Casualty prior to December 1993;
                     
Tiona M. Thompson         44     Chief Human Resources Officer of the Registrant since 
                                 December 1993; Vice President - Human Resources of 
                                 Progressive Casualty from September 1991 to December 1993; 
                                 Vice President of Progressive Casualty prior to September 
                                 1991.
</TABLE>
             
                     




                                       18

<PAGE>   20
SECTION 16(A) REPORTING

Under the Federal securities laws, the directors and certain officers of the
Company, and holders of 10% or more of the Company's Common Shares, are
required to report their ownership of the Company's Common Shares, and any
changes in such ownership to the Securities and Exchange Commission ("SEC") and
New York Stock Exchange ("NYSE") within specified timeframes.  David M.
Schneider inadvertently omitted to include in his Section 16(a) reports 8,697
Common Shares that were transferred in March 1990 from his father's estate to a
trust of which he is a co- trustee, and 1,500 Common Shares with respect to
which he had a beneficial interest that were sold by that trust in April 1990.
Corrective filings were made with the SEC and NYSE, on behalf of both Mr.
Schneider and the trust, promptly after this oversight was discovered.  The
plan administrator of the Company's Long-Term Savings Plan furnished erroneous
information to Charles B. Chokel and Jeffrey W. Basch concerning allocations of
shares to their plan accounts during 1993.  As a result, the allocations
reported in their Form 5s for 1993 were overstated by approximately 69 shares
and 224 shares, respectively.  Both individuals filed amended Form 5s promptly
after receiving revised information from the plan administrator.  Also, Mr.
Basch's wife acquired 40 shares in an intraplan transfer to her Long-Term
Savings Plan account which Mr.  Basch inadvertently failed to report on Form 4.
This transaction was later reported on Mr. Basch's Form 5 for 1994.  Tiona M.
Thompson inadvertently underreported by 13,000 shares the number of shares
subject to stock options granted to her on April 14, 1994 under the Company's
1989 Incentive Plan.  She filed an amended Form 4 for April 1994 promptly after
this oversight was discovered.



ITEM 11.   EXECUTIVE COMPENSATION

Incorporated by reference from the section of the Proxy Statement entitled
"Executive Compensation," pages 8 through 17.



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 5
through 7.



ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None





                                       19

<PAGE>   21

                                   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 -
                          December 31, 1994, 1993 and 1992

                          Consolidated Balance Sheets - December 31, 1994
                          and 1993

                          Consolidated Statements of Changes in Shareholders'
                          Equity - December 31, 1994, 1993 and 1992

                          Consolidated Statements of Cash Flows -
                          December 31, 1994, 1993 and 1992


                          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 III - Condensed Financial
                          Information of Registrant

                          Schedule V - Supplementary Insurance
                          Information

                          Schedule VI - Reinsurance





                                       20

<PAGE>   22
                          Schedule X - 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 37 through 40.
                 Management contracts and compensatory plans and arrangements
                 are identified in the Exhibit Index as Exhibit Nos. (10)(A)
                 through (10)(M).

         (b)     Reports on Form 8-K

                 On January 3, 1995, the Company filed a Form 8-K to report the
                 elimination of its "supplemental reserve" during the fourth
                 quarter 1994, resulting in a one-time increase in earnings of
                 approximately $71 million, or $.63 per share for the quarter
                 and $.62 per share for the year.  The Company's combined ratio
                 was reduced by 11.8 points for the quarter and 3.2 points for
                 the year.

         (c)     Exhibits

                 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 27
                 through 36.





                                       21

<PAGE>   23

                                   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 28, 1995                                BY: /s/ Peter B. Lewis 

                                                  ------------------------------
                                                  Peter B. Lewis
                                                  Chairman, President and Chief
                                                  Executive Officer of the
                                                  Registrant



<TABLE>

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.

<S>                                     <C>                                               <C>
/s/ Peter B. Lewis                      Chairman, President and Chief Executive           March 28, 1995
- ---------------------------------       Officer of the Registrant and a Director                       
Peter B. Lewis

/s/ Charles B. Chokel                   Treasurer and Chief Financial Officer
- ---------------------------------       of the Registrant                                 March 28, 1995
Charles B. Chokel

/s/ Jeffrey W. Basch                    Chief Accounting Officer
- ---------------------------------       of the Registrant                                 March 28, 1995
Jeffrey W. Basch

Milton N. Allen*                        Director                                          March 28, 1995
- ---------------------------------
Milton N. Allen

B. Charles Ames*                        Director                                          March 28, 1995
- ---------------------------------
B. Charles Ames

Stephen R. Hardis*                      Director                                          March 28, 1995 
- ---------------------------------
Stephen R. Hardis

Norman S. Matthews*                     Director                                          March 28, 1995 
- ---------------------------------
Norman S. Matthews

Donald B. Shackelford*                  Director                                          March 28, 1995 
- ---------------------------------
Donald B. Shackelford






                                       22

<PAGE>   24
Paul B. Sigler*                         Director                                          March 28, 1995 
- ---------------------------------
Paul B. Sigler
<FN>
*   DAVID M. SCHNEIDER, 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/ David M. Schneider                                                                 March 28, 1995
   ------------------------------
   David M. Schneider 
   Attorney-in-fact
</TABLE>



                                       23

<PAGE>   25





                           ANNUAL REPORT ON FORM 10-K


                                   ITEM 14(D)

                         FINANCIAL STATEMENT SCHEDULES

                          YEAR ENDED DECEMBER 31, 1994

                          THE PROGRESSIVE CORPORATION

                             MAYFIELD VILLAGE, OHIO





                                       24

<PAGE>   26






                       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 1994 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 20 and 21 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.





                            COOPERS & LYBRAND L.L.P.




Cleveland, Ohio
January 26, 1995






                                       25

<PAGE>   27





                       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. 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. 33-38464)
filed December 28, 1990, 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 report dated January
26, 1995, on our audits of the consolidated financial statements and financial
statement schedules of The Progressive Corporation and subsidiaries as of
December 31, 1994 and 1993, and for each of the three years in the period ended
December 31, 1994, which report is included in this Annual Report on Form 10-K.





                            COOPERS & LYBRAND L.L.P.




Cleveland, Ohio
March 27, 1995





                                       26

<PAGE>   28


<TABLE>

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

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES                                 
- --------------------------------------------------------------------
(millions)
<CAPTION>
                                                                       December 31, 1994
                                                    ----------------------------------------------------------
                                                                                               Amount At Which 
                                                                                                  Shown In The
               Type of Investment                              Cost       Market Value           Balance Sheet
                                                    ----------------------------------------------------------
<S>                                                        <C>           <C>                     <C>
Fixed Maturities:
Held-to-maturity:
 State, municipalities and political
    subdivisions                                           $  337.6           $  343.8                $  337.6
                                                    ----------------------------------------------------------
Available-for-sale:
 United States Government and
    government agencies and
    authorities                                                30.1               28.8                    28.8
 States, municipalities and political
   subdivisions                                             1,210.2            1,199.0                 1,199.0
 Asset-backed securities                                      634.9              616.3                   616.3
 Foreign government obligations                                23.7               23.0                    23.0
 Corporate and other debt securities                          180.3              170.2                   170.2
 Redeemable preferred stock                                    50.5               49.7                    49.7
                                                    ----------------------------------------------------------
                                                            2,129.7            2,087.0                 2,087.0
                                                    ----------------------------------------------------------
    Total fixed maturities                                  2,467.3            2,430.8                 2,424.6
                                                    ----------------------------------------------------------

 Equity securities:
   Common Stocks                                              121.1              122.7                   122.7
   Preferred Stocks                                           359.9              353.6                   353.6
                                                    ----------------------------------------------------------
    Total equity securities                                   481.0              476.3                   476.3
                                                    ----------------------------------------------------------


Short-term investments                                        279.1              279.2                   279.1
                                                    ----------------------------------------------------------
    Total investments                                      $3,227.4           $3,186.3                $3,180.0
                                                    ==========================================================
</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, 1994.





                                       27

<PAGE>   29


<TABLE>
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED STATEMENTS OF INCOME

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

<CAPTION>
                                                                     Years Ended December 31,
                                                               1994             1993              1992
                                                           -------------------------------------------
<S>                                                         <C>               <C>              <C>
Revenues
 Dividends from subsidiaries*                               $ 53.0            $131.3           $ 158.5
 Intercompany investment income*                              29.8               6.8               3.7
                                                           -------------------------------------------
                                                              82.8             138.1             162.2
                                                           -------------------------------------------

Expenses
 Interest expense                                             56.7              42.3              44.8
 Other operating costs and expenses                            3.8               3.2               2.4
 Non-recurring items (1)                                        --               4.0              10.0
 Loss on disposition of subsidiary*                            5.3                --                --
                                                           -------------------------------------------
                                                              65.8              49.5              57.2
                                                           -------------------------------------------

Operating income and income before Federal income
 taxes and other items below                                  17.0              88.6             105.0
Federal income tax benefit                                   (12.2)            (20.9)            (18.2)
                                                           -------------------------------------------
Income before equity in undistributed earnings of
 subsidiaries and cumulative effect of accounting
 change                                                       29.2             109.5             123.2
Equity in undistributed net income of consolidated
 subsidiaries*                                               245.1             157.8              16.4
                                                           -------------------------------------------
Income before cumulative effect of accounting change         274.3             267.3             139.6
Cumulative effect of adopting SFAS 109                          --                --              14.2
                                                           -------------------------------------------
Net income                                                  $274.3            $267.3           $ 153.8
                                                           ===========================================
<FN>
*Eliminated in consolidation.

(1)  For 1993, represents a $4.0 million charge on extinguishment of the 8 3/4%
     Debentures due 2017.  For 1992, represents a $10.0 million payment to Mr.
     Alfred Lerner, then Chairman of the Company, and Mr. Lerner agreed to
     convert his $75.0 million Floating Rate Convertible Subordinated Debenture
     due 2008 into shares and to end his employment agreement with the Company.
     See "Financial Condition" section of MANAGEMENTS'S DISCUSSION AND ANALYSIS
     OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS beginning on page 12 for 
     further discussion.


See notes to condensed financial statements.

</TABLE>






                                       28

<PAGE>   30


<TABLE>
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED BALANCE SHEETS

THE PROGRESSIVE CORPORATION (PARENT COMPANY)
- ---------------------------------------------------------------------------------------------
(millions)
<CAPTION>
                                                                                           December 31,
                                                                                     1994              1993
                                                                         -------------------------------------
<S>                                                                                <C>            <C>
ASSETS

 Investment in non-consolidated affiliates                                         $     .4        $       .4
 Investment in subsidiaries*                                                        1,187.4             972.0
 Receivable from subsidiary*                                                          599.4             484.6
 Intercompany receivable*                                                              26.7              --
 Federal income taxes                                                                  30.5              54.8
 Other assets                                                                            .9               2.1
                                                                         -------------------------------------
     TOTAL ASSETS                                                                  $1,845.3          $1,513.9
                                                                         =====================================
LIABILITIES AND SHAREHOLDERS' EQUITY

 Accounts payable and accrued expenses                                             $   19.0        $      6.1
 Intercompany payable*                                                                 --                34.4
 Funded debt                                                                          674.4             475.5
                                                                         -------------------------------------
   Total liabilities                                                                  693.4             516.0
                                                                         -------------------------------------
 Shareholders' equity:
   Preferred Shares, no par value (authorized 20.0
    serial Preferred Shares and 5.0 Voting
    Preference Shares)
    9 3/8% Serial Preferred Shares, Series A
     (cumulative, liquidation preference of $25
     per share, issued and outstanding 3.5 and 3.6
     shares)                                                                           85.8              87.9
   Common Shares, $1.00 par value, authorized 200.0
    shares, issued 82.4 and 82.2, including treasury
    shares of 11.2 and 10.1                                                            71.2              72.1
   Paid-in capital                                                                    357.1             357.6
   Net unrealized appreciation (depreciation) of investment 
    in equity securities of consolidated subsidiaries                                 (30.7)             33.5
   Retained earnings                                                                  668.5             446.8
                                                                         -------------------------------------
    Total shareholders' equity                                                      1,151.9             997.9
                                                                         -------------------------------------
     TOTAL LIABILITIES AND
     SHAREHOLDERS' EQUITY                                                          $1,845.3          $1,513.9
                                                                         =====================================
<FN>
*Eliminated in consolidation.

See notes to condensed financial statements.

</TABLE>




                                       29

<PAGE>   31


<TABLE>
SCHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

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

<CAPTION>
                                                                                          Years Ended December 31,
                                                                                   1994            1993            1992
                                                                      -------------------------------------------------
<S>                                                                        <C>               <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Income before cumulative effect of accounting change                           $274.3           $267.3          $139.6
Adjustments to reconcile income to net cash
 used in operating activities:
   Equity in income of consolidated subsidiaries                               (298.1)          (289.1)         (174.9)
   Amortization                                                                   1.5               .1              .1
   Changes in:
    Intercompany receivable or payable                                          (61.1)            (7.2)           21.9
    Accounts payable and accrued expenses                                        12.9             (5.3)          (12.3)
    Federal income taxes                                                         24.3              2.8            22.4
    Other, net                                                                    1.0              3.8             1.3
                                                                      -------------------------------------------------
     Net cash used in operating activities                                      (45.2)           (27.6)           (1.9)

CASH FLOWS FROM INVESTING ACTIVITIES:

Additional investments in equity securities of
 consolidated subsidiaries                                                      (56.9)            (4.7)          (34.2)
Return of capital from consolidated subsidiary                                   20.1             32.9              --
Dividends received from consolidated subsidiaries                                53.0            131.3           158.5
                                                                      -------------------------------------------------
     Net cash provided by investing activities                                   16.2            159.5           124.3

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options                                           5.1              1.8             4.2
Proceeds from issuance of stock                                                    --            177.0              --
Proceeds from funded debt                                                       198.4            148.2           170.0
Payments on funded debt                                                            --           (240.0)         (170.0)
Receivable from subsidiary                                                     (114.8)          (183.6)             --
Dividends paid to shareholders                                                  (23.4)           (23.1)          (20.8)
Acquisition of treasury shares                                                  (36.3)           (12.2)         (105.9)
                                                                      -------------------------------------------------

     Net cash provided by (used in) financing activities                         29.0           (131.9)         (122.5)
                                                                      -------------------------------------------------

Decrease in cash                                                                   --               --             (.1)
Cash, beginning of year                                                            --               --              .1
                                                                      -------------------------------------------------
Cash, end of year                                                              $   --           $   --          $   --
                                                                      =================================================
<FN>
See notes to condensed financial statements.

</TABLE>






                                       30

<PAGE>   32
SCHEDULE III -- 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 1994 Annual Report.

STATEMENTS OF CASH FLOWS -- For the purpose of the Statements of Cash Flows,
cash includes only bank demand deposits.  The Registrant paid Federal income
taxes of $89.8 million, $91.0 million and $4.0 million in 1994, 1993 and 1992,
respectively.  Total interest paid was $49.8 million for 1994, $40.9 million
for 1993 and $44.3 million for 1992.  During 1992, the $75.0 million Floating
Rate Convertible Subordinated Debenture due 2008 was converted into 9.0 million
Common Shares.

The Registrant effected a 3-for-1 stock split in the form of a dividend to
shareholders on December 8, 1992.  The Registrant issued its Common Shares by
transferring $38.5 million from retained earnings to the common stock account.
All per share and share amounts and stock prices were adjusted to give effect
to the split.  Treasury shares were not split.


<TABLE>
DEBT -- Funded debt at December 31 consisted of:
<CAPTION>
(millions)                             1994                       1993
                               --------------------------------------------
<S>                                  <C>                      <C>
6.60% Notes                          $198.5                        ---
7% Notes                              148.2                     $148.2
8 3/4% Notes                           29.0                       28.8
10% Notes                             149.4                      149.3
10 1/8% Subordinated Notes            149.3                      149.2
                               --------------------------------------------
                                     $674.4                     $475.5
                               ============================================
</TABLE>
                                           
                                                   

Funded debt is the amount the Registrant has borrowed and contributed to the
capital of its insurance subsidiaries or borrowed for other long-term
purposes.

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 had the right to borrow up to $50.0 million.  In
February 1994, the Registrant reduced this revolving credit arrangement to
$20.0 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.  At
December 31, 1994 and 1993, the Registrant had no borrowings under this
arrangement.

In February 1994, the Registrant terminated a four-year credit facility with
Morgan Guaranty Trust Company of New York, originally entered into in May 1990,
under which the Registrant had the right to borrow up to $75.0 million.

In February 1994, the Registrant terminated a five-year credit facility
agreement with a group of banks, originally entered into in October 1989, under
which the Registrant secured the right to borrow up to $235.0 million and
request an additional $235.0 million.





                                       31

<PAGE>   33
S
CHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)



NOTES TO CONDENSED FINANCIAL STATEMENTS                                      
- -----------------------------------------------------------------

In January 1994, the Registrant sold $200.0 million of its 6.60% Notes due
2004.  The Notes are noncallable, and interest is payable semiannually.  The
fair value of the Notes was $174.2 million at December 31, 1994.

In October 1993, the Registrant sold $150.0 million of noncallable 7% Notes due
2013 with interest payable semiannually.  The fair value of these Notes was
$124.6 million and $145.3 million at December 31, 1994 and 1993, respectively.

In May 1989, the Registrant issued $30.0 million of 8 3/4% Notes due 1999 in
exchange for $30.0 million of the 8 3/4% Debentures due 2017.  These Notes are
noncallable, and interest is payable semiannually.  The fair value of these
Notes was $30.3 million and $33.7 million at December 31, 1994 and 1993,
respectively.

In December 1988, the Registrant sold $150.0 million of 10% Notes due 2000, and
$150.0 million of 10 1/8% Subordinated Notes due 2000.  All the Notes are
noncallable.  Interest is payable semiannually on both issues.  The fair value
of the 10% Notes and 10 1/8% Subordinated Notes were $159.8 million and $159.7
million, respectively, at December 31, 1994, and $180.6 million and $181.2
million, respectively, at December 31, 1993.

In February 1987, the Registrant sold $100.0 million, $70.0 million after the
May 1989 debt exchange, of 8 3/4% Debentures due 2017 with interest payable
semiannually.  In December 1993, the Registrant redeemed the entire $70.0
million principal amount of these Debentures.  The Registrant redeemed the
Debentures at 105.425% of the principal amount, plus accrued interest, with the
proceeds of the sale of certain securities in its investment portfolios.  A
$4.0 million charge on debt extinguishment was recorded as a "non-recurring
item."

As of December 31, 1994, the Registrant was in compliance with its debt
covenants.

Aggregate principal payments on funded debt outstanding at December 31, 1994
are $0 for 1994 through 1998, $30.0 million for 1999 and $650.0 million
thereafter.

FEDERAL INCOME TAXES -- The Registrant files a consolidated Federal income tax
return with all 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/Payable to Subsidiaries in the accompanying Condensed Balance
Sheets.

Effective January 1, 1992, the Registrant adopted Statement of Financial
Accounting Standards (SFAS 109) "Accounting for Income Taxes", which changes
the method of accounting for income taxes.  Under SFAS 109, the Registrant is
able to demonstrate that the benefit of deferred tax assets is fully
realizable.  The cumulative effect of adopting SFAS 109 was to restore the
deferred tax assets and increase net income $14.2 million, or $.20 per share,
in 1992.





                                       32

<PAGE>   34
S
CHEDULE III -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)


<TABLE>

NOTES TO CONDENSED FINANCIAL STATEMENTS                                      
- ------------------------------------------------------------------

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

<CAPTION>
(millions)                                                       1994               1993                  1992
                                                         -----------------------------------------------------
<S>                                                           <C>                 <C>                  <C>
Unrealized gains (losses):
 Available-for-sale: fixed maturities                         $(73.4)             $  1.6                $29.1
                     equity securities                         (25.4)              (67.6)                56.9
 Deferred income taxes                                          34.6                22.0                (29.2)
                                                         -----------------------------------------------------
                                                              $(64.2)             $(44.0)              $ 56.8
                                                         =====================================================
</TABLE>



OTHER MATTERS -- The information relating to incentive compensation plans and
related party transactions is incorporated by reference from Note 9, EMPLOYEE
BENEFIT PLANS, "Incentive Compensation Plans" and Note 11, RELATED PARTY
TRANSACTIONS, on pages 45 through 47 of the Registrant's 1994 Annual Report.





                                       33

<PAGE>   35


<TABLE>
                                        SCHEDULE V -- SUPPLEMENTARY INSURANCE INFORMATION

THE PROGRESSIVE CORPORATION AND SUBSIDIARIES
- --------------------------------------------
(millions)
<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       expenses(1),(3) premiums(1)  payable    revenue     Income(2)   expenses(3)   
                                 ------------------------------------------------------------------------------------------     
<S>                              <C>         <C>            <C>          <C>        <C>          <C>         <C>           
Years ended December 31, 1994:                                                                                             
                                                                                                                           
   Insurance Lines               $161.6      $1,434.4         $1,036.7    $   --     $2,191.1      $182.3       $1,397.3     
                                 ==========================================================================================    
Year ended December 31, 1993:                                                                                              
                                                                                                                           
   Insurance Lines               $124.6      $1,348.6         $ 772.0      $  --     $1,668.7      $242.4       $1,028.0     
                                 ==========================================================================================    
Year ended December 31, 1992:                                                                                              
                                                                                                                           
   Insurance Lines               $101.3      $1,274.2         $ 614.8      $  --     $1,426.1      $153.5         $930.9       
                                 ==========================================================================================    


<CAPTION>                                                                                                                  
                                                                                                                    

                                 Amortization            
                                 of deferred                            
                                 policy           Other         Net
                                 acquisition      operating     premiums
Segment                          costs            expenses      written
                                -------------------------------------------
<S>                              <C>             <C>            <C>          
Years ended December 31, 1994:                                                                                             
                                                                                                                           
   Insurance Lines               $391.5            $150.8         $2,457.2
                                 ==========================================
Year ended December 31, 1993:                                                                                              
                                                                                                                           
   Insurance Lines               $311.6            $151.3         $1,819.2
                                 ==========================================
Year ended December 31, 1992:                                                                                              
                                                                                                                           
   Insurance Lines               $304.1            $141.5         $1,451.2
                                 ==========================================

<FN>
(1)Pursuant to SFAS 113, amounts for 1992 were restated.
(2)Excluding investment expenses of $8.7 million in 1994, $10.2 million in 1993
   and $17.0 million in 1992.  
(3)During 1994, based on a review of the adequacy of its total loss reserves, 
   the Company eliminated its $71.0 million "supplemental reserve." See 
 
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS 
   OF OPERATIONS beginning on page 12 for further discussion.


</TABLE>



                                       34

<PAGE>   36


<TABLE>
SCHEDULE VI -- REINSURANCE


THE PROGRESSIVE CORPORATION AND SUBSIDIARIES                                  
- -------------------------------------------------------------------------------------------------------------
(millions)
<CAPTION>
                                                                  Assumed                          Percentage
Year Ended                                      Ceded to             From                           of Amount
- ----------                   Gross Amount          Other            Other                             Assumed
December 31, 1994                              Companies        Companies       Net Amount             to Net
- -----------------            --------------------------------------------------------------------------------
<S>                           <C>             <C>                 <C>         <C>                  <C>
Life Insurance in force          $     .7         $   .2             $ --           $   .5                --
                             ================================================================================
Premiums earned:
 Accident and health             $     --         $   --             $ --         $     --                --%
 Property and liability           2,378.4          192.2              4.9          2,191.1                .2
 Life                                  --             --               --               --                --
                             -------------------------------------------------------------
Total premiums earned            $2,378.4         $192.2            $ 4.9         $2,191.1
                             =============================================================
December 31, 1993
- -----------------
Life Insurance in force         $     1.4        $    .3           $   --         $    1.1                --
                             ================================================================================
Premiums earned:
 Accident and health             $     --          $  --            $  --         $     --                --%
 Property and liability           1,808.8          149.8              9.7          1,668.7                .6
 Life                                  --             --               --               --                --
                             -------------------------------------------------------------
Total premiums earned            $1,808.8         $149.8           $  9.7         $1,668.7
                             =============================================================
December 31, 1992
- -----------------
Life Insurance in force        $      3.3        $   1.3            $  --         $    2.0                --
                             ================================================================================
Premiums earned:
 Accident and health           $       .1        $    .1            $  --          $    --                --%
 Property and liability           1,619.3          195.1              1.9          1,426.1                .1
 Life                                  --             --               --               --                --
                             -------------------------------------------------------------
Total premiums earned            $1,619.4         $195.2           $  1.9        $ 1,426.1
                             =============================================================
</TABLE>






                                       35

<PAGE>   37


<TABLE>
SCHEDULE X -   SUPPLEMENTAL INFORMATION CONCERNING PROPERTY - CASUALTY
INSURANCE OPERATIONS

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

<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, 1994(1)                         $1,539.8               $(142.5)                          $1,311.0
                                   ==================  ====================                 ==================
December 31, 1993                            $1,126.7                $(98.5)                            $972.2
                                   ==================  ====================                 ==================
December 31, 1992                              $981.7                $(51.5)                            $835.3
                                   ==================  ====================                 ==================

<FN>
Pursuant to Rule 12-18 of Regulation S-X.  See Schedule V, page 34, for the
additional information required in Schedule X.

(1)During 1994, based on a review of the adequacy of its total loss reserves,
the Company eliminated its $71.0 million "supplemental reserve." See
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS beginning on page 12 for further discussion.

</TABLE>






                                       36

<PAGE>   38


<TABLE>

                                 EXHIBIT INDEX
                                 -------------
<CAPTION>                  
Exhibit No.                                                                       
Under Reg.     Form 10-K                                                               If Incorporated by Reference, Documents with
S-K, Item 601  Exhibit No.   Description of Exhibit                                    Which Exhibit was Previously Filed with SEC
- -----------------------------------------------------------------------------------------------------------------------------------
<S>           <C>           <C>                                                       <C>
(3)(i)        3(A)          Amended Articles of Incorporation of The Progressive        Quarterly Report on Form 10-Q
                            Corporation  ("Progressive"), as amended                    (Filed with SEC on April 23, 1993; see
                                                                                        Exhibit 3 therein)
                           
(3)(ii)       3(B)          Code of Regulations of Progressive                          Quarterly Report on Form 10-Q
                                                                                        (Filed with SEC on May 6, 1991; see
                                                                                        Exhibit 3(B) therein)
                           
(4)           4(A)          $4,000,000 Hillsborough County Industrial Development       Contained in Exhibit Binder
                            Authority Industrial Development Revenue Bonds, Series 
                            1982 (dated December 16, 1982); Loan and Debt Obligation 
                            Agreement; Indenture of Trust; Mortgage and Security 
                            Agreement; Unconditional Guaranty
                           
(4)           4(B)          Indenture dated as of November 15, 1988 between             Annual Report on Form 10-K (filed with SEC 
                            Progressive and Rhode Island Hospital Trust National Bank,  on March 29, 1994; see Exhibit 4(B) therein)
                            as Trustee ("Subordinated Indenture") (including Table of 
                            Contents and cross-reference sheet)
                           
(4)           4(C)          Form of 10 1/8% Subordinated Notes due 2000 issued in the   Annual Report on Form 10-K (filed with SEC
                            aggregate principal amount of $150,000,000 under the        on March 29, 1994; see Exhibit 4(C) therein)
                            Subordinated Indenture
                           
(4)           4(D)          Indenture dated as of November 15, 1988 between             Annual Report on Form 10-K (filed with SEC
                            Progressive and The First National Bank of Boston, as       on March 29, 1994; see Exhibit 4(D) therein)
                            Trustee ("1988 Senior Indenture") (including Table of      
                            Contents and cross-reference sheet)

(4)           4(E)          Form of 10% Notes due 2000 issued in the aggregate          Annual Report on Form 10-K (filed with SEC
                            principal amount of $150,000,000 under the 1988 Senior      on March 29, 1994; see Exhibit 4(E) therein)
                            Indenture

</TABLE>


                                      37

<PAGE>   39

<TABLE>
                                 EXHIBIT INDEX
                                 -------------
<CAPTION>                  
Exhibit No.                                                                       
Under Reg.     Form 10-K                                                               If Incorporated by Reference, Documents with
S-K, Item 601  Exhibit No.   Description of Exhibit                                    Which Exhibit was Previously Filed with SEC
- -----------------------------------------------------------------------------------------------------------------------------------
<S>            <C>           <C>                                                      <C>
(4)            4(F)          Form of 8 3/4% Notes due 1999 issued in the aggregate     Contained in Exhibit Binder
                             principal amount of $30,000,000 under the 1988 Senior 
                             Indenture
                           
(4)           4(G)           $20,000,000 Unsecured Line of Credit with National City   Annual Report on Form 10-K (filed with SEC
                             Bank (dated May 23, 1990; renewed May 20, 1992, and       on March 29, 1994; See Exhibit 4(I) therein)
                             amended February 1, 1994)
                           
(4)           4(H)           Indenture dated as of September 15, 1993 between          Quarterly Report on Form 10-Q (Filed with SEC
                             Progressive and The First National Bank of Boston, as     on November 5, 1993; see Exhibit 4(A)
                             trustee ("1993 Senior Indenture") (including Table of     therein)
                             Contents and cross-reference sheet)
                           
(4)           4(I)           Form of 7% Notes due 2013 issued in the aggregate          Quarterly Report on Form 10-Q (filed with
                             principal amount of $150,000,000 under the 1993 Senior     SEC on November 5, 1993; see Exhibit 4(B)
                             Indenture                                                  therein)
                           
(4)           4(J)           Form of 6.60% Notes due 2004 issued in the aggregate       Annual Report on Form 10-K (filed with SEC
                             principal amount of $200,000,000 under the 1993 Senior     on March 29, 1994; see Exhibit 4(L) therein)
                             Indenture           
                                                                                                                         
(10)(ii)      10(A)          Construction Contract dated March 2, 1993 between          Annual Report on Form 10-K (Filed with SEC
                             Progressive Casualty Insurance Company and The Whiting-    on March 30, 1993; see Exhibit 10(A)
                             Turner Contracting Company                                 therein)
                           
(10)(iii)     10(B)          The Progressive Corporation 1995 Gainsharing Plan          Contained in Exhibit Binder
                           
(10)(iii)     10(C)          The Progressive Corporation 1994 Gainsharing Plan          Annual Report on Form 10-K (Filed with SEC
                                                                                        on March 29, 1994; See Exhibit 10(B)
                                                                                        therein)
                           
(10)(iii)     10(D)          The Progressive Corporation 1995 Executive Bonus Plan      Contained in Exhibit Binder

</TABLE>

                                      38

<PAGE>   40

<TABLE>
                                 EXHIBIT INDEX
                                 -------------
<CAPTION>                  
Exhibit No.                                                                       
Under Reg.     Form 10-K                                                               If Incorporated by Reference, Documents with
S-K, Item 601  Exhibit No.   Description of Exhibit                                    Which Exhibit was Previously Filed with SEC
- ----------------------------------------------------------------------------------------------------------------------------------
<S>            <C>           <C>                                                      <C>
(10)(iii)      10(E)         The Progressive 1994 Executive Bonus Plan                 Annual Report on Form 10-K (Filed with SEC
                                                                                       on March 29, 1994; See Exhibit 10(C) 
                                                                                       therein)

(10)(iii)      10(F)         The Progressive Corporation Directors Deferral            Quarterly Report on Form 10-Q (Filed with
                             Plan (Amendment and Restatement)                          SEC on November 13, 1991; see Exhibit 10(B)
                                                                                       therein)

(10)(iii)      10(G)         The Progressive Corporation 1989 Incentive Plan (amended  Annual Report on Form 10-K (Filed with SEC on
                             and restated as of April 24, 1992, as further amended on  March 30, 1993; see Exhibit 10(G) therein)
                             July 1, 1992 and February 5, 1993)
                           
(10)(iii)      10(H)         Share Option Agreement dated March 17, 1989, between      Contained in Exhibit Binder
                             Progressive and David M. Schneider                        
                                                                                                                         
(10)(iii)      10(I)         The Progressive Corporation 1990 Directors'               Quarterly Report on Form 10-Q
                             Stock Option Plan (Amended and Restated                   (Filed with SEC on November 12, 1992; see
                             as of April 24, 1992 as further amended on                Exhibit 10(A) therein)
                             July 1, 1992)
                           
(10)(iii)      10(J)         Share Option Agreement dated May 22, 1990 between         Annual Report on Form 10-K (Filed with SEC on
                             Progressive and Michael C. Murr                           March 30, 1993; see Exhibit 10(J) therein)
                                                                                                                           
(10)(iii)      10(K)         Agreement dated February 21, 1991 with Allan W.           Annual Report on Form 10-K (Filed with SEC on
                             Ditchfield (expired January 1, 1995)                      March 30, 1992; see Exhibit 10(L) therein)
                           
(10)(iii)      10(L)         The Progressive Corporation 1995 Incentive Plan           Contained in Exhibit Binder
                           
(10)(iii)      10(M)         The Progressive Corporation Executive Deferred            Contained in Exhibit Binder
                             Compensation Plan
              
(11)           11            Computation of Earnings Per Share                         Contained in Exhibit Binder
                           
(13)           13            The Progressive Corporation 1994 Annual Report            Contained in Exhibit Binder
</TABLE>
                   
             




                                       39

<PAGE>   41

<TABLE>
                                 EXHIBIT INDEX
                                 -------------
<CAPTION>                  
Exhibit No.                                                                       
Under Reg.     Form 10-K                                                               If Incorporated by Reference, Documents with
S-K, Item 601  Exhibit No.   Description of Exhibit                                    Which Exhibit was Previously Filed with SEC
- -----------------------------------------------------------------------------------------------------------------------------------
<S>            <C>           <C>                                                      <C>
(21)           21            Subsidiaries of The Progressive Corporation               Contained in Exhibit Binder

(23)           23            Consent of Independent Accountants                        Incorporated herein by reference to page 26
                                                                                       of this Annual Report on Form 10-K

(24)           24            Powers of Attorney                                        Contained in Exhibit Binder

(27)           27            Financial Data Schedule                                   This exhibit is contained in the EDGAR
                                                                                       filing of the Annual Report on Form 10-K for
                                                                                       the year ended December 31, 1994 only.

(28)           28            Schedule P as Filed with State Regulatory                 Contained in Exhibit Binder
                             Authorities
<FN>

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

</TABLE>





                                      40





<PAGE>   1
                                EXHIBIT NO. 4(A)






             $4,000,000 HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT
                 AUTHORITY INDUSTRIAL DEVELOPMENT REVENUE BONDS
                (PROGRESSIVE AMERICAN INSURANCE COMPANY PROJECT)
                                  SERIES 1982


                            DATED DECEMBER 16, 1982



<PAGE>   2

                       LOAN AND DEBT OBLIGATION AGREEMENT



                         HILLSBOROUGH COUNTY INDUSTRIAL
                             DEVELOPMENT AUTHORITY



                                      AND



                     PROGRESSIVE AMERICAN INSURANCE COMPANY



                         Dated as of December 16, 1982



         This Loan and Debt Obligation Agreement (including Trustee's rights but
excluding certain rights of Hillsborough County Industrial Development
Authority) has been assigned to Sun Bank, N.A., as Trustee, and is subject to a
security interest in favor of the Trustee under the Indenture of Trust dated as
of December 16, 1982, by and between Hillsborough County Industrial Development
Authority and the Trustee.



<PAGE>   3



                       LOAN AND DEBT OBLIGATION AGREEMENT

                               Table of Contents

 (The Table of Contents is not a part of the Loan and Debt Obligation Agreement
                   but is for convenience of reference only)

ARTICLE I

Definitions
                                                                            Page
Section 1.1.  Definitions                                                      1
    "Act"                                                                      1
    "Additional Bonds"                                                         1
    "Agreement"                                                                1
    "Agreement Term"                                                           2
    "Authorized Company Representative"                                        2
    "Bondholder"                                                               2
    "Bond Registrar"                                                           2
    "Bonds"                                                                    2
    "1982 Bonds"                                                               2
    "Code"                                                                     2
    "Company"                                                                  2
    "Completion Date"                                                          2
    "Construction
 Fund"                                                        2
    "Guarantor"                                                                2
    "Indenture"                                                                2
    "Issuer"                                                                   3
    "Loan"                                                                     3
    "Loan Installments"                                                        3
    "Mortgage"                                                                 3
    "Note"                                                                     3
    "Original Purchaser"                                                       3
    "Paying Agent"                                                             3
    "Permitted Encumbrances"                                                   3
    "Plans and Specifications"                                                 3
    "Prime Rate"                                                               4
    "Project"                                                                  4
    "Project Manager"                                                          4
    "Project Site"                                                             4
    "Debt Service Fund"                                                        4
    "Trustee"                                                                  4
    "Yield"                                                                    4
Section 1.2.     Rules of Construction                                         4



<PAGE>   4



                                   ARTICLE II

                                Representations

Section 2.1.     Representations by the Issuer                                 5
Section 2.2.     Representations by the Company                                6

                                  ARTICLE III

                     Loan; Assignment of Agreement and Note

Section 3.1.     Loan                                                          9
Section 3.2.     Assignment of the Issuer's Rights                             9

                                   ARTICLE IV

                  Commencement and Completion of the Project,
                             Issuance of the Bonds

Section 4.1.     Agreement to Acquire and Construct the Project                9
Section 4.2.     Agreement to Issue Bonds; Application of Bond Proceeds;
                           Additional Bonds                                   11
Section 4.3.     Disbursements from the Construction Fund                     12
Section 4.4.     Obligation of the Company to Cooperate In Furnishing
                           Documents to Trustee                               16
Section 4.5.     Establishment of Completion Date                             16
Section 4.6.     The Company Required to Pay Cost of the Project in
                           Event Construction Fund Insufficient               16
Section 4.7.     Project Manager                                              17
Section 4.8.     Pursuit of Remedies Against Contractors and
                           Subcontractors and Their Sureties                  17
Section 4.9.     Investment of Moneys in the Construction Fund and
                           the Debt Service Fund                              18

                                   ARTICLE V

                   Effective Date of This Agreement; Duration
                    of Agreement Term; Repayment Provisions

Section 5.1.     Effective Date of this Agreement;
                           Duration of Agreement Term                         18
Section 5.2.     Loan Installments and Other Amounts Payable                  18
Section 5.3.     Payment of Loan Installments                                 20
Section 5.4.     Obligations Unconditional                                    20






                                       ii



<PAGE>   5



                                   ARTICLE VI

                     Maintenance, Modifications, Operation,
                  Insurance and Other Covenants of the Company

Section 6.1.     Maintenance of Project                                       23
Section 6.2.     Conditions to Changes in the Project                         23
Section 6.3.     After-Acquired Property Not Part of Project                  24
Section 6.4.     Removal or Disposition                                       24
Section 6.5.     No Abatement of Loan Installments; Damages                   24
Section 6.6.     Covenant Against Unauthorized Removal                        24
Section 6.7.     Liens and Encumbrances                                       24
Section 6.8.     Permitted Contests                                           25
Section 6.9.     Notice of Event of Default                                   26
Section 6.10.    Requested Information                                        26
Section 6.11.    Inspections, Reports and Financial Statements                26
Section 6.12.    Certificate of Compliance and No Default                     29
Section 6.13.    Insurance                                                    29
Section 6.14.    Insurance Proceeds; Condemnation Awards                      29
Section 6.15.    Approvals                                                    30
Section 6.16.    Covenants of Company and Issuer with Respect to
                           Capital Expenditures                               30
Section 6.17.    Covenants as to Use of Bond Proceeds; Payback Provision      33
Section 6.18.    Covenant as to Recordation                                   34

                                  ARTICLE VII

                               Special Covenants

Section 7.1.     Indemnification by the Company                               34
Section 7.2.     Compliance with All Laws                                     34
Section 7.3.     Maintenance of Corporate Existence                           35
Section 7.4.     Nonassignability                                             36
Section 7.5.     Payment of Loan Installments                                 36
Section 7.6.     No Warranty of Condition or Suitability by the Issuer        36


                                  ARTICLE VIII

                Obligation Continues; Redemption; Prepayment and
                   Abatement; Mortgage and Security Interest

Section 8.1.     Redemption of Bonds                                          37
Section 8.2.     Permissible Prepayment of Loan Installments                  37
Section 8.3.     Mandatory Prepayment of Loan Installments                    37







                                      iii


<PAGE>   6






Section 8.4.     References to Bonds Ineffective After Bonds Paid             39
Section 8.5.     Vesting of Interest in Issuer                                39
Section 8.6.     Mortgage and Security Interest                               40


                                   ARTICLE IX

                         Events of Default and Remedies

Section 9.1.     Events of Default Defined                                    41
Section 9.2.     Remedies on Default                                          43
Section 9.3.     Authorization to Foreclose                                   44
Section 9.4.     No Remedy Exclusive                                          44
Section 9.5.     Agreement to Pay Attorneys' Fees and Expenses                44
Section 9.6.     No Additional Waiver Implied by One Waiver                   45
Section 9.7.     Issuer's Right to Advance Funds upon Default;
                           Reimbursement of Same                              45

                                       ARTICLE X

                                     Miscellaneous

Section 10.1.    Notices                                                      45
Section 10.2.    Binding Effect; Controlling Law                              46
Section 10.3.    Severability                                                 47
Section 10.4.    Amounts Remaining in Funds                                   47
Section 10.5.    Complete Agreement; Supplements or Amendment                 47
Section 10.6.    Net Contract                                                 47
Section 10.7.    Arbitrage; Preservation of Tax Exemption                     47
Section 10.8.    Controlling Law; Members of Issuer Not Liable                48
Section 10.9.    Company Approval of Indenture                                48
Section 10.10.   Further Assurances                                           48
Section 10.11.   Rights not Extinguished                                      49
Section 10.12.   Execution of Counterparts                                    49




















                                       iv



<PAGE>   7



                       LOAN AND DEBT OBLIGATION AGREEMENT


         THIS LOAN AND DEBT OBLIGATION AGREEMENT, made and entered into as of
the ____ day of _______, 1982, by and between HILLSBOROUGH COUNTY INDUSTRIAL
DEVELOPMENT AUTHORITY, a public body corporate and politic of the State of
Florida, and PROGRESSIVE AMERICAN INSURANCE COMPANY, a corporation organized and
existing under the laws of the State of Florida.


                              W I T N E S S E T H:


         In consideration of the respective representations and agreements
hereinafter contained, the parties hereto agree as follows (provided, that in
the performance of the agreements of the Hillsborough County Industrial
Development Authority herein contained, any obligation it may thereby incur for
the payment of money shall not be a general debt, liability or obligation of
said Authority, Hillsborough County or of the State of Florida or any political
subdivision thereof but shall be payable solely out of the proceeds derived from
or pursuant to this Loan and Debt Obligation Agreement and the sale of the Bonds
referred to in Section 4.2 hereof):


                                   ARTICLE I

                                  Definitions


         SECTION 1.1.  Definitions.  As used herein unless some other meaning
is plainly intended:

         "Act" means the Constitution of the State of Florida, Parts II and III
of Chapter 159, Florida Statutes, and other applicable provisions of law.

         "Additional Bonds" means the additional parity Bonds authorized to be
issued by the Issuer pursuant to the Indenture.

         "Agreement" means this Loan and Debt Obligation Agreement and any
amendments and supplements hereto.



<PAGE>   8



         "Agreement Term" means the duration of this Agreement as specified in
Section 5.1 hereof.

         "Authorized Company Representative" means the person at the time
designated to act on behalf of the Company (or his duly designated alternate or
alternates) by written certificate furnished to the Issuer and the Trustee
containing the specimen signature of such person.

         "Bondholder" means the registered owner (or its authorized
representative) of any Bonds at any time outstanding.

         "Bond Registrar" means the registrar appointed by the Issuer, from
time to time, under the provisions of Section 3.05 of the Indenture.

         "Bonds" means the 1982 Bonds and any Additional Bonds issued and to be
issued pursuant to the Indenture.

         "1982 Bonds" means the Hillsborough County Industrial Development
Authority Industrial Development Revenue Bonds (Progressive American Insurance
Company Project), Series 1982, to be issued pursuant to Section 3.07 of the
Indenture.

         "Code" means the Internal Revenue Code of 1954, as amended.

         "Company" means Progressive American Insurance Company, a Florida
corporation, and its successors or assigns, including any surviving, resulting
or transferee corporation as provided in Section 7.3 hereof.

         "Completion Date" means the date of completion of the acquisition and
construction of the Project as that date shall be certified as provided in
Section 4.5 hereof.

         "Construction Fund" means the fund created by Section 6.01 of the
Indenture.

         "Guarantor" means The Progressive Corporation, an Ohio corporation, the
indirect owner of the Company.

         "Indenture" means the Indenture of Trust between the Issuer and the
Trustee, of even date herewith, pursuant to which (i) the Bonds are authorized
to be issued and (ii) the Issuer's interest in this Agreement and the Loan
Installments and other revenues received by the Issuer from

                                       2



<PAGE>   9



the repayment of the Loan to the Company are to be pledged and assigned, 
including any indenture supplemental thereto.

         "Issuer" means Hillsborough County Industrial Development Authority, a
public body corporate and politic of the State of Florida.

         "Loan" shall have the meaning ascribed thereto in Section 3.1 of this
Agreement.

         "Loan Installments" means the payments described in Article V hereof
and required to be paid under the terms hereof and the terms of the Note.

         "Mortgage" means the Mortgage and Security Agreement of even date
herewith between the Company, as mortgagor, and the Issuer, as mortgagee.

         "Note" means the Promissory Note of even date herewith issued by the
Company to the Issuer pursuant to Section 3.1 hereof.

         "Original Purchaser" means Sun Bank of Tampa Bay.

         "Paying Agent" shall have the same meaning as provided in the
Indenture.

         "Permitted Encumbrances" means and shall include the following:

                  (a) liens for taxes and special assessments not delinquent or
         which are being contested in good faith by or on behalf of the Company
         in accordance with the terms and provisions of Section 6.8 hereof;

                  (b) mechanics', workmen's, repairmen's or carriers' liens or
         other similar liens, provided that the same shall be discharged by the
         Company in the ordinary course of business and without undue delay or
         the validity of the same shall be contested, with any pending execution
         thereof appropriately stayed; and

                  (c) this Agreement and the documents contemplated hereby,
         including the Mortgage and the Indenture.

         "Plans and Specifications" means the plans and specifications for the
construction of the Project, including

                                       3



<PAGE>   10



any supplements, amendments and additions thereto, which shall have been
approved by the Company.

         "Prime Rate" means the rate of interest as charged from time to time by
Sun Bank, N.A., or its successors, for ninety-one day unsecured loans; provided
however, if Sun Bank, N.A., does not make ninety-one day unsecured loans, the
Prime Rate shall be such rate for such loans charged by Manufacturers Hanover
Trust Company, New York, New York.

         "Project" means, collectively, the acquisition of the Project Site, and
the acquisition, construction and installation thereon, in accordance with the
Plans and Specifications, of structures, fixtures, facilities, equipment and
machinery constituting a headquarters facility for the regional headquarters
office for the Company and its related group of casualty insurers, all as more
particularly described in Exhibit "A" attached hereto and to the Indenture.

         "Project Manager" means the project manager or managers who at the time
shall have been designated as such in or pursuant to the provisions of Section
4.7 hereof.

         "Project Site" means the lands on which the Project is to be
constructed, as more particularly described in Exhibit "B" attached hereto and
to the Indenture, together with easements appurtenant thereto.

         "Debt Service Fund" means the Hillsborough County Industrial
Development Revenue Bonds (Progressive American Insurance Company Project) Debt
Service Fund, created by Section 7.02 of the Indenture.

         "Trustee" means Sun Bank, N.A., a duly organized national banking
association having the authority to exercise corporate trust powers, and having
its principal office in the City of Orlando, Florida, as the initial Trustee,
and such other duly appointed trustee at any time serving as such under the
Indenture.

         "Yield" means the yield on a particular obligation computed in
accordance with Section 1.103-13(c) of the Treasury Regulations, as amended.



         SECTION 1.2. Rules of Construction.  Words of the masculine gender
shall be deemed and construed to include correlative words of the feminine and
neuter genders.  Unless the context shall clearly indicate to the contrary:

                                       4



<PAGE>   11



                  (a) The words "Bond," "coupon," "holder," and "person"
         shall include the plural as well as the singular number;

                  (b) The word "person" shall include corporations and
         associations, including public bodies, as well as natural persons;

                  (c) "Herein", "hereby", "hereunder", "hereof", "hereinbefore",
         "hereinafter" and other equivalent words refer to this Agreement and
         not solely to the particular portion thereof in which any such word is
         used; and

                  (d) All references herein to particular Articles or
         Sections are references to Articles or Sections of this Agreement.


                                   ARTICLE II

                                Representations


         SECTION 2.1. Representations by the Issuer. The Issuer makes the
following representations as the basis for the undertakings on its part herein
contained:

                  (a) The Issuer is duly authorized under the provisions of the
         Act to enter into, execute and deliver this Agreement, to undertake the
         transactions contemplated by this Agreement and to carry out its
         obligations hereunder. The Project constitutes and will constitute a
         "project" within the meaning of the Act. By duly adopted resolution the
         Issuer has duly authorized the execution and delivery of this
         Agreement.

                  (b) The Issuer, by a Resolution adopted on March 10, 1982,
         took affirmative official action toward the issuance of the 1982 Bonds.

                  (c) The Company proposes to acquire, construct and install the
         Project. The Issuer proposes to loan money to the Company for the
         acquisition, construction and installation of the Project pursuant to
         the terms and conditions expressed herein, all for the purposes of
         fostering the industrial and business development of and im-

                                       5



<PAGE>   12



         proving living conditions in Hillsborough County, Florida, and
         otherwise contributing to the welfare of the State of Florida and its
         inhabitants.

                  (d) To finance the cost of the Project the Issuer proposes to
         issue initially the 1982 Bonds in the principal amount of $4,000,000,
         which 1982 Bonds will be designated "Hillsborough County Industrial
         Development Authority Industrial Development Revenue Bonds (Progressive
         American Insurance Company Project), Series 1982," and to loan the
         proceeds of the 1982 Bonds to the Company. Thereafter, Additional Bonds
         of the Issuer, for the purposes, under the conditions and in the
         principal amounts provided in Section 4.2(b) hereof, may be issued by
         the Issuer under the Indenture.

                  (e) All of the Bonds will be issued under the Indenture and
         will mature, bear interest, be redeemable and have the other terms and
         provisions set forth in the Indenture, pursuant to which the Issuer's
         interest in this Agreement and the Note and the revenues receipts
         including the Loan Installments derived by the Issuer will be pledged
         and conveyed to the Trustee as security for payment of the principal
         of, premium, if any, and interest on the Bonds.


         SECTION 2.2. Representation by the Company. The Company makes the 
following representations as the basis for the undertakings on its part
herein contained:

                  (a) The Company is a Florida corporation, duly created and
         existing under the laws of the State of Florida, and has full power and
         authority to enter into this Agreement and by proper corporate action
         its officers have been duly authorized to execute and deliver this
         Agreement

                  (b) The Company intends to operate the Project as a "project"
         within the meaning of the Act.

                  (c) The execution and delivery of this Agreement and the
         consummation of the transactions herein contemplated will not conflict
         with or constitute a breach of or default under the Company's articles
         of incorporation, bylaws or any bond, debenture, note or other evidence
         of indebtedness,

                                       6



<PAGE>   13



         contract, agreement or lease to which the Company is a party or by
         which the Company is bound, and this Agreement will be binding upon and
         enforceable against the Company.

                  (d) The Project consists of property of a character subject to
         the allowance for depreciation under Section 167 of the Code and all of
         the net proceeds received from the sale of the 1982 Bonds (after
         payment of the costs incurred in connection with the issuance of the
         1982 Bonds) which are actually expended for the Project, will be used
         to pay the cost of the acquisition, construction and installation of
         the Project and will be or may be charged to the capital account of the
         Company for federal income tax purposes.

                  (e) As of March 10, 1982, no contracts had been awarded or
         entered into and no purchase orders had been issued with respect to any
         components of the Project, none of said components or the Project Site
         had been acquired and no installation or fabrication had commenced with
         respect to any of said components.

                  (f) Based on current facts, estimates and circumstances, it is
         presently expected that:

                      (1)  the acquisition, construction and installation of the
                  Project and the expenditure of all the proceeds of the 1982
                  Bonds will be completed by July 1, 1983;

                      (2)  work on the Project has commenced and it is expected
                  to proceed with due diligence to completion;

                      (3)  the net proceeds from the issuance of the 1982 Bonds
                  are needed for the purpose of paying all or a part of the cost
                  of the acquisition, construction and installation of the
                  Project; and

                      (4)  the Project will not be sold or disposed of in a
                  manner producing proceeds which, together with any accumulated
                  proceeds or earnings thereon, would be sufficient to enable
                  the Company to

                                       7



<PAGE>   14



                  retire substantially all of the Bonds prior to the maturity 
                  of the 1982 Bonds.

                  (g) The Company has entered into various contracts providing
         for the acquisition, construction and installation of the Project and
         the amounts required to be paid or already paid under said contracts
         exceed $100,000.

                  (h) As of the date of execution and delivery of this
         Agreement, there exists no event of default, as defined in Article IX
         hereof, or any condition or event which would constitute, or with the
         passage of time or the giving of notice, or both, would constitute an
         event of default hereunder.

                  (i) The consolidated financial statements of the Guarantor,
         the Company and all of the subsidiary and affiliate corporations of the
         Guarantor, dated as of December 31, 1981, previously delivered to the
         Original Purchaser, certified by Ernst & Whinney, fairly present the
         financial position of the Company as of the end of such fiscal year and
         the results of its operations for such fiscal year, and since the
         closing of such fiscal year there has been no material adverse change
         in the financial condition and results of the operations of the
         Company.

                  (j) There are no pending, or to the knowledge of the Company,
         threatened actions or proceedings before any court or administrative
         agency which are likely in any case or in the aggregate to materially
         adversely affect the financial condition or business or operations of
         the Company, nor is the Company aware of any facts or circumstances
         that would give rise to any such actions or proceedings.

                  (k) The information furnished by the Company and used by the
         Issuer in preparing the election it filed with the Internal Revenue
         Service pursuant to Section 103(d)(6)(D) of the Code was true and
         complete as of the date of filing of said election.

                                       8



<PAGE>   15



                                  ARTICLE III

                     Loan; Assignment of Agreement and Note


         SECTION 3.1. Loan. Concurrently with the sale and delivery of the 1982
Bonds, the Issuer will, upon the terms and conditions of this Agreement and the
Note, make a loan (the "Loan") to the Company in the amount of Four Million
dollars ($4,000,000). Such Loan will be made by the Issuer by depositing said
sum with the Trustee for disbursement by the Trustee as provided for in the
Indenture.

         SECTION 3.2. Assignment of the Issuer's Rights. Concurrently with the
execution of this Agreement, the Issuer will, under the terms and to the extent
provided in the Indenture, assign the Issuer's rights under this Agreement, the
Note and the Mortgage to the Trustee as security for the payment of the 1982
Bonds.


                                   ARTICLE IV

                  Commencement and Completion of the Project,
                             Issuance of the Bonds


         SECTION 4.1. Agreement to Acquire and Construct the Project.  The
Company agrees to acquire, construct and install, with the proceeds of the Note,
the Project, in accordance with the Plans and Specifications, now or hereafter
filed with the Trustee and in accordance with change orders approved in writing
by the Company and furnished to the Trustee from time to time prior to the
Completion Date; provided, however, that no supplement, amendment, addition or
change order relating to the Plans and Specifications for any component of the
Project shall change the nature of the Project as (i) property of a character
subject to depreciation under Section 167 of the Code and (ii) a "project"
within the meaning of the Act.

         In addition to supplementing, amending and adding to the Plans and
Specifications and submitting change orders within the limits set forth in the
first paragraph of this Section, it is understood and agreed that the Company
shall also be authorized to omit major components of the Project or to add or
substitute major new components as an addition to the Project or in substitution
of major components so

                                       9



<PAGE>   16



omitted, provided that in the opinion of the Project Manager, such major
omissions, additions or substitutions, will not materially alter or change the
general character of the Project and will, in the opinion of counsel nationally
recognized on the subject of municipal bonds, which opinion shall be in writing
and filed with the Trustee and the Issuer, not result in the interest on the
Bonds or any part thereof becoming subject to federal income taxes then in
effect. In the event of an omission, addition or substitution as provided in
this paragraph, the Company and the Issuer shall revise Exhibit A to this
Agreement to reflect such major omission, addition or substitution and mail a
copy of such revised Exhibit "A" to the Trustee.

         It is understood and agreed that the Company will provide to the
Trustee at or prior to the delivery of the 1982 Bonds the following:

                  (a) A survey of the Project Site, dated a recent date and
         satisfactory in substance and form to the Trustee, prepared and
         certified by an independent registered Florida civil engineer or land
         surveyor showing, with respect to the Project Site, (i) the location
         and dimensions of such lands, (ii) all means of access to such lands,
         and (iii) any easements, encroachments or other charges appearing with
         respect to such lands customarily reflected on land surveys; and

                  (b) A mortgagee title insurance policy or a title insurance
         commitment naming the Trustee as mortgagee, dated the closing date,
         with a reputable title insuror authorized to write title insurance in
         the state of Florida and acceptable to the Trustee, in such form as
         shall be satisfactory to the Trustee, insuring the title to the real
         estate interests mortgaged to the Trustee in an amount not less than
         the value of the real estate interests, to be free and clear of all
         liens and encumbrances, and containing no exclusions, stipulations,
         exceptions or encumbrances not satisfactory to the Trustee.

         The Trustee shall pay or reimburse the Company and its agents for all
legally permissible costs incurred in connection with the acquisition,
construction and installation of the Project incurred before the sale of the
1982 Bonds as promptly as practicable after receipt of the proceeds from the
sale of the 1982 Bonds. The Company shall acquire, construct and install the
Project with all reasona-

                                       10



<PAGE>   17



ble dispatch and use best efforts to cause said acquisition, construction and
installation to be completed by the Completion Date or as otherwise provided in
Section 4.5 hereof, and if for any reason such acquisition, construction and
installation is not completed by said date there shall be no diminution in the
Loan Installments hereby required to be paid by the Company.

         SECTION 4.2.  Agreement to Issue Bonds; Application of Bond Proceeds; 
Additional Bonds.

                  (a) In order to provide funds to loan to the Company for the
         payment of the cost of the Project, the Issuer agrees that it will,
         concurrently herewith, sell and cause to be delivered to the Original
         Purchaser the 1982 Bonds in the principal amount of Four Million
         Dollars ($4,000,000), bearing interest and maturing as provided in the
         Indenture and it will thereupon (i) deposit in the Interest Account in
         the Debt Service Fund created by Section 7.02 of the Indenture a sum
         equal to the accrued interest on the 1982 Bonds paid by the Original
         Purchaser of the 1982 Bonds, if any, and (ii) deposit in the
         Construction Fund the balance of the proceeds received from the sale of
         the 1982 Bonds.

                  (b) The Issuer may at the request of the Company authorize the
         issuance of Additional Bonds upon the terms and conditions provided in
         the Indenture. Additional Bonds may be authorized for the purpose of
         financing the cost of completing the Project, or the cost of all or any
         part of the cost of additions, extensions, improvements, relocations,
         alterations, enlargements, modifications or changes (herein
         collectively called "Improvements") in, to or on the Project Site or
         other properties of the Company located in Hillsborough County,
         Florida, or for any combination of such purposes, as the Company may
         deem necessary or essential, in the manner provided in Section 3.08 of
         the Indenture. If the Company is not in default hereunder, the Issuer
         may, at the request of the Company but in the sole discretion of the
         Issuer, from time to time, issue the amount of Additional Bonds
         specified by the Company (within the limits and under the conditions
         specified above and in the Indenture), provided that (i) the terms,
         manner of issuance, purchase price and disposition of

                                       11



<PAGE>   18



         proceeds of the sale of such Additional Bonds shall have been approved
         in writing by the Company, (ii) the Company and the Issuer shall have
         entered into an amendment to this Agreement to provide for an increase
         in the Loan hereunder and providing for Loan Payments in an amount at
         least sufficient to pay the principal of, premium, if any, and interest
         on the Additional Bonds as the same shall mature and become due, and to
         make all other required payments under such amendment, and (iii) the
         Issuer shall have otherwise complied with the provisions of the
         Indenture with respect to the issuance of such Additional Bonds. Such
         amendment will provide that any such Improvements shall become a part
         of the Project and shall be included under this Agreement to the same
         extent as if originally included hereunder.

                  (c) The Issuer's failure to issue Additional Bonds, whether or
         not such failure is the result of the Issuer's breach of its
         obligations under this Section, will not release the Company from the
         obligation to pay the Loan Installments or from any of the Company's
         other obligations under this Agreement.


         SECTION 4.3. Disbursements from the Construction Fund. The Trustee will
use the moneys in the Construction Fund for the following purposes in connection
with the acquisition, construction and installation of the Project (but, subject
to the provisions of Section 4.9 hereof, only in accordance with the Act and for
no other purpose):

                  (a) Payment to the Company of such amounts, if any, as shall
         be necessary to reimburse the Company in full for all legally
         permissible advances and payments made or incurred by the Company at
         any time after March 10, 1982, in connection with the acquisition,
         construction and installation of the Project, including without
         limitation, advances and payments made by the Company in connection
         with the preparation of Plans and Specifications for the Project
         (including any preliminary study or planning of the Project or any
         aspect thereof), and all other advances or payments made in connection
         with the acquisition, construction and installation of the Project;
         provided that each such payment shall be made only upon receipt by the
         Trustee of a statement therefor approved in

                                       12



<PAGE>   19



         writing by the Authorized Company Representative and the Project
         Manager.

                  (b) Payment of the initial or acceptance fee of the Trustee,
         legal, accounting and financial advisory fees and expenses, title
         insurance premium, underwriting fees, filing fees and rating agencies'
         fees and printing and engraving costs incurred in connection with the
         authorization, validation, sale and issuance of the Bonds, the
         execution and filing of the Indenture, this Agreement, the Note, the
         Mortgage and all other documents in connection therewith, and payment
         of all fees, costs and expenses for the preparation of this Agreement,
         the Indenture, the Note, the Mortgage, the Bonds and all other
         documents in connection therewith; provided, that each such payment
         shall be made only upon receipt by the Trustee of a statement therefor
         approved in writing by the Authorized Company Representative.

                  (c) Payment for labor, services, materials and supplies used
         or furnished for on or off-site improvements and in the acquisition,
         construction and installation of the Project, all as provided in the
         Plans and Specifications therefor, payment for the cost of the
         acquisition, construction and installation of utility services,
         drainage, paving or other facilities, and all real and personal
         property included in the Project and payment for the miscellaneous
         expenses incidental to any of the foregoing items which relate to the
         Project and are required to be deposited with the Trustee under any of
         the provisions of the Indenture, including the premium on any surety
         bond; provided, that each such payment shall be made only upon a
         written order by the Project Manager, accompanied by a contractor's
         estimate or bill in the amount specified in said order approved in
         writing by the Project Manager.

                  (d) Payment of the fees, if any, for legal, architectural,
         engineering and supervisory services with respect to the Project;
         provided, that each such payment shall be made only upon a written
         order of the Project Manager, accompanied by a bill in the amount
         specified in said order approved in writing by the Project Manager;
         provided, however, that the fees of the Project Manager shall be
         approved by the Company.

                                       13



<PAGE>   20



                  (e) Payment to the Trustee, as such payments become due, of
         the fees and expenses of the Trustee, Bond Registrar and Paying Agent,
         if Trustee is serving as same, properly incurred under the Indenture
         that may become due until the Completion Date.

                  (f) To the extent not paid by a contractor with respect to any
         part of the Project, payment of the premiums on all insurance required
         to be taken out and maintained until the Completion Date under this
         Agreement, or reimbursement thereof if paid by the Company under
         Article VI hereof.

                  (g) Payment of expenses, including legal and expert witness
         fees, incurred with approval of the Company in seeking to enforce any
         remedy against any contractor or subcontractor in respect of any
         default under a contract relating to the Project.

                  (h) Payment of any other costs and expenses relating to the
         acquisition and construction of the Project or the authorization,
         issuance and sale of the Bonds that may be approved in writing by the
         Authorized Company Representative and the Project Manager.

                  (i) Payment of interest accruing on the 1982 Bonds from the
         date of issuance thereof through _________ 198_, or the Completion
         Date, whichever shall first occur, which amounts shall be deposited by
         the Trustee into the Interest Account in the Debt Service Fund, on each
         applicable interest payment date.

                  (j) The moneys remaining in the Construction Fund after the
         Completion Date and after payment or provision for payment of all other
         items provided for in the preceding subsections (a) through (i),
         inclusive, of this Section, and after the Trustee with the approval of
         the' Authorized Company Representative has retained amounts for payment
         of items included in the cost of the Project but not then due and
         payable, shall be segregated by Trustee and used by Trustee: (i) to
         deposit such funds in the Redemption Account in the Debt Service Fund
         to be used to redeem the 1982 Bonds at the earliest redemption date
         permitted by the Indenture on which a premium or penalty for redemption
         is not required; or (ii) for any other purpose provided

                                       14



<PAGE>   21



         that the Trustee is furnished with an opinion of nationally-recognized
         municipal bond counsel to the effect that such use is lawful under the
         Act and will not adversely affect the exclusion from federal income
         taxes of interest on any of the Bonds. Until used to redeem the 1982
         Bonds as provided in subsection (i) above, or until use under
         subsection (ii) above is approved, such segregated amount may be
         invested as permitted by this Agreement and the Indenture but may not
         be invested (without an opinion of nationally-recognized municipal bond
         counsel to the effect that such investment will not adversely affect
         the exclusion from federal income taxes of interest on any of the
         Bonds) to produce a Yield on such amount (computed from the Completion
         Date and taking into account any investment of such amount from the
         Completion Date) greater than the Yield on the 1982 Bonds, all in
         accordance with Sections 103(b) and (c) of the Code. The Company and
         the Issuer agree to cooperate with the Trustee and take all required
         action necessary to redeem the 1982 Bonds or to accomplish any other
         purpose contemplated by this Section.

         Before any of the payments referred to in the preceding subsections
(a), (c), (d) and (h) of this Section may be made, the Project Manager shall
certify with respect to each such payment, and before any of the payments
specified in the preceding subsections (b), (e), (f), (g), (h), and (i) may be
made, the Authorized Company Representative shall certify with respect to each
such payment that: (i) none of the items for which the payment is proposed to be
made has formed the basis for any payment theretofore made from the Construction
Fund, (ii) the expenditure of such disbursements, when added to all other
disbursements under previous requisitions, will result in at least ninety
percent (90%) of the total of such disbursements, other than disbursements for
reasonable issuance expenses, having been used for payment of amounts paid or
incurred after March 10, 1982, for land or property of a character subject to
allowance for depreciation under Section 167 of the Code and will be or may be
charged to the capital account of the Project for federal income tax purposes,
(iii) each item for which the payment is proposed to be made is or was
appropriate in connection with the acquisition, construction and installation of
the Project; and (iv) the Company is not in default of any requirements,
conditions, or covenants of this Agreement.

                                       15



<PAGE>   22



         SECTION 4.4. Obligation of the Company to Cooperate In Furnishing
Documents to Trustee. The Company agrees to cooperate in furnishing to the
Trustee the documents referred to in Section 4.3 hereof that are required to
effect payments out of the Construction Fund. Such obligation of the Company is
subject to any provisions of the Indenture requiring additional documentation
with respect to payment.


         SECTION 4.5. Establishment of Completion Date. The Completion Date
shall be evidenced to the Trustee by a certificate signed by the Project Manager
stating the cost of the Project and that, except for amounts retained by the
Trustee for the cost of the Project not then due and payable as provided in
Section 4.3(j) of this Article, (i) the acquisition, construction and
installation of the Project has been completed substantially in accordance with
the Plans and Specifications therefor and all labor, services, materials and
supplies used in such construction have been paid for, and (ii) all other
facilities necessary in connection with the Project have been acquired,
constructed and installed in accordance with the Plans and Specifications
therefor and all costs and expenses incurred in connection therewith have been
paid. Notwithstanding the foregoing, such certificate shall state that it is
given without prejudice to any rights against third parties which exist at the
date of such certificate or which may subsequently come into being. The Company
estimates that the Completion Date will be on or before July 1, 1983.


         SECTION 4.6. The Company Required to Pay Cost of the Project in Event
Construction Fund Insufficient. If the moneys in the Construction Fund available
for the payment of the cost of the Project (including the proceeds of any
Additional Bonds issued for the purpose of paying the cost of completing the
Project and Improvements pursuant to Section 3.08 of the Indenture) should not
be sufficient to pay the cost of the Project, the Company agrees to complete the
Project and to pay all that portion of the cost of the Project as may be in
excess of the moneys available therefor in the Construction Fund. The Issuer
does not make any warranty, either express or implied, that the moneys which
will be paid into the Construction Fund and which, under the provisions of this
Agreement, will be available for payment of the cost of the Project will be
sufficient to pay all the costs which will be incurred in that connection. The
Company agrees that if, after exhaustion of the moneys in the Construction Fund,
the Company should pay any portion of

                                       16



<PAGE>   23



the said cost of the Project pursuant to the provisions of this Section, the
Company shall not be entitled to any reimbursement therefor from the Issuer or
from the Trustee or from the holders of any of the Bonds, nor shall the Company
be entitled to any abatement or diminution of the Loan Installments payable
under Section 5.2 hereof.


         SECTION 4.7. Project Manager. The Authorized Company Representative is
hereby designated as the Project Manager for the purpose of taking all actions
and making all certificates required to be taken and made by the Project Manager
under the provisions of this Agreement; and an alternate Project Manager to take
any such action or make any such certificate if the same is not taken nor made
by the Project Manager shall be hereafter designated by the Company and notice
of the identity of such alternate Project Manager shall be given to the Issuer
and the Trustee. In the event either of said persons should be removed by the
Company or should become unavailable or unable to take any action or make any
certificate provided for in this Agreement, another Project Manager or alternate
Project Manager shall upon notice to the Trustee thereupon be appointed by the
Company. If the Company fails to make such designation within fifteen (15) days
following the date when the then incumbent becomes unavailable or unable to take
any of said actions, the Trustee may then appoint as a successor any engineer
licensed under the laws of the State of Florida.


         SECTION 4.8. Pursuit of Remedies Against Contractors and Subcontractors
and Their Sureties. In the event of material default of any contractor or
subcontractor under any contract made by it in connection with the Project, the
Company will promptly proceed, either separately or in conjunction with others,
to exhaust its remedies against the contractor or subcontractor so in default
and against each surety for the performance of such contract. The Company agrees
forthwith to take such actions as may be necessary or required to protect the
interests of all parties with respect to the Project unless directed to the
contrary by the Trustee. If for any reason the Company does not act promptly
with respect to any such remedies, the Trustee may take such actions as it shall
deem necessary or advisable with respect to such remedies. The Company agrees to
advise the Issuer and the Trustee of the steps it intends to take in connection
with any such default. The Company shall, in its own name or in the name of the
Issuer or the Trustee, if required, prosecute or defend any action or proceeding
or take any other action involving any such con-

                                       17



<PAGE>   24



tractor, subcontractor or surety which shall be reasonably necessary, and in
such event the Issuer and the Trustee hereby agree to cooperate fully with the
Company in any such action or proceeding. Any amounts recovered by way of
damages, refunds, adjustments or otherwise in connection with the foregoing that
are needed to pay a portion of the cost of the Project shall be paid into the
Construction Fund and, if not so needed, shall be retained by or paid to the
Company as reimbursement for amounts expended for the construction of the
Project by the Company.


         SECTION 4.9. Investment of Moneys in the Construction Fund and the Debt
Service Fund. Any moneys held in the Construction Fund or the Debt Service Fund
shall, upon oral instructions of the Authorized Company Representative to be
confirmed thereafter in writing, or if no such instructions are given in the
discretion of the Trustee, be invested or reinvested by the Trustee in
Investment Obligations as defined in the Indenture and otherwise as therein
permitted; provided, however, that after the Completion Date or the date three
years after the issuance of the 1982 Bonds, whichever shall first occur, the
Yield on the investment of moneys in the Construction Fund shall not exceed the
Yield on the 1982 Bonds, or such higher Yield as may be permitted under Section
103(c) of the Code and the regulations thereunder for the 1982 Bonds not to be
"arbitrage bonds".


                                   ARTICLE V

                 Effective Date of This Agreement; Duration of
                      Agreement Term; Repayment Provisions


         SECTION 5.1. Effective Date of this Agreement; Duration of Agreement
Term. This Agreement shall become effective upon its delivery, and, subject to
the provisions of this Agreement, shall expire on such date that all of the
Bonds have been fully paid and retired (or provision for such payment shall have
been made as provided in the Indenture), and all payments required to be made by
the Company under Sections 5.2, 7.1, 9.5 and 9.7 hereof have been paid in full.


         SECTION 5.2. Loan Installments and Other Amounts Payable.  The Company
agrees to pay the Loan Installments

                                       18



<PAGE>   25



required by subsections (a), (b) and (c) of this Section and by the terms of the
Note as repayment of the Loan (including interest thereon).

                  (a) Commencing prior to the first interest payment date on the
         Bonds, and continuing until the principal of and interest on the Bonds
         shall have been fully paid or provision for the payment thereof shall
         have been made in accordance with the Indenture, the Company shall pay
         an amount equal to the sum of (i) the interest becoming due on the
         Bonds in accordance with their terms on the next interest payment date
         for which moneys have not been deposited from the Bond proceeds or
         investment earnings as provided by Section 4.2(a)(i) or Section 4.3(i)
         hereof, (ii) the principal, if any, becoming due on the Bonds in
         accordance with their terms on the next interest payment date, and
         (iii) the amounts required to be paid into the Redemption Account in
         the Debt Service Fund, if any, for the mandatory redemption of the
         Bonds in accordance with their terms. The payments mentioned in (i),
         (ii) and (iii) above shall be made or shall be on deposit in
         immediately available funds not later than the business day coinciding
         with each such payment date.

                  If on any interest payment date or redemption date the balance
         in the Debt Service Fund is less than the sum then required to be paid
         therefrom pursuant to the provisions of the Indenture and the Bonds,
         the Company will forthwith pay any such deficiency to the Trustee for
         deposit in the Debt Service Fund. If at any time the amount held by the
         Trustee in the Debt Service Fund shall be sufficient to pay at the
         times required the principal of and interest on all of the Bonds then
         remaining unpaid together with any amounts then or to become payable
         under subsections (b) and (c) of this Section, the Company shall not be
         obligated to pay any further Loan Installments.

                  (b) The Company agrees to pay to the Trustee (i) the
         reasonable fees and charges of the Trustee for all services of the
         Trustee and all expenses (including reasonable counsel and engineering
         fees) incurred under or arising directly or indirectly from services
         rendered pursuant to the Indenture, as and when the same become due and
         (ii) the reasonable fees and charges of the Trustee, as Bond

                                       19



<PAGE>   26



         Registrar under the Indenture, and of any other bond registrars and
         paying agents of the Bonds as and when the same become due.

                  (c) The Company agrees to pay to the Issuer at closing an
         amount equal to the reasonable costs and expenses of the Issuer at
         closing incurred in connection with the issuance of the Bonds,
         including the reasonable fees of its counsel, and fees and expenses
         incurred in the validation of the Bonds, and in the processing of the
         Company's application for financing. Thereafter, the Company shall pay
         to the Issuer, within 30 days of receipt of a written request for
         payment, the reasonable costs and expenses of Issuer incurred in
         administering the bond issue, including, but not limited to, the
         reasonable fees and expenses of Issuer's legal counsel.

                  (d) The Company agrees to pay to the Original Purchaser at
         closing a transaction fee equal to one percent of the principal amount
         of the Bonds for the Original Purchaser's expenses incurred in
         connection with the issuance of the Bonds.


         SECTION 5.3. Payment of Loan Installments. That portion of the Loan
Installments provided for in Section 5.2(a) hereof shall be paid directly to the
Trustee in immediately available funds of the Trustee's locality for the account
of the Issuer and shall be deposited in the Debt Service Fund. That portion of
the Loan Installments to be paid to the Trustee under Section 5.2(b) hereof
shall be paid directly to the Trustee for its own use or for disbursement to the
Bond Registrar as provided in the Indenture. In the event such payments required
by the Note or Section 5.2 hereof shall not be paid when due, the amount so in
default shall bear interest from the date such payment became due until payment
thereof at the Prime Rate plus two percent per annum or the maximum lawful rate,
whichever shall be less.


         SECTION 5.4. Obligations Unconditional. Until such time as the
principal of and interest on the Bonds and the other payments required hereunder
shall have been fully paid or provision for the payment thereof shall have been
made in accordance with the Indenture, the Company (i) will not suspend or
discontinue any Loan Installments, (ii) will perform and observe in all respects
all of its other

                                       20



<PAGE>   27



agreements contained in this Agreement, and (iii) will not terminate this
Agreement prior to the expiration of the Agreement Term for any cause 
including, without limiting the generality of the foregoing:

                  (a) any delay or failure of the Project to be completed,
         operating or operable, or any defect in the title, quality, condition,
         design, operation or fitness for use of, or any damage to, or loss of,
         or loss of use of, or destruction or theft of, all or any part of the
         Project from any cause whatsoever;

                  (b) any acts or circumstances that may constitute failure of
         consideration;

                  (c) commercial frustration of purpose;

                  (d) any abatement, suspension, deferment, reduction, setoff,
         defense, counterclaim or recoupment whatsoever, or any right to any
         thereof, that the Company may now or hereafter have against the Issuer
         or holder of the Bonds;

                  (e) any insolvency, composition, bankruptcy, reorganization,
         arrangement, liquidation or similar proceedings relating to the Issuer
         or the Company;

                  (f) any change in the tax or other laws of the United States
         of America or of the State of Florida or any political subdivision of
         either thereof or any failure of the Issuer to perform and observe any
         agreement, whether express or implied, or any duty, liability or
         obligation arising out of or connected with this Agreement or the Note;

                  (g) any interruption or prohibition of the use or possession
         by the Company of, or any ouster or dispossession by paramount title or
         otherwise of the Company from, all or any part of the Project, or any
         interference with such use or possession by any governmental agency or
         authority or other person or otherwise;

                  (h) the invalidity or unenforceability or disaffirmance, in
         whole or in part, of this Agreement or the Note or any failure,
         omission, delay or inability of the Issuer to perform any of its
         obligations contained in this Agreement or the Note;

                                       21



<PAGE>   28



                  (i) any amendment, extension or other change of, or any
         assignment or encumbrance of any rights or obligations under, this
         Agreement or the Note, or any waiver or other action or inaction, or
         any exercise or non-exercise of any right or remedy, under or in
         respect of this Agreement or the Note;

                  (j) any sale, release, substitution, exchange or other action
         or inaction with respect to the Mortgage or any security relating to
         this Agreement or the Note; or

                  (k) any other circumstance, happening or event whatsoever,
         whether foreseeable or unforeseeable and whether similar or dissimilar
         to the foregoing, it being the intention of the parties hereto that all
         amounts payable by the Company in respect of this Agreement or the Note
         shall continue to be payable in all events in the manner and at the
         time herein provided.

         The Company hereby waives, to the extent permitted by applicable law,
any and all rights which it may now have or which may at any time hereafter be
conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrender any of its obligations under this Agreement or the Note and agrees
that if, for any reason whatsoever, this Agreement or the Note shall be
terminated in whole or in part by operation of law or otherwise, the Company
will nonetheless promptly pay to the Trustee amounts equal to all such amounts
which shall become due and payable in respect of this Agreement and the Note, to
the same extent as if this Agreement and the Note had not been terminated in
whole or in part. Nothing contained in this Section shall be construed to
release the Issuer from the performance of any of the agreements on its part
herein contained; and in the event the Issuer should fail to perform any such
agreement on its part, the Company may institute such action against the Issuer
as the Company may deem necessary to compel performance thereof (subject,
however, to the limitation as to source of revenues for damages noted in the
second paragraph of this Agreement) so long as such action shall not diminish
the amounts required to be paid by the Company pursuant to the Note and Section
5.2 hereof. The Company may, however, at its own cost and expense and in its own
name or in the name of the Issuer, prosecute or defend any action or proceeding
or take any other action involving third persons which the Company deems
reasonably necessary in order to secure or protect the Company's right of
possession, occupancy and use of the Project hereunder, and in such event

                                       22



<PAGE>   29



the Issuer hereby agrees to cooperate fully with the Company and to take all
action necessary to effect the substitution of the Company for the Issuer in any
action or proceeding if the Company shall so request.


                                   ARTICLE VI

                     Maintenance, Modifications, Operation,
                  Insurance and Other Covenants of the Company


         SECTION 6.1. Maintenance of Project. The Issuer and the Company agree
that the Company will (i) maintain, repair and operate the Project; and (ii)
pay, as the same respectively become due, all taxes and governmental charges of
any kind whatsoever that may at any time be lawfully assessed or levied against
the Company or the Issuer with respect to the Project, the Project Site or any
portion thereof or with respect to the original issuance of the Bonds,
including, without limiting the generality of the foregoing, any taxes levied
against the Company or the Issuer upon or with respect to the income or profits
of the Issuer from the Project or any charge on the Loan Installments prior to
or on a parity with the charge under the Indenture thereon and the pledge or
assignment thereof to be created and made in the Indenture, and including all ad
valorem taxes lawfully assessed upon the Project, all utility and other charges
incurred in the operation, maintenance, use, occupancy and upkeep of the
Project, all assessments and charges lawfully made by any governmental body
against the Company or the Issuer for or on account of the Project and in
addition any excise tax levied against the Company or the Issuer on the Loan
Installments; provided, however, that nothing in this subsection (ii) shall
require the payment of any such tax or charge or require the Company to make
provision for the payment thereof, so long as the validity thereof shall be
contested in good faith by the Company by appropriate legal proceedings; further
provided, that with respect to special assessments or other governmental charges
that may lawfully be paid in installments over a period of years, the Company
shall be obligated to pay only such installments as are required to be paid
during the Agreement Term.


         SECTION 6.2.  Conditions to Changes in the Project.  The right of the
Company to make any changes in the Project in the manner hereinafter provided in
this Article VI is ex-

                                       23



<PAGE>   30


pressly subject to the conditions set forth in Paragraph 6 of the Mortgage.


         SECTION 6.3. After-Acquired Property Not Part of the Project.  All
buildings, structures, and improvements, acquired, constructed, or installed
with the proceeds of the Bonds, all substitutions and replacements of or for
such property, and all fixtures now or hereafter installed in or attached to the
Project or located above, upon or under the Project Site so as to preclude the
removal without material injury to the Project or the Project Site, shall be
deemed part of the Project and subject to the mortgage and security interest
granted by Section 8.6 hereof. Except as provided in paragraph 9 of the Mortgage
relating to substitutions and replacements of components of the Project, all
other property of every kind or nature, whether now owned or after-acquired,
shall be constructed, placed or installed in or on the Project or the Project
Site shall not be deemed part of the Project or subject to the security interest
granted hereunder, shall remain the property of the Company, and may be altered,
removed, replaced or otherwise used by the Company at any time so long as the
Company is not in default hereunder and the conditions of paragraph 6 of the
Mortgage are complied with.


         SECTION 6.4. Removal or Disposition. The Company from time to time, at
its own cost and expense, may demolish, remove or dispose of any structure,
fixtures or other improvements now or hereafter existing as part of the Project
only in accordance with the terms of Paragraphs 6, 8 and 9 of the Mortgage.


         SECTION 6.5. No Abatement of Loan Installments; Damages, The
demolition, substitution or removal of any property shall not result in any
abatement or diminution of Loan Installments payable under the Note or this
Agreement.


         SECTION 6.6. Covenant Against Unauthorized Removal.  Except as
otherwise provided in Article VI hereof, the Company shall not remove any of the
Project or any part thereof from the Project Site.


         SECTION 6.7.  Liens and Encumbrances.  The Company represents and
warrants that, as of the date of execution of this Agreement, there exists no
lien, charge or encumbrance,

                                       24



<PAGE>   31



other than Permitted Encumbrances, upon the Project or the Project Site, prior
to the mortgage and security interest of the Issuer and the Trustee therein, as
herein contemplated. Except as otherwise permitted by the provisions of this
Agreement, the Company will not create or suffer to be created any lien,
encumbrance or charge upon the Project Site other than Permitted Encumbrances,
and subject to the provisions of Section 6.8 hereof relating to permitted
contests, and the Company will satisfy or cause to be discharged, or will make
adequate provision to satisfy and discharge, within sixty (60) days after the
same shall occur, all lawful claims and demands (excepting such as may arise
from or in connection with the construction of the Project and as are payable
from the moneys on deposit in the Construction Fund) for labor, materials,
supplies or other items which, if not satisfied, might by law become a lien upon
the project as defined in the Mortgage or the Project Site. If any such lien
shall be filed or asserted against the Project as defined in the mortgage or the
Project Site by reason of work, labor, services or materials supplied or claimed
to have been supplied the Company shall, subject to the provisions of Section
6.8 hereof relating to permitted contests, within thirty (30) days after the
Company receives notice of the filing thereof or the assertion thereof, cause
the same to be discharged of record, or effectively prevent the enforcement or
foreclosure thereof against the Company by contest, payment, deposit, bond,
order of court or otherwise. Nothing contained in this Section 6.7 shall be
construed as prohibiting the Company from purchasing additional items of
machinery, equipment or other personal property that do not constitute part of
the Project under an installment purchase and security agreement, purchase money
mortgage agreement, lease-purchase agreement or similar contractual obligation
in which the seller retains a security interest.


         SECTION 6.8. Permitted Contests. The Company shall not be required to
pay any tax, charge, assessment or imposition referred to in Section 6.1 hereof,
nor to remove any lien, charge or encumbrance required to be removed under
Section 6.7 hereof, so long as the Company shall contest or there shall be
contested on the Company's behalf, in good faith and at the Company's own cost
and expense, the amount or validity thereof, in an appropriate manner or by
appropriate proceedings which shall operate during the pendency thereof to
prevent the collection of or other realization upon the tax, assessment, levy,
fee, rent, charge, lien or encumbrance so contested, and the sale, forfeiture,
or loss of the Project or the Project Site or any part thereof or

                                       25



<PAGE>   32



interest therein, to satisfy the same; provided, however, that no such contest
shall subject the Issuer or the Trustee to the risk of any liability. Each such
contest shall be promptly prosecuted to final conclusion (subject to the right
of the Company to settle any such contest), and in any event the Company will
save the Issuer and the Trustee harmless against all losses, judgments, decrees
and costs (including attorneys' fees and expenses in connection therewith) and
will, promptly after the final determination of such contest or settlement
thereof, pay and discharge the amounts which shall be levied, assessed or
imposed or determined to be payable therein, together with all penalties, fines,
interest, costs and expenses thereon or in connection therewith. The Company
shall give the Issuer and Trustee prompt written notice of any such contest.

         If the Trustee shall notify the Company that, in the opinion of counsel
to the Trustee, by nonpayment of any of the foregoing items, the Project, the
Project Site or any substantial part thereof, will be subject to imminent loss
or forfeiture or the obligations of the Company under this Agreement shall be
materially impaired, then the Company shall promptly pay all such unpaid items
and cause them to be satisfied and discharged, or shall promptly provide a bond
sufficient to pay all such unpaid items and cause them to be satisfied and
discharged from such bond upon conclusion of any contest, challenge, or dispute
as to such items.


         SECTION 6.9. Notice of Event of Default. Immediately upon becoming
aware of the existence of any condition or event which constitutes or with the
passage of time or the giving of notice, or both, would constitute an event of
default as defined in Section 9.1 of this Agreement, the Company shall cause to
be furnished to the Trustee and to each Bondholder a written notice specifying
the nature and period of existence thereof and what action the Company is taking
and proposes to take with respect thereto.


         SECTION 6.10. Requested Information. The Company shall cause to be
furnished to the Trustee and to each Bondholder, with reasonable promptness,
such other data and information as the Trustee or such Bondholders may
reasonably request.


         SECTION 6.11.  Inspections, Reports and Financial Statements.  The
Trustee, the Issuer and any holders of twenty-five percent (25%) or more in
aggregate principal

                                       26



<PAGE>   33



amount of Bonds outstanding, through its or their officers, employees,
consultants, attorneys and other authorized representatives, shall have free and
unobstructed access at all reasonable times to the Project and records of the
Company with respect thereto for purposes of inspection. The Company will at any
and all times, upon the written request of the Trustee, the Issuer or the
holders of twenty-five percent (25%) or more in aggregate principal amount of
Bonds outstanding, permit the Trustee, the Issuer or such Bondholders, by its or
their officers, employees, consultants, attorneys or other authorized
representatives, to inspect the books of account, records, reports and other
papers of the Company with respect to the Project, and to take copies and
extracts therefrom, and will afford a reasonable opportunity to such persons to
make any such inspection and to discuss the affairs, finances and accounts of
the Company with respect to the Project with its employees and independent
accountants, and the Company will furnish to the Trustee any and all such other
information as the Trustee may reasonably request, with respect to the
performance by the Company of its covenants under this Agreement. The Company
will supply to the Trustee, within sixty (60) days after receipt by the Company,
a copy of all reports of inspections and accompanying recommendations of all
regulatory, licensing and permitting agencies which inspect the Project. The
Issuer, the Trustee and the Bondholders recognize that certain of the books,
papers and records on the premises of the Company or supplied to the Trustee may
contain confidential and proprietary information, and agree to keep all such
confidential and proprietary information obtained hereunder in strictest
confidence. The Company covenants that it will keep proper books of record and
account in which full, true and correct entries shall be made of all dealings or
transactions of or in relation to the Project, in accordance with generally
accepted accounting principles consistently applied, and will furnish to the
Trustee and to any requesting holder of twenty-five percent (25%) or more in
aggregate principal amount of Bonds outstanding:

                  (a) Annual Statements -- as soon as practicable after the end
         of each fiscal year, and in any event within 120 days thereafter,
         duplicate copies of:

                      (1)  a consolidated balance sheet of the Guarantor, and
                  the Company, and

                      (2)  consolidated statements of revenue and expenses and
                  changes in

                                       27



<PAGE>   34



                  financial position of the Guarantor, and the Company for such
                  fiscal year,

         setting forth in each case in comparative form the figures for the
         previous fiscal year, all in reasonable detail and accompanied by an
         opinion thereon of independent accountants of recognized standing
         selected by the Company, which opinion shall state that such financial
         statements have been prepared in accordance with generally accepted
         accounting principles consistently applied (except for changes in
         application in which such accountants concur) and that the examination
         of such accountants in connection with such financial statements has
         been made in accordance with generally accepted auditing standards and,
         accordingly, included such tests of the accounting records and such
         other auditing procedures as were considered necessary in the
         circumstances.

                  (b) Quarterly Unaudited Statements -- within sixty (60) days
         after the end of each fiscal quarter, except the last fiscal quarter of
         each year, a consolidated balance sheet and statement of income of the
         Guarantor, and the Company as of the end of and for such period in
         reasonable detail, setting forth figures for that period and for the
         corresponding period in the preceding fiscal year, certified, by the
         Company or an accountant employed by it for that purpose, to have been
         prepared in accordance with generally accepted accounting principles,
         consistently applied;

                  (c) Other Reports -- promptly upon receipt thereof and in any
         event within thirty (30) days thereafter any communication from any
         governmental authority, commission or agency having power to license or
         regulate the business and activities carried on with respect to the
         Project regarding any termination or proposed termination of, or any
         material adverse change or proposed change in, any license, permit or
         authority under which the Project is owned, used or operated; and

                  (d) Requested Information -- with reasonable promptness, such
         other data and information as the Trustee or the requesting holder of
         twenty-five percent (25%) or more in aggregate principal amount of
         Bonds outstanding may reasonably request.

                                       28



<PAGE>   35



         SECTION 6.12. Certificate of Compliance and No Default. So long as any
Bonds remain outstanding, the Company shall furnish to the Trustee and to each
Bondholder, as soon as practicable after the end of each calendar quarter, and
in any event within one hundred twenty (120) days thereafter, a certificate of
an executive officer of the Company certifying that:

                  (a) during said period the Company was in compliance with the
         requirements of this Agreement and the documents contemplated hereby
         and the covenants of the Company contained herein and therein; and

                  (b) the Company has reviewed the relevant terms of this
         Agreement and has made, or caused to be made under the Company's
         supervision, a review of the transactions and conditions with respect
         to the Project from the beginning of the accounting period covered by
         the statements being delivered therewith to the date of the certificate
         and that such review has not disclosed the existence during such period
         of any condition or event which constitutes, or with the passage of
         time or giving of notice or both would constitute, an event of default
         as defined in Section 9.1 of this Agreement, or, if any such condition
         or event existed or exists, specifying the nature and period of
         existence thereof and what action the Company has taken or proposes to
         take with respect thereto.

         SECTION 6.13. Insurance. The Company shall throughout the Agreement
Term keep the Project continuously insured in accordance with the provisions of
Paragraph 13 of the Mortgage. If the Company fails to do so, then the Trustee or
the Issuer may obtain such insurance for the protection of the Trustee and the
Issuer, and the Trustee and the Issuer shall be entitled to reimbursement for
any expense thus incurred in accordance with the provisions of Section 9.7
hereof.

         SECTION 6.14. Insurance Proceeds; Condemnation Awards. If prior to the
payment in full of the Bonds (or provision for payment thereof having been made
in accordance with the provisions of the Indenture) the Project, or any part or
component thereof having a value in excess of $150,000, shall be damaged, lost
or destroyed, by whatever cause, or if any public authority or entity, in the
exercise

                                       29



<PAGE>   36



of its power of eminent domain, takes or damages the Project, or any part or
component thereof having a value in excess of $150,000, all of the insurance
proceeds (whether payable from the policies of insurance described in Section
6.13 hereof, Paragraph 13 of the Mortgage, or from other policies of insurance
carried by the Company or third parties), and any award or compensation
resulting from such taking or damage by condemnation, shall be paid to the
Trustee and deposited by it in the Construction Fund established under the
Indenture, and such amounts shall then be applied in accordance with Paragraph
14 of the Mortgage.

         SECTION 6.15. Approvals. Whenever under the provisions of this
Agreement the approval of the Company is required or the Issuer or the Trustee
is required to take some action at the request of the Company, such approval
shall be given or such request shall be made by the Authorized Company
Representative or the Project Manager unless otherwise specified in this
Agreement and the Issuer or the Trustee shall be authorized to act on any such
approval or request and the Company shall have no complaint or recourse against
the Issuer or the Trustee as a result of any such action taken.

         SECTION 6.16. Covenants of Company and Issuer With Respect to Capital
Expenditures. The Issuer is issuing the 1982 Bonds pursuant to an election made
by it under Section 103(b)(6)(D) of the Code. It is the intention of the parties
hereto that the interest on the 1982 Bonds be and remain free from federal
income taxation and to that end the Issuer and the Company do hereby covenant
with each other, with the Trustee and with each of the future holders of any
1982 Bonds, as follows:

                  (a) The Company and the Issuer covenant and represent that
         there have never been issued any bonds with respect to "facilities"
         described in Section 103(b) (6) of the Code which are located in, are
         contiguous to or are integrated with any "facilities" located in,
         Hillsborough County, which bonds would be taken into account in
         determining the aggregate face amount of the 1982 Bonds as provided in
         Section 103(b)(6)(D)(ii) of the Code.

                  (b) The Company further covenants and represents that the
         aggregate principal amount of 1982 Bonds being issued and capital
         expenditures heretofore made (other than those mentioned in Section

                                       30



<PAGE>   37



         103(b)(6)(F) of the Code) with respect to "facilities" described in
         Section 103(b)(6)(E) of the Code which are located in, are contiguous
         to or are integrated with any "facilities" located in, Hillsborough
         County, have not and will not exceed $l0,000,000 (or any such larger
         amount as may be hereafter permitted by the Code without affecting the
         tax-exempt status of the interest on the 1982 Bonds) during the
         six-year period beginning three years before the date of issuance and
         delivery of the 1982 Bonds.

                  (c) The Issuer and the Company further covenant and agree that
         during the three-year period following the date of the issuance and
         delivery of the 1982 Bonds, neither of them shall make or cause or
         permit to be made any capital expenditures (other than those mentioned
         in said Section 103(b)(6)(F) of the Code) with respect to "facilities"
         described in said Section 103(b)(6)(E) of the Code which are located
         in, are contiguous to or are integrated with any "facilities" located
         in, Hillsborough County, which would cause the interest on the 1982
         Bonds to be subject to federal income taxation.

                  (d) The Company further covenants and agrees that should the
         capital expenditures limitation set forth in said Section 103(b)(6)(D)
         and (E) be exceeded during the six-year period referred to therein,
         either through the fault of the Company or through circumstances beyond
         the Company's control, and there shall occur a Determination of
         Taxability as defined in Section 8.3(b) hereof, the Company shall
         promptly comply with the provisions of Section 8.3 hereof.

                  (e) The Company further covenants and agrees that it will
         furnish to the Trustee a certificate of the Project Manager within
         ninety (90) days of the first three anniversary dates of the closing of
         the issuance and delivery of the 1982 Bonds stating that during the
         period beginning three years immediately prior to the date of the
         issuance and delivery of the 1982 Bonds and extending through the
         applicable date such certificate is to cover, capital expenditures
         (including as capital expenditures for this purpose the principal
         amount of the 1982 Bonds) in excess of $10,000,000 (or any such larger
         amount as may be hereafter permitted by law)

                                       31



<PAGE>   38



         have not been paid or incurred with respect to "facilities" described
         in said Section 103(b)(6)(E) of the Code which are located in, are
         contiguous to or are integrated with any "facilities" located in,
         Hillsborough County, Florida.

                  (f) The Company further covenants and agrees that, in
         connection with any lease, rental or other grant or use of part or all
         of the Project, it shall require a covenant that any lessee or user of
         a substantial portion of the Project such that such lessee or user will
         be a principal user of the Project shall also comply with the same
         covenants set forth in Section (a) through (e) and (g) hereof.

                  (g) The Company further covenants that it shall take such
         further actions as are required of a principal user of property
         financed by an issue of obligations which are subject to the
         $10,000,000 limitation of Section 103(b)(6)(D) of the Code, which
         actions are set forth in Section 103(b) (6) of the Code and the
         regulations thereunder, whether said regulations are now or hereafter
         adopted, proposed or temporary, including Section 1.  103-10(b) of said
         regulations, including without limitation the following:

                           (1) the Company shall attach to its income tax return
                  for the current taxable year a copy of the statement of the
                  Issuer electing to have the provisions of Section 103(b)(6)(D)
                  of the Code apply to the 1982 Bonds; and

                           (2) for each applicable taxable year which includes
                  all or any portion of the three-year period following issuance
                  and delivery of the 1982 Bonds, the Company shall file a
                  supplemental statement listing by date and amount any capital
                  expenditures paid or incurred subsequent to the date of
                  issuance and delivery of the 1982 Bonds which are required to
                  be taken into account by Section 103(b)(6)(D) of the Code.
                  Each statement shall be filed with the respective Internal
                  Revenue Service district director or director of the regional
                  service center with whom the federal income tax

                                       32



<PAGE>   39



                  return of the Company and of any other principal user of the
                  Project, as "principal user" is utilized in Section
                  103(b)(6)(D) of the Code, is required to be filed on the due
                  date prescribed for filing such return (without regard to any
                  extensions of time). A copy of each such statement shall also
                  be filed at the same time with the Trustee.

                  (h) The Issuer and the Company further covenant and agree to
         fully comply, during the term of this Agreement, with all effective
         rules, rulings or regulations promulgated by the Department of the
         Treasury or the Internal Revenue Service, with respect to bonds issued
         under Section 103(b)(6)(D) of the Code so as to maintain the tax-exempt
         status of the interest on the 1982 Bonds.

         SECTION 6.17.  Covenant as to Use of Bond Proceeds; Payback Provision.
The Company covenants and agrees that:

                  (a) at all times ninety percent (90%) or more of the net
         proceeds received from the sale of the 1982 Bonds (after payment of the
         costs incurred in connection with the issuance thereof) actually
         disbursed from the Construction Fund, will be used for the acquisition,
         construction, reconstruction or improvement of land or property of a
         character subject to the allowance for depreciation under the Code, and
         will be expended for costs paid and incurred after March 10, 1982,
         which amounts are chargeable to the Project's capital account or would
         be chargeable either with a proper election by the Company (for
         example, under Section 266 of the Code) or but for a proper election by
         the Company to deduct such amounts;

                  (b) the Company will not submit to the Trustee any requisition
         for a disbursement from the Construction Fund if the expenditure of
         such disbursement, when added to all other disbursements under previous
         requisitions, will result in less than ninety percent (90%) of the net
         proceeds received from the sale of the 1982 Bonds actually disbursed to
         that time being applied other than as required by subsection (a) above;
         and

                                       33



<PAGE>   40



                  (c) in the event a disbursement from the Construction Fund is
         made which results in the covenant in subsection (a) above being
         violated, the Company will promptly repay to the Trustee for deposit in
         the Construction Fund such amount as may be necessary for the Company
         to again be in compliance with subsection (a) above.

         SECTION 6.18. Covenant as to Recordation. The Company covenants that it
will cause this Agreement and all supplements hereto or amendments hereof, the
Indenture and all supplements thereto, the Mortgage and the Issuer's assignment
of the Mortgage to the Trustee to be kept, and either recorded and filed, or
notices thereof or financing statements relating thereto recorded and filed, in
such manner and in such places as may be required by law in order to fully
preserve and protect the security of the Bondholders and the rights of the
Issuer and Trustee hereunder and under the Indenture.

                                  ARTICLE VII

                               Special Covenants

         SECTION 7.1. Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Issuer and both the present and future members
of the Issuer, the Issuer's agents, employees and attorneys individually and
personally and the Trustee from any liability or loss resulting from the
construction or operation of the Project, from any cause whatsoever pertaining
to the Project or the use thereof, or from the issuance and sale of the Bonds,
provided that the indemnity provided by this sentence shall be effective only to
the extent of any loss that might be sustained in excess of the proceeds
recovered by the Issuer or the Trustee from any insurance, if any, carried by
the Company with respect to the loss sustained.

         SECTION 7.2. Compliance with All Laws. The Company will comply with all
laws, ordinances, governmental rules and regulations pertaining to the
ownership, use and operation of the Project and all activities associated
therewith, and will not fail to obtain any licenses, permits, franchises or
other governmental authorizations necessary to the ownership of the Project or
the conduct of its

                                       34



<PAGE>   41



activities with respect thereto, which violation or failure to obtain might
materially adversely affect the Project or the use and operation thereof.

         SECTION 7.3. Maintenance of Corporate Existence. The Company agrees
that during the Agreement Term it will maintain its corporate existence, will
not dissolve or otherwise dispose of all or substantially all of its assets and
will not consolidate with or merge into another corporation or permit one or
more other corporations to consolidate with or merge into it; provided, however,
that the Company may, without violating the agreements contained in this
Section, consolidate with or merge into another corporation, or permit one or
more other corporations to consolidate with or merge into it, or transfer to
another corporation all or substantially all of its assets as an entirety if (a)
the corporation surviving such merger or resulting from such consolidation or to
which such transfer shall be made (such corporation being hereinafter called the
"Surviving Corporation"), expressly accepts, assumes and agrees in writing to
pay and perform all of the obligations of the Company and be bound by all of the
agreements of the Company contained in this Agreement to the same extent as if
the Surviving Corporation had originally executed this Agreement in place of the
Company, and the Surviving Corporation, if not a corporation organized pursuant
to the laws of the State of Florida, either files a consent to service of
process with the Secretary of State of the State of Florida or other appropriate
official of the State of Florida and with the Trustee, or qualifies to do
business in the State of Florida, (b) the Surviving Corporation is not in
default under any provision of this Agreement immediately following the
consummation of such merger, consolidation or transfer (the "Transaction"), (c)
the Company shall furnish to the Trustee an opinion of counsel nationally
recognized on the subject of municipal bonds reasonably acceptable to the
Trustee to the effect that as a result of such Transaction, the Bonds have not
and will not become taxable for federal income tax purposes, and (d) in
connection with any such consolidation, merger or transfer there shall be filed
with the Issuer and the Trustee a letter or certificate by a firm of nationally
known independent certified public accountants certifying that after the
consummation of such consolidation, merger or transfer the corporation resulting
from or surviving such consolidation or merger or the corporation to which such
transfer is made will have a net worth after giving effect to such merger,
consolidation or transfer at least equal to the net worth of the Company
immediately prior to such consolidation, merger or transfer.

                                       35



<PAGE>   42



         For purposes of this Section, the net worth of any corporation means,
at any date, the tangible assets, as defined below, of such corporation which
(after deducting depreciation, obsolescence, amortization, and any valuation or
other reserves on account of upward revaluation of assets and without reduction
for any unamortized debt discount or expense) would be shown, in accordance with
generally accepted accounting principles, on its balance sheet, minus
liabilities (other than capital stock and surplus but including all reserves for
contingencies and other potential liabilities) which would be shown, in
accordance with generally accepted accounting principles, on such balance sheet.
In computing such net worth, the term "tangible assets" means total assets
except: (i) that portion of deferred assets and prepaid expenses (other than
prepaid insurance, prepaid payments and prepaid taxes) which do not mature or,
in accordance with generally accepted accounting principles, are not amortizable
within one year from the date of calculation, and (ii) trademarks, trade names,
good will and other similar intangibles.

         SECTION 7.4. Nonassignability. The Company may not assign its rights
under this Agreement without the express written consent of the holders of all
of the outstanding Bonds, which consent and assignment will not relieve the
Company of any obligation hereunder.

         SECTION 7.5.  Payment of Loan Installments.  The Company covenants that
it will pay the Loan Installments as and when the same shall become due.

         SECTION 7.6. No Warranty of Condition or Suitability by the Issuer. The
Issuer makes no warranty, either express or implied, as to the condition of the
Project or that it will be suitable for the Company's purposes or needs.

                                       36



<PAGE>   43



                                  ARTICLE VIII

                       Obligation Continues; Redemption;
                           Prepayment and Abatement;
                         Mortgage and Security Interest

         SECTION 8.1. Redemption of Bonds. At the time the aggregate moneys in
the Redemption Account in the Debt Service Fund are sufficient to redeem all
Bonds or portions thereof, the Issuer has provided in the Indenture for the
Trustee to forthwith take all steps that may be necessary under the applicable
redemption provisions of the Indenture to effect redemption of all or such part
of the outstanding Bonds as may then be subject to redemption.

         SECTION 8.2. Permissible Prepayment of Loan Installments.  There is
expressly reserved to the Company the right, and the Company is authorized and
permitted, on any date, to prepay all or any part of the Loan Installments
payable under Section 5.2 hereof, without premium or penalty, and the Issuer
agrees that the Indenture shall require that the Trustee shall accept such
prepayments when the same are tendered by the Company. If less than all of the
Loan Installments are prepaid, such prepayments shall be applied in
chronological order of the due dates of the Loan Installments. All portions of
the Loan Installments so prepaid under Section 5.2(a) shall be deposited in the
Redemption Account and shall be used for the redemption or purchase of
outstanding Bonds in the manner and to the extent provided in the Indenture.

         SECTION 8.3. Mandatory Prepayment of Loan Installments. The Bonds shall
be redeemed, in inverse order of maturity, from excess construction proceeds as
provided in Section 4.02 and 7.04(c) of the Indenture, and, except as
hereinafter provided, the Company shall prepay all of the Loan Installments and
other amounts payable under the Note and Section 5.2 hereof, and the Issuer
agrees that the Trustee may accept such prepayments of Loan Installments, when
the same are tendered by the Company, upon the occurrence of any of the
following events:

                  (a) As a result of any legislative or administrative action
         (whether state or federal), or of any changes in the Constitution of
         the State of Florida or the Constitution of the United States of
         America, or of a final decree, judgment or order of

                                       37



<PAGE>   44



         any court or administrative body (whether state or federal), this
         Agreement, the Note, the Indenture or the Bonds shall become void or
         unenforceable or impossible of performance in accordance with the
         intent and purposes of the Company and the Issuer expressed in this
         Agreement or as otherwise expressed in the Indenture; or

                  (b) Final action shall have been taken by the Internal Revenue
         Service, the Department of the Treasury or any other governmental
         agency, authority or instrumentality, or an opinion of any court shall
         have been rendered, or other event shall have occurred, or other
         circumstances shall exist, any of which shall result in any part or all
         of the interest payable with respect to the Bonds not to be exempt from
         federal income taxes, other than those Bonds held by any person who,
         within the meaning of Section 103(b) (10) of the Internal Revenue Code
         of 1954, as amended (the "Code"), shall be deemed a "substantial user"
         of the Project or a "related person" as defined in the Code. As used in
         this Article VIII, the term "final action" shall mean either (i) action
         taken by an administrative agency of the federal government which
         cannot be appealed administratively or in a court of competent
         jurisdiction as to which the time for administrative appeal or court
         actions has expired; or (ii) action by any court of competent
         jurisdiction as to which the time to appeal has expired or as to which
         an appeal has been denied or dismissed without further right of appeal.
         Any such final action shall be referred to herein as a "Determination
         of Taxability"; or

                  (c) If the Project or the Mortgaged Property described in the
         Mortgage, or any part thereof having a value in excess of $1,000,000,
         shall be damaged, lost or destroyed, or taken or damaged by any public
         authority in the exercise of its power of eminent domain and the
         Company does not elect to repair, rebuild, replace or restore such
         property within 120 days after the deposit of funds related thereto
         with the Trustee, all as provided in Section 14 of the Mortgage.

         Upon the occurrence of any condition described in (a), (b) or (c)
above, except as hereinafter provided, all remaining Loan Installments shall
immediately become due and payable in such manner as may be required by the
Indenture,

                                       38



<PAGE>   45



and upon written notice to the Company by the Trustee. If as a consequence of
the occurrence of an event described in Section 8.3(b) above, it shall be
necessary for the owner of any Bond to include interest received on any prior
interest payment date in its gross income for federal income tax purposes, then
the Company shall be required to make payment of a Loan Installment in the
amount required by Section 4.02 of the Indenture.

         Notwithstanding noncompliance with any covenant or agreement by the
Company to the contrary, the Company may, at its election, rather than prepay
the Loan Installments and other amounts payable under the Notes and Section 5.2
hereof (excluding the amounts required to be paid under the last sentence of the
immediately preceding paragraph, which amounts shall be paid, in any event, by
the Company), upon the occurrence of any Determination of Taxability, elect to
increase the Loan Installments payable under Section 5.2 hereof in the manner
provided in Section 4.03 of the Indenture by the amount necessary for the
payment of the alternative interest rate as provided in the Indenture; provided,
however, that if the Company makes such election, the Company shall be obligated
either to register the Bonds under the Securities Act of 1933, as amended, or to
obtain an opinion of counsel acceptable to the Trustee and the Issuer to the
effect that such registration is not required. Notwithstanding the foregoing, if
any legal or regulatory requirement applicable to any Bondholder shall prohibit
said Bondholder from receiving the increased interest payments contemplated by
this paragraph, Company, to the extent required by such legal or regulatory
requirement, shall increase the Loan Installments by the amount necessary to
redeem the Bonds held by such Bondholder.

         SECTION 8.4. References to Bonds Ineffective After Bonds Paid.  Upon
payment in full of the Bonds (or provision for payment thereof having been made
in accordance with the provisions of the Indenture) and all fees, charges and
expenses of the Trustee and the Issuer, all references in this Agreement to the
Bonds and the Trustee shall be ineffective and neither the Trustee nor the
Bondholders shall thereafter have any rights hereunder, excepting those that
shall have theretofore vested.

         SECTION 8.5.  Vesting of Interest in Issuer.  The Company and the
Issuer agree and covenant that this Agreement, when executed and delivered, will
create in and vest in the Issuer such interests, estates, rights and title

                                       39


<PAGE>   46

in the Project to enable the Issuer to issue the Bonds, secure the repayment of
the Bonds, cause the Project to be constructed by the Company, and loan funds
for the construction of the Project to the Company with repayment therefor to be
made by the Company in installments, in the manner provided by, and in full
compliance with, the Act.



         SECTION 8.6.  Mortgage and Security Interest.  In order to secure its
performance under this Agreement and the Note, including without limitation its
obligation to pay the Loan Installments, and its obligations under Sections 9.5
and 9.7 hereof, the Company hereby mortgages, grants, conveys and assigns to the
Issuer or directly to the Trustee for and on behalf of the Issuer and grants the
Issuer and/or the Trustee a security interest for the benefit of the Trustee and
the Bondholders, equally and ratably without preference or priority as to lien
or source of payment of any one Bond over any other Bond, in:

                 (a)  The Project as defined in the mortgage, and each and every
         component thereof;

                 (b)  The Company's fee simple interest in the Project Site
         and all fixtures located thereon;

                 (c)  All other property or collateral held by or assigned or
         pledged to the Issuer or the Trustee under this Agreement, the
         Indenture or the Mortgage; and

                 (d)  All proceeds (including insurance proceeds) and products
         of any of the foregoing.

         To effectuate the foregoing and simultaneously with or prior to the
delivery of the Bonds, the Company will execute and deliver to the Issuer or
directly to the Trustee for and on behalf of the Issuer and cause to be
recorded, where appropriate, (i) appropriate UCC financing statements pertaining
to the collateral described in subparagraphs (a), (b), (c) and (d) above, (ii)
the Mortgage and (iii) an assignment of the Note.

         The Company represents and warrants that all of the collateral
described above is, on the date hereof, free and clear of all liens, charges,
encumbrances and restrictions, except Permitted Encumbrances, and covenants to
preserve and protect the Issuer's and Trustee's rights therein against all
claims, liens, charges, encumbrances and restrictions,

                                       40

<PAGE>   47

except Permitted Encumbrances, at all times during the Agreement Term.

         The Company hereby agrees to pledge and assign to the Trustee, or to
authorize the Issuer to pledge and assign to the Trustee, for the benefit of the
Bondholders, all of its rights and interests in and to the collateral described
above and the documents contemplated hereby.



                                   ARTICLE IX

                         Events of Default and Remedies



         SECTION 9.1.  Events of Default Defined.  The following shall be
"events of default" under this Agreement, and the terms "event of default" or
"default" shall mean, whenever they are used in this Agreement, any one or more
of the following events:

                 (a)  Failure by the Company to pay or cause to be paid when due
         or within ten (10) days thereafter that portion of the Loan
         Installments required to be paid under Section 5.2(a) hereof and under
         the Note.

                 (b)  Failure by the Company to pay or cause to be paid when due
         or within ten (10) days thereafter that portion of the Loan
         Installments required to be paid under Sections 5.2(b) and 5.2(c) and
         its obligations under Sections 9.5 or 9.7 hereof.

                 (c)  Failure by the Company to observe and perform in any
         material respect any covenant, condition or agreement in this
         Agreement, the Mortgage or any other document contemplated hereby on
         the Company's part to be observed or performed or the conditions and
         obligations which are imposed upon the Company as contemplated by the
         Indenture or any other certificate or document contemplated hereby in
         connection with the issuance or sale of the Bonds on the Company's part
         to be observed or performed, other than as referred to in subsections
         (a) and (b) of this Section, and such failure shall continue unremedied
         for a period of thirty (30) days after written notice, specifying such
         failure and requesting that it be remedied, given to the Company by the
         Issuer or the Trustee, unless the


                                      41


<PAGE>   48

         Issuer and the Trustee (with any required consent of the Bondholders
         under the provisions of the Indenture) shall agree in writing to an
         extension of such time prior to its expiration.

                 (d)  The filing by the Company or the Guarantor of a voluntary
         petition in bankruptcy, or failure by the Company promptly to institute
         judicial proceedings to lift any execution, garnishment or attachment
         of such consequence as will materially impair the Company' s
         obligations hereunder, or the adjudication of the Company as a
         bankrupt, or assignment by the Company for the benefit of its
         creditors, or the entry by the Company into an agreement of composition
         with its creditors.

                 (e)  The occurrence of an event of default under the Indenture,
         the Mortgage or the Unconditional Guaranty dated the date hereof
         between the Guarantor and the Trustee.

                 (f)  The Company or the Guarantor shall fail to make any
         payment on indebtedness for borrowed money (exclusive of the $6,500,000
         principal amount of 10-5/8% senior notes due 1993 of the Guarantor) in
         excess of $150,000; or an event of default shall exist under any
         mortgage, indenture of trust or other agreement evidencing the
         indebtedness of the Company or the Guarantor for borrowed money
         (exclusive of the $6,500,000 principal amount of 10-5/8% senior notes
         due 1993 of the Guarantor) in excess of $150,000, the effect of which
         is to cause, or to permit any holder of such indebtedness to cause,
         such indebtedness to become due prior to its stated maturity; and, in
         either case, such conditions shall continue unremedied for a period of
         sixty (60) days after the Company shall become aware of such
         conditions.

                 (g)  The entry of a final judgment or judgments for the payment
         of money aggregating in excess of $150,000 against the Company or the
         Guarantor, any one of which remains outstanding for more than sixty
         (60) days from the date of its entry and has not been discharged in
         full or stayed.

                 (h)  Any material representation or warranty by the Company in
         this Agreement, as contemplated by the Indenture, or as provided in any
         other certificate, document or agreement given by the


                                       42

<PAGE>   49

         Company in connection with the issuance or sale of the Bonds shall have
         been untrue in any material respect at the time such representation or
         warranty was given or made, the result of which would have a material
         adverse effect upon the ability of the Company to perform the Company's
         obligations under such documents.

                 (i)  In the good faith opinion of the Trustee, any material
         adverse change in the financial status of the Company or the Guarantor.



         SECTION 9.2.  Remedies on Default.  In the event any of the Bonds shall
at the time be outstanding and unpaid and provision for the payment thereof
shall not have been made in accordance with the provisions of the Indenture,
whenever any event of default referred to in Section 9.1 hereof shall have
happened and be subsisting, the Trustee, or the Issuer if the Trustee shall have
resigned and its successor shall not then have been appointed, may take any one
or more of the following remedial steps:

                 (a)  Declare all Loan Installments payable under Section 5.2
         hereof and all amounts payable under the Note for the remainder of the
         Agreement Term to be immediately due and payable, whereupon the same
         shall become immediately due and payable.

                 (b)  Foreclose on the Mortgage and other collateral described
         in Section 8.6 above, holding the Company liable for the difference
         between the amounts received and the Loan Installments and other
         amounts payable by the Company hereunder.

                 (c)  Inspect, examine and make copies of the books and records
         and any and all accounts and data of the Company relating to the use
         and operation of the Project.

                 (d)  Take all other actions and pursue all other remedies
         available under any other contract or agreement or otherwise by
         statute, at law or in equity, whether or not inconsistent with the
         foregoing, that may appear necessary or appropriate to collect the sums
         then due and thereafter to become due from the Company by reason of
         this Agreement, or to enforce specific performance and observance of
         any obligation, agreement or covenant of the Company under this
         Agreement.

                                       43


<PAGE>   50

         Any amounts collected pursuant to action taken under this Section,
after subtracting all costs and expenses and other deductions herein
contemplated, shall be paid into the Debt Service Fund and applied in accordance
with the provisions of the Indenture.



         SECTION 9.3.  Authorization to Foreclose.  In order to further and more
fully secure the payment of the principal of and interest on the Bonds upon the
happening of any event of default as herein provided, the Issuer and the Company
hereby authorize and permit the Trustee for and on behalf and in the name of the
Issuer to foreclose the Company's and the Issuer's interest in the Mortgage by
foreclosure in the manner provided by the Florida Statutes which remedy shall be
in addition to the other remedies provided in any other applicable provisions of
this Agreement.



         SECTION 9.4.  No Remedy Exclusive.  No remedy herein conferred upon or
reserved to the Issuer or the Trustee is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given under this Agreement or now
or hereafter existing at law or in equity or by statute.  No delay or omission
to exercise any right or power accruing upon any default shall impair any such
right or power or shall be construed to be a waiver thereof, but any such right
and power may be exercised from time to time and as often as may be deemed
expedient.  In order to entitle the Issuer or the Trustee to exercise any remedy
reserved to either in this Article, it shall not be necessary to give any
notice, other than such notice as may be herein expressly required.  Such rights
and remedies as are given the Issuer hereunder shall also extend to the Trustee,
and the Trustee and the holders of the Bonds issued under the Indenture shall be
deemed third party beneficiaries of all covenants and agreements herein
contained.



         SECTION 9.5.  Agreement to Pay Attorneys' Fees and Expenses.  If the
Company defaults under any of the provisions of this Agreement and the Issuer
and the Trustee, or either of them, should employ attorneys or incur other
expenses for the collection of the Loan Installments or the enforcement of
performance or observance of any obligation or agreement of the Company in the
Note or herein contained, the Company agrees that the Company will on demand
therefor pay to the Issuer, the Trustee, or both, as the case may be, the
reasonable fees of such attorneys (including fees on ap-

                                       44


<PAGE>   51

peal) and such other expenses so incurred by the Issuer and the Trustee,
together with interest thereon at the maximum lawful rate from the date of
demand to the date of payment.



         SECTION 9.6.  No Additional Waiver Implied by One Waiver.  In the event
any agreement contained in this Agreement should be breached by either party and
thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.  No waiver granted by the Issuer with respect to the Project or the
rights or remedies hereunder or under the Indenture which would adversely affect
the rights and interests of the Trustee or the Bondholders shall be effective
without the written consent of the Trustee.



         SECTION 9.7.  Issuer's Right to Advance Funds upon Default;
Reimbursement of Same.  Immediately upon either the Issuer's or the Trustee's
obtaining knowledge of the occurrence of any event of default it shall give
written notice of such occurrence to the other and to the Company.  With respect
to any default by the Company of the type described in Section 9.1 of this
Agreement, the Issuer and the Trustee shall have the right (but may never be
required) to advance from any funds legally available for such purpose the sum
required to cure such default; and the Issuer and the Trustee shall be entitled
to receive from the Company reimbursement of such sum upon demand, together with
interest thereon from the date of such advance to the date of reimbursement at
the maximum lawful rate and expenses of collecting the same, including
reasonable attorneys' fees whether suit be brought or not.



                                   ARTICLE X

                                 Miscellaneous



         SECTION 10.1.  Notices.  All notices, certificates or other
communications hereunder shall be sufficiently given and shall be deemed given
on the second day following the day on which the same has been mailed by
registered mail, postage prepaid, addressed as follows:

         To the Bondholders, addressed to their addresses as they appear on the
         registration books provided for in the Indenture.

                                       45

<PAGE>   52

         If to the Issuer:        Hillsborough County Industrial
                                   Development Authority
                                  c/o Mr. Warren M. Cason
                                  Post Office Box 2150
                                  Tampa, Florida  33601


         If to the Company:       Progressive American Insurance
                                   Company
                                  Suite 900
                                  410 Ware Boulevard
                                  Tampa, Florida 33619

                                  Attention:  Jerry Shroat
                                              President

                                  with copies to:

                                  The Progressive Corporation 
                                  6300 Wilson Mills Road
                                  Mayfield Village, Ohio 44143

                                  Attention:  Howard Zelikow
                                              Treasurer


         If to the Trustee:       Sun Bank, N.A.
                                  200 5. Orange Avenue
                                  Orlando, Florida 32802

                                  Attention:  Corporate Trust
                                              Department

A duplicate copy of each notice, certificate or other communication given
hereunder by either the Issuer or the Company to the other shall also be given
to the Trustee.  The Issuer, the Company, and the Trustee may, by notice given
hereunder, designate any further or different addresses to which subsequent
notices, certificates or other communications shall be sent.



         SECTION 10.2.  Binding Effect; Controlling Law.  This Agreement shall
inure to the benefit of and shall be binding upon the Issuer, the Company and
their respective successors and assigns, subject, however, to the limitations
contained in Section 7.3 hereof, and shall be governed by and construed in
accordance with the laws of the State of Florida.

                                       46


<PAGE>   53

         SECTION 10.3.  Severability.  In the event any provision of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.



         SECTION 10.4.  Amounts Remaining in Funds.  It is agreed by the parties
hereto that any amounts remaining in the Debt Service Fund or the Construction
Fund upon expiration or sooner termination of the Agreement Term, as provided in
this Agreement, after payment in full of the Bonds (or provision for payment
thereof having been made in accordance with the provisions of the Indenture),
and the fees, charges and expenses of the Trustee, the bond registrar, the
paying agents and the Issuer in accordance with the Indenture, shall belong to
and be paid to the Company by the Trustee as overpayment of the Loan.



         SECTION 10.5.  Complete Agreement; Supplements or Amendment.  This
Agreement, along with the Note, represent the entire agreement between the
parties.  This Agreement may be supplemented, modified or amended only in the
manner either as provided in this Agreement or as provided by Article XVI of the
Indenture, subsequent to the issuance of the Bonds and prior to the payment in
full of the Bonds (or provision for the payment thereof having been made in
accordance with the provisions of the Indenture), and this Agreement may not be
effectively amended, changed, modified, altered or terminated without the
concurring written consent of the Trustee, given in accordance with the
provisions of the Indenture or this Agreement.



         SECTION 10.6.  Net Contract.  This Agreement shall be deemed and
construed to be a "net contract," and the Company shall pay absolutely net all
Loan Installments and all other payments required hereunder, during the
Agreement Term, free of any deductions, without abatement, diminution or
set-off.



         SECTION 10.7.  Arbitrage; Preservation of Tax Exemption.  The Issuer
and the Company each agree and covenant that the proceeds of the Bonds and the
funds held by the Trustee under the Indenture will not be used in such manner as
to cause any Bond to be an "arbitrage bond" within the meaning of Section 103(c)
of the Code, as implemented by such proposed, temporary and permanent
regulations as have 

                                       47


<PAGE>   54

been or may hereafter be adopted by the United States Treasury Department
thereunder.  The Company further agrees and covenants not to take any action,
the result of which would cause or be likely to cause the interest payable with
respect to the Bonds not to be exempt from federal income taxes, other than
those Bonds held by any person who, within the meaning of Section 103(b) (10) of
the Code, shall be deemed a "substantial user" of the Project or a "related
person" as defined in the Code.



         SECTION 10.8.  Controlling Law; Members of Issuer Not Liable.  All
covenants, stipulations, obligations and agreements of the Issuer contained in
this Agreement shall be deemed to be covenants, stipulations, obligations and
agreements of the Issuer to the full extent authorized by the Act and provided
by the Constitution and laws of the State of Florida.  No covenant, stipulation,
obligation or agreement contained herein shall be deemed to be a covenant,
stipulation, obligation or agreement of any present or future member, agent or
employee of the Issuer in his individual capacity, and neither the members of
the Issuer nor any official executing this Agreement shall be subject to any
personal liability or accountability by reason of the execution by the Issuer or
such members thereof.



         SECTION 10.9.  Company Approval of Indenture.  The Company has reviewed
the Indenture and the form of the 1982 Bonds and the Company hereby approves the
form of the Indenture and the 1982 Bonds and covenants that it will faithfully
perform at all times any and all covenants, undertakings, stipulations and
provisions contained in the Indenture, in the 1982 Bonds authenticated and
delivered thereunder and in all proceedings of the Issuer pertaining thereto, on
its part to be observed or performed, whether express or implied; provided
however that no amendment or revision to the Indenture or supplemental indenture
shall be effective unless approved by the Company.



         SECTION 10.10.  Further Assurances.  The Company shall, at its expense,
promptly and duly execute, acknowledge and deliver to the Trustee and to the
Issuer, as appropriate, such further documents, instruments, financing and
similar statements and assurances and take such further action as may from time
to time be reasonably required or requested by the Trustee and/or the Issuer in
order more effectively to carry out the intent and purposes of this Agreement,
the Note, the Mortgage, the Indenture and the

                                       48


<PAGE>   55

Bonds issued thereunder and other instruments contemplated thereby.



         SECTION 10.11.  Rights not Extinguished.  Any right, interest or remedy
which shall have accrued during the Agreement Term shall not be terminated or
extinguished the expiration or termination of this Agreement but may be enforced
by the party for whose benefit such right, interest or remedy shall have accrued
and may be enforceable by such party in accordance with the terms of this
Agreement if it had not terminated or expired or otherwise in accordance with
law.



         SECTION 10.12.  Execution of Counterparts.  This agreement may be
simultaneously executed in several counterparts, each of which shall be an
original and all of which shall constitute but one and the same instrument.



         IN WITNESS WHEREOF, the Issuer has caused this Agreement to be executed
by its Chairman and the seal of the issuer to be hereunto affixed and attested
by its Assistant Secretary, and the Company has duly executed this Agreement,
all as of the date first above written.

                            HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY
(SEAL)



                            By /s/ Samuel I. Latimer
                               ---------------------------
                               Samuel I. Latimer, Chairman
ATTEST:



/s/ Elsworth G. Simmons
- -----------------------
Elsworth G. Simmons, 
Assistant Secretary

                            PROGRESSIVE AMERICAN INSURANCE COMPANY

(SEAL)


                            By /s/ Charlotte A. Jackson
                               -------------------------
                               Charlotte A. Jackson
                               Vice President

                                       49


<PAGE>   56

ATTEST:




/s/ Robert J. Young
- -------------------
Robert J. Young 
Assistant Secretary




STATE OF FLORIDA

COUNTY OF HILLSBOROUGH


         The foregoing instrument was acknowledged before me this 16th day of
December, 1982, by Samuel I. Latimer and EIlsworth G. Simmons, Chairman and
Assistant Secretary, respectively, of HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT
AUTHORITY, a public body corporate and politic of the State of Florida.




                                  /s/ Gertrude Eaton
                                  ----------------------------
                                  Notary Public

My commission expires: Notary Public, State of Florida at Large
                       My Commission Expires Mar. 8, 1986

(Affix notarial seal) 

                                       50


<PAGE>   57

STATE OF FLORIDA

COUNTY OF HILLSBOROUGH



         The foregoing instrument was acknowledged before me this 16th day of
December, 1982, by  CHARLOTTE A.  JACKSON, and ROBERT L. YOUNG, as Vice
President and Assistant Secretary, respectively, of PROGRESSIVE AMERICAN
INSURANCE COMPANY, a Florida corporation, on behalf of the Corporation.




                                  /s/ Gertrude Eaton
                                  ------------------
                                  Notary Public

My commission expires: Notary Public, State of Florida at Large
                       My Commission Expires Mar. 8, 1986

(Affix notarial seal)




<PAGE>   58

                               INDENTURE OF TRUST







                         HILLSBOROUGH COUNTY INDUSTRIAL
                             DEVELOPMENT AUTHORITY

                                   as Issuer





                                      AND





                                 SUN BANK, N.A.

                                   as Trustee







                         Dated as of December 16, 1982


<PAGE>   59

                               INDENTURE OF TRUST

                               Table of Contents



            (The Table of Contents is not a part of the Indenture of
                Trust but is for convenience of reference only)




                                   ARTICLE I
                                  Definitions

                                                                            Page
Definitions

Section 1.01.    Definitions  . . . . . . . . . . . . . . . . . . . . . . .    1
          "Act"     . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1
          "Additional Bonds"  . . . . . . . . . . . . . . . . . . . . . . .    1
          "Agreement"   . . . . . . . . . . . . . . . . . . . . . . . . . .    1
          "Assignment of Mortgage"  . . . . . . . . . . . . . . . . . . . .    1
          "Authorized Company Representative"   . . . . . . . . . . . . . .    1
          "Bondholder"  . . . . . . . . . . . . . . . . . . . . . . . . . .    1
          "Bond Registrar"  . . . . . . . . . . . . . . . . . . . . . . . .    1
          "Bonds"   . . . . . . . . . . . . . . . . . . . . . . . . . . . .    2
          "1982 Bonds"  . . . . . . . . . . . . . . . . . . . . . . . . . .    2
          "Bond Year"   . . . . . . . . . . . . . . . . . . . . . . . . . .    2
          "Code"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    2
          "Company  . . . . . . . . . . . . . . . . . . . . . . . . . . . .    2
          "Construction Fund"   . . . . . . . . . . . . . . . . . . . . . .    2
          "Cost"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    2
          "Depository"  . . . . . . . . . . . . . . . . . . . . . . . . . .    2
          "Guarantor"   . . . . . . . . . . . . . . . . . . . . . . . . . .    2
          "Guaranty   . . . . . . . . . . . . . . . . . . . . . . . . . . .    2
          "Indenture  . . . . . . . . . . . . . . . . . . . . . . . . . . .    2
          "Investment Obligations"  . . . . . . . . . . . . . . . . . . . .    2
          "Issuer"  . . . . . . . . . . . . . . . . . . . . . . . . . . . .    3
          "Loan Installments"   . . . . . . . . . . . . . . . . . . . . . .    3
          "Mortgage"  . . . . . . . . . . . . . . . . . . . . . . . . . . .    3
          "Note"  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    3
          "Original Purchaser"  . . . . . . . . . . . . . . . . . . . . . .    3
          "Paying Agent"  . . . . . . . . . . . . . . . . . . . . . . . . .    3
          "Prime Rate"  . . . . . . . . . . . . . . . . . . . . . . . . . .    3
          "Project"   . . . . . . . . . . . . . . . . . . . . . . . . . . .    4
          "Project Site"  . . . . . . . . . . . . . . . . . . . . . . . . .    4
          "Resolution"  . . . . . . . . . . . . . . . . . . . . . . . . . .    4
          "Trustee"   . . . . . . . . . . . . . . . . . . . . . . . . . . .    4
Section 1.02.             Uses of Phrases . . . . . . . . . . . . . . . . .    4


<PAGE>   60

                                   ARTICLE II
                        Factual Recitals; Form of Bonds

Section 2.01.    Issuer's Findings  . . . . . . . . . . . . . . . . . . . .    5
Section 2.02.    Form of 1982 Bonds . . . . . . . . . . . . . . . . . . . .    6


                                  ARTICLE III
                           Execution, Authentication,
                       Delivery and Registration of Bonds

Section 3.01.    Limitation on Issuance of Bonds  . . . . . . . . . . . . .   14
Section 3.02.    Details of Bonds . . . . . . . . . . . . . . . . . . . . .   14
Section 3.03.    Authentication of Bonds  . . . . . . . . . . . . . . . . .   15
Section 3.04.    Registration and Exchange of Bonds . . . . . . . . . . . .   15
Section 3.05.    Transfer of Bonds  . . . . . . . . . . . . . . . . . . . .   16
Section 3.06.    Ownership of Bonds . . . . . . . . . . . . . . . . . . . .   16
Section 3.07.    Authorization of 1982 Bonds  . . . . . . . . . . . . . . .   17
Section 3.08.    Issuance of Additional Bonds . . . . . . . . . . . . . . .   19
Section 3.09.    Mutilated, Destroyed or Lost Bonds . . . . . . . . . . . .   22
Section 3.10.    Issuance of Refunding Bonds  . . . . . . . . . . . . . . .   24


                                   ARTICLE IV
                              Redemption of Bonds

Section 4.01.    Optional Redemption Without Premium .  . . . . . . . . . .   25
Section 4.02.    Extraordinary Mandatory Redemption of Bonds
                  Without Premium . . . . . . . . . . . . . . . . . . . . .   25
Section 4.03.    Election to Pay Additional Rate of Interest  . . . . . . .   27
Section 4.04.    Additional Bonds . . . . . . . . . . . . . . . . . . . . .   28


                                   ARTICLE V
                          Requirements for Redemption
                                    of Bonds

Section 5.01.    Notice of Redemption of Bonds  . . . . . . . . . . . . . .   28
Section 5.02.    Effect of Notice of Redemption . . . . . . . . . . . . . .   28
Section 5.03.    Redemption of Portion of Registered Bonds  . . . . . . . .   29
Section 5.04.    Cancellation of Redeemed Bonds   . . . . . . . . . . . . .   29
Section 5.05.    Bonds Called for Redemption Deemed Not Outstanding . . . .   29


                                       ii


<PAGE>   61

                                   ARTICLE VI
                               Construction Fund

Section 6.01.    Creation . . . . . . . . . . . . . . . . . . . . . . . . .   30
Section 6.02.    Payments from Construction Fund  . . . . . . . . . . . . .   30
Section 6.03.    Cost of Project  . . . . . . . . . . . . . . . . . . . . .   30
Section 6.04.    Prerequisites to Payment . . . . . . . . . . . . . . . . .   31
Section 6.05.    Reliance on Certificates . . . . . . . . . . . . . . . . .   31
Section 6.06.    Establishment of Completion Date . . . . . . . . . . . . .   31


                                  ARTICLE VII
                               Revenues and Funds

Section 7.01.    Covenants of the Issuer and the Trustee  . . . . . . . . .   31
Section 7.02.    Creation of Debt Service Fund and Accounts Therein . . . .   32
Section 7.03.    Provisions for Payment of Bonds from Interest and
                  Principal Account . . . . . . . . . . . . . . . . . . . .   33
Section 7.04.    Application of Moneys in Redemption Account  . . . . . . .   34
Section 7.05.    Application of Pledged Moneys  . . . . . . . . . . . . . .   35
Section 7.06.    Unclaimed Funds  . . . . . . . . . . . . . . . . . . . . .   36
Section 7.07.    Cancellation of Bonds upon Payment . . . . . . . . . . . .   36


                                  ARTICLE VIII
                 Depositories of Moneys, Security for Deposits
                            and Investment of Funds

Section 8.01.    Deposits Constitute Trust Funds  . . . . . . . . . . . . .   36
Section 8.02.    Investment of Moneys . . . . . . . . . . . . . . . . . . .   37


                                   ARTICLE IX
                    Grant of Mortgage and Security Interest

Section 9.01.    Grant of Mortgage and Security Interest  . . . . . . . . .   38


                                   ARTICLE X
                              Particular Covenants

Section 10.01.   Covenant of Issuer as to Performance of Obligations  . . .   39
Section 10.02.   Covenant to Perform Undertakings . . . . . . . . . . . . .   39
Section 10.03.   Covenant to Perform Further Acts . . . . . . . . . . . . .   40


                                      iii




<PAGE>   62

Section 10.04.   Covenant to Pay Taxes  . . . . . . . . . . . . . . . . . .   40
Section 10.05.   Covenant to Maintain and Operate . . . . . . . . . . . . .   40
Section 10.06.   Covenant to Insure; Application of insurance Proceeds. . .   40
Section 10.07.   Covenant as to Recordation . . . . . . . . . . . . . . . .   41
Section 10.08.   Covenant to Enforce Rights . . . . . . . . . . . . . . . .   41
Section 10.09.   Covenant as to Performance of Obligations  . . . . . . . .   41


                                   ARTICLE XI
                          Events of Default; Remedies

Section 11.01.   Events of Default  . . . . . . . . . . . . . . . . . . . .   42
Section 11.02.   Acceleration of Maturities . . . . . . . . . . . . . . . .   43
Section 11.03.   Enforcement of Remedies  . . . . . . . . . . . . . . . . .   44
Section 11.04.   Pro Rata Application of Funds  . . . . . . . . . . . . . .   45
Section 11.05.   Effect of Discontinuing Proceedings  . . . . . . . . . . .   46
Section 11.06.   Directions to Trustee as to Remedial Proceedings . . . . .   47
Section 11.07.   Restrictions on Actions by Individual Bondholders  . . . .   47
Section 11.08.   Appointment of a Receiver  . . . . . . . . . . . . . . . .   48
Section 11.09.   Enforcement of Rights of Action  . . . . . . . . . . . . .   48
Section 11.10.   No Remedy Exclusive  . . . . . . . . . . . . . . . . . . .   48
Section 11.11.   Delay not a Waiver . . . . . . . . . . . . . . . . . . . .   48
Section 11.12.   Notice of Default  . . . . . . . . . . . . . . . . . . . .   49
Section 11.13.   Additional Remedies  . . . . . . . . . . . . . . . . . . .   49


                                  ARTICLE XII
                         Concerning the Trustee, Paying
                            Agent and Bond Registrar

Section 12.01.   Acceptance of Trusts; Performance of Duties  . . . . . . .   49
Section 12.02.   Trustee Entitled to Indemnity  . . . . . . . . . . . . . .   50
Section 12.03.   Limitation on Obligations and Responsibilities . . . . . .   50
Section 12.04.   Limitation' on Liability . . . . . . . . . . . . . . . . .   50
Section 12.05.   Compensation of Trustee  . . . . . . . . . . . . . . . . .   51
Section 12.06.   Annual Statement . . . . . . . . . . . . . . . . . . . . .   52
Section 12.07.   Reliance on Certificates . . . . . . . . . . . . . . . . .   52
Section 12.08.   Notice of Defaults . . . . . . . . . . . . . . . . . . . .   53
Section 12.09.   Trustee as Bondholder  . . . . . . . . . . . . . . . . . .   53
Section 12.10.   Trustee not Responsible for Recitals . . . . . . . . . . .   53
Section 12.11.   Reliance on Certain Documents  . . . . . . . . . . . . . .   53
Section 12.12.   Trustee Not Required to Give Bond  . . . . . . . . . . . .   54


                                       iv




<PAGE>   63

Section 12.13.   Resignation  . . . . . . . . . . . . . . . . . . . . . . .   54
Section 12.14.   Removal of Trustee . . . . . . . . . . . . . . . . . . . .   54
Section 12.15.   Appointment and Qualification of Successor Trustee . . . .   55
Section 12.16.   Vesting of Trusts in Successor . . . . . . . . . . . . . .   56
Section 12.17.   Designation and Succession of Paying Agents  . . . . . . .   56


                                  ARTICLE XIII
                    Execution of Instruments by Bondholders
                        and Proof of Ownership of Bonds

Section 13.01.   Execution of Instruments by Bondholders; 
                  Proof of Ownership of Bonds . . . . . . . . . . . . . . .   57


                                  ARTICLE XIV
                            Supplemental Indentures

Section 14.01.   Supplemental Indentures without Bondholder Consent . . . .   58
Section 14.02.   Modification of Indenture with Consent of Bondholders  . .   59
Section 14.03.   Supplemental Indenture Deemed Part of this Indenture . . .   61
Section 14.04.   Discretion of Trustee in Executing Supplemental
                  Indentures  . . . . . . . . . . . . . . . . . . . . . . .   61


                                   ARTICLE XV
                                   Defeasance

Section 15.01.   Release of Indenture . . . . . . . . . . . . . . . . . . .   61


                                  ARTICLE XVI
                             Supplemental Contracts

Section 16.01.   Supplemental Contracts without Bondholders' Consent  . . .   62
Section 16.02.   Amendment of Contract with Consent of Bondholders  . . . .   63



                                       v



<PAGE>   64

                                  ARTICLE XVII
                            Miscellaneous Provisions

Section 17.01.   Notices  . . . . . . . . . . . . . . . . . . . . . . . . .   64
Section 17.02.   No Third-Party Beneficiaries . . . . . . . . . . . . . . .   65
Section 17.03.   Effect of Partial Invalidity . . . . . . . . . . . . . . .   65
Section 17.04.   Controlling Law; Members of Issuer Not Liable  . . . . . .   65
Section 17.05.   Binding Effect; Controlling Law  . . . . . . . . . . . . .   66
Section 17.06.   Counterparts . . . . . . . . . . . . . . . . . . . . . . .   66
Section 17.07.   Headings not Part of Indenture . . . . . . . . . . . . . .   66
Section 17.08.   Payments Due on Saturdays, Sundays and Holidays  . . . . .   66



                                       vi



<PAGE>   65


                               INDENTURE OF TRUST



THIS INDENTURE OF TRUST, dated as of the 16th day of December 1982, by and 
between the  HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY, a public
body corporate and politic of the State of Florida, as Issuer, and Sun Bank,
N.A., duly organized and existing under the laws of the United States and
having the authority to exercise corporate trust powers, and having its 
principal office in the city of Orlando, Florida, as Trustee,

                              W I T N E S S E T H:

                                   ARTICLE I
                                  DEFINITIONS


         SECTION 1.01. Definitions.  As used herein unless some other meaning is
plainly intended:

         "Act" means the Constitution of the State of Florida, Parts II and III
of Chapter 159, Florida Statutes, and other applicable provisions of law.

         "Additional Bonds" means Bonds of the Issuer authenticated and
delivered under and pursuant to the provisions of Section 3.08 hereof.

         "Agreement" means the Loan and Debt Obligation Agreement dated as of
the date hereof between the Issuer and the Company, as amended from time to
time.

         "Assignment of Mortgage" means the Assignment of Mortgage dated as of
the date hereof from the Issuer to the trustee.

         "Authorized Company Representative" means the person at the time
designated to act on behalf of the Company by written certificate furnished to
the Issuer and the Trustee containing the specimen signature of such person.

         "Bondholder" means the registered owner (or authorized representatives)
of any Bonds at any time outstanding.

         "Bond Registrar" means the registrar appointed by Issuer, from time to 
time, under the provisions of Section 3.05 of this Indenture.



<PAGE>   66
         "Bonds" means the 1982 Bonds issued under this Indenture and any
Additional Bonds.

         "1982 Bonds" means the Hillsborough County Industrial Development
Authority Industrial Development Revenue Bonds (Progressive American Insurance
Company Project), Series 1982, issued hereunder in the aggregate principal
amount of $4,000,000.

         "Bond Year" means the period commencing on the 1st day of January of
any calendar year and ending on the 31st day of December of such calendar year.

         "Code" means the Internal Revenue Code of 1954, as amended.

         "Company" means Progressive American Insurance Company, a Florida
corporation, and its successors and assigns, including any surviving, resulting
or transferee corporation as provided in Section 7.3 of the Agreement.

         "Construction Fund" means the Fund so designated in and established
under Section 6.01 of this Indenture.

         "Cost" as applied to the Project, shall embrace, without intending
thereby to limit or restrict any proper definition of such word under the Act,
all costs of acquisition and construction and all obligations and expenses
incurred by or on behalf of the Issuer or the Company with respect to the
Project, as set forth in Section 6.03 of this Indenture and Section 4.3 of the
Agreement.

         "Depository" means the Trustee or one or more other banks or trust
companies designated by the Issuer with approval of the Trustee that shall have
qualified with all state and federal requirements concerning the receipt of
Issuer funds.

         "Guarantor" means The Progressive Corporation, an Ohio corporation, the
indirect owner of the Company.

         "Guaranty" means the Unconditional Guaranty dated the date hereof
between the Guarantor, as guarantor, and the Trustee and the Issuer.

         "Indenture" means this Indenture of Trust, together with all indentures
supplemental hereto as herein permitted.

         "Investment Obligations" means: (i) negotiable direct obligations of,
or obligations the principal of and













                                       2


<PAGE>   67

interest on which are unconditionally guaranteed by, the United States of
America at the then prevailing market price for such securities, or (ii)
obligations of the Federal Farm Credit Banks, Federal Home Loan Mortgage
Corporation, or Federal Home Loan Bank or its district banks, including Federal
Home Loan Mortgage Corporation participation certificates, or obligations
guaranteed by the Government National Mortgage Association, or (iii)
interest-bearing time deposits or savings accounts in banks organized under the
laws of the State of Florida, in national banks organized under the laws of the
United States and doing business and situated in the State of Florida, in
savings and loan associations, which are under state supervision, or in federal
savings and loan associations located in the State of Florida and organized
under federal law and federal supervision, provided that any such deposits are
secured by collateral as may be prescribed by law; (iv) any investment to the
extent permitted by ss. 625.07 - 625.315, Fla.  Stat. (1981), as amended by ch.
82-243, Laws of Florida; or (v) any other investment to the extent permitted by
the law of the State of Florida.

         "Issuer" means the Hillsborough County Industrial Development
Authority, a public body corporate and politic of the State of Florida duly
created pursuant to the Act.

         "Loan Installments" means the payments described in Section 5.2 of the
Agreement.

         "Mortgage" means the Mortgage and Security Agreement dated the date
hereof between the Company, as mortgagor, and the Issuer, as mortgagee.

         "Note" means the Promissory Note issued by the Company to the Issuer
and dated the date hereof.

         "Original Purchaser" means Sun Bank of Tampa Bay.

         "Paying Agent" means the Trustee and any bank or trust company
designated pursuant to this Indenture to serve in addition to Trustee as a
paying agent or place of payment for the Bonds, and any successors designated
pursuant to this Indenture.

         "Prime Rate" means the prime rate of interest as charged from time to
time by Sun Bank, N.A., or its successors, for ninety-one day unsecured loans;
provided however, if Sun Bank, N.A., does not make ninety-one day unsecured
loans, the Prime Rate shall be such rate for such loans













                                       3


<PAGE>   68

charged by Manufacturers Hanover Trust Company, New York, New York.

         "Project" means, collectively, the acquisition of the Project Site, and
the acquisition, construction and installation thereon, in accordance with the
Plans and Specifications, of structures, fixtures, facilities, equipment and
machinery constituting a headquarters facility for the regional headquarters
office of the Company and its related group of casualty insurers, all as more
particularly described in Exhibit "A" attached hereto and to the Agreement.

         "Project Site" means the lands on which the Project is to be
constructed, as more particularly described in Exhibit "B" attached hereto and
to the Agreement, together with easements appurtenant thereto.

         "Resolution" means a resolution adopted by the Issuer on March 10,
1982, pertaining to the 1982 Bonds, as supplemented and amended by a resolution
adopted by the Issuer on September 22, 1982.

         "Trustee" means Sun Bank, N.A., Orlando, Florida, or its successor or
successors hereafter appointed in the manner provided in this Indenture.


         SECTION 1.02.  Uses of Phrases.  Words of the masculine gender shall be
deemed and construed to include correlative words of the feminine and neuter
genders.  Unless the context shall otherwise indicate, the words "Bond,"
"Bondholder," "registered owner" and "person" shall include the plural as well
as the singular number, and the word "person" shall include corporations and
associations, including public bodies, as well as persons.  "Herein," "hereby,"
"hereunder," hereof," hereinbefore," "hereinafter" and other equivalent words
refer to this Indenture and not solely to the particular portion thereof in
which any such word is used. Any percentage of Bonds, specified herein for any
purpose, is to be figured on the unpaid principal amount thereof then
outstanding.













                                       4





<PAGE>   69

                                   ARTICLE II
                               FACTUAL RECITALS;
                                 FORM OF BONDS


         SECTION 2.01.  Issuer's Findings.  By its Resolution, the Issuer has
found and determined that:

                 (a)  The Issuer is authorized and empowered by the Act to enter
         into transactions such as those contemplated by the Act, and to fully
         perform the obligations of the Issuer to be undertaken in connection
         with the financing of the Project in order to promote the industrial
         economy of Hillsborough County (the "County") and the State of Florida
         (the "State"), increase opportunities for gainful employment and
         purchasing power, and improve living conditions and otherwise
         contribute to the prosperity and welfare of the County, the State and
         the inhabitants thereof.

                 (b)  The Project constitutes a "project" within the meaning and
         contemplation of the Act, shall make a significant contribution to the
         economic growth of the County, shall provide continued gainful
         employment and shall serve a public purpose by advancing the economic
         prosperity and the general welfare of the County and the State and the
         inhabitants thereof.

                 (c)  For the purpose of providing funds to pay the cost of the
         Project, the Issuer by Resolution has duly authorized the issuance of
         revenue bonds of the Issuer in the principal amount of Four Million
         dollars ($4,000,000) designated "Hillsborough County Industrial
         Development Authority Industrial Development Revenue Bonds (Progressive
         American Insurance Company Project), Series 1982."  The Agreement will
         provide for payments by the Company to the Issuer of sums sufficient to
         pay the 1982 Bonds together with the interest thereon and premiums, if
         any, and costs and expenses related thereto as the same shall become
         due and payable.  The 1982 Bonds shall be paid from the Loan
         Installments paid under the terms of the Agreement.  The obligations of
         the Issuer and the Company will be collateralized and secured by the
         Mortgage and by the Guaranty.










                                       5


<PAGE>   70


                 (d)  Hillsborough County will be able to cope satisfactorily
         with the impact of the Project and will be able to provide, or cause to
         be provided when needed, the public facilities, including utilities and
         public services, that will be necessary for the construction,
         operation, repair and maintenance of the Project and on account of any
         increases in population or other circumstances resulting therefrom.

                 (e)  The Company is financially responsible and fully capable
         of and willing to fulfill all of the obligations under the terms and
         provisions of the Agreement, under which the Company will be obligated,
         among other things, to pay amounts sufficient to timely discharge the
         debt service on the Bonds, and to operate, repair and maintain the
         Project at the Company's expense.

                 (f)  The availability of financing by means of industrial
         development revenue bonds is an important inducement to the Company for
         the acquisition and construction of the Project.


         SECTION 2.02.  Form of 1982 Bonds.  The form of the 1982 Bonds, the
Trustee's authentication certificate to be endorsed on the 1982 Bonds, the
provisions for registration and the statement of validation are to be
substantially in the following form with appropriate omissions and insertions or
variations permitted or authorized as hereinafter provided:


                            UNITED STATES OF AMERICA
                                STATE OF FLORIDA
              HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY
                      INDUSTRIAL DEVELOPMENT REVENUE BOND
                (Progressive American Insurance Company Project)
                                  Series 1982

No.              $
   -------        ---------


         HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY (hereinafter
referred to as the "Issuer"), for value received, hereby promises to pay to Sun
Bank, N.A. (the "Original Purchaser"), or to registered assigns, but only from
the revenues hereinafter referred to, on the ____ day of _______, 19__ (or
earlier as hereinafter provided), upon













                                       6


<PAGE>   71

presentation and surrender hereof at the principal office of the Trustee
(hereinafter mentioned), the principal sum of

                                                      DOLLARS
                     ---------------------------------

in any coin or currency of the United States of America which on the date of
payment thereof is the legal tender for the payment of public and private debts,
and to pay solely from such special revenues, interest on the principal sum from
the date hereof, at the rate of interest per annum set forth below until the
payment of such principal sum.

         Interest on the principal amount of this Bond from the date hereof
until this Bond is fully paid or redeemed shall be payable at an annual rate
equal to sixty-five percent (65%) of the prevailing prime rate of interest as
charged from time to time by Sun Bank, N.A., or its successors, for ninety-one
day unsecured loans; provided however, if Sun Bank, N.A., does not make
ninety-one day unsecured loans, the Prime Rate shall be such rate for such loans
charged by Manufacturers Hanover Trust Company, New York, New York (the "Prime
Rate").  Such interest shall be payable quarterly on the first day of each
quarter, commencing January 1, 1983. The rate of interest which shall accrue on
this Bond shall be adjusted daily on the basis of the Prime Rate then in effect.
Any change in the interest rate hereunder due to a change in the Prime Rate
shall be effective as of the opening day of business for Sun Bank, N.A., or
Manufacturers Hanover Trust Company if Sun Bank, N.A., is not charging a Prime
Rate, on the date of such change and the giving of written notice of a change in
the Prime Rate to Progressive American Insurance Company, a Florida corporation
(the "Company"), by Sun Bank, N.A., Orlando, Florida, as trustee (the "Trustee")
under an Indenture of Trust dated as of December 16, 1982 (the "Indenture"),
between the Issuer and the Trustee.  If at any time after the date hereof there
should be a change (either up or down) in the maximum rate of federal income tax
applicable to corporations (currently 46%) imposed by Section II of the Internal
Revenue Code of 1954, as amended (the "Tax Rate"), then the effective interest
rate on the Bonds (as hereinafter defined) will be adjusted effective as of the
effective date of the change in the Tax Rate in accordance with the following
formula: the new interest rate shall be equal to 65/54ths of the Prime Rate
multiplied by 1 minus the new Tax Rate.

         Any interest due hereon shall be calculated on the basis of a year
containing 365 days.  Interest due on any date for payment of interest hereunder
shall be that in-








                                       7


<PAGE>   72

terest to the extent accrued as of 11:59 pm., eastern time, on the last calendar
day immediately prior to that interest payment date.  In no event shall the sum
of all interest and all other amounts deemed or treated as interest exceed the
maximum lawful interest rate allowed to be charged under applicable law, and in
the event any interest is received or charged by the holder hereof in excess of
that amount, the Company, through the Issuer, shall be entitled to an immediate
refund thereof.

         Notwithstanding the foregoing, if interest on this Bond shall cease to
be exempt from federal income taxes under the conditions described in Section
4.02(b) of the Indenture, the Company may elect to pay, if permitted by
applicable legal or regulatory requirements applicable to any registered owner
of this Bond, and the Issuer shall thereupon pay, interest on this Bond in the
manner provided by Section 4.03 of the Indenture, at a rate per annum which
shall be equal to the Prime Rate.  In no event, however, shall interest be
charged in an amount in excess of the maximum interest rate permitted to be paid
under applicable law.

         All payments of principal and interest hereunder shall be made at the
address of the registered owner hereof as it appears on the bond registration
books to be kept by the registrar designated by the Issuer, or elsewhere as
shall be directed by the registered owner hereof.

         This Bond is subject to redemption from excess construction proceeds as
provided in Section 7.04(c) of the Indenture and is also subject to mandatory
redemption prior to its stated date of maturity from the prepayment of the Loan
Installments payable by the Company under Sections 5.2 and 8.3 of the Loan and
Debt Obligation Agreement between the Issuer and the Company dated as of
December 16, 1982 (the "Agreement"), at par plus accrued interest to the date
fixed for redemption, upon sixty (60) days advance written notice to the Trustee
and the Issuer by the registered owner of this Bond (i) as a result of changes
in federal or state laws whereby the Agreement, the Indenture or this Bond shall
become void or unenforceable, or (ii) where the interest payable on this Bond
shall cease to be exempt from federal income tax (unless the Company shall elect
to pay an alternative non-tax exempt interest rate, in accordance with the
provisions of Section 4.03 of the Indenture).  This Bond is also subject to
redemption upon the occurrence of an event of default as defined in Section
11.01 of the Indenture, and upon the Company's election not to rebuild, repair,
replace or restore the Project (hereinafter defined) upon the









                                       8


<PAGE>   73

damage, loss or destruction thereof or the taking of or damage to the Project or
by condemnation, all as provided in Section 14 of the Mortgage and Security
Agreement (the "Mortgage"), dated the date hereof and executed by the Company as
Mortgagor.

         This Bond is also redeemable prior to its stated date of maturity, at
the option of the Issuer, on any date, in whole or in part, at par plus accrued
interest to the date fixed for redemption, but without premium.  In the event
this Bond is redeemed in part, the registered owner hereof shall surrender this
Bond for payment of the principal amount so called for redemption, and the
Issuer shall execute and the Trustee shall authenticate and deliver to or upon
the order of such registered owner, without charge therefor, for the unredeemed
portion of the Bond so surrendered, a Bond or Bonds registered as to principal
and interest.

         A notice of redemption of this Bond shall be mailed to the registered
owner of this Bond at least thirty (30) days, but not more than sixty (60) days,
prior to the redemption date in the manner provided in the Indenture; provided,
however, that the failure to so notify the registered owner shall not affect the
validity of the proceedings for the redemption of any Bond or portion thereof
with respect to which no such failure has occurred.  If this Bond is called for
redemption it shall become and be due and payable as provided in the Indenture,
and when the necessary moneys shall have been deposited with, or shall be held
by, the Trustee, interest on this Bond shall cease to accrue, and the registered
owner hereof shall not have any lien, rights, benefits or security under the
Indenture except to receive the payment of the redemption price on or after the
designated date of redemption from moneys deposited with or held by the Trustee
for such redemption.

         This Bond shall not be deemed to constitute a general debt, liability
or obligation of the Issuer, or of the State of Florida, or of any political
subdivision or agency thereof, or a pledge of the faith and credit of the Issuer
or of the State of Florida or of any political subdivision thereof.  The Issuer
shall not be obligated to pay this Bond or any interest hereon except from the
revenues and other collateral expressly provided therefor in the manner provided
for or contemplated by the Indenture, and neither the faith and credit nor the
taxing power of the Issuer or of the State of Florida or of any political
subdivision thereof is pledged to pay the principal of or the interest on the
Bond.










                                       9


<PAGE>   74

         This Bond is one of the duly authorized issue of Bonds of the Issuer
designated as "Hillsborough County Industrial Development Authority Industrial
Development Revenue Bonds (Progressive American Insurance Company Project),
Series 1982" (the "Bonds"), issued in the aggregate principal amount of
$4,000,000, issued by virtue of the authority contained in and conferred by the
Constitution and laws of the State of Florida, including particularly Sections
159.25 to 159.53, inclusive, Florida Statutes (collectively, the "Act"), and
certain resolutions of the Issuer pertaining to the issuance thereof, for the
purpose of paying the cost of acquiring certain land and acquiring, constructing
and installing thereon certain structures, fixtures, facilities, equipment and
machinery constituting a headquarters facility for the Company (collectively,
the "Project").  This Bond is also issued pursuant to and subject to the
provisions, terms and conditions of Resolutions adopted by the Issuer on March
10, 1982 and September 22, 1982, respectively (the "Resolutions"), and the
Indenture.  Reference is hereby made to the Resolutions and the Indenture for
the provisions, among others, with respect to the custody and application of the
proceeds of the Bonds, the collection and disposition of the revenues derived
from the Agreement relating to the loan of funds from the Issuer to the Company
to finance the acquisition, construction and installation of the Project, the
funds charged with and pledged to the payment of the principal and interest on
the Bonds and the nature and extent of such security, the terms and conditions
under which the Bonds may be issued, the rights, duties and obligations of the
Issuer, the rights of the registered owners of the Bonds and the provisions
regulating the manner in which the terms of this Bond and the rights of the
registered owner hereof may be modified, to all of which provisions the
registered owner hereby assents by acceptance hereof.  In the event any payment
of interest or of interest and principal on this Bond shall not be paid when
due, the amount so in default shall continue to bear interest from the date such
payment became due until payment thereof at the Prime Rate per annum or the
maximum lawful rate, whichever shall be less.

         This Bond is payable as to both principal and interest solely from and
is secured by a lien on certain revenues derived from the repayment of the loan
from the Issuer to the Company under and pursuant to the Agreement and other
monies pledged therefor (the "Pledged Funds"), a mortgage on and a security
interest in the project (as defined in the Mortgage), and certain other rights,
all as described in the Agreement and the Mortgage.  Payment of the principal
of, premium, if any, and interest on this Bond has been uncondi-













                                       10


<PAGE>   75

tionally guaranteed by The Progressive Corporation, an Ohio corporation,
pursuant to an Unconditional Guaranty dated December 16, 1982.

         The Issuer agrees to pay, but only from the Pledged Funds, in addition
to all other sums payable hereunder, the reasonable costs and expenses incurred
by the registered owner of this Bond in connection with all actions taken to
enforce collection of this Bond upon default by the Issuer, whether by legal
proceedings or otherwise, including without limitation a reasonable attorney's
fee and court costs.

         It is hereby certified, recited and declared that all acts, conditions
and things required to exist, to happen and to be performed precedent to and in
the issuance of this Bond exist, have happened and have been performed in
regular and due form and time as required by the Constitution and laws of the
State of Florida applicable thereto and that the issuance of this Bond is in
full compliance with all constitutional and statutory limitations, provisions
and restrictions.

         This Bond shall bind the Issuer and its successors and assigns, and the
benefits hereof shall inure to the payee hereof and its successors and assigns.

         This Bond is and has all the qualities and incidents of a negotiable
instrument under the law merchant and the Uniform Commercial Code-Investment
Securities Law of the State of Florida.

         The Issuer does hereby covenant with the registered owner of this Bond
that it will make no use of the proceeds of the Bonds which would cause the
Bonds to be treated as "arbitrage bonds" under Section 103(c) of the Internal
Revenue Code of 1954, as amended, and the Regulations prescribed and proposed
thereunder.

         The issuance of this Bond was approved under the provisions of the
Uniform Local Government Financial Management and Reporting Act, Part III,
Chapter 218, Florida Statutes.

         This Bond shall not be valid or become obligatory for any purpose or be
entitled to any security or benefit under the Indenture until the certificate of
authentication endorsed hereon shall have been signed by the Trustee.

         This Bond is one of a series of Bonds which were validated by judgment
of the Circuit Court, of the

















                                       11


<PAGE>   76

Thirteenth Judicial Circuit, in and for Hillsborough County, Florida, rendered
on October 22, 1982.

         IN WITNESS WHEREOF, the Hillsborough County Industrial Development
Authority has issued this Bond and has caused the same to be signed by the
manual signature of its Chairman, and its seal to be affixed hereon and attested
and countersigned by the manual signature of its Assistant Secretary, all as of
the ____ day of _______, 1982.


                                  HILLSBOROUGH COUNTY INDUSTRIAL
                                  DEVELOPMENT AUTHORITY


                                  By
                                     ------------------------------
(SEAL)                               Chairman

ATTESTED AND COUNTERSIGNED:


By
  ---------------------
  Assistant Secretary

                         CERTIFICATE OF AUTHENTICATION


         This Bond is one of the Hillsborough County Industrial Development
Authority Industrial Development Revenue Bonds (Progressive American Insurance
Company Project), Series 1982, designated in and executed under the provisions
of the within-mentioned Indenture.



                                  Sun Bank, N.A.
                                   as Trustee


                                  By
                                    --------------------------
                                    Authorized Officer

















                                       12


<PAGE>   77

                               FOR VALUE RECEIVED


         The undersigned hereby sells, assigns and transfers unto 


(PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE)



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

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

the within bond of HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY and does
hereby constitute and appoint the Trustee as the initially appointed Registrar
or _____________________________________ attorney to transfer the said Bond on
the books of the within named Issuer, with full power of substitution in the
premises.

Dated:

In the presence of:


- ------------------------------------   ---------------------------------------
Witness                                Registered Owner



                          PROVISIONS FOR REGISTRATION


         This Bond shall be registered in the name of the initial owner as to
principal and interest on the books kept by the Registrar appointed by the
Issuer.  Subsequent registration shall be made on the books kept by the
Registrar.  No transfer shall be valid unless (i) made by written assignment,
(ii) noted on books of the Registrar and (iii) unless a new registered bond
shall be issued, noted in the blank below.













                                       13


<PAGE>   78

         (No writing in this blank except by the Registrar)

            Date of                Name of                  Signature of
         Registration           Registered Owner          Bond Registrar


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

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

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


                               (End of Bond Form)



                                  ARTICLE III
                           EXECUTION, AUTHENTICATION,
                       DELIVERY AND REGISTRATION OF BONDS


         SECTION 3.01.  Limitation on Issuance of Bonds.  No Bonds may be issued
under the provisions of this Indenture except in accordance with the provisions
of this Article.


         SECTION 3.02.  Details of Bonds.  The 1982 Bonds shall be registered as
to principal and interest, shall be issued in the denominations as set forth in
Section 3.07 hereof, and shall be substantially in the form hereinabove set
forth, with such appropriate omissions and insertions or variations as are
permitted or required by this Indenture and with such additional changes as may
be necessary or appropriate to comply with the terms of the sale of the 1982
Bonds, and may have endorsed thereon such legends or text as may be necessary or
appropriate to conform to the rules and regulations of any governmental
authority or any usage or requirement of law with respect thereto.

         The Bonds shall be executed by the duly qualified and authorized
Chairman of the Issuer, either manually or with his facsimile signature, and the
official seal of the Issuer, or a facsimile thereof, shall be impressed, affixed
or imprinted on the Bonds and attested by the manual or facsimile signature of
the Assistant Secretary or Assistant Secretary of the Issuer; provided, however,
that at least one of such signatures shall be a manual signature.

         If any officer whose signature appears on the Bonds ceases to hold
office before the delivery of the Bonds, his signature shall nevertheless be
valid and sufficient for all










                                       14


<PAGE>   79

purposes, and also any Bond may bear the signature of, or may be signed by, such
persons as at the actual time of the execution of such Bond shall be the proper
officers to sign such Bond although at the date of such Bond such persons may
not have been such officers.

         Both the principal of and interest on the Bonds shall be payable in
lawful money of the United States of America on their respective dates of
payment.  Payment of the interest on each Bond (except for final payment of such
interest which shall be made only upon surrender of each Bond) is payable by
check or draft drawn upon Sun Bank, N.A., or its successors, as Trustee, and
mailed to the registered owner at his address as it appears on the bond
registration books to be kept by the Bond Registrar designated by the Issuer, or
by bank wire or bank transfer as the registered owner of the Bond shall specify,
or as otherwise may be agreed upon by the registered owner and the Trustee.


         SECTION 3.03.  Authentication of Bonds.  Only such of the Bonds as
shall have endorsed thereon a certificate of authentication substantially in the
form hereinabove set forth, duly executed by the Trustee, shall be entitled to
any right or benefit under this Indenture.  No Bond shall be valid or obligatory
for any purpose unless and until such certificate of authentication shall have
been duly executed by the Trustee, and such certificate of the Trustee upon any
such Bond shall be conclusive evidence that such Bond has been duly
authenticated and delivered under this Indenture.  The Trustee's certificate of
authentication on any Bond shall be deemed to have been duly executed if signed
by an authorized officer of the Trustee, but it shall not be necessary that the
same officer sign the certificate of authentication on all of the Bonds that may
be issued hereunder at any one time.


         SECTION 3.04.  Registration and Exchange of Bonds.  The Bonds shall be
registered as to principal and interest in accordance with the provisions
endorsed thereon.

         The 1982 Bonds are initially issued in typewritten form in the
denominations set forth in Section 3.07 hereof.  At the request of an Original
Purchaser of the 1982 Bonds, the Issuer shall make provision for the exchange of
the 1982 Bonds held by such Original Purchaser for a 1982 Bond or Bonds of
different denominations but with the same maturity and interest rate, in an
aggregate principal amount not exceeding the principal amount of the 1982 Bond
or Bonds tend-












                                       15


<PAGE>   80

ered for exchange, without cost to such Original Purchaser except for costs of
printing or engraving and for a sum sufficient to pay any tax, fee or
governmental charge that may be imposed with respect thereto; provided, however,
that with respect to any such request for an exchange of Bonds previously
exchanged by any such Original Purchaser, the Trustee may recover reasonable
expenses sufficient to reimburse it for expenses incurred in connection with the
issuance of such new 1982 Bond or Bonds, including costs of printing or
engraving and for a sum sufficient to pay any tax, fee or governmental charge
that may be imposed with respect thereto. Such charge or charges shall be paid
before any such new Bond or Bonds shall be delivered.


         SECTION 3.05.  Transfer of Bonds.  The Bonds may be transferred, and
title thereto shall pass, only in the manner provided in the Provisions for
Registration set forth in the form of the Bond in Section 2.02 of this
Indenture.  The Issuer has appointed the Trustee as initial Bond Registrar to
keep the books for the registration and for the transfer of Bonds as provided in
this Indenture.  The Bond Registrar may be changed from time to time by
resolution duly adopted by the Issuer and upon due notice to the Trustee.  All
fully registered Bonds presented for transfer, exchange, redemption or payment
(if so required by the Issuer or the Trustee), shall be accompanied by a written
instrument or instruments of transfer or authorization for exchange, in form and
with guaranty of signature satisfactory to the Trustee, duly executed by the
registered owner or by his attorney duly authorized in writing.  No charge shall
be made for the transfer and registration of the 1982 Bonds except for a sum
sufficient to pay any tax, fee or governmental charge that may be imposed with
respect thereto.

         Neither the Issuer nor the Trustee shall be required to register,
convert or transfer any Bond during the ten (10) days next preceding an interest
payment date on the Bonds or, in the case of any proposed redemption of Bonds,
after notice shall have been given in accordance with Section 5.01 of this
Indenture of any such proposed redemption.


         SECTION 3.06.  Ownership of Bonds.  The persons in whose names the
Bonds shall be registered shall be deemed and regarded as the absolute owner
thereof for all purposes, and payment of or on account of the principal of any
such Bond and the interest on any such Bond shall be made only to or upon the
order of the registered owner thereof or his

















                                       16



<PAGE>   81

legal representative, but such registration may be changed as hereinabove
provided.  All such payments shall be valid and effectual to satisfy and
discharge the liability upon such Bond, including the interest thereon to the
extent of the sum or sums so paid.


         SECTION 3.07.  Authorization of 1982 Bonds.  There shall be initially
issued under and secured by this Indenture, 1982 Bonds of the Issuer in the
aggregate principal amount of Four Million dollars ($4,000,000) for the purpose
of paying the cost of the Project.  The 1982 Bonds shall be designated
"Hillsborough County Industrial Development Authority Industrial Development
Revenue Bonds (Progressive American Insurance Company Project), Series 1982,"
and shall be dated the 16th day of December, 1982.

         The 1982 Bonds shall bear interest from the date thereof at an annual
rate of interest equal to sixty-five percent (65%) of the Prime Rate.  The rate
of interest which shall accrue on each 1982 Bond shall be adjusted daily on the
basis of the Prime Rate then in effect.  Any change in the interest rate
hereunder due to a change in the Prime Rate shall be effective as of the opening
of business for Sun Bank, N.A., Orlando, Florida, or Manufacturers Hanover Trust
Company, New York, New York, if Sun Bank, N.A., is not charging a Prime Rate, on
the date of such change, and the giving of written notice by the Trustee to the
Company and the Issuer of a change in the Prime Rate.  Such interest shall be
payable quarterly on the 1st day of each quarter, commencing on January 1, 1983.

         The 1982 Bonds shall consist of one bond and shall be in the
denomination, bear the number and mature on the first day of January, 1998, as
follows: Bond No. 01 shall be initially issued in the principal amount of
$4,000,000.  Payment of principal on Bond No. 01 shall be made in forty-eight
(48) quarterly installments on the first day of each January, April, July, and
October (the Payment Date), commencing April 1, 1986.  The first eight (8)
quarterly installments shall each be in the amount of $40,000.00.  The remaining
forty (40) quarterly installments shall each be in the amount of $90,000.00

         In the event any payment of interest or of interest and principal on
the 1982 Bonds shall not be paid when due, the amount so in default shall
continue to bear interest from the date such payment became due until payment
thereof at the Prime Rate plus two percent per annum or the maximum lawful rate,
whichever shall be less.


















                                       17



<PAGE>   82

         After execution, the 1982 Bonds shall be deposited with the Trustee for
authentication, but before authentication and delivery by the Trustee there
shall be filed with the Trustee the following:

                 (a)  A copy of the Resolution adopted on September 22, 1982, by
         the Issuer, certified by the Assistant Secretary of the Issuer,
         authorizing the issuance of the 1982 Bonds;

                 (b)  An executed counterpart of the Agreement, the Note, the
         Mortgage, the Assignment of Mortgage, the Guaranty and this Indenture;

                 (c)  An opinion of counsel of the Issuer stating that the
         execution and delivery of the Agreement, the Assignment of Mortgage,
         the 1982 Bonds and this Indenture has been duly authorized by the
         Issuer, that the Agreement, the Assignment of Mortgage, the 1982 Bonds
         and this Indenture are in the forms so authorized and have been duly
         executed and delivered by the Issuer and that, assuming proper
         authorization and the execution and delivery of the Agreement and this
         Indenture by the Company and Trustee, respectively, and the proper
         authentication of the 1982 Bonds by the Trustee, and with certain
         qualifications, the Agreement, the Assignment of Mortgage, the 1982
         Bonds and this Indenture, respectively, are valid and binding on the
         Issuer in accordance with their respective terms;

                 (d)  An opinion of counsel for the Company and the Guarantor
         relating to the due organization and good standing of the Company and
         the Guarantor, the due authorization, execution and delivery of the
         Agreement, the Note, the Mortgage, the Guaranty and other documents
         related thereto, the enforceability of such agreements, the absence to
         the best of their knowledge of conflict with other documents to which
         the Company or the Guarantor are subject, the absence to the best of
         their knowledge of pending or threatened litigation; and such other
         matters as the Issuer may require;

                 (e)  An opinion of Holland & Knight, addressed to the Issuer,
         the Trustee and the Original Purchaser, stating that such counsel is
         of the opinion that the 1982 Bonds are valid and legally binding
         obligations of the Issuer, and that the in-
        











                                       18


<PAGE>   83

         terest on the 1982 Bonds issued under the provisions of this Section is
         exempt from present federal income taxes under existing law, except
         that such counsel need not express an opinion as to the exemption from
         such taxes for any period during which a 1982 Bond is held by a person
         who, within the meaning of Section 103(b) (10) of the Code, is a
         "substantial user" of the Project or a "related person"; and

                 (f)  The survey of the Project Site and the mortgage title
         insurance policy or binder required, respectively, by Sections 4.1(a)
         and 4.1(b) of the Agreement.

                 Upon receipt of these documents, the Trustee shall
authenticate, register and deliver the 1982 Bonds to or upon the direction of
the Original Purchaser, but only upon payment to the Trustee of the purchase
price of the 1982 Bonds together with accrued interest thereon.

                 The proceeds from the 1982 Bonds, including accrued interest,
if any, shall be applied by the Trustee, simultaneously with the delivery of
said 1982 Bonds, as follows:

                 (a)  The accrued interest on the 1982 Bonds shall be deposited
         in the Interest Account in the Debt Service Fund hereinafter created.

                 (b)  The balance of said proceeds shall be deposited to the
         credit of the Construction Fund hereinafter created.

         SECTION 3.08.  Issuance of Additional Bonds.  Additional Bonds of the
Issuer may be issued under and secured by this Indenture at one time or from
time to time, in addition to the 1982 Bonds issued under the provisions of
Section 3.07 of this Article and subject to the conditions hereinafter provided
in this Section, for the purpose of paying the costs of completing the Project
or additions to the Project, such total cost to be evidenced by a certificate
signed by the Project Manager (as defined in the Agreement), or for the purpose
of paying all or any part of the cost of any improvements thereto as described
in Section 4.2 of the Agreement, or for any combination of such purposes. Before
any Additional Bonds shall be issued under the provisions of this Section, the
company shall request such Additional Bonds and Issuer shall adopt a resolution
authorizing the issuance of such Bonds, fixing the amount











                                       19


<PAGE>   84

thereof and describing in brief and general terms the purpose or purposes for
which such Bonds are being issued.  Such Additional Bonds shall be dated, shall
have the same designation, except perhaps for an identifying series year, as the
1982 Bonds issued under Section 3.07 of this Article, shall be stated to mature
in such year or years, shall bear interest at such rate or rates not exceeding
the maximum rate permitted by law, and may be made redeemable at such times and
prices (subject to the provisions of Article IV of this Indenture), all as may
be provided by the resolution authorizing the issuance of such Additional Bonds.
Except as to any difference in the date, the maturity or maturities, the rate or
rates of interest or the provisions for redemption, such Additional Bonds shall
be on a parity with and shall be entitled to the same benefit and security of
this Indenture as the 1982 Bonds originally issued under the provisions of said
Section 3.07.  Additional Bonds shall be issued only upon the written consent of
the registered owners of not less than fifty percent (50%) in aggregate
principal amount of the Bonds then outstanding, and in no event shall Additional
Bonds be issued during such time as the Company shall be in default under this
Indenture or the Agreement.

         Such Additional Bonds shall be executed substantially in the form and
manner hereinabove set forth for the 1982 Bonds and shall be deposited with the
Trustee for authentication, but before such Bonds shall be authenticated and
delivered by the Trustee, there shall be filed with the Trustee the following:

                 (a)  A copy, certified by the Assistant Secretary of the
         Issuer, of the resolution adopted by the Issuer authorizing the
         issuance of such Additional Bonds in the amount specified therein,
         setting forth the description of the additions to the Project for which
         such Additional Bonds are to be issued;

                 (b)  A copy, certified by the Assistant Secretary of the
         Issuer, of the resolution adopted by the Issuer awarding such Bonds,
         specifying the interest rate of each of such Bonds and the other terms
         and conditions and directing the authentication, registration and
         delivery of such Bonds to or upon the direction of the purchasers
         therein named upon payment of the purchase price therein set forth;













                                       20

<PAGE>   85

                 (c)  An opinion of counsel for the Issuer stating that the
         issuance of such Bonds has been duly and validly authorized, and that
         all conditions precedent to the delivery of such Bonds have been
         fulfilled and that said Additional Bonds are valid and binding
         obligations of the Issuer in accordance with their terms;

                 (d)  A certificate, signed by the Authorized Company
         Representative, stating that, in conformity with the provisions of the
         Agreement, the Company has approved the issuance of such Additional
         Bonds and the terms, manner of issuance, purchase price and disposition
         of the proceeds thereof; and setting forth the revised amount of the
         loan based on the issuance of such Additional Bonds and the additional
         Loan Installments to be paid by the Company under the Agreement and the
         respective dates on which said installments shall be payable in order
         to provide for payment of the principal of and the interest on the
         Additional Bonds then proposed to be issued under this Section;

                 (e)  An executed counterpart of the amendment to the Agreement
         and a new Note, providing for the revised amount of the loan based on
         the issuance of such Additional Bonds and the additional Loan
         Installments to be paid by the Company under the Agreement and the Note
         and the respective dates on which said installments shall be payable in
         order to provide for payment of the principal of, premium, if any, and
         interest on such Additional Bonds and providing for the payment of all
         other expenses and costs incurred or to be incurred by virtue of the
         issuance of such Additional Bonds;

                 (f)  An executed counterpart of the supplemental indenture, or
         a copy thereof certified by the Assistant Secretary of the Issuer,
         providing for the terms, sale, authentication and delivery, of
         Additional Bonds and the disposition of the proceeds from the sale
         thereof, in the manner authorized by Section 14.01(c) of this
         Indenture;

                 (g)  Opinion of counsel for the Issuer with respect to the
         supplemental indenture and the amendment to the Agreement of similar
         tenor to the opinion furnished pursuant to clause (c) of Section 3.07
         of this Article;














                                       21



<PAGE>   86

                 (h)  Opinion of counsel for the Company with respect to the
         amendments to the Agreement, and, if also amended, the Mortgage and the
         Guaranty, of similar tenor to the opinion furnished with respect to the
         Agreement pursuant to clause (d) of Section 3.07 of this Article;

                 (i)  If desirable, an endorsement to the title insurance policy
         increasing the face amount of said policy; and

                 (j)  An opinion of nationally recognized bond counsel that the
         issuance of such Additional Bonds and the application of the proceeds
         of such Bonds to the purpose or purposes described in the resolution
         mentioned in clause (a) of this Section will not result in the interest
         on any Bonds theretofore issued under this Indenture and then
         outstanding or any thereof becoming subject to federal income taxes
         then in effect and that the interest on such Additional Bonds will be
         exempt from federal income taxes then in effect, except that such
         counsel shall not be required to opine with respect to those matters
         excluded from his opinion under clause (e) of Section 3.07.

         Upon receipt of these documents, the Trustee shall authenticate,
register and deliver the Additional Bonds to or upon the direction of the
purchasers named in the resolution mentioned in clause (b) of this Section, but
only upon payment to the Trustee of the purchase price of the Additional Bonds.
The Trustee shall be entitled to rely upon such resolution as to the names of
the purchasers, the amount of such purchase price and the amounts of capitalized
interest, if any.

         The proceeds (excluding accrued interest, which shall be deposited in
the Interest Account in the Debt Service Fund) of all Additional Bonds issued
under the provisions of this Section shall be deposited with the Trustee to the
credit of the Construction Fund, and shall be used in the manner herein
provided, with such changes and modifications as may be contained in the
supplemental indenture applicable to such Additional Bonds.


         SECTION 3.09.  Mutilated, Destroyed or Lost Bonds.  In case any Bonds
shall become mutilated or be improperly cancelled, or be destroyed, stolen or
lost, the Trustee may, in its discretion, authorize the issuance, registration
and













                                       22


<PAGE>   87

delivery of a new Bond of like tenor as the Bond so mutilated, improperly
cancelled, destroyed, stolen or lost, in exchange and substitution for such
mutilated or improperly cancelled Bond or in lieu of and substitution for the
Bond destroyed, stolen or lost. The Issuer or the Trustee may require the
Bondholder to furnish the Issuer and the Trustee proof of his ownership thereof
and proof of such mutilation, improper cancellation, destruction, theft or loss
satisfactory to the Issuer and the Trustee, to give the Issuer and the Trustee
an indemnity bond in such amount as either of them may require (except that the
Original Purchaser may give its letter agreement of indemnity in lieu of an
indemnity bond), and to comply with such other reasonable regulations and
conditions as they prescribe and pay such expenses as they may incur, all as a
condition precedent to the issuance, registration and authentication of such
duplicate Bonds.  All such Bonds shall be cancelled by the Trustee and held for
the account of the Issuer. If any Bond shall have matured or be about to mature,
instead of issuing a substitute Bond, the Issuer may cause the same to be paid
upon being indemnified as aforesaid, and if such Bond be lost, stolen or
destroyed, without surrender thereof.

         Any such duplicate Bonds issued pursuant to this Section shall
constitute original, additional contractual obligations on the part of the
Issuer, whether or not the lost, stolen or destroyed Bonds be at any time found
by anyone.  Such duplicate Bonds shall in all respects, except for the number,
be identical with those replaced except that they shall bear on their face the
following additional clause:

         "This Bond is issued to replace a lost, stolen, mutilated, cancelled or
         destroyed Bond."

Such duplicate Bonds shall be signed by the same officers who signed the
original Bonds, provided, however, that in the event the officers who executed
the original Bonds no longer hold office, then the new Bonds shall be signed by
the officers then in office. Such duplicate Bonds shall be entitled to equal
proportionate benefits and rights as provided herein with all other Bonds issued
hereunder, the obligations of the Issuer upon the new Bonds being identical with
its obligations upon the original Bonds and the rights of the registered owner
being the same as those conferred by the original Bonds.











                                       23




<PAGE>   88

         SECTION 3.10.  Issuance of Refunding Bonds.  Bonds of the Issuer may be
issued under and secured by this Indenture at one time or from time to time, in
addition to the 1982 Bonds and Additional Bonds, subject to the conditions
hereinafter provided, for the purpose of providing funds for refunding at or
prior to maturity all (but not less than all) of the Bonds of any series then
outstanding, including the payment of any interest to accrue to the earliest
redemption date and any expenses in connection with such refunding.  Before any
Bonds shall be issued under the provisions of this Section, the Issuer shall
adopt a resolution authorizing the issuance of such Bonds, fixing the amount
thereof, describing the Bonds to be refunded and the cost thereof.  Such
additional Bonds shall be dated, shall have the same designation as the 1982
Bonds issued under Section 3.07 of this Article except for an identifying series
year and the addition of the word "Refunding," shall be stated to mature in such
year or years, shall bear interest at such rate or rates not exceeding the
maximum rate permitted by law, and may be made redeemable at such times and
prices (subject to the provisions of Article IV of this Indenture), all as may
be provided by the resolution authorizing the issuance of such additional Bonds.
Except as to any difference in the date, the maturity or maturities, the rate or
rates of interest or the provisions for redemption, such additional Bonds shall
be on a parity with and shall be entitled to the same benefit and security of
this Indenture as the Bonds issued and outstanding under the provisions of said
Section 3.07 and Section 3.08.

         Such additional Bonds shall be executed substantially in the form and
manner hereinabove set forth for Additional Bonds and shall be deposited with
the Trustee for authentication, but before such Bonds shall be authenticated,
registered and delivered by the Trustee, there shall be filed with the Trustee
documents, relating to the Bonds issued under this Section, similar to those
mentioned in clauses (a) through (j) of Section 3.08 of this Article and such
additional documents as shall be required by the Trustee to evidence that
provision has been duly made in accordance with the provisions of this Indenture
for the redemption of all of the Bonds to be refunded, including the sufficiency
of the proceeds of the refunding Bonds for the payment of all refunded Bonds and
all expenses incurred in connection therewith.

         When the documents mentioned above in this Section shall have been
filed with the Trustee and when the Bonds described in the resolutions mentioned
in clauses (a) and (b) of Section 3.08 hereof, which are incorporated by ref-











                                       24


<PAGE>   89

erence in the preceding paragraph, shall have been executed and authenticated as
required by this Indenture, the Trustee shall deliver such Bonds at one time to
or upon the direction of the purchasers named in the resolution mentioned in
said clause (b), but only upon payment to the Trustee of the purchase price of
such Bonds.  The Trustee shall be entitled to rely upon such resolution as to
the names of the purchasers, the interest rate of such Bonds and the amount of
such purchase price.

         The proceeds (excluding accrued interest) of all Bonds issued under the
provisions of this Section shall be deposited by the Trustee, after payment of
all expenses incident to such financing, to the credit of a special redemption
fund appropriately designated to be held in trust for the sole and exclusive
purpose of paying the principal of and the interest on the Bonds to be refunded.
Any balance of such proceeds shall be deposited to the credit of the Interest
Account in the Debt Service Fund.


                                   ARTICLE IV

                              REDEMPTION OF BONDS


         SECTION 4.01.  Optional Redemption Without Premium.  The 1982 Bonds are
redeemable by the Issuer prior to their stated date of maturity upon the
exercise by the Company of its election to prepay all or a part of the Loan
Installments under the Agreement, on any date, in whole or in part, at par plus
accrued interest to the date fixed for redemption, and without premium.

         If less than all of the 1982 Bonds shall be called for redemption,
prepayments shall be applied in inverse order of maturity of the 1982 Bonds.


         SECTION 4.02.  Extraordinary Mandatory Redemption of Bonds Without
Premium.  The Bonds shall be redeemed, in inverse order of maturity, from excess
construction proceeds as provided in Section 7.04 of this Indenture, and the
Bonds are also subject to mandatory redemption prior to their stated dates of
maturity, from the prepayment of the Loan Installments payable by the Company
under Section 8.3 of the Agreement, at par plus accrued interest to the date
fixed for redemption, but without premium, upon the occurrence of any of the
following conditions:















                                       25


<PAGE>   90

                 (a)  As a result of any legislative or administrative action
         (whether state or federal), or of any changes in the Constitution of
         the State of Florida or the Constitution of the United States of
         America or of a final decree, judgment or order of any court or
         administrative body (whether state or federal), the Agreement, the
         Mortgage, this Indenture or the Bonds issued pursuant hereto, shall
         become void or unenforceable or impossible of performance in accordance
         with the intent and purposes of the Company and the Issuer expressed in
         the Agreement and this Indenture; or

                 (b)  Final action shall have been taken by the Internal Revenue
         Service, the Department of the Treasury or any other governmental
         agency, authority or instrumentality, or an opinion of any court shall
         have been rendered, or other event shall have occurred, or other
         circumstances shall exist, any of which shall result in any part or all
         of the interest payable with respect to the Bonds issued pursuant to
         this Indenture not to be exempt from federal income taxes, other than
         those Bonds held by any person who, within the meaning of Section
         103(b) (10) of the Code, shall be deemed a "substantial user" of the
         Project or a "related person" as defined in the Code.  As used in this
         Article IV, the term "final action" shall mean either: (i) action taken
         by an administrative agency of the federal government which cannot be
         appealed administratively or to a court of competent jurisdiction or as
         to which the time for administrative appeal or court action has
         expired; or (ii) action by any court of competent jurisdiction as to
         which the time to appeal has expired or as to which an appeal has been
         denied or dismissed without further right of appeal; or

                 (c)  If the Project or the Mortgaged Property described in the
         Mortgage, or any part thereof having a value in excess of $1,000,000,
         shall be damaged, lost or destroyed or taken or damaged by any public
         authority in the exercise of its power of eminent domain, and the
         Company does not elect to repair, rebuild, replace or restore such
         property within 120 days after the deposit of funds related thereto
         with the Trustee, all as provided in Section 14 of the Mortgage.











                                       26



<PAGE>   91

         If as a consequence of the occurrence of an event described in clause
(b) above, it shall be necessary for the holder of any Bond to include interest
received on any prior interest payment date in its gross income for federal
income tax purposes, then the Company shall be required to pay under the
provisions of the Agreement on the first interest payment date following the
occurrence of such event and notice thereof to the Company, or on the date of
redemption of the Bonds by reason of such occurrence, whichever shall first
occur, and the Issuer shall thereupon pay, additional interest on such Bond for
the period during which such interest shall have been subject to federal income
taxes, in an amount equal to the difference between the Prime Rate as adjusted
pursuant to the provisions hereof and the interest actually paid on the Bond for
such period; provided, however, that interest shall never be required to be paid
on the Bonds in excess of the maximum interest rate permitted to be paid under
applicable law.  The Company's obligations under this paragraph shall survive
the release of this Indenture pursuant to Section 15.01 below.

         Upon the occurrence of any condition described in this Section 4.02,
except as hereinafter provided in Section 4.03, all of the Bonds remaining
outstanding shall be redeemed by the Trustee upon notice as provided below.
Such redemption shall take place as soon as possible after the occurrence of any
such action or condition, and in any event within sixty (60) days following
written notice from any Bondholder to the Trustee and the Issuer, or from the
Company or the Issuer to the Trustee that any such action or condition has
occurred.

         SECTION 4.03.  Election to Pay Additional Rate of Interest.
Notwithstanding the noncompliance with any covenant or agreement by the Company
to the contrary, at the written direction of the Company to the Trustee within
thirty (30) days after receipt by the Company from the Trustee of notice by any
Bondholder of the occurrence of a condition described in Section 4.02(b) above,
the Company may elect, on behalf of the Issuer, to increase the rate of interest
payable on such Bonds to a rate which shall be equal to the Prime Rate adjusted
daily as provided in Section 3.07 of this Indenture, and in such event the Bonds
shall not be redeemed; provided, however, that the Company shall never be
required to pay interest on the Bonds in excess of the maximum interest rate
permitted to be paid under applicable law, and further provided that if the
Company shall make such election, the Company shall be obligated either to
register the Bonds under the Securities Act of 1933, as amended, or to obtain an
opinion of counsel accept-











                                       27


<PAGE>   92

able to the Trustee and the Issuer to the effect that such registration is not
required.  Notwithstanding the foregoing, if any legal or regulatory requirement
applicable to any Bondholder shall prohibit said Bondholder from receiving the
increased interest payment contemplated by this Section 4.03, Bonds held by such
Bondholder shall be redeemed, to the extent required by such legal or regulatory
requirement, as provided in Section 4.02 above.

         SECTION 4.04.  Additional Bonds.  Any Additional Bonds hereafter issued
pursuant to Section 3.08 hereof may be redeemed prior to their stated dates of
maturity at such price or prices and under such terms and conditions as shall be
provided in the proceedings which authorize the issuance of such Additional
Bonds.


                                   ARTICLE V

                          REQUIREMENTS FOR REDEMPTION
                                    OF BONDS


         SECTION 5.01.  Notice of Redemption of Bonds.  A notice of any
redemption of Bonds, either in whole or in part, signed by the Trustee shall be
mailed, postage prepaid, at least thirty (30) days, but not more than sixty (60)
days, before the redemption date, to all registered owners of Bonds or portions
of Bonds to be redeemed, at their addresses as they appear on the registration
books hereinabove provided for; but failure to so mail any such notice shall not
affect the validity of the proceedings for the redemption of any Bond or portion
thereof with respect to which no such failure has occurred.  Each such notice
shall set forth the date fixed for redemption, the redemption price to be paid
and, if less than all of the Bonds then outstanding shall be called for
redemption, the distinctive numbers and letters, if any, of such Bonds to be
redeemed and, in the case of Bonds to be redeemed in part only, the portion of
the principal amount thereof to be redeemed.  In case any Bond is to be redeemed
in part only, the notice of redemption which relates to such Bond shall state
also that on or after the redemption date, upon surrender of such Bond, a new
Bond or Bonds in a principal amount equal to the unredeemed portion of such Bond
will be issued.

         SECTION 5.02.  Effect of Notice of Redemption.  Notice having been
given in the manner and under the condi-












                                       28


<PAGE>   93

tions hereinabove provided, the Bonds or portions of Bonds so called for
redemption shall, on the redemption date designated in such notice, become and
be due and payable at the redemption price provided for redemption of such Bonds
or portions of Bonds on such date.  On the date so designated for redemption,
moneys for payment of the redemption price being held in separate accounts by
the Trustee in trust for the holders of the Bonds or portions thereof to be
redeemed, all as provided in this Indenture, interest on the Bonds or portions
of Bonds so called for redemption shall cease to accrue, such Bonds and portions
of Bonds shall cease to be entitled to any lien, benefit or security under this
Indenture, and the registered owners of such Bonds or portions of Bonds shall
have no rights in respect thereof except to receive payment of the redemption
price thereof and, to the extent provided in Section 5.03 of this Article, to
receive Bonds for any unredeemed portions of the Bonds.


         SECTION 5.03.  Redemption of Portion of Registered Bonds.  In case part
but not all of an outstanding Bond shall be selected for redemption, the
registered owner(s) thereof shall present and surrender such Bond to the Trustee
for payment of the principal amount thereof so called for redemption, and the
Issuer shall execute and the Trustee shall authenticate and deliver to or upon
the order of such registered owner(s), without charge therefor, for the
unredeemed balance of the principal amount of the Bond so surrendered, a Bond or
Bonds registered as to principal and interest.


         SECTION 5.04.  Cancellation of Redeemed Bonds.  All Bonds redeemed or
purchased by the Trustee under the terms of this Indenture, and all Bonds
delivered to the Trustee by the Company for cancellation, shall be cancelled by
the Trustee upon the surrender thereof.


         SECTION 5.05.  Bonds Called for Redemption Deemed Not Outstanding.
Bonds or portions of Bonds that have been duly called for redemption under the
provisions of this Article V, or with respect to which irrevocable instructions
(in form satisfactory to the Trustee) have been given to the Trustee to call
such Bonds for redemption, and with respect to which amounts sufficient to pay
the principal of and interest on the Bonds to the date fixed for redemption,
shall be delivered to and held in separate accounts by the Trustee, in trust for
the registered owners of the Bonds or a portion thereof to be redeemed, as
provided in this











                                       29


<PAGE>   94

Indenture, shall not be deemed to be outstanding under the provisions of this
Indenture and shall cease to be entitled to any lien, benefit or security under
this Indenture, except to receive the payment of the redemption price on or
after the designated date of redemption from moneys deposited with or held by
the Trustee for such redemption of the Bonds and, to the extent provided in
Section 5.03 of this Article, to receive Bonds for any unredeemed portions of
the Bonds.


                                   ARTICLE VI

                               CONSTRUCTION FUND


         SECTION 6.01.  Creation.  A special fund is hereby created and
designated "Hillsborough County Industrial Development Revenue Bonds
(Progressive American Insurance Company Project) Construction Fund" (the
"Construction Fund"), to the credit of which such deposits shall be made as are
required by the provisions of Sections 3.07 and 3.08 of this Indenture and any
payments made by the Company pursuant to Section 6.17(c) of the Agreement.  Any
moneys received by the Trustee from any other source for the acquisition,
construction and installation of the Project or additions to the Project shall
be deposited to the credit of the Construction Fund.  The moneys in the
Construction Fund shall be held by the Trustee in trust and, subject to the
provisions of Section 6.04 of this Indenture, shall be applied to the payment of
the cost of the Project and, pending such application, shall be subject to a
lien and charge in favor of the registered owners of the Bonds issued and
outstanding under this Indenture and in favor of the Trustee for the further
security of such Bondholders and the Trustee until paid out or transferred as
herein provided.  All income earned from the investment of funds held in the
Construction Fund shall be retained in the Construction Fund and expended as set
forth in this Article VI.

         SECTION 6.02.  Payments from Construction Fund.  Payment of the cost of
the Project shall be made from the Construction Fund.  All payments from the
Construction Fund shall be subject to the provisions and restrictions set forth
in this Article.

         SECTION 6.03.  Cost of Project.  For the purposes of this Indenture the
Cost of the Project shall include the












                                       30



<PAGE>   95

cost of acquiring, constructing and installing the same, and, without intending
thereby to limit or restrict any proper definition of such cost under the Act,
shall include all payments and disbursements from the Construction Fund
permitted under Section 4.3 of the Agreement.


         SECTION 6.04.  Prerequisites to Payment.  Payments from the
Construction Fund shall be made only in accordance with the provisions of the
Agreement, and the Trustee is authorized and directed to apply the moneys in the
Construction Fund in accordance therewith but only upon receipt of the
statements, orders, certifications and other approvals required by the Agreement
duly executed by the persons and in the manner provided for therein.


         SECTION 6.05.  Reliance on Certificates.  All statements, orders,
certificates and other approvals received by the Trustee, as required in this
Article as conditions of payment from the Construction Fund, may be relied upon
by the Trustee, and shall be retained by the Trustee, subject at all reasonable
times to examination by the Company, the Issuer, any Bondholder and the agents
and representatives thereof, during the term of the Agreement.


         SECTION 6.06.  Establishment of Completion Date.  The establishment of
the Completion Date and the disposition of moneys then held for the credit of
the Construction Fund shall be in accordance with the Agreement.


                                  ARTICLE VII
                               REVENUES AND FUNDS


         SECTION 7.01.  Covenants of the Issuer and the Trustee.

                 (a)  The Issuer covenants and agrees that it will not suffer,
         permit or take any action or do anything or fail to take any action or
         fail to do anything which may result in the termination of the
         Agreement so long as any Bond is outstanding; that it will fulfill its
         obligations and will require the Company to perform punctually the
         Company's duties and obligations under the Agreement and will otherwise
         administer the Agreement in accordance















                                       31


<PAGE>   96

         with its terms to assure the continued ownership, operation,
         management, repair and maintenance of the Project by the Company and
         the Company's payment of the Loan Installments thereunder and the costs
         and expenses of ownership, operation, management, repair and
         maintenance of the Project, all in accordance with the terms of the
         Agreement; that it will not terminate the Agreement or cause it to be
         terminated except in strict accordance with the terms thereof and with
         the concurrence of the Trustee; that it will promptly notify the
         Trustee of any actual or alleged event of default under or breach of
         the Agreement, whether by the Company or the Issuer, and will further
         notify the Trustee at least thirty (30) days before the proposed date
         of effectiveness thereof of any proposed termination or amendment of
         the Agreement; that it will not execute or agree to any change,
         amendment or modification of or supplement to the Agreement except by
         supplemental contract duly executed by the Company and the Issuer with
         the approval of the Trustee and upon the further terms and conditions
         set forth in Article XVI of this Indenture; and that it will not agree
         to any abatement, reduction, abrogation, waiver, diminution or other
         modification in any manner or to any extent whatsoever of the
         obligation of the Company or any successor under the Agreement to pay
         the Loan Installments and to meet its other obligations as provided in
         the Agreement.

                 (b)  The Trustee covenants and agrees that it will undertake to
         enforce to the extent reasonably practicable and necessary for and on
         behalf of the Issuer the obligations of the Company to the Issuer and
         the Trustee under the Agreement.

         In the event of a termination of the Agreement while any Bonds are
outstanding, the Issuer shall use its best efforts to enter into new contracts
or other agreements with respect to the Project in order to produce the maximum
possible amount of revenues therefrom.


         SECTION 7.02.  Creation of Debt Service Fund and Accounts Therein.  A
special fund is hereby created by the Trustee and designated "Hillsborough
County Industrial Development Revenue Bonds (Progressive American Insurance
Company Project) Debt Service Fund" (the "Debt Service Fund").  There are hereby
created three separate accounts in the Debt Service Fund designated "Interest
Account," "Principal Account" and "Redemption Account," respectively.












                                       32



<PAGE>   97

The moneys in each of the said Accounts in the Debt Service Fund shall be held
by the Trustee in trust and applied as hereinafter provided with respect to each
said Account and, pending such application, shall be subject to a lien and
charge in favor of the holders of the Bonds issued and outstanding under this
Indenture and the Trustee and for the further security of such registered owners
and the Trustee until paid out or transferred as herein provided.

         The Issuer covenants that it will cause to be paid by the Company
directly to the Trustee for deposit to the credit of the Debt Service Fund all
Loan Installments payable by the Company to the Issuer in accordance with the
Agreement and the Note.  All moneys received by the Trustee hereunder, either
from the Company or the Issuer (but only to the extent of the amounts required
to make the then due payments as set forth in (a), (b) and (c) below), shall be
deposited to the credit of the following Accounts in the following order:

                 (a)  To the credit of the Interest Account, such amount of the
         moneys so received by the Trustee (or all such moneys if less than the
         required amount) as may be required to make the total amount then held
         to the credit of the Interest Account equal to the total of the
         interest which is then or will be or become due and payable on the next
         ensuing interest payment date on all Bonds then outstanding;

                 (b)  Then to the credit of the Principal Account, such amount
         of the moneys so received as may be required to make the total amount
         then held to the credit of the Principal Account equal to the
         principal, if any, which is then or will be or become due and payable
         on the next ensuing principal payment date on all Bonds then
         outstanding, if any; and

                 (c)  Then to the credit of the Redemption Account, the balance,
         if any, of such moneys remaining after making the deposits under
         clauses (a) and (b) above.


         SECTION 7.03.  Provisions for Payment of Bonds from Interest and
Principal Account.  The Trustee shall, on each interest and principal payment
date, withdraw from the Interest and Principal Accounts and remit to the
registered owner of the Bonds, the respective amounts required for pay-










                                       33



<PAGE>   98

ing the interest and principal on such Bonds as such payments become due and
payable.


         SECTION 7.04.  Application of Moneys in Redemption Account.  Moneys
held for the credit of the Redemption Account in the Debt Service Fund shall
with reasonable diligence be applied to the payment of costs and expenses
referred to in Section 5.2(b) and (c) of the Agreement and then to the
retirement of Bonds issued under the provisions of this Indenture and then
outstanding in the following order:

                 (a)  The Trustee shall first endeavor to purchase Bonds or
         portions of Bonds secured hereby and then outstanding, whether or not
         such Bonds or portions of Bonds shall then be subject to redemption, at
         the most advantageous price obtainable with reasonable diligence, such
         price not to exceed the principal of such Bonds.  The Trustee shall pay
         the interest accrued on such Bonds or portions of Bonds to the date of
         redemption thereof from the Interest Account, the purchase price from
         the Redemption Account and all expenses in connection with such
         purchase from moneys deposited with it by the Company for that purpose
         under Section 5.2 of the Agreement or from the Redemption Account, but
         no such purchase shall be made by the Trustee within the period of
         thirty (30) days next preceding any interest payment date on which such
         Bonds are subject to call for redemption under the provisions of this
         Indenture.

                 (b)  To the extent moneys remain on deposit in the Redemption
         Account in the Debt Service Fund, the Trustee shall call for redemption
         on each interest payment date on which Bonds are subject to redemption
         from moneys in the Debt Service Fund such amount of Bonds or portions
         of Bonds then subject to redemption as will as nearly as may be
         possible exhaust the money then held for the credit of the Redemption
         Account in the Debt Service Fund.  Such redemption shall be made
         pursuant to the provisions of Article V of this Indenture.  Prior to
         the redemption date, the Trustee shall withdraw from the Interest
         Account and from the Redemption Account in the Debt Service Fund and
         set aside in separate accounts the respective amounts required for
         paying the interest on, and the principal of, the Bonds or portions of
         Bonds so called for












                                       34


<PAGE>   99

         redemption, and shall pay from moneys deposited with it by the Company
         for that purpose under Section 5.2 of the Agreement or from the
         Redemption Account in the Debt Service Fund all expenses in connection
         with such redemption.

                 (c)  If the Bonds shall not then be subject to redemption from
         moneys in the Redemption Account in the Debt Service Fund and if the
         Trustee shall at any time be unable to exhaust the moneys in the
         purchase of Bonds under the provisions of paragraph (a) of this
         Section, such moneys or the balance of such moneys, as the case may be,
         shall be retained in the Redemption Account in the Debt Service Fund
         and, as soon as it is feasible, applied to the retirement of Bonds.

                 Notwithstanding anything to the contrary in this Section 7.04,
funds held in the Redemption Account pursuant to the provisions of Section
4.3(j) of the Agreement shall only be applied and invested as provided in said
Section 4.3(j).


         SECTION 7.05.  Application of Pledged Moneys.  Subject to the terms and
conditions set forth in this Indenture, moneys held for the credit of the Debt
Service Fund shall be held in trust and disbursed by the Trustee for (a) the
payment of interest on the Bonds issued hereunder as such interest becomes due
and payable; (b) the payment of the principal of such Bonds at such time as such
principal becomes due and payable; (c) the payment of the purchase or redemption
price of such Bonds before their maturity in the manner and to the extent
provided in Section 7.04 hereof; and (d) for the payment of all costs and
expenses as described in Section 5.2(b) and (c) and Sections 9.5 and 9.7 of the
Agreement, and such moneys are hereby pledged to and charged with the payments
mentioned in this Article.

         Whenever the moneys held for the credit of the Debt Service Fund shall
be sufficient for paying the principal of and the interest accrued on all Bonds
then outstanding under the provisions of this Indenture, and all costs and
expenses as herein described, such moneys shall be applied by the Trustee, for
such payments and then to the payment, purchase or redemption of such Bonds in
the manner and to the extent provided in Section 7.04 hereof.










                                       35


<PAGE>   100

         SECTION 7.06.  Unclaimed Funds.  All moneys which the Trustee shall
have withdrawn from the Debt Service Fund or shall have received from any other
source and set aside for the purpose of paying any of the Bonds hereby secured,
either at the maturity thereof or upon call for redemption, shall be held in
trust for the respective registered owners of such Bonds.  Any moneys which
shall be so set aside or deposited by the Trustee, as Paying Agent, and which
shall remain unclaimed by the registered owners of such Bonds for a period of
six (6) years after the date on which such Bonds shall have become due and
payable shall upon request in writing be paid to the Company or to the extent
required by law, to such officer, board or body as may then be entitled by law
to receive the same, and thereafter the registered owner(s) of such Bonds shall
look only to the Company or to such officer, board or body, as the case may be,
for payment and then only to the extent of the amount so received without any
interest thereon, and the Trustee and any such party not receiving such funds
shall have no responsibility with respect to such moneys.


         SECTION 7.07.  Cancellation of Bonds upon Payment.  All Bonds paid,
redeemed or purchased, either at or before maturity, shall be cancelled upon the
payment, redemption or purchase of such Bonds.  All Bonds cancelled under any of
the provisions of this Indenture shall be cremated or otherwise destroyed by
shredding by the Trustee.  The Trustee effecting such cremation or shredding
shall execute a certificate in triplicate describing the Bonds so cremated or
shredded.  One executed certificate shall be filed with the Issuer, one executed
certificate shall be filed with the Company and the other executed certificate
shall be retained by or filed with the Trustee.


                                  ARTICLE VIII

                 DEPOSITORIES OF MONEYS, SECURITY FOR DEPOSITS
                            AND INVESTMENT OF FUNDS


         SECTION 8.01.  Deposits Constitute Trust Funds.  All funds or other
property which at any time may be owned or held in the possession of or
deposited with the Issuer under the provisions of this Indenture shall be held
in trust and applied only in accordance with the provisions of this Indenture,
and shall not be subject to lien or attachment by any creditor of the Issuer.













                                       36




<PAGE>   101

         All funds or other property which at any time may be owned or held in
the possession of or deposited with the Trustee under this Indenture and the
Agreement shall be continuously secured, for the benefit of the Issuer and the
registered owners of the Bonds either (a) by lodging with a bank or trust
company approved by the Issuer and the Trustee, as custodian, with collateral
security consisting of obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States of
America having a market value (exclusive of accrued interest) not less than the
amount of such deposit, or (b) in such other manner as may then be required or
permitted by applicable state or federal laws and regulations regarding the
security for, or granting a preference in the case of, the deposit of trust
funds.  But it shall not be necessary for the Trustee to lodge such collateral
security with any other bank or trust company, if it lodges such collateral
security with its Trust Department as custodian, nor shall it be necessary for
the Trustee to give security for any moneys which shall be represented by
investments in the obligations referred to in Section 8.02 hereof, purchased
under the provisions of this Article as an investment of such moneys.

         All moneys deposited with each Depositary shall be credited to the
particular Fund or Account to which such moneys belong.


         SECTION 8.02.  Investment of Moneys.  Moneys held for the
credit of the Construction Fund and the Redemption Account in the Debt Service
Fund, shall be invested and reinvested at the oral request of the Authorized
Company Representative, to be confirmed thereafter in writing, or if there shall
be no such request, at the sole discretion of the Trustee, by the Trustee in
Investment Obligations.  Such investments or reinvestments shall mature not
later than the respective dates, as estimated by the Trustee, that the moneys
held for the credit of said Funds or Accounts will be needed for the purposes of
such Funds or Accounts.  The written request of the Authorized Company
Representative shall specify the issuer or obligor, the type, principal amount,
interest rate and maturity of each such requested investment of moneys.  Moneys
held for more than five (5) days for the credit of the Interest Account in the
Debt Service Fund shall be invested and reinvested in the same manner as
provided above for the investment of funds.

         Obligations so purchased as an investment of moneys in any such Fund or
Account shall be deemed at all times to










                                       37

<PAGE>   102

be a part of such Fund or Account, and shall at all times, for the purposes of
this Indenture, be valued at the cost thereof at the time of purchase, without
regard to fluctuation in market value.  The Trustee, at the direction of the
Authorized Company Representative or when required to pay debt service on the
Bonds, shall sell at the best price obtainable any obligations so purchased
whenever it shall be necessary so to do in order to provide moneys to meet any
payment or transfer from such Funds or Accounts.  Neither the Trustee nor the
Issuer shall be liable or responsible for any loss resulting from any such
investments or reinvestments.

         All income derived from the investment of moneys in such Funds and
Accounts, shall be retained in such Funds or Accounts to the extent necessary to
make the amount then on deposit therein equal to the maximum amount required to
be on deposit in such Funds or Accounts, and any remaining balance shall be
deposited in the Redemption Account in the Debt Service Fund and used as
provided herein for said Account.


                                   ARTICLE IX

                    GRANT OF MORTGAGE AND SECURITY INTEREST


         SECTION 9.01.  Grant of Mortgage and Security Interest.  The
Issuer hereby pledges and assigns to the Trustee, and grants the Trustee a
mortgage on and security interest in, all of the Issuer's right, title and
interest in and under the Note, the Agreement (including the Trustee's rights,
but excluding the Issuer's rights under Sections 5.2(c), 7.1, 9.5 and 9.7 of the
Agreement), the Loan Installments, and other money, and the Mortgage, as
security for the payment of the Bonds, the interest thereon and for the
satisfaction of any other obligation assumed by it in connection with such
Bonds.  It is mutually agreed and covenanted by and between the parties hereto,
that such rights and security interests are for the equal and proportionate
benefit and security of all and singular, present and future owners of Bonds
issued and to be issued under the Indenture, without preference, priority or
distinction as to lien or otherwise, except as provided herein, of any one Bond
over any other Bond, by reason of priority in the issue, sale or negotiation
thereof or otherwise.





                                       38


<PAGE>   103

                                   ARTICLE X

                              PARTICULAR COVENANTS


         SECTION 10.01.  Covenant of Issuer as to Performance of Obligations.
The Issuer covenants that it will promptly pay the principal of and the interest
on every Bond issued under the provisions of this Indenture at the places, on
the dates and in the manner provided herein and in said Bonds according to the
true intent and meaning thereof.  The principal and interest on the Bonds are
payable solely from the Loan Installments and any other income and other moneys
to the extent provided herein, which are hereby pledged to the payment thereof
in the manner and to the extent hereinabove specified.

         The Bonds and the interest thereon shall not be deemed to constitute a
general debt, liability or obligation of the Issuer or of the State of Florida
or of any political subdivision thereof, or a pledge of the faith and credit of
the Issuer or of the State of Florida or of any political subdivision thereof,
but the Bonds shall be payable solely from the revenues provided therefor and
from the collateral pledged as security therefor, and the Issuer is not
obligated to pay the Bonds or the interest thereon except from the revenues and
proceeds pledged therefor and neither the faith and credit nor the taxing power
of the Issuer or of the State of Florida or of any political subdivision thereof
is pledged to the payment of the principal of or the interest on the Bonds.


         SECTION 10.02.  Covenant to Perform Undertakings.  The Issuer covenants
that it will faithfully perform at all times any and all covenants,
undertakings, stipulations and provisions contained in this Indenture, in any
and every Bond executed, authenticated and delivered hereunder and in all
proceedings of the Issuer pertaining thereto and will faithfully observe and
perform at all times any and all covenants, undertakings, stipulations and
provisions of the Agreement on its part to be observed or performed.  The Issuer
covenants that it is duly authorized under the Constitution and laws of the
State of Florida, including particularly and without limitation the Act, to
issue the Bonds authorized hereby and to enter into this Indenture, to pledge
funds or other property which at any time may be owned or held in the possession
of the Issuer, including without limitation, the Loan Installments and any other
income and other moneys in the manner and to the extent herein



                                       39


<PAGE>   104

set forth; that all action on its part for the issuance of the Bonds initially
issued hereunder and the execution and delivery of this Indenture has been duly
and effectively taken; and that such Bonds in the hands of the holders and
owners thereof are and will be valid and enforceable obligations of the Issuer
according to the tenor and import thereof.


         SECTION 10.03.  Covenant to Perform Further Acts.  The Issuer covenants
that it will do, execute, acknowledge and deliver or cause to be done, executed,
acknowledged and delivered, such indentures supplemental hereto and such further
acts, instruments and transfers as the Trustee may reasonably require for the
better pledging unto the Trustee all and singular the Loan Installments and any
other income, moneys, rights and properties pledged hereby to the payment of the
principal of and interest and premium, if any, on the Bonds.


         SECTION 10.04.  Covenant to Pay Taxes.  Pursuant to the provisions of
Article VI of the Agreement, the Company has agreed to pay all taxes,
assessments and governmental charges at any time lawfully levied or assessed
upon or against the Project and the Project Site or any part thereof; provided,
however, that nothing contained in this Indenture shall require the payment of
any such taxes, assessments or governmental charges if the same are not required
to be paid under the provisions of Article VI of the Agreement.


         SECTION 10.05.  Covenant to Maintain and Operate.  Pursuant to the
provisions of Article VI of the Agreement, the Company has agreed at its own
expense to pay or cause to be paid all costs of maintaining, repairing and
operating the Project.


         SECTION 10.06.  Covenant to Insure; Application of Insurance Proceeds.
Pursuant to Article VI of the Agreement and Section 13 of the Mortgage, the
Company has agreed to keep the Project continuously insured throughout the
Agreement Term (as defined in the Agreement) against such risks as are
customarily insured against in connection with the operation of facilities of
like size, type and location, paying as the same become due and payable all
premiums in respect thereto; and the Trustee hereby agrees to apply the







                                       40

<PAGE>   105

proceeds of said insurance in accordance with Section 14 of the Mortgage.


         SECTION 10.07.  Covenant as to Recordation.  Pursuant to Article VI of
the Agreement, the Company has agreed that it will cause this Indenture and all
supplements hereto, the Agreement and all supplements thereto or amendments
thereof, the Mortgage and the Assignment of Mortgage to be kept, and either
recorded and filed, or notices thereof or financing statements relating thereto
recorded and filed, in such manner and in such places as may be required by law
in order fully to preserve and protect the security of the registered owners of
the Bonds and the rights of the Issuer and Trustee hereunder.


         SECTION 10.08.  Covenant to Enforce Rights.  The Agreement sets forth
the covenants and obligations of the Issuer and the Company, including a
provision in Section 10.5 thereof that subsequent to the issuance of the Bonds
and prior to their payment in full or provision for the payment thereof having
been made in accordance with the provisions hereof, the Agreement may not be
amended, changed, modified, altered or terminated (other than as provided
therein) without the concurring written consent of the Trustee and otherwise as
provided in Article XVI of this Indenture and reference is hereby made to the
Agreement for a detailed statement of said covenants and obligations of the
Company under the Agreement, and the Issuer agrees that the Trustee in its name
or in the name of the Issuer may enforce all rights of the Issuer and all
obligations of the Company under and pursuant to the Agreement for and on behalf
of the Bondholders, whether or not the Issuer is in default hereunder.


         SECTION 10.09.  Covenant as to Performance of Obligations.  The Issuer
covenants that it will faithfully perform each covenant, stipulation, obligation
and agreement contained in the Agreement which is to be performed by it, and
that it will diligently enforce the performance of each covenant, stipulation,
obligation and agreement contained in the Agreement which is to be performed by
the Company.






                                       41

<PAGE>   106

                                   ARTICLE XI
                          EVENTS OF DEFAULT; REMEDIES


         SECTION 11.01.  Events of Default.  Each of the following events is
hereby declared an "event of default," provided, however, that in any case in
which such event of default shall be occasioned by the action or inaction of the
Issuer, such action or inaction may be cured by the Company within the time and
in the manner as contemplated by the provisions of this Article XI:

                 (a)  payment of the principal or the making of any deposits
         into the Redemption Account in the Debt Service Fund, of or for any of
         the Bonds shall not be made when the same shall become due and payable,
         either at maturity (whether by acceleration or otherwise) or on
         required payment dates by proceedings for redemption or otherwise, or
         within ten (10) days thereafter; or

                 (b)  payment of any installment of interest shall not be made
         when the same shall become due and payable or within ten (10) days
         thereafter; or

                 (c)  the Issuer shall for any reason be rendered incapable of
         fulfilling its obligations hereunder to the extent that the payment of,
         security for, or tax exempt status of the Bonds would be materially
         adversely affected, and such conditions shall continue unremedied for a
         period of thirty (30) days after the Issuer becomes aware of such
         conditions; or

                 (d)  an order or decree shall be entered, with the consent or
         acquiescence of the Issuer, appointing a receiver or receivers of the
         Issuer and of the Loan Installments or any other income to be derived
         by the Issuer under the Agreement or such order or decree, having been
         entered without the consent or acquiescence of the Issuer, shall not be
         vacated or discharged or stayed on appeal within ninety (90) days after
         the entry thereof; or

                 (e)  any proceedings shall be instituted, with the consent or
         acquiescence of the Issuer, for the purpose of effecting a composition
         between the Issuer and its creditors or for the purpose of adjusting
         the claims of such creditors, pursuant to any federal or state statutes
         now or hereafter



                                       42


<PAGE>   107

         enacted, if the claims of such creditors are under any circumstances
         payable from the Loan Installments or any other income to be derived
         from the sale of the Project; or

                 (f)  an event of default under the Agreement as defined in
         Section 9.1 thereof shall have occurred; or

                 (g)  an "Event of Default" as defined under the terms of the
         Mortgage or the Guaranty shall have occurred; or

                 (h)  the Issuer shall default in the due and punctual
         performance of any other of the covenants, conditions, agreements and
         provisions contained in the Bonds or in this Indenture on the part of
         the Issuer to be performed, or the Company shall default in connection
         with the matters referred to in Sections 10.04, 10.05 or 10.06 of this
         Indenture, and such default shall continue for thirty (30) days after
         written notice specifying such default and requiring the same to be
         remedied shall have been given to the Issuer and the Company by the
         Trustee, which may give such notice in its discretion and shall give
         such notice at the written request of the registered owners of not less
         than twenty-five percent (25%) in aggregate principal amount of the
         Bonds then outstanding.

                 (i)  in the good faith opinion of the Trustee, there has been
         any material adverse change in the financial status of the Company or
         the Guarantor.


         SECTION 11.02.  Acceleration of Maturities.  Upon the happening and
continuance of any event of default specified in Section 11.01 of this Article,
then and in every such case the Trustee may, and upon the written request of the
registered owners of not less than twenty-five percent (25%) in aggregate
principal amount of the Bonds then outstanding shall, by a notice in writing to
the Issuer, declare the principal of all of the Bonds then outstanding (if not
then due and payable) to be due and payable immediately, without premium, and
upon such declaration the same shall become and be immediately due and payable,
anything contained in the Bonds or in this Indenture to the contrary
notwithstanding; provided, however, that if at any time after the principal of
the Bonds shall have been so declared to be due and payable, and before the
entry of final judg-





                                       43


<PAGE>   108


ment or decree in any suit, action or proceeding instituted on account of such
default, or before the completion of the enforcement of any other remedy under
this Indenture, moneys shall have accumulated in the appropriate Accounts in the
Debt Service Fund sufficient to pay the principal of all matured Bonds and all
arrears of interest, if any, upon all Bonds then outstanding (except the
principal of any Bonds not then due and payable by their terms and the interest
accrued on such Bonds since the last interest payment date), and the charges,
compensation, expenses, disbursements, advances and liabilities of the Trustee
and all other amounts then payable by the Issuer hereunder shall have been paid
or a sum sufficient to pay the same shall have been deposited with the Trustee,
and every other default known to the Trustee in the observance or performance of
any covenant, condition, agreement or provision contained in the Bonds or in
this Indenture (other than a default in the payment of the principal of such
Bonds then due and payable only because of declaration under this Section) shall
have been remedied to the satisfaction of the Trustee, then and in every such
case the Trustee may, and upon the written request of the registered owners of
not less than seventy-five percent (75%) in aggregate principal amount of the
Bonds not then due and payable by their terms and then outstanding shall, by
written notice to the Issuer, rescind and annul such declaration and its
consequences, but no such rescission or annulment shall extend to or affect any
subsequent default or impair any right consequent thereon.


         SECTION 11.03.  Enforcement of Remedies.  Upon the happening and
continuance of any event of default specified in Section 11.01 of this Article,
then and in every such case the Trustee may proceed, and upon the written
request of the registered owners of not less than twenty-five percent (25%) in
principal amount of the Bonds then outstanding hereunder shall proceed, subject
to the provisions of Sections 11.02 and 12.02 of this Indenture, to protect and
enforce its rights and the rights of the Bondholders under the laws of the State
of Florida, including the Act, or under this Indenture, the Mortgage or the
Guaranty, by such suits, actions or special proceedings in equity or at law, or
by proceedings in the office of any board, body or officer having jurisdiction,
either for the specific performance of any covenant or agreement contained
herein or in aid of execution of any power herein granted or for the enforcement
of any proper legal or equitable remedy, as the Trustee, being advised by
counsel, shall deem most effectual to protect and enforce such rights.




                                       44


<PAGE>   109


         In the enforcement of any remedy against the Issuer under this
Indenture the Trustee shall be entitled to institute such action against the
Issuer necessary to compel performance of any agreement of the Issuer hereunder
and otherwise, with respect to any action against the Issuer, to recover solely
from moneys in the Debt Service Fund and any other moneys available for such
purposes but in no other manner shall the Issuer be deemed liable for any other
damages of whatsoever kind or nature.


         SECTION 11.04.  Pro Rata Application of Funds.  Anything in this
Indenture to the contrary notwithstanding, if at any time the moneys in the Debt
Service Fund shall not be sufficient to pay the principal of or the interest on
the Bonds as the same become due and payable (either by their terms or by
acceleration of maturities under Section 11.02), such moneys, together with any
moneys then available or thereafter becoming available for such purpose, whether
through the exercise of the remedies provided for in this Article or otherwise,
shall, subject to the provisions of Section 12.05 hereof, be applied as follows:

                 (a)  Unless the principal of all the Bonds shall have become
         due and payable, all such moneys shall be applied (1) to the payment of
         all installments of interest then due, in the order of the maturity of
         the installments of such interest, to the persons entitled thereto,
         ratably, without any discrimination or preference, and (2) to the
         payment of all installments into the Principal Account in the Debt
         Service Fund then due.

                 (b)  If the principal of all the Bonds shall have become due
         and payable, all such moneys shall be applied to the payment of the
         principal and interest then due and unpaid upon the Bonds, without
         preference or priority of principal over interest or of interest over
         principal, or of any installment of interest over any other installment
         of interest, or of any Bond over any other Bond, ratably, according to
         the amounts due, respectively, for principal and interest, to the
         persons entitled thereto without any discrimination or preference
         except as to any difference in the respective rates of interest
         specified in the Bonds.

                 (c)  If the principal of all such Bonds shall have been
         declared due and payable and if such declaration shall thereafter have
         been rescinded and




                                       45



<PAGE>   110

         annulled under the provisions of Section 11.02 of this Article, then,
         subject to the provisions of paragraph (b) of this Section in the event
         that the principal of all such Bonds shall later become due and payable
         or be declared due and payable, the moneys remaining in and thereafter
         accruing to the Debt Service Fund for such Bonds shall be applied in
         accordance with the provisions of paragraph (a) of this Section.

         Whenever moneys are to be applied by the Trustee pursuant to the
provisions of this Section, such moneys shall be applied by the Trustee at such
times, and from time to time, as the Trustee in its sole discretion shall
determine, having due regard to the amount of such moneys available for
application and the likelihood of additional moneys becoming available for such
application in the future; the setting aside of such moneys, in trust for the
proper purpose, shall constitute proper application by the Trustee; and the
Trustee shall incur no liability whatsoever to the Issuer, to any Bondholder or
to any other person for any delay in applying any such moneys, so long as the
Trustee acts with reasonable diligence, having due regard to the circumstances
and ultimately applies the same in accordance with such provisions of this
Indenture as may be applicable at the time of application by the Trustee.
Whenever the Trustee shall exercise such discretion in applying such moneys, it
shall fix the date (which shall be an interest payment date unless the Trustee
shall deem another date more suitable) upon which such application is to be made
and upon such date interest on the amounts of principal to be paid on such date
shall cease to accrue. The Trustee shall give such notice as it may deem
appropriate of the fixing of any such date, and shall not be required to make
payment to the owner of any Bond unless such Bond shall be presented to the
Trustee for appropriate endorsement or for cancellation if fully paid.


         SECTION 11.05.  Effect of Discontinuing Proceedings.  In case any
proceeding taken by the Trustee on account of any default shall have been
discontinued or abandoned for any reason or shall have been determined adversely
to the Trustee, then and in every such case the Issuer, the Trustee and the
Bondholders shall be restored to their former positions and rights hereunder,
respectively, and all rights, remedies, powers and duties of the Trustee shall
continue as though no such proceeding had been taken.



                                       46



<PAGE>   111

         SECTION 11.06.  Directions to Trustee as to Remedial Proceedings.
Anything in this Indenture to the contrary notwithstanding, the registered
owners of a majority in principal amount of the Bonds then outstanding hereunder
shall have the right, subject to the provisions of Section 12.02 of this
Indenture, by an instrument or concurrent instruments in writing executed and
delivered to the Trustee, to direct the method and place of conducting all
remedial proceedings to be taken by the Trustee hereunder, provided that such
direction shall not be otherwise than in accordance with law or the provisions
of this Indenture, and that the Trustee shall have the right to decline to
follow any such direction which in the opinion of counsel to the Trustee would
be unjustly prejudicial to Bondholders not parties to such direction.


         SECTION 11.07.  Restrictions on Actions by Individual Bondholders.  No
Bondholder shall have any right to institute any suit, action or proceeding in
equity or at law for the execution of any trust hereunder or for any other
remedy hereunder unless such Bondholder previously shall have given to the
Trustee written notice of the event of default on account of which such suit,
action or proceeding is to be taken, and unless the holders of not less than
twenty-five percent (25%) in principal amount of the Bonds then outstanding
shall have made written request of the Trustee after the right to exercise such
powers or right of action, as the case may be, shall have accrued, and shall
have afforded the Trustee a reasonable opportunity either to proceed to exercise
the powers hereinabove granted or to institute such action, suit or proceeding
in its or their name, and unless, also, there shall have been offered to the
Trustee reasonable security and indemnity against the costs, expenses and
liabilities to be incurred therein or thereby, including the reasonable fees of
its attorneys (including fees on appeal), and the Trustee shall have refused or
neglected to comply with such request within a reasonable time; and such
notification, request and offer of indemnity are hereby declared in every such
case, at the option of the Trustee, to be conditions precedent to the execution
of the powers and trusts of this Indenture or for any other remedy hereunder. It
is understood and intended that no one or more registered owners of the Bonds
hereby secured shall have any right in any manner whatever by his or their
action to affect, disturb or prejudice the security of this Indenture, or to
enforce any right hereunder, except in the manner herein provided, and that all
proceedings at law or in equity shall be instituted, had and maintained in the
manner herein provided and for the benefit of all registered






                                       47



<PAGE>   112

owners of the outstanding Bonds, and that any individual rights of action or any
other right given to one or more of such owners by law are restricted by this
Indenture to the rights and remedies herein provided.


         SECTION 11.08.  Appointment of a Receiver.  Upon the occurrence of an
event of default, and upon the filing of a suit or other commencement of
judicial proceedings to enforce the rights of the Trustee and of the Bondholders
under this Indenture, the Trustee shall be entitled, as a matter of right,
without notice, and without regard to the value of the Project or the solvency
of the Company or the Issuer, to the appointment of a receiver or receivers of
the Loan Installments, pending such proceedings, with such powers as the court
making such appointments shall confer, whether or not said Loan Installments
shall be deemed sufficient ultimately to satisfy the Bonds outstanding
hereunder.


         SECTION 11.09.  Enforcement of Rights of Action.  All rights of action
under this Indenture or under any of the Bonds secured hereby, enforceable by
the Trustee, may be enforced by it without the possession of any of the Bonds or
the production thereof at the trial or other proceeding relative thereto, and
any such suit, action or proceeding instituted by the Trustee shall be brought
in its name or in the name of the Issuer, as appropriate, for the benefit of all
the registered owners of such Bonds subject to the provisions of this Indenture.


         SECTION 11.10.  No Remedy Exclusive.  No remedy herein conferred upon
or reserved to the Trustee or to the Bondholders is intended to be exclusive of
any other remedy or remedies, and each and every such remedy shall be cumulative
and shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or equity or by statute.


         SECTION 11.11.  Delay not a Waiver.  No delay or omission of the
Trustee or of any registered owner of the Bonds to exercise any right or power
accruing upon any default shall impair any such right or power or shall be
construed to be a waiver of any such default or an acquiescence therein; and
every power and remedy given by this Indenture to the Trustee and Bondholders,
respectively, may be exercised from time to time and as often as may be deemed
expedient; provided, however, that no such power or remedy




                                       48


<PAGE>   113

may be exercised in the case of a default where such particular default has
later been cured with or without the exercise of such power or remedy.

         Before the entry of final judgment or decree in any suit, action or
proceeding instituted by the Trustee under the provisions of this Indenture or
before the completion of the enforcement of any other remedy under this
Indenture, the Trustee shall be permitted to discontinue such suit, action,
proceeding, or enforcement of any remedy if in its opinion any default forming
the basis of such suit, action, proceeding or enforcement of any remedy shall
have been remedied.


         SECTION 11.12.  Notice of Default.  The Trustee shall mail to all
Bondholders written notice of the occurrence of any event of default set forth
in Section 11.01 of this Article within thirty (30) days after the Trustee shall
have notice, pursuant to Section 12.08, that any such event of default shall
have occurred.


         SECTION 11.13.  Additional Remedies.  The remedies conferred in this
Article shall be in addition to all remedies provided for in the Agreement,
which remedies are hereby incorporated herein by reference, and may be enforced
by the Trustee in accordance with the terms of this Indenture.


                                  ARTICLE XII

                         CONCERNING THE TRUSTEE, PAYING
                            AGENT AND BOND REGISTRAR


         SECTION 12.01.  Acceptance of Trusts; Performance of Duties.  The
Trustee accepts and agrees to execute the trusts imposed upon it by the express
terms of this Indenture, and the obligations of the Issuer expressly assumed by
the Trustee under this Indenture, but only upon the terms and conditions set
forth in this Article and subject to the provisions of this Indenture, to all of
which the parties hereto and the respective Bondholders agree. All funds created
under this Indenture shall be held by the Trustee (except as otherwise herein
provided) and administered as trust funds as herein provided.








                                       49


<PAGE>   114

         SECTION 12.02.  Trustee Entitled to Indemnity.  The Trustee shall be
under no obligation to institute any suit, or to take any remedial proceeding
under this Indenture or under the Agreement, or to enter any appearance or in
any way defend in any suit in which it may be made defendant, or to take any
steps in the execution of the trust hereby created or in the enforcement of any
rights and powers hereunder or under the Agreement, until it shall be
indemnified to its satisfaction against any and all costs and expenses, outlays
and counsel fees and other reasonable disbursements, and against all liability;
the Trustee may, nevertheless, begin suit, or appear in and defend suit, or do
anything else in its judgment reasonably proper to be done by it as such
Trustee, without indemnity, and in any such case the Issuer shall reimburse the
Trustee from the Loan Installments, and from funds available therefor under the
Agreement for all costs and expenses, outlays and attorney's fees and other
reasonable disbursements properly incurred in connection therewith.  The Trustee
shall have a lien upon and security interest in all moneys or other assets which
shall secure the payment of the Bonds, to secure repayment of such
disbursements, and if the Issuer shall fail to make such reimbursement, the
Trustee may reimburse itself from such moneys or other assets and shall be
entitled to a preference therefor over any of the Bonds outstanding hereunder.


         SECTION 12.03.  Limitation on Obligations and Responsibilities.  The
Trustee shall be under no obligation to effect or maintain insurance or to renew
any policies of insurance or to inquire as to the sufficiency of any policies of
insurance carried by the Issuer or the Company, or to report, or make or file
claim or proof of loss for, any loss or damage insured against or which may
occur, or to keep itself informed or advised as to the payment of any taxes or
assessments, or to require any such payment to be made.  The Trustee shall have
no responsibility with respect to the validity or sufficiency of this Indenture
or the due execution or acknowledgment thereof, or the validity or sufficiency
of the security provided hereunder, or, except as to the authentication thereof
by the Trustee, with respect to the validity of the Bonds or the due execution
or issuance thereof or any recital therein. Trustee shall not be accountable for
the use of any proceeds of Bonds authenticated or delivered hereunder.


         SECTION 12.04.  Limitation on Liability.  The Trustee shall not be
liable or responsible because of the









                                       50


<PAGE>   115

failure of the Issuer or any of its employees or agents to make any collections
or deposits or to perform any act herein required of them or because of the loss
of any moneys arising through the insolvency or the act or default or omission
of any other Depository other than itself in which such moneys shall have been
deposited under the provisions of this Indenture.  The Trustee shall not be
responsible for the application of any of the proceeds of the Bonds or any other
moneys deposited with it and paid out, withdrawn or transferred in accordance
with the provisions of this Indenture.  The immunities and exemptions from
liability of the Trustee hereunder shall extend to its directors, officers,
employees and agents.  The Trustee may perform the duties required of it under
this Indenture by or through officers, agents, employees or attorneys.

         None of the provisions of this Indenture shall be construed to relieve
the Trustee from liability for its own gross negligence, or willful misconduct,
except that

                 (a)  the Trustee shall not be liable for any error of judgment
         made in good faith by any one of its officers, agents or employees,
         unless it shall be established that the Trustee was grossly negligent
         in ascertaining the pertinent facts;

                 (b)  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 registered owners of not less than twenty-five percent
         (25%) in principal amount of the Bonds then outstanding 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 the provisions of this Indenture; and

                 (c)  The Trustee shall not be liable for anything done,
         suffered or omitted in good faith by it in accordance with the advice
         or opinion of any counsel, accountants or skilled persons of generally
         accepted competence selected by it with reasonable care.


         SECTION 12.05.  Compensation of Trustee.  Subject to the provisions of
any contract between the Issuer and the Trustee, the Issuer shall cause the
Company to pay to the Trustee fees and charges in accordance with Sections
5.2(b), 9.5 and 9.7 of the Agreement.  The Trustee shall have a lien







                                       51



<PAGE>   116

upon and security interest in all moneys or other assets which shall secure the
payment of the Bonds, to secure the payment of such fees and charges, and if the
Issuer shall fail to make such payments, the Trustee may reimburse itself from
such moneys or other assets and shall be entitled to a preference therefor over
any of the Bonds outstanding hereunder.


         SECTION 12.06.  Annual Statement.  Not later than 45 days after the end
of each Bond Year, the Trustee shall file with the Issuer and the Company a
statement setting forth with respect to the preceding Bond Year:

                 (a)  the amount withdrawn or transferred by the Trustee and the
         amount deposited with it on account of each Fund and Account held by it
         under the provisions of this Indenture,

                 (b)  the amount on deposit with it at the end of such Bond Year
         to the credit of such Fund and Account,

                 (c)  a brief description of all obligations held by it as an
         investment of moneys in each such Fund and Account,

                 (d)  the amount applied to the purchase or redemption of Bonds
         under the provisions of Section 7.04 of this Indenture and a
         description of the Bonds or portions of Bonds so purchased or redeemed,
         and

                 (e)  any other information which the Issuer or the Company may
         reasonably request.

         All records and files pertaining to the Project in the custody of the
Trustee shall be open at all reasonable times to the inspection of the Issuer,
the Company, the Bondholders, and their agents and representatives.


         SECTION 12.07.  Reliance on Certificates.  In case at any time it shall
be necessary or desirable for the Trustee to make an investigation respecting
any fact preparatory to taking or not taking any action or doing or not doing
anything as such Trustee, and in any case in which this Indenture permits the
taking of any action, the Trustee may rely upon any certificate required or
permitted to be filed with it under the provisions of this Indenture, and








                                       52



<PAGE>   117

any such certificate shall be evidence of such fact to protect the Trustee in
any action that it may or may not take or in respect of anything it may or may
not do, in good faith, by reason of the supposed existence of such fact. Except
as otherwise provided in this Indenture, any request, notice or other instrument
from the Issuer to the Trustee shall be deemed to have been signed by the proper
party or parties if signed by the Chairman or Vice Chairman and Assistant
Secretary of the Issuer and the Trustee may accept a certificate signed by said
Chairman or Vice Chairman and Assistant Secretary as to any action taken by the
Issuer or any resolution adopted by the Issuer.


         SECTION 12.08.  Notice of Defaults.  Except as otherwise provided in
this Indenture, the Trustee shall not be deemed to have notice of any event of
default hereunder except failure by the Issuer or the Company to cause to be
made any of the payments required hereunder unless specifically notified in
writing of such event of default by the Issuer or by the holders of at least
twenty-five percent (25%) in principal amount of the Bonds.


         SECTION 12.09.  Trustee as Bondholder.  The bank or trust company
acting as Trustee under this Indenture, and its directors, officers, employees
or agents, may in good faith buy, sell, own, hold and deal in any of the Bonds
issued under and secured by this Indenture and may join in any action that any
Bondholder may be entitled to take with like effect as if such bank or trust
company were not the Trustee under this Indenture and each Bondholder, by the
purchase of any of the Bonds, shall be deemed to have expressly assented to the
provisions hereof.


         SECTION 12.10.  Trustee not Responsible for Recitals.  The recitals,
statements and representations contained herein and in the Bonds (excluding the
Trustee's certificate on the Bonds) shall be taken and construed as made by and
on the part of the Issuer and not by the Trustee, and the Trustee assumes, and
shall be under no responsibility for, the correctness of the same.


         SECTION 12.11.  Reliance on Certain Documents.  The Trustee shall be
protected and shall incur no liability in acting or proceeding, or in not acting
or not proceeding, in good faith, reasonably and in accordance with the terms of
this Indenture, upon any resolution, order, notice, request,








                                       53



<PAGE>   118

consent, waiver, certificate, statement, affidavit, requisition, bond or other
paper or document that it shall in good faith reasonably believe to be genuine
and to have been adopted or signed by the proper board or person, or to have
been prepared and furnished pursuant to any of the provisions of this Indenture,
or upon the written opinion of any attorney, engineer, consultant or accountant
believed by the Trustee to be qualified in relation to the subject matter, and
the Trustee shall be under no duty to make any investigation or inquiry as to
any statements contained or matter referred to therein, but may accept and rely
upon the same as conclusive evidence of the truth and accuracy of such
statements.  The Trustee shall not be bound to recognize any person as an owner
of any Bond or to take any action at his request unless proof of ownership of
such Bond satisfactory to the Trustee has been exhibited to or deposited with
the Trustee.  The Trustee shall not be under any obligation to see to the
recording or filing of this Indenture or the Agreement or any other instrument
or otherwise to the giving to any person of notice of the provisions hereof or
thereof.


         SECTION 12.12.  Trustee Not Required to Give Bond.  The Trustee shall
not be required to give any bond or surety in respect to the execution of the
said trusts and powers or otherwise in respect of the premises.


         SECTION 12.13.  Resignation.  The Trustee or the Bond Registrar may
resign and thereby become discharged from the trusts and duties hereby created,
by giving sixty (60) days prior written notice to the Issuer, and in the case of
the Trustee only, by giving written notice to the Bondholders in the manner
provided in this Indenture, not less than sixty (60) days before such
resignation is to take effect, but such resignation shall take effect
immediately upon the appointment of a new Trustee or Bond Registrar hereunder,
if such Trustee or Bond Registrar shall be appointed before the time limited by
such notice and shall then accept the trusts and duties hereof.


         SECTION 12.14.  Removal of Trustee.  The Trustee may be removed at any
time by an instrument or concurrent instruments in writing, executed by the
registered owners of not less than a majority in aggregate principal amount of
the Bonds hereby secured and then outstanding and filed with the Issuer, and
notice given in the manner provided in this Indenture not less than sixty (60)
days before such removal is to take effect as stated in said instrument or
instru-









                                       54


<PAGE>   119

ments; provided, however, that if there shall be filed with the Issuer prior to
the date on which such removal is so stated to take effect an instrument or
concurrent instruments in writing, executed by the registered owners of a
greater aggregate principal amount of the Bonds hereby secured and then
outstanding than the amount of such Bonds held by the owners signing such
removal instrument or instruments, objecting to the removal of the Trustee, then
such removal instrument or instruments shall be ineffective and the Trustee
shall not be removed.  A photographic copy of any instrument filed with the
Issuer under the provisions of this paragraph shall be delivered by the Issuer
to the Trustee and shall be certified to be a true and correct copy of the
original.  The Trustee may also be removed at any time for any breach of trust
or for acting or proceeding in violation of, or for failing to act or proceed in
accordance with, any provisions of this Indenture with respect to the duties and
obligations of the Trustee, by any court of competent jurisdiction upon the
application of the Issuer or the registered owners of not less than twenty-five
percent (25%) in aggregate principal amount of the Bonds then outstanding under
this Indenture.


         SECTION 12.15.  Appointment and Qualification of Successor Trustee.  If
at any time hereafter the Trustee shall resign, be removed, be dissolved or
otherwise become incapable of acting, or the bank or trust company acting as
Trustee shall be taken over by any governmental official, agency, department or
board, the position of Trustee shall thereupon become vacant.  If at any time
moneys on deposit with the Trustee shall not be secured as required in Section
8.01 of this Indenture and the Trustee shall have been given thirty (30) days
advance written notice thereof without having cured the same, a vacancy in the
position of Trustee may be declared by a resolution duly passed by the Issuer.
If the position of Trustee shall become vacant for any of the foregoing reasons
or for any other reason, the Issuer shall appoint a Trustee to fill such
vacancy; provided, however, that the resignation or removal of the Trustee shall
not affect the rights of the Trustee under Sections 12.02 and 12.05 of this
Indenture.

         If no appointment of a successor Trustee shall be made pursuant to the
foregoing provisions of this Article, the registered owner of any Bond
outstanding hereunder or any retiring Trustee may apply to any court of
competent jurisdiction to appoint a successor Trustee.  Such court may
thereupon, after such notice, if any, as such court may deem proper and
prescribe, appoint a successor Trustee.








                                       55



<PAGE>   120

         Any Trustee hereafter appointed shall be a bank or trust company duly
and legally authorized and empowered to exercise the corporate trust powers
provided herein, and subject to examination by federal or state authority, of
good standing and having a combined capital and surplus aggregating not less
than five million dollars ($5,000,000).


         SECTION 12.16.  Vesting of Trusts in Successor.  Every successor
Trustee appointed hereunder shall execute, acknowledge and deliver to its
predecessor and also to the Issuer an instrument in writing accepting such
appointment hereunder, and thereupon such successor Trustee, without any further
act, shall become fully vested with all the rights, immunities, powers and
trusts, and subject to all the duties and obligations of its predecessor; but
such predecessor shall, nevertheless, on the written request of its successor or
of the Issuer, and upon payment of the compensation, expenses, charges and other
disbursements of such predecessor that are payable pursuant to the provisions of
Sections 12.02 and 12.05 of this Article, execute and deliver an instrument
transferring to such successor Trustee all the rights, immunities, powers and
trusts of such predecessor hereunder; and every predecessor Trustee shall upon
payment to the resigning or removed Trustee of all compensation, expenses and
disbursements due and owing to such Trustee under the provisions of this
Indenture, deliver all property and moneys held by it hereunder to its
successor. Should any instrument in writing from the Issuer be required by any
successor Trustee for more fully and certainly vesting in such Trustee the
rights, immunities, powers and trusts hereby vested or intended to be vested in
the predecessor Trustee, any such instrument in writing shall and will, on
request, be executed, acknowledged and delivered by the Issuer.

         Notwithstanding any of the foregoing provisions of this Article, any
bank or trust company having power to perform the duties and execute the trusts
of this Indenture and otherwise qualified to act as Trustee hereunder with or
into which the bank or trust company acting as Trustee may be merged or
consolidated, or to which the assets and business of such bank or trust company
may be sold, shall be deemed the successor of the Trustee.


         SECTION 12.17.  Designation and Succession of Paying Agents.  Trustee
and any other banks or trust companies, if any, designated as Paying Agent or
Paying Agents in any supplemental indenture providing for the issuance of









                                       56


<PAGE>   121

Additional Bonds as provided in Section 3.08 hereof, or refunding Bonds as
provided in Section 3.10 hereof, shall be the Paying Agent or Paying Agents for
the applicable series of Bonds.

         Any bank or trust company with or into which any Paying Agent may be
merged or consolidated, or to which the assets and business of such Paying Agent
may be sold, shall be deemed the successor of such Paying Agent for the purposes
of this Indenture. If the position of Paying Agent shall become vacant for any
reason, Issuer shall, within thirty (30) days thereafter, appoint such bank or
trust company as shall be specified by the Company and located in the same state
as such Paying Agent to fill such vacancy; provided, however, that if Issuer
shall fail to appoint such Paying Agent within said period, Trustee shall make
such appointment.

         The Paying Agents shall enjoy the same protective provisions in the
performance of their duties hereunder as are specified in this Article XII with
respect to Trustee insofar as such provisions may be applicable.


                                  ARTICLE XIII

                    EXECUTION OF INSTRUMENTS BY BONDHOLDERS
                        AND PROOF OF OWNERSHIP OF BONDS


         SECTION 13.01.  Execution of Instruments by Bondholders; Proof of
Ownership of Bonds.  Any request, direction, consent or other instrument in
writing required or permitted by this Indenture to be signed or executed by
Bondholders may be in any number of concurrent instruments of similar tenor and
may be signed or executed by such Bondholders in person or by agent appointed by
an instrument in writing.  Proof of the execution of any such instrument and of
the ownership of Bonds shall be sufficient for any purpose of this Indenture,
and shall be conclusive in favor of the Trustee with regard to any action taken
by it under such instrument, if made in the following manner:

                 (a)  The fact and date of the execution by any person of any
         such instrument may be proved by the verification of any officer in any
         jurisdiction who, by the laws thereof, has power to take affidavits
         within such jurisdiction, to the effect that such instrument was
         subscribed and sworn to before









                                       57


<PAGE>   122

         him, or by an affidavit of a witness to such execution.

                 (b)  The ownership of the Bonds shall be proved by the
         registration books kept by the Bond Registrar under the provisions of
         this Indenture.

         None of the provisions contained in this Article, however, shall be
construed as limiting the Trustee to such proof, it being intended that the
Trustee may accept any other evidence of the matters herein stated which to it
may seem sufficient.  Any request or consent of the registered owner of any Bond
shall bind every future owner of the same Bond in respect of anything done by
the Trustee in pursuance of such request or consent.


                                  ARTICLE XIV

                            SUPPLEMENTAL INDENTURES


         SECTION 14.01.  Supplemental Indentures without Bondholder Consent.
The Issuer and the Trustee may, from time to time and at any time, with the
consent of the Company, but without the consent of the Bondholders, enter into
such supplemental indentures as shall not be inconsistent with the terms and
provisions hereof (which supplemental indentures shall thereafter form a part
hereof):

                 (a)  To cure any ambiguity, inconsistency or formal defect or
         omission in this Indenture or in any supplemental indenture, or

                 (b)  To grant to or confer upon the Trustee for the benefit of
         the Bondholders any additional rights, remedies, powers, authority or
         security that may lawfully be granted to or conferred upon the
         Bondholders or the Trustee, or

                 (c)  To provide for the sale, authentication and delivery of
         Additional Bonds or refunding Bonds and the disposition of the proceeds
         from the sale thereof, in the manner and to the extent authorized by
         Sections 3.08 and 3.10 above, or

                 (d)  To modify, amend or supplement this Indenture or any
         indenture supplemental hereto in such manner as to permit the
         qualification hereof








                                       58


<PAGE>   123

         and thereof under the Trust Indenture Act of 1939 or any similar
         federal statute hereafter in effect or to permit the qualification, of
         the Bonds for sale under the securities laws of any of the states of
         the United States of America, and, if they so determine, to add to this
         Indenture or any indenture supplemental hereto such other terms,
         conditions and provisions as may be permitted by said Trust Indenture
         Act of 1939 or similar federal statute, or

                 (e)  To provide for the designation of a cotrustee who shall
         have the same qualifications as provided for a successor Trustee in
         Section 12.15 of this Indenture.


         SECTION 14.02.  Modification of Indenture with Consent of Bondholders.
Subject to the terms and provisions contained in this Section and not otherwise,
the registered owners of not less than two-thirds (2/3) in aggregate principal
amount of the Bonds then outstanding shall have the right, from time to time,
anything contained in this Indenture to the contrary notwithstanding, to consent
to and approve the execution by the Issuer and the Trustee, as the case may be,
of such supplemental indentures as shall be deemed necessary or desirable by the
Issuer and the Company for the purpose of modifying, altering, amending, adding
to or rescinding, in any particular, any of the terms or provisions contained in
this Indenture or in any supplemental indenture; provided, however, that nothing
contained herein shall permit, or be construed as permitting (a) an extension of
the maturity of principal of or the interest on any Bond issued hereunder, or
(b) a reduction in the principal amount of any Bond or the rate of interest
thereon, or (c) the creation of a lien upon or pledge of the Issuer's rights
under the Agreement or other moneys pledged herein ranking prior to the lien or
pledge created by this Indenture or the Agreement for the Bonds, or (d) a
preference or priority of any Bond or Bonds over any other Bond or Bonds, or (e)
a reduction in the aggregate principal amount of the Bonds required for consent
to such supplemental indenture.  Nothing herein contained, however, shall be
construed as making necessary the approval by Bondholders of the execution of
any supplemental indenture as authorized in Section 14.01 of this Article.

         If at any time the Issuer shall request the Trustee to enter into any
supplemental indenture for any of the purposes of this Section 14.02, the
Trustee shall cause notice








                                       59

<PAGE>   124

of the proposed execution of such supplemental indenture to be mailed, postage
prepaid, to the Company and to all registered owners of Bonds then outstanding
at their addresses as they appear on the registration books.  Such notice shall
briefly set forth the nature of the proposed supplemental indenture, such notice
to the Original Purchaser shall be accompanied by a copy thereof, and such
notice to any other Bondholder shall state that a copy thereof is on file at the
office of the Trustee for inspection by all Bondholders.

         Whenever, at any time within one (1) year after the date such notice
shall have been given, the Issuer shall deliver to the Trustee an instrument or
instruments purporting to be executed by the Company and the registered owners
of not less than two-thirds (2/3) in aggregate principal amount of the Bonds
then outstanding, which instrument or instruments shall refer to the proposed
supplemental indenture described in such notice and shall specifically consent
to and approve the execution thereof in substantially the form which accompanied
such notice to the Original Purchaser, or otherwise referred to in such notice
as on file with the Trustee, thereupon, but not otherwise, the Trustee may
execute such supplemental indenture in substantially such form, without
liability or responsibility to any Bondholder, whether or not such Bondholder
shall have consented thereto.

         If the registered owners of not less than two-thirds (2/3) in aggregate
principal amount of the Bonds outstanding at the time of the execution of such
supplemental indenture shall have consented to and approved the execution
thereof as herein provided, no Bondholder shall have any right to object to the
execution of such supplemental indenture or to object to any of the terms and
provisions contained therein or in the operation thereof, or in any manner to
question the propriety of the execution thereof, or to enjoin or restrain the
Trustee or the Issuer from executing the same or from taking any action pursuant
to the provisions thereof.

         Upon the execution of any supplemental indenture pursuant to the
provisions of this Section 14.02, this Indenture shall be deemed to be modified
and amended in accordance therewith, and the respective rights, duties and
obligations under this Indenture of the Issuer and the Trustee and the
registered owners of all Bonds then outstanding, shall thereafter be determined,
exercised and enforced hereunder, subject in all respects to such modifications
and amendments.










                                       60

<PAGE>   125

         SECTION 14.03.  Supplemental Indenture Deemed Part of this Indenture.
The Trustee is authorized to join with the Issuer in the execution of any such
supplemental indenture and to make the further agreements and stipulations which
may be contained therein. Any supplemental indenture executed in accordance with
the provisions of this Article shall thereafter form a part of this Indenture
and all of the terms and conditions contained in any such supplemental indenture
as to any provisions authorized to be contained therein shall be and shall be
deemed to be part of the terms and conditions of this Indenture for any and all
purposes.  In case of the execution and delivery of any supplemental indenture,
express reference may be made thereto in the text of any Bonds issued
thereafter, if deemed necessary or desirable by the Trustee or the Issuer.


         SECTION 14.04.  Discretion of Trustee in Executing Supplemental
Indentures.  The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, the opinion of counsel nationally recognized on the
subject of municipal bonds as conclusive evidence that any such proposed
supplemental indenture does or does not comply with the provisions of this
Indenture, and that it is or is not proper for the Trustee, under the provisions
of this Article, to join in the execution of such supplemental indenture.
Subject to the foregoing, the Trustee shall enter into such supplemental
indentures provided that its duties and obligations thereunder are no greater
than its duties and obligations which already exist under this Indenture, unless
it shall consent to such supplemental indenture.


                                   ARTICLE XV

                                   DEFEASANCE


         SECTION 15.01.  Release of Indenture.  If, at any time after the date
of this Indenture (a) the Bonds secured hereby shall have become due and payable
in accordance with their terms or otherwise as provided in this Indenture, or
such Bonds shall have been duly called for redemption, or the Issuer gives the
Trustee irrevocable instructions concerning the payment of the principal and
interest on the Bonds at maturity or at any earlier redemption date scheduled by
the Issuer, or any combination thereof, (b) the 








                                       61


<PAGE>   126

whole amount of the principal and the interest so due and payable upon all of
the Bonds then outstanding, at maturity or upon redemption, shall be paid, or
sufficient moneys shall be held by the Trustee under this Indenture (whether or
not in any accounts created hereby) which, when invested in direct obligations
of the United States of America maturing not later than the maturity dates of
such principal and interest will, together with the income realized on such
investments, be sufficient to pay all such principal and interest on said Bonds
at the maturity thereof or the date upon which such Bonds are to be called for
redemption prior to maturity, and (c) provisions shall also be made for paying
all other sums payable hereunder by the Issuer, then and in that case the right,
title and interest of the Trustee hereunder and the pledge of and lien on the
Issuer's interests under the Agreement, and all other pledges and liens created
hereby and thereby or pursuant thereto, including the Mortgage, shall thereupon
cease, determine and become void, and the Trustee in such case, on demand of the
Issuer, shall release this Indenture and shall execute such documents to
evidence such release as may be reasonably required by the Issuer or the
Company, and shall turn over to the Company, any surplus in any account in the
Debt Service Fund and all balances remaining in any other funds or accounts
created by this Indenture other than moneys held for redemption or payment of
Bonds and to pay all other sums payable by the Issuer; otherwise this Indenture,
shall be, continue and remain in full force and effect.


                                  ARTICLE XVI

                             SUPPLEMENTAL CONTRACTS


         SECTION 16.01.  Supplemental Contracts without Bondholders' Consent.
The Issuer, the Company, and the Trustee may, from time to time and at any time,
consent to such contracts supplemental to the Agreement as shall not be
inconsistent with the terms and provisions thereof and, in the opinion of the
Issuer, Company, and the Trustee, shall not be detrimental to the interests of
the Bondholders (which supplemental contracts shall thereafter form a part
thereof),

                 (a)  to cure any ambiguity or formal defect or omission in the
         Agreement or in any supplemental contract, or











                                       62


<PAGE>   127

                 (b)  to amend the Agreement for the purposes of Section 4.2(b)
         thereof, or

                 (c)  to grant to or confer upon the Trustee for the benefit of
         the Bondholders any additional rights, remedies, powers, authority or
         security that may lawfully be granted to or conferred upon the
         Bondholders or the Trustee, or

                 (d)  to amend the Agreement for the purposes of changing
         components of the Project as permitted by Section 4.1 thereof.

                 At least thirty (30) days prior to the execution of any
supplemental contract for any of the purposes of this Section, the Trustee shall
cause a notice of the proposed execution of such supplemental contract to be
mailed, postage prepaid, to all owners of registered Bonds at their addresses as
they appear on the registration books.  Such notice shall briefly set forth the
nature of the proposed supplemental contract and shall state that a copy thereof
is on file at the office of the Trustee for inspection by all Bondholders.  A
failure on the part of the Trustee to mail the notice and provide the copy
required by this Section shall not affect the validity of such supplemental
contract.


         SECTION 16.02.  Amendment of Contract with Consent of Bondholders.
Except for supplemental contracts provided for in Section 16.01 of this Article
or amendments to the Agreement as therein provided for or as provided for in
Section 3.08 of this Indenture, neither the Issuer nor the Trustee shall consent
to any supplemental contract or amendment to the Agreement unless notice of the
proposed execution of such supplemental contract or amendment shall have been
given and the Company and the registered owners of not less than two-thirds
(2/3) in aggregate principal amount of the Bonds then outstanding shall have
consented to and approved the execution thereof all as provided for in Section
14.02 of this Indenture in the case of supplemental trust indentures; provided
that the Trustee shall be entitled to exercise its discretion in consenting or
not consenting to any such supplemental contract or amendment and to rely on an
opinion of counsel in the same manner as provided for in Section 14.04 of this
Indenture in the case of supplemental trust indentures.








                                       63


<PAGE>   128

                                  ARTICLE XVII
                            MISCELLANEOUS PROVISIONS


         SECTION 17.01.  Notices.  Any notice, demand, direction, request or
other instrument authorized or required by this Indenture to be given to or
filed with the Bondholders, the Issuer, the Company or the Trustee shall be
deemed to have been sufficiently given or filed for all purposes of this
Indenture if and when sent by registered mail, return receipt requested:

         To the Bondholders, addressed to their addresses as they appear on the
         registration books provided for in this Indenture.

         To the Issuer, addressed to:

                 Hillsborough County Industrial
                          Development Authority
                 c/o Warren M. Cason, Esquire
                 P. O. Box 2150
                 Tampa, Florida 33601


         To the Company addressed to:

                 Progressive American Insurance
                          Company
                 Suite 900
                 410 Ware Boulevard
                 Tampa, Florida 33619

                 Attention:       Jerry Shroat
                                  President

                 with copies to:

                 The Progressive Corporation
                 6300 Wilson Mills Road
                 Mayfield Village, Ohio 44143

                 Attention:       Howard Zelikow
                                  Treasurer






                                       64



<PAGE>   129

         To the Trustee, addressed to or at its then principal office:

                 Sun Bank, N.A.
                 200 S. Orange Avenue
                 Orlando, Florida 32802

                 Attention:       Corporate Trust Department



         All documents received by the Trustee under the provisions of this
Indenture shall be retained in its possession, subject at all reasonable times
to the inspection by the Issuer, the Company and any Bondholder, and the agents
and representatives thereof.

         SECTION 17.02.  No Third-Party Beneficiaries.  Except as herein
otherwise expressly provided, nothing in this Indenture expressed or implied is
intended or shall be construed to confer upon any person, firm or corporation
other than the parties hereto and the registered owners of the Bonds issued
under and secured by this Indenture, and, to the extent provided for or
contemplated herein, the Company, any right, remedy or claim, legal or
equitable, under or by reason of this Indenture or any provision hereof, this
Indenture and all its provisions being intended to be and being for the sole and
exclusive benefit of the parties hereto and the registered owners from time to
time of the Bonds issued hereunder.


         SECTION 17.03.  Effect of Partial Invalidity.  In case any one or more
of the provisions of this Indenture or of the Bonds issued hereunder shall for
any reason be held to be illegal or invalid, such illegality or invalidity shall
not affect any other provisions of this Indenture or of said Bonds, but this
Indenture and said Bonds shall be construed and enforced as if such illegal and
invalid provision had not been contained therein.  In case any covenant,
stipulation, obligation or agreement contained in the Bonds or in this Indenture
shall for any reason be held to be in violation of law, then such covenant,
stipulation, obligation or agreement shall be deemed to be the covenant,
stipulation, obligation or agreement of the parties thereto to the extent
permitted by law.


         SECTION 17.04.  Controlling Law; Members of Issuer Not Liable.  All
covenants, stipulations, obligations and











                                       65

<PAGE>   130

agreements of the Issuer contained in this Indenture shall be deemed to be
covenants, stipulations, obligations and agreements of the Issuer to the full
extent authorized by the Act and provided by the Constitution and laws of the
State of Florida.  No covenant, stipulation, obligation or agreement contained
herein shall be deemed to be a covenant, stipulation, obligation or agreement of
any present or future member, agent or employee of the Issuer in his individual
capacity, and neither the members of the Issuer nor any official executing the
Bonds shall be liable personally on the Bonds, the Agreement or this Indenture
or shall be subject to any personal liability or accountability by reason of the
issuance or the execution by the Issuer or such members thereof.


         SECTION 17.05.  Binding Effect; Controlling Law.  This Indenture shall
inure to the benefit of and shall be binding upon the Issuer, the Trustee, the
Bondholders and to the extent provided for or contemplated herein, the Company,
and each of their respective successors and assigns, and shall be governed by
and construed in accordance with the laws of the State of Florida.


         SECTION 17.06.  Counterparts.  This Indenture may be executed in
multiple counterparts, each of which shall be regarded for all purposes as an
original; and all such counterparts shall constitute but one and the same
instrument.


         SECTION 17.07.  Headings Not Part of Indenture.  Any heading preceding
the text of the several Articles hereof shall be solely for convenience of
reference and shall not constitute a part of this Indenture, nor shall they
affect its meaning, construction or effect.


         SECTION 17.08.  Payments Due on Saturdays, Sundays and Holidays.  In
any case where the date of maturity of principal of and/or interest on the Bonds
or the date filed for redemption of any Bonds shall be, in the city of payment,
a Saturday, a Sunday, a legal holiday or a day on which banking institutions are
authorized by law to close, then payment of principal and/or interest need not
be made on such date in such city but may be made on the next succeeding
business day not a Saturday, a Sunday, a legal holiday or a day on which banking
institutions are authorized by law to close with the same force and effect as if
made on







                                       66





<PAGE>   131

the date of maturity or the date fixed for redemption, and interest shall accrue
for the period after such date.


         SECTION 17.09.  Trustee Approval of Loan and Debt Obligation Agreement.
The Trustee has reviewed the Agreement and the form of the 1982 Bonds and the
Trustee hereby approves the form of the Agreement and the 1982 Bonds and
covenants that it will faithfully perform at all times any and all covenants,
undertakings, stipulations and provisions contained in the Agreement, in the
1982 Bonds authenticated and delivered thereunder nand in all proceedings of the
Issuer pertaining thereto, on its part to be observed or performed, whether
express or implied; provided however that to amendment or revision to the
Agreement or supplemental Agreement shall be effective unless approved by the
Trustee.

         IN WITNESS WHEREOF, HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT
AUTHORITY has caused this Indenture to be executed by the Chairman, and the seal
of said Authority to be impressed hereon and attested by the Assistant Secretary
of the Authority, and Sun Bank, N.A. has caused this Indenture to be executed in
its behalf, as Trustee, by its Corporate Trust Officer thereof, and its seal to
be impressed hereon and attested by a Trust Officer thereof, all as of the day
and year first above written.


                                  HILLSBOROUGH COUNTY INDUSTRIAL
                                  DEVELOPMENT AUTHORITY



(Seal)                            By /s/ Samuel I. Latimer
                                     ----------------------------------------
                                     Chairman


ATTEST:






/s/ Ellsworth G. Simmons
- --------------------------------
Assistant Secretary












                                       67

<PAGE>   132

                                  Sun Bank, N.A.
                                  as Trustee as aforesaid




(Seal)                            By /s/ Geraldine P. Kail
                                     --------------------------------------
                                     Corporate Trust Officer

ATTEST:



By  Robert W. Andrews, Jr.
    -----------------------------------
    ____________________, Trust Officer


STATE OF FLORIDA

COUNTY OF Hillsborough


         The foregoing instrument was acknowledged before me by Samuel I.
Latimer and Ellsworth G. Simmons, Chairman and Assistant Secretary,
respectively, of the HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY, a
public body corporate and politic of the State of Florida, this 16th day of
December, 1982.


                       /s/ Gertrude Eaton
                       -------------------------------------------------
                       Notary Public

My commission expires: Notary Public, State of Florida at Large
                       My Commission Expires Mar. 8, 1986

(Affix notarial seal)  









                                       68



<PAGE>   133

STATE OF FLORIDA

COUNTY OF HILLSBOROUGH


         The foregoing instrument was acknowledged before me this 16th day of
December, 1982, by G. P. Kail and R. W. Andrews, as Trustee and Trust Officer,
respectively, of Sun Bank, N.A., a national banking corporation, on behalf of 
the corporation.    


                                  /s/ Gertrude Eaton
                                  -------------------------------------
                                  Notary Public

My commission expires:  Notary Public State of Florida at Large
                        My commission expires Mar. 8, 1986

(Affix notarial seal)










                                       69


<PAGE>   134

                        MORTGAGE AND SECURITY AGREEMENT


         This is a Mortgage and Security Agreement dated as of this ____ day of
_______, 1982, executed by PROGRESSIVE AMERICAN INSURANCE COMPANY, as Mortgagor,
and delivered to the HILLSBOROUGH COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY,
HILLSBOROUGH COUNTY, FLORIDA, as Mortgagee.


         1. Definitions.  The following capitalized terms shall be used in this
Mortgage and Security Agreement (the "Mortgage") for the meanings set forth
adjacent to such terms:

         "Mortgagor" means PROGRESSIVE AMERICAN INSURANCE COMPANY, a Florida
corporation. Mortgagor's address is 416 Ware Boulevard, Suite 900, Tampa,
Florida 33619.

         "Mortgagee" means the Hillsborough County Industrial Development
Authority, a public body corporate and politic of the State of Florida, and
after the assignment of this Mortgage shall mean the Trustee.

         "Trustee" means Sun Bank, N.A., Orlando, Florida, as Trustee for the
holders of the 1982 Bonds as described hereunder under the Indenture of Trust
(therein and herein designated as the "Indenture") dated as of December 16,
1982, by and between the Trustee and the Hillsborough County Industrial
Development Authority (therein and herein designated as the "Issuer"), and any
successor trustee under the Indenture.  The terms and provisions of the
Indenture are hereby incorporated by reference herein.

         "Agreement" means the Loan and Debt Obligation Agreement dated as of
December 16, 1982, between the Mortgagor (therein designated as the "Company")
and the Hillsborough County Industrial Development Authority (therein and herein
designated as the "Issuer").  The terms and provisions of the Agreement are
hereby incorporated by reference herein.

         "Indebtedness" means the Indebtedness secured by this Mortgage
consisting of all of the obligations of the Mortgagor pursuant to that certain
Promissory Note, dated as of December 16, 1982, between the Mortgagor and the
Issuer,


- --------------------------------------------------------------------------------
No intangible taxes or documentary stamp taxes are due hereon, pursuant to
Sections 159.31 and 159.50, Florida Statutes (1981).




<PAGE>   135

and pursuant to the Agreement, as such Note and Agreement may be subsequently
extended, renewed, supplemented, modified or amended, including without
limitation, the loan repayment installments ("Loan Installments") required under
the Note and under Section 5.2 of the Agreement, and the obligations under
Sections 7.1, 9.5 and 9.7 thereof; and all of the Issuer's obligations under and
pursuant to the Indenture, including without limitation, the Issuer's
obligations for the payment of the interest, principal and redemption payments,
if any, required for the payment of the $4,000,000 Hillsborough County
Industrial Development Authority Industrial Development Revenue Bonds
(Progressive American Insurance Company Project), Series 1982 (designated in the
Indenture and herein as the "1982 Bonds"), and for any "Additional Bonds" issued
under the Indenture, and its obligation to pay the fees, charges and expenses of
the Trustee under the Indenture.

         "Bonds" means the 1982 Bonds and any Additional Bonds issued under the
Indenture.

         "Issuer" means the Hillsborough County Industrial Development
Authority, a public body corporate and politic of the State of Florida.

         "Maximum Principal Indebtedness" means the principal Indebtedness
required to pay the principal amount of the 1982 Bonds in the amount of
$4,000,000, together with future advances that may be secured hereby that shall
not exceed the aggregate principal sum of $10,000,000.

         "Mortgaged Property" means the fee simple interest of the Mortgagor in
the lands on which the Project is located or is to be constructed, said lands
being more particularly described in Exhibit "B" attached hereto, the Project as
herein described, and all other property described in Section 2 below.

         "Project" means, the structures, fixtures, and improvements to be
located in or on the lands and easements described in Exhibit A attached hereto.


         2. Mortgage and Security Interest.  In consideration of ten dollars and
other valuable considerations received by the Mortgagor, the Mortgagor hereby,
on the effective date of this Mortgage as stated above, mortgages to the
Mortgagee and grants the Mortgagee a security interest in the following
described real property, rights, titles, interests and estates:









                                       2


<PAGE>   136


         (a)  The Mortgaged Property, including, but not limited to, the
Project, all fixtures, and all components and parts thereof, the electrical,
heating, cooling, ventilating, gas distribution, compressed air, water and
sewer, and sprinkler systems incorporated into the Project.

         (b)  Any and all rights and appurtenances belonging, incident or
appertaining to said real property, improvements, and fixtures or any part
thereof.

         (c)  All leases of the real property described in Exhibit "A" hereto
now or hereafter entered into and all right, title and interest of the Mortgagor
thereunder, including without limitation, cash or securities deposited
thereunder pursuant to said leases, and all rents, issues, proceeds, and profits
accruing from said real property and together with all proceeds of the
conversion, voluntary or involuntary of any of the foregoing into cash or
liquidated claims, including without limitation, proceeds of insurance and
condemnation awards.


         3.   Secured Indebtedness; Future Advances; Maximum Amount and Time.
This Mortgage shall secure (a) the Indebtedness as specified above, and (b) the
total amount of indebtedness secured hereby may decrease or increase from time
to time, but the total unpaid balance so secured at any one time shall not
exceed the Maximum Principal Indebtedness, plus interest thereon, and any
disbursements made for the payment of taxes, levies or insurance on the
Mortgaged Property and for maintenance, repair, protection and preservation of
the Mortgaged Property with interest on such disbursements, all as provided in
this Mortgage and the Indenture and Agreement described herein.  This Mortgage
shall not secure any future advances made more than twenty (20) years from the
date hereof.


         4.   Payment of Indebtedness.  The Mortgagor shall pay all Indebtedness
and perform all obligations secured hereby promptly when due.


         5.   Title Covenants.  The Mortgagor covenants that the Mortgaged
Property is free from all encumbrances (other than this Mortgage) except as may
be specifically stated herein, other than Permitted Encumbrances described in
Exhibit "B" hereto, that lawful seisin of and good right to encumber the
Mortgaged Property are vested in the Mortgagor, and that the Mortgagor hereby
fully warrants the title to











                                       3


<PAGE>   137

the Mortgaged Property and will defend the same against the lawful claims of all
persons whomsoever.


         6.   Conditions to Changes in the Mortgaged Property.  The right of the
Mortgagor to make any changes to the Mortgaged Property in the manner
hereinafter provided is expressly subject to the conditions that (i) such
changes will not, in the opinion of counsel nationally recognized on the subject
of municipal bonds or other counsel acceptable to the Issuer and the Trustee,
result in the interest on the 1982 Bonds or any Additional Bonds becoming
subject to federal income taxes then in effect; and (ii) such changes will not
impair the structural soundness, usefulness or market value of the Mortgaged
Property or significantly alter the character or purpose or detract from the
operating efficiency of the Mortgaged Property, impair its revenue producing
capacity, or otherwise affect its operation as a headquarters facility or
otherwise adversely affect the purposes of this Mortgage.


         7.   After-Acquired Property Not Part of Mortgaged Property.  All
buildings, structures, improvements, and all fixtures now or hereafter installed
in or attached to the Project or located above, upon or under the Mortgaged
Property so as to preclude the removal without material injury to the Project or
the Mortgaged Property, are subject to the terms and conditions of this Mortgage
and the security interest created hereby.  Except as provided in paragraph 9
below, all other property of every kind or nature, whether now owned or
after-acquired, which shall be constructed, placed or installed in or on the
Project or the Mortgaged Property, shall not become subject to this Mortgage or
the security interest created hereby, shall remain the property of the Mortgagor
and may be altered, removed, replaced or otherwise used by the Mortgage at any
time so long as the Mortgagor is not in default hereunder and the conditions of
paragraph 6 are complied with.


         8.   Removal Free of Notice.  The Mortgagor may, from time to time at
its own cost and expense, without notice to and without obtaining the approval
of the Mortgagee and free of any obligation to make any replacement thereof,
demolish, remove or dispose of any structure, fixtures, or other improvements
constituting part of the Mortgaged Property, provided the fair market value
thereof at the time of its demolition or removal does not exceed One Hundred
Thousand Dollars ($100,000) in any one fiscal year or Three











                                       4


<PAGE>   138

Hundred Thousand Dollars ($300,000) in the aggregate during the term of this
Mortgage, and the conditions of paragraph 6 hereof are complied with, and such
property thereafter shall not constitute a part of the Mortgaged Property.  The
Mortgagee shall, at the Mortgagor's request, join in the execution of any
instruments necessary to release the lien on such property created by this
Mortgage.


         9.   Removal with Notice; Replacements and Substitutions Subject to
Mortgage.  If the Mortgagor in its sole discretion determines that any real
property, structure, fixtures or other improvements constituting a part of the
Mortgaged Property has become inadequate, obsolete, worn out, unsuitable,
undesirable or unnecessary, and if the conditions of paragraph 6 hereof are
complied with and the value of said property exceeds the limits contained in
paragraph 8 above, the Mortgagor, after giving written notice of its proposed
action to the Mortgagee, may then demolish or remove such property from the
Mortgaged Property and may, to the extent permitted by law, sell, trade in,
exchange or otherwise dispose of same, in whole or in part, provided that the
Mortgagor shall, at its own cost and expense, acquire, construct or install
replacement or substitute real property, structures, fixtures or other
improvements having an economic value and usefulness to the operations of the
Mortgaged Property (but not necessarily the same function) at least equal to the
economic value and usefulness, prior to demolition, removal or disposal, of the
property demolished, removed or disposed of, and provided further, however, that
all such real property, structures, fixtures or other improvements constructed
or installed in replacement or substitution thereof shall be free of all liens
and encumbrances, other than Permitted Encumbrances, and shall become a part of
the Mortgaged Property.


         10.  Covenant Against Unauthorized Removal.  Except as expressly
authorized above, the Mortgagor shall not remove any of the Project, or any part
thereof, from the Mortgaged Property.


         11.  No Abatement of Obligations.  The demolition, substitution or
removal of any property shall not result in any abatement or diminution of Loan
Installments or other Indebtedness secured by this Mortgage.  The Mortgagor
shall pay all costs incurred or damages resulting from any demolition,
substitution or removal of any property pursuant to the provisions of this
Mortgage.










                                       5


<PAGE>   139

         12.  Maintenance and Repair.  The Mortgagor shall permit, commit or
suffer no waste, impairment or deterioration of the Mortgaged Property.  The
Mortgagor shall, during the term of this Mortgage at its sole cost and expense,
keep and maintain the Mortgaged Property in a good state of repair and
preservation, ordinary wear and tear, obsolescence in spite of repair and acts
of God excepted.  If the Mortgagor fails to do so, then the Mortgagee, without
waiving the option to foreclose, may take some or all measures that the
Mortgagee reasonably deems necessary or desirable for the maintenance, repair,
preservation or protection of the Mortgaged Property, and any expenses
reasonably incurred by the Mortgagee in so doing shall become part of the
Indebtedness secured hereby, shall become immediately due and payable, and shall
bear interest at a rate equal to the maximum lawful rate.  The Mortgagee shall
have no obligation to care for and maintain the Mortgaged Property or, having
taken some measures therefor, to continue the same or take other measures.


         13.  Casualty Insurance.  The Mortgagor shall, during the construction
period and throughout the term of this Mortgage, keep the Mortgaged Property
continuously insured against such risks as are customarily insured against in
connection with the operation of similar facilities of like size, type and
location, paying as the same become due and payable all premiums with respect
thereto.  Such insurance shall include, without intending to limit the
foregoing, insurance against damage by fire and lightning with a uniform
standard extended coverage endorsement on a repair or replacement basis in an
amount not less than one hundred percent (100%) of the then actual cost of
replacement (excluding costs of replacing excavations and foundations, but
without deduction for depreciation) of the Mortgaged Property.  Each insurance
policy required by this section: (i) shall be issued or written by such insurer
(or insurers) as is financially responsible, (ii) shall be in such form and with
such provisions (including, without limitation and where applicable, loss
payable clauses payable to the Mortgagee, waiver of subrogation clauses,
provisions relieving the insurer of liability to the extent of minor claims and
designation of the named insureds) as are generally considered standard for the
type of insurance involved, and (iii) shall prohibit cancellation or substantial
modification without at least thirty (30) days prior written notice to the
Mortgagee and the Issuer.  All insurance policies carried pursuant to the
foregoing shall name the Mortgagor, the Issuer and the Mortgagee as parties
insured thereunder as the respective interest of each such party may appear,









                                       6



<PAGE>   140

and proceeds thereunder shall be made payable and shall be applied as provided
in paragraph 14 below.  Copies of each such policy shall upon request be filed
with the Mortgagee.

         The Mortgagor shall pay all premiums and charges for the maintenance
and renewal of the insurance and shall furnish the Mortgagee with receipts and
proofs thereof not less than ten (10) days before the expiration thereof,
without notice or demand from the Mortgagee.  If the Mortgagor fails to do so,
then the Mortgagee, without waiving the option to foreclose or exercise any
other remedy hereunder, may obtain such insurance for the protection of the
Mortgagee, and any expenses reasonably incurred by the Mortgagee in so doing
shall become part of the Indebtedness secured hereby, shall become immediately
due and payable, and shall bear interest at the maximum lawful rate.  In the
event of foreclosure of this Mortgage or transfer of the Mortgaged Property in
full or partial satisfaction of the Indebtedness secured hereby, all interest of
the Mortgagor in the policy or policies of insurance (including any claim to
proceeds attributable to losses theretofore occurring but not yet paid to
Mortgagor) shall pass to the purchaser, grantee or transferee, subject, however,
to the terms and provisions of this Mortgage.


         14.  Insurance Proceeds and Condemnation Awards.  If, prior to the
payment in full or satisfaction of the Indebtedness (or provisions for payment
thereof having been made in accordance with the provisions of the Agreement or
the Indenture) the Mortgaged Property, or any part or component thereof having a
value in excess of $150,000, shall be damaged, lost or destroyed, by whatever
cause, except as provided in Sections 8 and 9 hereof, or if any public authority
or entity, in the exercise of its power of eminent domain, takes or damages the
Mortgaged Property, or any part or component thereof having a value in excess of
$150,000, there shall be no abatement or reduction in the Loan Installments
payable by the Mortgagor under the Agreement, and all of the insurance proceeds
(whether payable from the policies of insurance described in paragraph 13 above
or from other policies of insurance carried by the Mortgagor or third parties),
and any award or compensation resulting from such taking or damage by
condemnation shall be paid to the Mortgagee and deposited by it in the
Construction Fund, as that term is defined in the Indenture (the "Construction
Fund"), held by the Mortgagee under the Indenture.  The Mortgagor may then elect
to repair, rebuild, restore or replace the Mortgaged Property or the portion
thereof so taken or damaged, by delivering, within one hundred twenty












                                       7


<PAGE>   141

(120) days after the deposit of such funds with the Mortgagee, to the Mortgagee:
(i) written notice of its election to repair, rebuild, replace or restore such
property, and (ii) a certificate or opinion from an independent engineer of
recognized standing and acceptable to the Mortgagee that, in the opinion of such
engineer, the proceeds of insurance or condemnation awards deposited in the
Construction Fund will be sufficient to repair, rebuild, replace or restore such
property to substantially the same condition as it was in prior to condemnation
or destruction, which election shall be subject to the approval of the
Mortgagee, which shall not be unreasonably withheld.  After delivery of the
foregoing to the Mortgagee, the Mortgagor may make withdrawals from such fund
held by the Mortgagee for the purpose of repairing, rebuilding, replacing or
restoring such property in accordance with the conditions and procedures for
withdrawals from such fund held by the Mortgagee, which conditions and
procedures are contained in Section 4.3 of the Agreement.  If a certificate as
described in subparagraph (ii) above is not rendered, the Mortgagor may
nevertheless use the moneys deposited in the Construction Fund held by the
Mortgagee for such purposes if it unconditionally agrees to complete the repair,
rebuilding, replacement or restoration of the Mortgaged Property substantially
to its former condition at its own expense.  If the Mortgagor does not elect to
rebuild, repair, replace or restore such property or is unable or unwilling to
comply with the other requirements set forth above within one hundred twenty
(120) days after the deposit of such funds with the Mortgagee, the Mortgagee
shall forthwith deposit such funds in the Redemption Account in the Debt Service
Fund, as that phrase is defined in the Indenture, and shall use such funds to
pay the Indebtedness secured by this Mortgage and the Mortgagor agrees to
deposit into the Redemption Account in the Debt Service Fund additional funds as
may be required for the payment of all principal and interest represented by the
Bonds then outstanding and all costs and expenses incurred in the redemption and
payment thereof and the unpaid portion of the Indebtedness.  This Mortgage
extends to and shall encumber any insurance proceeds payable on account of the
Mortgaged Property and any judgments, awards, damages and settlements hereafter
rendered or paid and resulting from condemnation proceedings with respect to the
Mortgaged Property or the taking of the Mortgaged Property under the power of
eminent domain, and the Mortgagee may require that any sums payable to the
Mortgagor and arising out of the power of eminent domain with respect to the
property and any proceeds of casualty insurance on the Mortgaged Property shall
be applied to the Indebtedness secured hereby.











                                       8


<PAGE>   142

         15.  Taxes, Assessments and Liens.  Subject to the provisions of this
Mortgage, the Mortgagor shall pay or cause to be paid, as the same respectively
come due, all fees, taxes, charges and assessments of any kind or nature
whatsoever that may at any time become due or be lawfully assessed or levied
against the Mortgaged Property, the Mortgagor, the Issuer or the Mortgagee, with
respect to the ownership, use or operation of the Mortgaged Property or any
portion thereof, or with respect to the original issuance of the Bonds, or with
respect to the income or profits of the Issuer or the Mortgagee from sale of the
Project or the receipt of the Loan Installments, or with respect to the
mortgaging, pledging and assigning of the collateral referred to in Section 8.5
of the Agreement, pursuant to the terms of the Agreement and the Indenture,
including without limitation all ad valorem taxes lawfully assessed thereon, all
utility and other charges incurred in the operation, maintenance, use, occupancy
and upkeep thereof, all assessments and charges lawfully made by any
governmental body against the Mortgagor, the Issuer or the Mortgagee for or on
account of the Mortgaged Property, all excise taxes, sales and use taxes,
documentary stamp taxes, and intangible taxes levied against the Mortgagor, the
Issuer or the Mortgagee on or with respect to the Agreement or the Indenture and
the amounts payable by the Mortgagor hereunder or thereunder, the original
issuance and delivery of the Bonds, and the assignment of and the granting of
the mortgages and security interests in the aforementioned collateral, and all
other lawful taxes, impositions, fees, assessments and charges of every kind or
nature, ordinary or extraordinary, general or special, foreseen or unforeseen,
whether similar or dissimilar to any of the foregoing, and all applicable
interest and penalties thereon, if any, that shall be or become due and payable
and that shall be lawfully levied, assessed or imposed, provided that with
respect to special assessments or other governmental charges that may be
lawfully paid in installments over a period of years, the Mortgagor shall be
obligated to pay only such installments as are required to be paid during the
term of this Mortgage.  Nothing contained herein shall be deemed to constitute
an admission by the Mortgagor to any third party other than the Issuer and the
Mortgagee that the Mortgagor is liable for, or its properties are subject to,
any tax, charge, fee, rate, imposition or assessment.  Nothing in this section
shall require the payment of any tax, fee, charge, or other obligation
identified herein or require the Company to make provision for payment thereof,
so long as the validity thereof shall be contested in good faith by the Company
by appropriate legal proceedings.









                                       9



<PAGE>   143

         16.  Inspection.  Mortgagee and Mortgagee's representatives may enter
upon the Mortgaged Property for inspection at all reasonable times and in a
reasonable manner, both before and after default.


         17.  Events of Default.  Each of the following events is hereby
declared an "event of default," provided, however, that in any case in which
such event of default shall be occasioned by the action or inaction of the
Issuer, such action or inaction may be cured by the Mortgagor within the time
and in the manner as contemplated by the provisions of this Mortgage, the
Agreement or the Indenture.

                 (a)  The Mortgagor shall fail to make full and punctual payment
         or to fully perform any of its obligations in a manner constituting an
         "Event of Default" as defined in Section 9.1 of the Agreement;

                 (b)  The Mortgagor shall fail to make full and punctual payment
         of any sum due under this Mortgage when due or within ten (10) days
         thereafter or the Mortgagor shall fail to fully perform any of its
         obligations under this Mortgage and such failure shall continue for
         thirty (30) days after written notice specifying such default and
         requiring the same to be remedied shall have been given to the Issuer
         and the Mortgagor by the Mortgagee; or

                 (c)  The Issuer shall default in the due and punctual
         performance of any other of the covenants, conditions, agreements and
         provisions contained in the Bonds or in the Indenture on the part of
         the Issuer to be performed, or the Mortgagor shall default in
         connection with the matters referred to in Sections 10.04, 10.05 or
         10.06 of the Indenture, and such default shall continue for thirty (30)
         days after written notice specifying such default and requiring the
         same to be remedied shall have been given to the Issuer and the
         Mortgagor by the Mortgagee.

                 (d)  In the good faith opinion of the Trustee, there has been
         any material adverse change in the financial status of the Mortgagor or
         the Guarantor.

                 Before the entry of final judgment or decree in any suit,
action or proceeding instituted by the Mortgagee under the provisions of this
Mortgage or the Indenture or before








                                       10




<PAGE>   144

the completion of the enforcement of any other remedy under this Mortgage or the
Indenture, the Mortgagee shall be permitted to discontinue such suit, action,
proceeding or enforcement of any remedy if, in its opinion, any default forming
the basis of such suit, action, proceeding or enforcement of any remedy shall
have been remedied.


         18.  Remedies on Default.  In the event any of the Indebtedness shall
at the time be outstanding and unpaid and provision for the payment thereof
shall not have been made in accordance with the provisions of the Indenture and
the Agreement, whenever any event of default referred to in paragraph 17 above
shall have happened and be subsisting, the Mortgagee may take any one or more of
the following remedial steps:

                 (a)  Declare all Loan Installments and other amounts payable
         under the Note and Section 5.2 of the Agreement for the remainder of
         the term of this Mortgage to be immediately due and payable, whereupon
         the same shall become immediately due and payable;

                 (b)  Foreclose on this Mortgage, enter into possession of the
         Mortgaged Property or any part thereof without notice or demand,
         perform any acts the Mortgagee deems necessary or proper to preserve
         the security and to collect and receive all rents, issues and profits
         thereof, including those past due as well as those accruing thereafter,
         and sell or lease the Mortgaged Property or any part thereof for the
         account of the Mortgagor, holding the Mortgagor liable for the
         difference between the amounts received and the Loan Installments and
         other amounts payable by the Mortgagor hereunder;

                 (c)  Seek the appointment of a receiver to enter upon and take
         possession of the Mortgaged Property or any part thereof, as a matter
         of strict right, without notice and ex parte, and without regard to the
         value or occupancy of the security, or the solvency of the Mortgagor,
         or the adequacy of the Mortgaged Property as security for the
         obligations secured hereby, and to collect the rents, issues and
         profits therefrom and apply the same as the Court may direct, such
         receiver to have all the rights and powers permitted under the laws of
         Florida;










                                       11


<PAGE>   145

                 (d)  Inspect, examine and make copies of the books and records
         and any and all accounts and data of the Mortgagor relating to the use
         and operation of the Mortgaged Property; and

                 (e)  Take all other actions and pursue all other remedies
         available under any other contract or agreement or otherwise by
         statute, at law or in equity, whether or not inconsistent with the
         foregoing, that may appear necessary or appropriate to collect the sums
         then due and thereafter to become due from the Mortgagor by reason of
         this Mortgage, the Note or the Agreement, or to enforce specific
         performance and observance of any obligation, agreement or covenant of
         the Mortgagor thereunder.


         19.  Power and Authority.  In order to further and more fully secure
the payment of the principal of and interest on the Indebtedness upon the
happening of any event of default as herein provided, the Mortgagor hereby
authorizes and permits the Mortgagee for and on its behalf and on behalf of and
in the name of the Bondholders and the Issuer, to foreclose the Mortgagor's
interest in the Mortgaged Property by foreclosure in the manner provided by the
Florida Statutes, which remedy shall be in addition to the other remedies
provided in any other applicable provisions of this Mortgage, the Note, the
Agreement and the Indenture.  The Mortgagee shall have full power and authority
to deal in and with the Mortgaged Property, including the power and authority to
protect, to conserve and to sell or to lease or to encumber or otherwise to
manage and dispose of the Mortgaged Property, it being the intent to vest in the
Mortgagee full rights of ownership in the Mortgaged Property as authorized and
contemplated by Section 689.071, Florida Statutes.


         20.  No Remedy Exclusive; etc.  No remedy herein conferred upon or
reserved to the Mortgagee is intended to be exclusive of any other available
remedy or remedies, but each and every such remedy shall be cumulative and shall
be in addition to every other remedy given under this Mortgage, the Note, the
Agreement or the Indenture or now or hereafter existing at law or in equity or
by statute.  No delay or omission to exercise any right or power accruing upon
any default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to time
and as often as may be deemed expedient. In order to entitle the Mortgagee to








                                       12


<PAGE>   146

exercise any remedy reserved to it, it shall not be necessary to give any
notice, other than such notice as may be herein expressly required.  Such rights
and remedies given hereunder shall extend fully to the Mortgagee, and the owners
of the Bonds issued under the Indenture shall be deemed third party
beneficiaries of all covenants and agreements herein contained, the enforcement
of which is subject, however, to all of the terms and conditions set forth in
this Mortgage and the Indenture.  In the event any agreement contained in this
Mortgage should be breached by either party and thereafter waived by the other
party, such waiver shall be limited to the particular breach so waived and shall
not be deemed to waive any other breach hereunder.


         21.  Agreement to Pay Attorneys' Fees and Expenses.  If the Mortgagor
defaults under any of the provisions of this Mortgage and the Mortgagee should
employ attorneys or incur other expenses for the collection of the Loan
Installments or the enforcement of performance or observance of any obligation
or agreement of the Mortgagor herein contained, or enforcement of the
Mortgagee's rights hereunder (including foreclosure or other litigation
expenses), the amount thereof shall become part of the Indebtedness secured
hereby, shall become immediately due and payable, and shall bear interest at the
maximum lawful rate, and the Mortgagor agrees that it will on demand therefor
pay to the Mortgagee the reasonable fees of such attorneys (including fees on
appeal) and such other expenses so incurred by the Issuer, and the interest
accrued thereon.


         22.  Extension, Leniencies and Releases.  The Mortgagee may grant
extensions of time for payment and other leniencies with respect to any
Indebtedness secured hereby, and may waive or fail to enforce any of the
Mortgagee's rights hereunder, and may release a portion or portions of the
Mortgaged Property from the lien hereof, without releasing or diminishing the
obligation or liability of the Mortgagor.


         23.  Subrogation.  The Mortgagee shall be subrogated to the lien
(notwithstanding its release of record) of any vendor, mortgagee or other
lienholder paid or discharged by the proceeds of the Bonds or any loan or
advance made by the Mortgagee to the Mortgagor and secured hereby.












                                       13

<PAGE>   147

         24.  Release or Satisfaction.  Whenever there is no outstanding
obligation secured hereby and no commitment to make advances, the Mortgagee
shall on written demand by the Mortgagor, give a release or satisfaction hereof
in recordable form.


         25.  Further Assurances.  The Mortgagor shall, at its expense, promptly
and duly execute, acknowledge and deliver to the Mortgagee such further
documents, instruments, financing and similar statements and assurances and take
such further action as may from time to time be reasonably required or requested
by the Mortgagee in order more effectively to carry out the intent and purposes
of this Mortgage, the Note, the Agreement, the Indenture and the Bonds issued
thereunder and other instruments contemplated thereby or hereby.


         26.  General Provisions.  The singular shall include the plural and any
gender shall be applicable to all genders when the context permits or implies.
If the Mortgagor sells or transfers the Mortgaged Property, the Mortgagee may
deal with the successor or successors in interest without in any way discharging
or reducing the Mortgagor's liability for the Mortgagor's obligations secured
hereby.  The terms Mortgagor and Mortgagee shall extend to and include their
respective legal representatives, successors and assigns.  Any agreement
hereafter made by the Mortgagor and the Mortgagee pursuant to this Mortgage
shall be superior to the rights of the holder of any intervening lien or
encumbrance.  Time is of the essence.









                                       14



<PAGE>   148

         IN WITNESS WHEREOF, the Mortgagor has executed this Mortgage as of the
16th day of December, 1982.


                                  PROGRESSIVE AMERICAN INSURANCE
                                  COMPANY



                                  By /s/ Charlotte A. Jackson
                                     ------------------------------------------
                                     Charlotte A. Jackson
                                     Vice President


ATTEST:
                                           (SEAL)


/s/ Robert J. Young
- ---------------------------------------
Robert J. Young
Assistant Secretary



STATE OF FLORIDA

COUNTY OF HILLSBOROUGH


         The foregoing instrument was acknowledged before me this 16th day of
December, 1982, by CHARLOTTE A. JACKSON, Vice President, and ROBERT J. YOUNG,
Assistant Secretary, respectively of PROGRESSIVE AMERICAN INSURANCE COMPANY, a
Florida corporation, on behalf of the corporation.

                                           /s/ Gertrude Eaton
                                           -----------------------------------
                                           Notary Public


Notary Public State of Florida at Large
My Commission Expires Mar. 8, 1986

(Affix notarial seal)  







                                       15



<PAGE>   149

                             UNCONDITIONAL GUARANTY



         THIS UNCONDITIONAL GUARANTY, dated as of _____ __ 1982, by and between
THE PROGRESSIVE CORPORATION, an Ohio corporation (the "Guarantor"), Sun Bank,
N.A., Orlando, Florida, (herein, together with any successors, called the
"Trustee"), and the Hillsborough County Industrial Development Authority,
Hillsborough County, Florida (the "Issuer").

                                  WITNESSETH:

         WHEREAS, the Issuer has agreed by adoption of a Resolution dated March
10, 1982, as supplemented and amended by a Resolution dated September 22, 1982
(collectively, the "Resolutions"), with PROGRESSIVE AMERICAN INSURANCE COMPANY,
a Florida corporation (the "Company"), to issue its Hillsborough County
Industrial Development Authority Industrial Development Revenue Bonds
(Progressive American Insurance Company Project), Series 1982, in the aggregate
principal amount of $4,000,000 (the "Bonds"); and

         WHEREAS, the proceeds from the sale of the Bonds are to be deposited
with the Trustee and disbursed to the Company pursuant to the terms of that
certain Indenture of Trust (the "Indenture") between the Issuer and the Trustee
dated as of the date hereof, for the purpose of constructing the Company's
headquarters office in Hillsborough County, Florida (the "Project"); and

         WHEREAS, the Company has agreed to pay the principal of, interest on
and redemption premium, if any, with respect to the Bonds, as and when the same
become due, under and pursuant to the terms of that certain Promissory Note (the
"Note") issued by the Company to the Issuer and under that certain Loan and Debt
Obligation Agreement (the "Agreement") between the Issuer and the Company, both
dated as of the date hereof; and

         WHEREAS, the Trustee has agreed in the Indenture to act for the benefit
of the holders of the Bonds, and the Issuer has assigned to the Trustee under
the terms of the Indenture its right, title and interest in the payments to be
made by the Company under the Note and the Agreement; and

         WHEREAS, Guarantor is the indirect owner of all of the issued and
outstanding stock of the Company and wishes to provide additional security for
the payment of the Bonds as and when the same shall become due, and wishes to
enter







<PAGE>   150

into this Unconditional Guaranty for the benefit of the Issuer and for the
benefit of the holders of the Bonds as represented by the Trustee;

         NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Guarantor does hereby covenant and agree with the Issuer and the
Trustee as follows:


         SECTION 1.  All terms used herein in capitalized form and not otherwise
herein defined shall have the same meaning as ascribed to them in the
Resolutions or in the Agreement.


         SECTION 2.  Guarantor hereby absolutely and unconditionally guarantees
to the Issuer and to the Trustee for the benefit of the holders of the Bonds (a)
the full and prompt payment of the principal of, interest on and any redemption
premium with respect to the Bonds as and when the same shall become due, whether
at the stated date of maturity, by acceleration or otherwise, and (b) the full
and complete payment and performance by the Company of all of the provisions,
conditions, covenants and agreements to be performed by the Company under the
Agreement, the Note and the Mortgage and Security Agreement (the "Mortgage"),
dated as of the date hereof, between the Company and the Issuer (the Bonds, the
Agreement, the Note and the Mortgage sometimes being referred to herein
collectively as the "Operative Documents"), without regard to the validity of
the Operative Documents or the enforceability of the Operative Documents against
the Company or the Issuer.

         Guarantor further unconditionally agrees to pay all reasonable expenses
and charges, legal or otherwise (including court costs and attorneys' fees) paid
or incurred by the Issuer or the Trustee in realizing upon any of the payments
or enforcing any of the covenants hereby guaranteed or in enforcing this
Unconditional Guaranty. Guarantor shall make all payments due hereunder in
lawful money of the United States of America in federal or other immediately
available funds.

         Guarantor further agrees that if the Issuer or the Company does not or
is not able to pay or perform in accordance with the terms of the Operative
Documents for any reason (including without limitation the failure of the
validity of the Operative Documents or the enforceability







                                       2


<PAGE>   151

thereof whether by reason of waiver or otherwise, the liquidation, dissolution,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or similar
proceedings affecting the status, existence, assets or obligations of the Issuer
or the Company or the limitation of damages for the breach, or the disaffirmance
of any of, the Operative Documents, or any other circumstance that might
otherwise constitute a legal or equitable discharge or defense), it will pay
such amounts or cause or pay for such performance, it being the intention hereof
that Guarantor pay to the Issuer or the Trustee, as appropriate, as a payment
obligation directly from Guarantor to the Issuer or the Trustee, as appropriate,
amounts equal to all amounts which the Issuer or the Company shall fail to
faithfully and properly pay when due under the Operative Documents, and
Guarantor shall otherwise provide for and bring about properly when due such
payments of the Issuer or the Company under the Operative Documents.  Guarantor
hereby covenants that this Unconditional Guaranty will not be discharged except
by complete performance of the obligations contained herein.


         SECTION 3.  Guarantor hereby agrees to indemnify and hold harmless the
Issuer from any loss suffered or occasioned by the failure of the Company to
satisfy its obligations under the Operative Documents and agrees to indemnify
and hold harmless the Trustee and the holders of the Bonds from any loss
suffered or occasioned by the failure of the Company or the Issuer to satisfy
their respective obligations under the Indenture and the Operative Documents.
The obligations of Guarantor under this Section 3 shall be independent primary
obligations of Guarantor hereunder.  The agreement to indemnify the Issuer, the
Trustee and the holders of the Bonds contained in this section shall be
enforceable notwithstanding the invalidity or unenforceability of any other
section or sections contained herein.


         SECTION 4.  Guarantor further agrees to indemnify and hold harmless the
Issuer and both the present and future members of the Issuer, the Issuer's
agents, employees and attorneys individually and personally and the Trustee from
any liability or loss resulting from the construction or operation of the
Project, from any cause whatsoever pertaining to the Project or the use thereof,
or from the issuance and sale of the Bonds, provided that the indemnity provided
by this sentence shall be effective only to the extent of any loss that might be
sustained in excess of the proceeds









                                       3


<PAGE>   152

recovered by the Issuer or the Trustee from any insurance, if any, carried by
the Company with respect to the loss sustained.


         SECTION 5.  Each and every default by the Issuer or the Company under
the terms of the Operative Documents shall give rise to a separate cause of
action hereunder against Guarantor.


         SECTION 6.  This Unconditional Guaranty shall be a continuing, absolute
and unconditional guaranty according to its terms and shall remain in full force
and effect until the Issuer and the Company shall have fully satisfied and
discharged all of their respective obligations under the Operative Documents,
including all payments under the Operative Documents, irrespective of the lack
of genuineness, invalidity, irregularity or unenforceability of the Operative
Documents or any assignment, modification or termination thereof, whether with
or without notice to or the consent of Guarantor, or the bankruptcy, insolvency,
reorganization or dissolution of the Issuer or the Company or the assignment for
the benefit of creditors of any assets by the Issuer or the Company.


         SECTION 7.  This Unconditional Guaranty and the liability hereunder
shall in no way be affected or impaired by any redelivery, repossession,
surrender or destruction of the Project, in whole or in part, or by any failure,
neglect or omission on the part of the Issuer, its successors or assigns or the
Trustee, to realize upon any obligations or liabilities of the Company. The
Issuer or the Trustee, to the extent either has knowledge thereof, shall give
Guarantor prompt written notice of the occurrence of any default under the
Operative Documents, specifying such default, but the failure of either or both
of them to give such notice shall in no way diminish, reduce or otherwise affect
Guarantor's obligations hereunder.


         SECTION 8.  The obligations, covenants, agreements and duties of
Guarantor under this Unconditional Guaranty shall not be affected or impaired by
reason of the happening from time to time of any of the following with respect
to the Operative Documents, this Unconditional Guaranty, or the assignment
thereof, although done without notice to or the consent of Guarantor: (a) any
assignment or mortgaging or the purported assignment or mortgaging of all or any
part of 







                                       4




<PAGE>   153

the interest of the Company in the Operative Documents or in the Project; (b)
any assignment or purported assignment of all or any part of the interest of the
Trustee in the Mortgage; (c) the waiver by the Issuer or the Trustee of the
performance or observance by the Company of any of the agreements, covenants,
terms or conditions contained in any of such instruments; (d) the extension of
the time for payment by the Company of sums or any part thereof owing or payable
under any of such instruments or of the time for performance by the Company of
any other obligations under or arising out of any such instruments or the
extension or the renewal of any thereof; (e) the modification or amendment
(whether material or otherwise) of any duty, agreement or obligation of the
Company set forth in any of such instruments; (f) the taking or the omission of
any of the actions referred to in any of such instruments; (g) any failure,
omission, delay or lack on the part of the Issuer or the Trustee to enforce,
assert or exercise any right, power or remedy conferred on the Issuer or the
Trustee in any of such instruments, or any action on the part of the Issuer or
the Trustee granting indulgence or extension in any form; (h) the voluntary or
involuntary liquidation, dissolution, sale or other disposition of all or
substantially all the assets, marshalling of assets and liabilities,
receivership, insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or other similar
proceeding affecting the Company or any of its assets, or the disaffirmance of
either the Agreement or the Mortgage in any such proceedings; (i) the release or
discharge of the Company from the performance or observance of any agreement,
covenant, term or condition contained in any of such instruments by operation of
law; (j) the release, substitution or replacement in accordance with the terms
of the Operative Documents of any property subject thereto; (k) the receipt and
acceptance by the Issuer or the Trustee of notes, checks or other instruments
for the payment of money made by the Company and extensions and renewals
thereof; or (I) any other cause, whether similar or dissimilar to the foregoing.


         SECTION 9.  Without limiting the foregoing, it is specifically
understood that any modification, limitation, or discharge of the Issuer's or
the Company's liability under the Operative Documents arising out of or by
virtue of any bankruptcy arrangement, reorganization or similar proceeding for
relief of debtors under federal or state law hereinafter initiated by or against
the Issuer or the Company shall not affect, modify, limit, or discharge the
liability of Guarantor in any manner whatsoever and this









                                       5


<PAGE>   154

Unconditional Guaranty shall remain and continue in full force and effect and
shall be enforceable against Guarantor to the same extent and with the same
force and effect as if any such proceedings had to be instituted.  Guarantor
does hereby waive all rights and benefits which might accrue to it by reason of
any such proceeding, and it shall be liable for the full amount of the sums,
including all damages imposed, payable under the terms of the Operative
Documents, irrespective and without regard to any modification, limitation, or
discharge of the liability of the Issuer or the Company that may result from any
such proceeding.


         SECTION 10.  This Unconditional Guaranty and every part hereof shall be
binding upon Guarantor and its successors and assigns and shall inure to the
benefit of the Trustee and its successors and assigns.  So long as any of the
obligations of the Issuer or the Company under the Operative Documents have not
been satisfied or discharged, all rights against Guarantor arising under this
Unconditional Guaranty shall be for the benefit of the Trustee and the Issuer;
and the Trustee, in its name and for the benefit of the Issuer and the holders
of the Bonds, shall be entitled to bring any suit, action or proceeding against
Guarantor for the enforcement of any provision of this Unconditional Guaranty
and, unless requested in writing by the Issuer, it shall not be necessary in any
such suit, action or proceeding brought by the Trustee to make the Issuer a
party thereto.  The terms of this Unconditional Guaranty may be enforced as to
any one or more breaches either separately or cumulatively.  Notice of execution
and delivery of this Unconditional Guaranty by the Issuer and the Trustee and
notice of the execution and delivery of the Operative Documents by the Company
and of the assignment thereof to the Trustee and of the execution and delivery
of the Bonds are hereby waived by Guarantor.


         SECTION 11.  The following shall be "Events of Default" under this
Unconditional Guaranty, and the terms "Event of Default" or "Default" mean,
whenever they are used in this Unconditional Guaranty, any one or more of the
following events: (a) failure by Guarantor to observe and perform any covenant,
condition or agreement on its part to be observed or performed pursuant to this
Unconditional Guaranty, or (b) the filing by Guarantor of a voluntary petition
in bankruptcy, or failure by Guarantor promptly to lift any execution,
garnishment or attachment of such consequence as will materially impair its
ability to carry out its obligations under this Unconditional Guaranty, or adju-








                                       6



<PAGE>   155

dication of Guarantor as bankrupt, or an assignment by Guarantor for the benefit
of its creditors, or the entry by Guarantor for the benefit of its creditors
into an agreement of composition with its creditors, or under any similar act
which may hereafter be enacted, and such adjudication or approval shall not be
vacated or set aside or dismissed within ninety (90) days of the date of entry
thereof, or (c) in the opinion of the Trustee, any material adverse change in
the financial status of the Company or the Guarantor, or (d) an event of
default, as defined in any bond, debenture, note, mortgage, indenture, contract
or instrument, under which there may be issued, or by which there may be secured
or evidenced, any indebtedness of Guarantor in excess of $150,000, whether such
indebtedness now exists or shall hereafter be created, shall happen and shall
result in such indebtedness becoming or being declared due and payable prior to
the date on which it would otherwise become due and payable.  Guarantor shall
give immediate notice to the Trustee, the Issuer, the Original Purchaser, and
the successors or assigns thereof, of any failure by Guarantor to perform any
obligation under any instrument described in this subsection (d), whether or not
such failure has ripened into a default under such instrument, and of any
default by the Company.


         SECTION 12.  In the event of any default in payment by the Issuer or
the Company under the Operative Documents or in the event of any Default
described in Section 11 hereof, the Trustee and the Issuer, or either of them,
may proceed first directly against Guarantor under this Unconditional Guaranty
without proceeding against or exhausting any other remedies which it may have
against the Company and without resorting to any other security held by the
Issuer or the Trustee.  In the collection or enforcement of the rights
hereunder, the Trustee and the Issuer shall have all the remedies of a creditor
and a secured party under applicable law.  Without limiting the generality of
the foregoing, the Trustee and the Issuer, or either of them, may, at their or
its option and without notice or demand: (a) declare any liability accelerated
and due and payable at once; and (b) take possession of any collateral security
wherever located, and sell, resell, assign, transfer and deliver all or any part
of said property of the Company, at any broker's board or exchange or at any
public or probate sale, for cash or on credit or for future delivery, and in
connection therewith the Trustee and the Issuer, or either of them, may grant
options and may impose reasonable conditions, and the Trustee and the Issuer, or
either of them, unless prohibited by law the provisions of which cannot be









                                       7



<PAGE>   156

waived, may purchase all or any part of said property to be sold, free from and
discharged of all trusts, claims, rights of redemption and equities of Guarantor
whatsoever.

         SECTION 13.  So long as any Bonds remain outstanding, the Guarantor
shall furnish to the Trustee and to each Bondholder, as soon as practicable
after the end of each calendar quarter and, in any event within one hundred
twenty (120) days thereafter, a certificate of an executive officer of the
Guarantor certifying that:

         (a)  during said period the Company was in compliance with the
requirements of the Agreement and the documents contemplated thereby and the
covenants of the Company contained therein; and

         (b)  the Company has reviewed the relevant terms of the Agreement and
has made, or caused to be made under the Company's supervision, a review of the
transactions and conditions with respect to the Project from the beginning of
the accounting period covered by the statements being delivered therewith to the
date of the certificate and that such review has not disclosed the existence
during such period of any condition or event which constitutes, or with the
passage of time or giving of notice or both would constitute, an event of
default as defined in Section 9.1 of the Agreement, or, if any such condition or
event existed or exists, specifying the nature and period of existence thereof
and what action the Company has taken or proposes to take with respect thereto.


         SECTION 14.  This Unconditional Guaranty is made under and shall be
construed and enforced in accordance with the laws of the State of Florida.  If
any provisions of this Unconditional Guaranty shall be held to be invalid by any
court of competent jurisdiction, the invalidity of such provision shall not
affect any of the remaining provisions.


         SECTION 15.  Guarantor represents and warrants that:

         (a)  It is a corporation duly organized and in good standing under the
laws of the State of Ohio, is not in violation of any provision of its Articles
of Incorporation, its Bylaws or any law in any manner material to its ability to
perform its obligations under this Unconditional Guaranty, has full corporate
power to enter into this Unconditional Guaranty and has duly authorized the
execution








                                       8




<PAGE>   157

and delivery of this Unconditional Guaranty by proper corporate action; and
neither this Unconditional Guaranty, the execution and delivery hereof nor the
performance of the agreements herein contained is prohibited by, contravenes or
constitutes a default under any agreement, instrument or indenture (which
default is, individually or in the aggregate, materially adverse to the
consolidated financial condition of Guarantor and its consolidated subsidiaries)
or under any provision of its Articles of Incorporation or any other requirement
of law;

         (b)  The Operative Documents constitute legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, and the representations of the Company contained therein are true and
correct in all material respects;

         (c)  There is no action, suit or proceeding pending or, to the
knowledge of Guarantor, threatened against Guarantor, at law or in equity or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality which might substantially
adversely affect the ability of Guarantor to perform its obligations under this
Unconditional Guaranty or the ability of the Company to perform its obligations
under the Operative Documents;

         (d)  All authorizations, consents and approvals of governmental bodies
or agencies, if any, required in connection with the execution and delivery of
this Unconditional Guaranty or in connection with the execution, delivery and
performance by Guarantor of its obligations hereunder have been obtained; and

         (e)  The assumption by Guarantor of its obligations hereunder will
result in a financial benefit to Guarantor.


         SECTION 16.  All notices hereunder shall be sufficiently given and
shall be deemed given on the second day following the day on which the same has
been mailed by certified mail, return receipt requested, postage prepaid,
addressed as follows:


         If to the Trustee:       Sun Bank, N.A.
                                  200 S. Orange Avenue
                                  Orlando, Florida 32802
                                  Attn.: Corporate Trust Department









                                       9


<PAGE>   158



         If to the Issuer:  Hillsborough County Industrial
                             Development Authority
                            c/o Warren M. Cason, Esq.
                            Post Office Box 2150
                            Tampa, Florida  33601



         If to Guarantor:   The Progressive Corporation
                            6300 Wilson Mills Road
                            Mayfield Village, Ohio  44143
                            Attn.: Howard Zelikow


         IN WITNESS WHEREOF, Guarantor has executed this instrument and the
Trustee has caused this instrument to be executed and attested to by persons
thereunto duly authorized, all as of the day and year first written above.

                                  THE PROGRESSIVE CORPORATION

(SEAL)

                                  By /s/ Richard M. Haverland
                                     -------------------------------------
                                     Richard M. Haverland,
                                     President




ATTEST:



/s/ David M. Schneider
- ---------------------------
David Schneider,
Secretary











                                       10

<PAGE>   159

                                  SUN BANK, N.A., as Trustee


(SEAL)
                                  By /s/ Geraldine P. Kail
                                     ----------------------------------

ATTEST:




/s/ Robert W. Andrews, Jr.
- -------------------------------
Trust Officer

                                  HILLSBOROUGH COUNTY
                                  INDUSTRIAL DEVELOPMENT
                                  AUTHORITY

(SEAL)


                                  By /s/ Samuel I. Latimer
                                     ----------------------------------
                                     Chairman

ATTEST:




/s/ Ellsworth G. Simmons
- -------------------------------
Assistant Secretary











                                       11






<PAGE>   1
                                                                    EXHIBIT 4(F)


                               (Face of Security)

REGISTERED                                                            REGISTERED

No. ________                                                        $___________

                               CUSIP 743315 AE 3

                          THE PROGRESSIVE CORPORATION

                          8 3/4% NOTE DUE JUNE 1, 1999

         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 June 1, 1999, 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 1 and
December 1 of each year, commencing December 1, 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 1 or the December 1, 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 June 1, 1989, 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 fifteenth day of May or November,
as the case may be, and before the following June 1 or December 1, this Note
shall bear interest from such June 1 or December 1; provided, that if the Issuer
shall default in the payment of interest due on such June 1 or December 1, then
this Note shall bear interest from the next preceding June 1 or December 1 to
which interest has been paid or, if no interest has been paid on this Note, from
June 1, 1989. The interest so payable on any June 1 or December 1 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 May 15 or November 15, as the case may be, next preceding
such June 1 or December 1.



<PAGE>   2


         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]                         By: Peter B. Lewis
                                             ----------------------------------
                                             President and Chief Executive
                                             Officer

Attest:


   David M. Schneider
   -------------------------------
   Secretary


Dated: 
       -----------

                    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


                                      -2-

<PAGE>   3


                               (Back of Security)

                          THE PROGRESSIVE CORPORATION

                          8 3/4 NOTE DUE JUNE 1, 1999

         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 8 3/4% Notes
Due June 1, 1999 of the Issuer, limited in aggregate principal amount to
$30,000,000.

         In case an Event of Default with respect to the 8 3/4% Notes Due June
1, 1999, 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 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 

                                      -3-

<PAGE>   4

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 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 multiple 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 

                                      -4-

<PAGE>   5

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.

                                      -5-

<PAGE>   6

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

                                 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:


<TABLE>
<S>                                                      <C>
         TEN COM   -  as tenants in common
         TEN ENT   -  as tenants by the entireties       UNIF GIFT MIN ACT -    ______               Custodian _____
         JT TEN    -  as joint tenants with right of                            (Cust)                        (Minor)
                      survivorship and not as tenants                           under Uniform Gifts to Minors Act
                      in common                                                 
                                                                                -------------------------------------
                                                                                             (State)
</TABLE>


    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.



<TABLE>
<S>                                          <C>
Dated: 
       --------------------------            ----------------------------------------------
                                             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.
</TABLE>



                                      -6-



<PAGE>   1
                                                                   EXHIBIT 10(B)



                          THE PROGRESSIVE CORPORATION
                             1995 GAINSHARING PLAN


1.       The Progressive Corporation and its subsidiaries ("Progressive" or the
         "Company") have adopted The Progressive Corporation 1995 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 and Division performance meets
         expectations. Participants will have the opportunity to earn cash
         compensation in excess of the top of the market when Core Business and
         Division 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 or a
         corporate support function as of December 1 of that Plan year. The
         gainsharing opportunity, if any, for those executive officers who
         participate in The Progressive Corporation 1995 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 or
         the earnings replacement component of any worker's compensation award.

5.       Target Percentages vary by position. Target Percentages for Plan
         participants typically are as follows:


<TABLE>
<CAPTION>

                                POSITION                          TARGET %
         -----------------------------------------------------------------
         <S>                                                       <C>
         Division Presidents, Product Leaders and Corporate
         Support Team Members                                       60%
         -----------------------------------------------------------------
         Community Managers                                         50%
         -----------------------------------------------------------------
         Senior Product Managers (PM's) and Senior Division
         Claims Managers                                            35%
         -----------------------------------------------------------------
         Division DRG Members, Function Heads and PM's              25%
         -----------------------------------------------------------------

</TABLE>



<PAGE>   2


<TABLE>
<CAPTION>
                                POSITION                          TARGET %
         -----------------------------------------------------------------
         <S>                                                        <C>
         Regional Claims Managers, Finance Managers, and
         Group Managers                                             13%
         -----------------------------------------------------------------
         Senior Professionals and Managers                          10%
         -----------------------------------------------------------------
         Professionals and Supervisors (e.g. CSR's, Claims Reps,
         etc.)                                                       8%
         -----------------------------------------------------------------

</TABLE>


         Target Percentages may be changed with the approval of the Chief
         Operating Officer, Chief Human Resources Officer and the relevant
         process leader or product leader. Target Percentages also may be
         changed from year to year.

6.       The Performance Factor

         A.       General

                  The Performance Factor shall consist of a Profitability and
                  Growth Component and a Cost Structure Improvement Component,
                  as described below (the "Performance Components"). 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 may be
                  changed from year to year by or under the direction of the
                  Committee.

         B.       Profitability and Growth Component

                  The Profitability and Growth Component measures overall
                  operating performance of Progressive's core personal and
                  commercial automobile insurance business ("Core Business"), as
                  a whole, and the assigned Division or Product (if applicable),
                  for the Plan year in respect of which an annual Gainsharing
                  Payment is to be made. For purposes of computing a score for
                  this Component, operating performance results are measured by
                  the Gainsharing Matrix, as established by or under the
                  direction of the Committee for the Plan year, which assigns a
                  Profitability and Growth Score to various combinations of
                  profitability (as measured by the GAAP combined ratio) and
                  growth (based on year-to-year change in market share)
                  outcomes. Market share is determined in terms of direct
                  written premium. For the Core Business as a whole, the market
                  means all personal auto premium and all commercial auto
                  premium in the United States, plus personal auto premium in
                  Ontario, Canada. For Personal Lines Divisions, the market
                  means personal auto premium in active states. All market
                  information shall be as published by A.M. Best Company, Inc.,
                  or other sources selected by the Committee.


                                       2

<PAGE>   3

         C.       Cost Structure Improvement Component

                  The Cost Structure Improvement Component measures success in
                  achieving cost structure improvement for the Core Business,
                  as a whole, and for the assigned Division, if any. Results
                  are reflected in a Cost Structure Improvement Score. For
                  purposes of computing the Cost Structure Improvement Score,
                  cost structure improvement is measured by comparing the sum
                  of the GAAP Underwriting Expense Ratio ("Underwriting Expense
                  Ratio") and Loss Adjustment Expense Ratio ("LAE Ratio")
                  achieved for the Plan year (collectively, "Actual Expense
                  Ratio") against defined expense objectives for that year, as
                  established by or under the direction of the Committee
                  ("Target Expense Ratio"). The Target Expense Ratio, including
                  its individual components, may vary by Division and/or for
                  the Core Business as a whole, and may be changed from year to
                  year. For 1995, and for each Plan year thereafter until
                  otherwise determined by the Committee, the Target Expense
                  Ratio for the Core Business, as a whole, shall be 33,
                  including a target LAE Ratio of 10 and a target Underwriting
                  Expense Ratio of 23.
        
                  The Cost Structure Improvement Score will be computed in
                  accordance with the following formula:

                  Cost Structure
                  Improvement = 1+ [Target Expense Ratio-Actual Expense Ratio]
                  Score             ----------------------------------------- 
                                                     4
                  
 
         D.       Component Weighting

                  Performance Components are weighted by Core Business and
                  Division or Product, as applicable. The weighting factors may
                  differ among participants and may be changed from year to
                  year. For participants in the Core Business, the typical
                  weighting shall be as follows:


<TABLE>
<CAPTION>
                                            -------------------------------------------
                                                              Weighting
                  ---------------------------------------------------------------------
                  Performance               Profitability       Cost
                  Factor                    and Growth          Structure         Total
                  ---------------------------------------------------------------------
                  <S>                       <C>                 <C>               <C>
                  Core Business Results     35%                 15%               50%
                  ---------------------------------------------------------------------
                  Division Results          35%                 15%               50%
                  ---------------------------------------------------------------------
                  Total                     70%                 30%               100%
                  ---------------------------------------------------------------------

</TABLE>


                  There will typically be no Division Component for participants
                  assigned to a corporate support function (such as Finance,
                  Human Resources, Law and Information Services) and others who
                  are not assigned primarily to a Division. Individualized
                  programs may be developed if and to the extent


                                       3

<PAGE>   4

                  deemed appropriate by the Company's Chief Executive Officer
                  ("CEO") or Chief Operating Officer ("COO").

                  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 pre-established objectives. In some cases,
                  the performance score for a Performance Component may be above
                  2.0 or below 0. The individual scores (positive and negative,
                  above 2.0 and below 0) are not adjusted, but go directly into
                  the calculation of the Performance Factor, which is capped at
                  0 and 2.0.

7.A.     Subject to Paragraph 8 below, no later than December 31 of each Plan
         year, each participant with a Target Percentage of 8% or 10% will
         receive an initial payment in respect of his or her Gainsharing Payment
         for such Plan year equal to 80% of an amount calculated on the basis of
         Paid Earnings for the first 11 months of the Plan year, performance
         data through such 11 month period (estimated, if necessary) and one
         month of forecasted operating results. No later than February 15 of the
         following year, each such participant shall receive the balance of his
         or her Gainsharing Payment, if any, for such Plan year, based on his or
         her Paid Earnings for the entire Plan year and performance data for the
         Plan year, including the Company's best estimate of Core Business
         market share growth.

  B.     Subject to Paragraph 8 below, no later than February 15 of the year
         immediately following the Plan year for which a Gainsharing Payment is
         to be made, each participant with a Target Percentage of 13% or greater
         will receive a payment in respect of his or her Gainsharing Payment for
         such Plan year in an amount equal to 90% of his or her estimated
         Gainsharing Payment for such year ("Estimated Payment"), calculated on
         the basis of Paid Earnings for the entire Plan year and actual
         performance data for such Plan year, including the Company's best
         estimate of Core Business market share growth for the Plan year. The
         balance of the Gainsharing Payment for such Plan year, if any, will be
         made to each such participant no later than the following September 30
         or, if later, within thirty (30) days following the Company's receipt
         of all market share information necessary to compute final Gainsharing
         Payment amounts for such Plan year. Each participant who is employed by
         the Company as of the date of the final Gainsharing Payment
         determination and who has a Target Percentage of 13% or greater is
         required to return to the Company no later than thirty (30) days
         following receipt of written notice from the Company the amount, if
         any, by which the Estimated Payment made to such participant for such
         Plan year exceeds the actual Gainsharing Payment to which such
         participant is entitled. If any such participant fails to return such
         excess payment when and as required, the Company shall have the right
         to setoff such obligation against any other sum then or thereafter owed
         by the Company to such participant, whether under this Plan or
         otherwise.


                                       4

<PAGE>   5

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 such portion of the
         annual Gainsharing Payment. 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 shall 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.

         All of the authority of the Committee hereunder (including, without
         limitation, the authority to administer the Plan, select the persons to
         participate herein, interpret the provisions thereof, waive any of the
         requirements specified herein and make determinations hereunder and to
         establish, change or modify Performance Components and their respective
         weighting factors, performance targets and Target Percentages) may be
         exercised by the CEO or the COO.

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 their job
         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.

15.      This Plan supersedes all prior plans, agreements, understandings and 
         arrangements regarding bonuses or other cash incentive compensation
         payable by or due from Progressive. Without limiting the generality of
         the foregoing, this


                                       5

<PAGE>   6

         Plan supersedes and replaces The Progressive Corporation 1994
         Gainsharing Plan, as heretofore in effect (the "Prior Plan"), which is
         and shall be deemed to be terminated as of December 31, 1994 (the
         "Termination Date"); provided, that any bonuses or other sums earned
         under the Prior Plan 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, 1995.
         This Plan shall be effective for 1995 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.


                                       6




<PAGE>   1
                                                                   EXHIBIT 10(D)



                          THE PROGRESSIVE CORPORATION
                           1995 EXECUTIVE BONUS PLAN

1.       The Progressive Corporation and its subsidiaries ("Progressive") have
         designed an executive compensation program consisting of three
         components: salary, annual bonus and equity-based incentives in the
         form of non-qualified stock options. These components have been
         structured to reflect the market for executive compensation and to
         promote both the achievement of corporate goals and performance that is
         in the long-term interests of shareholders. The annual bonus component
         is performance-based and focuses on current results.

2.       The 1995 Executive Bonus Plan (the "Plan") shall be administered by or
         under the direction of the Executive Compensation Committee (the
         "Committee") of the Board of Directors. Executive officers of
         Progressive may be selected by the Committee to participate in the Plan
         for one or more Plan years. Plan years shall coincide with
         Progressive's fiscal years.

3.       The following executive officers have initially been selected for
         participation in the Plan: Charles B. Chokel, Peter B. Lewis, Bruce W.
         Marlow, Michael C. Murr, David M. Schneider and Tiona M. Thompson (the
         "participants").

4.       Subject to the following sentence,
 the amount of the annual bonus
         earned by any participant under the Plan ("Annual Bonus") will be
         determined by application of the following formula:

                  Annual Bonus = Paid Salary x Target Percentage x Performance 
                  Factor

         The Annual Bonus payable to any participant with respect to any Plan
         year may not exceed $2,000,000.00.

5.       The salary rate of each Plan participant for any Plan year shall be as
         established by the Committee no later than ninety (90) days after
         commencement of such Plan year. For purposes of the Plan, "salary" and
         "Paid Salary" shall include regular, vacation, sick, holiday and
         funeral pay received by the participant for work or services performed
         by the participant as an officer or employee of Progressive and the
         earnings replacement component of any worker's compensation award, but
         shall not include any (a) short-term or long-term disability payments,
         (b) lump sum merit adjustments or (c) discretionary bonus payments made
         to the participant.


<PAGE>   2

6.       The Target Percentages for the participants in the Plan are as follows:


<TABLE>
<CAPTION>

         Participant                      Position                 Target Percentage
         ------------------     -----------------------------      -----------------
<S>                             <C>                                      <C>
         Charles B. Chokel      Chief Financial Officer                   80%
         Peter B. Lewis         Chief Executive Officer                  100%
         Bruce W. Marlow        Chief Operating Officer                  100%
         Michael C. Murr        Chief Investment Officer                 167%
         David M. Schneider     Chief Legal Officer                       60%
         Tiona M. Thompson      Chief Human Resources Officer             60%
</TABLE>


         Target Percentages may be changed from year to year by the Committee.

7.       The Performance Factor

         A.       General

                  The Performance Factor shall be determined by the performance
                  results achieved with respect to one or more of the following
                  components: Core Business Gainsharing, Return on Average
                  Equity ("ROE") and Investment Performance, as described below
                  (the "Bonus Components"). An appropriate combination of Bonus
                  Components will be designated for each participant, and the
                  designated Bonus Components will be weighted, based on such
                  participant's assigned responsibilities.

                  The combination of Bonus Components designated for each of the
                  participants, and the relative weighting of those Components,
                  are as follows:


<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------
                           Core Business            ROE                  Investment
 Participant               Gainsharing              Component            Performance
                           Component                                     Component
- ------------------------------------------------------------------------------------
<S>                        <C>                      <C>                  <C>
Chokel                     70%                      30%                  0%
- ------------------------------------------------------------------------------------
Lewis                      50%                      30%                  20%
- ------------------------------------------------------------------------------------
Marlow                     80%                      20%                  0%
- ------------------------------------------------------------------------------------
Murr                       0%                       50%                  50%
- ------------------------------------------------------------------------------------
Schneider                  70%                      30%                  0%
- ------------------------------------------------------------------------------------
Thompson                   80%                      20%                  0%
- ------------------------------------------------------------------------------------
</TABLE>



                                       2

<PAGE>   3

                  The relative weighting of the Bonus Components may vary among
                  Plan participants and may be changed from year to year by the
                  Committee.

                  Actual performance results achieved for any Plan year, as used
                  to calculate the performance score achieved for each of the
                  applicable Bonus Components, shall be as certified by the
                  Committee prior to payment of the Annual Bonus.

                  For purposes of computing the amount of the Annual Bonus, the
                  performance score achieved for each of the designated Bonus
                  Components will be multiplied by the applicable weighting
                  factor to produce a Weighted Component Score. The sum of the
                  Weighted Component Scores equals the Performance Factor. The
                  Performance Factor can vary from 0 to 2.0, based on actual
                  performance versus the pre-established objectives.

         B.       Core Business Gainsharing Component

                  The Core Business Gainsharing Component consists of the
                  following factors:

                  (i)      Profitability and Growth Factor

                           The Profitability and Growth Factor measures overall
                           operating performance of Progressive's core personal
                           and commercial automobile insurance business ("Core
                           Business") for the Plan year in respect of which an
                           Annual Bonus is to be paid. For purposes of computing
                           a score for this Factor, results will be measured by
                           the Gainsharing Matrix, as established by the
                           Committee for the Plan year, which assigns a
                           performance score to various combinations of
                           profitability and growth outcomes. For this Factor,
                           profitability is measured by the GAAP combined ratio
                           and growth is measured by year-to-year change in
                           market share. Change in market share is measured in
                           terms of net written premium, based on industry data
                           (which may be estimated), as reported by A.M. Best
                           Company, Inc. in Best Week, or any successor
                           publication, upon conclusion of the Plan year for
                           which the Annual Bonus is to be paid. The
                           Profitability and Growth Factor is weighted 70% in
                           computing the Core Business Gainsharing Score.



                                       3

<PAGE>   4

                  (ii) Cost Structure Improvement Factor

                       The Cost Structure Improvement Factor measures success in
                       achieving cost structure improvement for the Core
                       Business. Results are reflected in a Cost Structure
                       Improvement Score. For purposes of computing the Cost
                       Structure Improvement Score, cost structure improvement
                       is measured by comparing the sum of the GAAP Underwriting
                       Expense Ratio ("Underwriting Expense Ratio") and Loss
                       Adjustment Expense Ratio ("LAE Ratio") achieved in the
                       Core Business for the Plan year (collectively, "Actual
                       Expense Ratio") against the defined expense objectives
                       for that year, as established by the Committee ("Target
                       Expense Ratio"). For 1995 and thereafter unless and until
                       otherwise directed by the Committee, the Target Expense
                       Ratio shall be 33, based on a target LAE Ratio of 10 and
                       a target Underwriting Expense Ratio of 23. The Cost
                       Structure Improvement Factor is weighted 30% in computing
                       the Core Business Gainsharing Score.

                       The Cost Structure Improvement Score will be computed
                       in accordance with the following formula:

                       Cost Structure
                       Improvement=1+[Target Expense Ratio-Actual Expense Ratio]
                       Score
                                      -----------------------------------------
                                                        4

                  Expense targets and the relative weighting of the above
                  Factors may be changed from year to year by the Committee.

         C.       Return on Average Equity Component

                  This Component is based on Progressive's Return on Average
                  Equity ("ROE") for the Plan year. The ROE will be calculated
                  for each month of the Plan year and such monthly results will
                  be averaged to determine the ROE for the Plan year. For
                  purposes of this Plan, ROE shall be calculated as follows:

                  ROE =     net income - Preferred Share dividends
                            --------------------------------------
                             average common shareholders' equity


                                       4


<PAGE>   5

In determining the ROE Performance Score, actual performance will be compared
to a scale which excludes the effect of inflation, in accordance with the
following scoring table:
        

<TABLE>
<CAPTION>

- --------------------------------------------------
ROE (excluding                     ROE Performance
effect of inflation, as            Score
reflected in the CPI)
- --------------------------------------------------
<S>                                <C>
11% or lower                       0.0
- --------------------------------------------------
12%                                0.3
- --------------------------------------------------
13%                                0.5
- --------------------------------------------------
14%                                0.7
- --------------------------------------------------
15%                                1.0
- --------------------------------------------------
16%                                1.1
- --------------------------------------------------
17%                                1.2
- --------------------------------------------------
18%                                1.3
- --------------------------------------------------
19%                                1.4
- --------------------------------------------------
20%                                1.5
- --------------------------------------------------
21%                                1.6
- --------------------------------------------------
22%                                1.7
- --------------------------------------------------
23%                                1.8
- --------------------------------------------------
24%                                1.9
- --------------------------------------------------
25% or higher                      2.0
==================================================
</TABLE>


To achieve a given ROE Performance Score for any Plan year, Progressive's ROE
for that year must equal or exceed the required ROE level set forth in the
above scoring table, without rounding, and ROE Performance Scores will not be
derived from or subject to an interpolative or similar process.
        
For purposes of this Plan, CPI shall mean the Consumer Price Index for all
Urban Consumers (CPI-U) for the U.S. City Average for All Items (1982-1984
equals 100) or such other index as the Committee shall designate prior to the
applicable Plan year.
        

                                       5

<PAGE>   6

D.  Investment Performance Component

       The Investment Performance Component compares investment performance
       against targets ("Benchmarks") established for the individual segments
       of Progressive's investment portfolio. Investments are marked to market
       in order to calculate total return, which is then compared against the
       designated Benchmarks to produce a Performance Score for each segment of
       the portfolio. The Performance Scores for the several segments are
       weighted, based on the actual amounts invested in each segment (valued
       monthly), and the weighted Performance Scores for the several segments
       are then combined to produce the Investment Performance Score.
       Investment expense is not included in determining investment performance
       vs. benchmark.
        
       The Portfolio Segments and Benchmark measures are as follows:

        ---------------------------------------------------------------
        Portfolio Segment         Investment Benchmark
        ---------------------------------------------------------------
        Equities                  S&P 500 including dividends
        ---------------------------------------------------------------
        High Yield Investments    70% of the average of Merrill Lynch        
                                  High Yield Index and Merrill Lynch
                                  Bankruptcy Index
        ---------------------------------------------------------------
        Short Term Fixed Income   3 Year Treasury Securities + 75 basis
                                  points, tax equivalent basis
        ---------------------------------------------------------------


       The scoring table for comparing Investment Performance against the
       designated  Benchmarks is as follows:
        
          
<TABLE>
          <CAPTION>

          -----------------------------------------
          Investment                    Investment
          Performance                   Performance
          Versus                        Score
          Benchmark
          (weighted)
          -----------------------------------------
          <S>                           <C>
          below 90%                     0.00
          -----------------------------------------
          90 - 94.99%                   0.75
          -----------------------------------------
          95 - 99.99%                   0.90
          -----------------------------------------
          100% and above                1.00
          -----------------------------------------
          </TABLE>



                                      6

<PAGE>   7

         To achieve a given Investment Performance Score for any Plan year,
         Investment Performance results must equal or exceed the required
         performance level indicated in the above scoring table, without
         rounding, and Investment Performance Scores will not be derived from or
         subject to an interpolative or similar process.

8.       The Annual Bonus for any Plan year shall be paid to participants in two
         installments. The first installment, in an amount equal to 90% of the
         Annual Bonus, determined in accordance with the formula set forth in
         Paragraph 4 above, will be paid as soon as practicable after the
         Committee has certified performance results for the Plan year, but no
         later than March 31 of the immediately following year. The second
         installment, in an amount equal to 10% of the Annual Bonus, will be
         paid to participants on the September 30 immediately following the end
         of the Plan year for which such Annual Bonus is to be paid. The
         provisions of this Paragraph shall be subject to Paragraph 9 hereof.

         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 Bonus
         otherwise payable under this Plan, subject to and in accordance with
         the terms of the Deferral Plan.

9.       Unless otherwise determined by the Committee, in order to be entitled
         to receive any installment of the Annual Bonus for any Plan year, the
         participant must be employed by Progressive on the date designated for
         payment thereof. Annual Bonus payments made to participants will be net
         of any legally required deductions for federal, state and local taxes
         and other items.

10.      The right to any of the Annual Bonuses hereunder shall 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.

11.      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 thereunder. 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.


                                       7

<PAGE>   8


         The Plan shall be administered by the Committee in accordance with the
         requirements of Section 162(m) of the Internal Revenue Code, as
         amended, and the rules and regulations promulgated thereunder (the
         "Code").

12.      The Plan shall be subject to approval by the holders of Progressive's
         Common Shares, $1.00 par value ("shareholders") in accordance with the
         requirements of Section 162(m) of the Code.

13.      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; provided that the Committee may not increase the amount of
         compensation payable hereunder to any participant above the amount that
         would otherwise be payable upon attainment of the applicable
         performance goals, or accelerate the payment of any portion of the
         Annual Bonus due to any participant under the Plan without discounting
         the amount of such payment in accordance with Section 162(m) of the
         Code, and further provided that any amendment or revision of the Plan
         required to be approved by shareholders pursuant to Section 162(m) of
         the Code shall not be effective until approved by Progressive's
         shareholders in accordance with the requirements of Section 162(m).

14.      The Plan will be unfunded and all payments due under the Plan shall be 
         made from Progressive's general assets.

15.      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 their job
         duties or compensation.

16.      Progressive shall have the unrestricted right to set off against or
         recover out of any bonuses or other sums owed to any participant under
         the Plan any amounts owed by such participant to Progressive.

17.      This Plan supersedes all prior plans, agreements, understandings and
         arrangements regarding bonuses or other cash incentive compensation
         payable or due to any participant from Progressive. Without limiting
         the generality of the foregoing, this Plan supersedes and replaces The
         Progressive Corporation 1994 Executive Bonus Plan, as heretofore in
         effect (the "Prior Plan"), which is and shall be deemed to be
         terminated as of December 31, 1994 (the "Termination Date"); provided,
         that any bonuses or other sums earned under the Prior Plan prior to the
         Termination Date shall be unaffected by such termination and shall be
         paid to the appropriate participants when and as provided thereunder.


                                       8

<PAGE>   9

18.      This Plan is adopted and, subject to the provisions of Paragraph 12
         hereof, is to be effective, as of January 1, 1995. Subject to the
         provisions of Paragraph 12, this Plan shall be effective for 1995 and
         for each year thereafter unless and until terminated by the Committee.

19.      This Plan shall be interpreted and construed in accordance with the
         laws of the State of Ohio.


                                       9




<PAGE>   1

                             SHARE OPTION AGREEMENT
                             ----------------------
                 THIS SHARE OPTION AGREEMENT (this "Agreement") is made as of
March 17, 1989, between THE PROGRESSIVE CORPORATION, an Ohio corporation (the
"Company"), and David M. Schneider (the "Optionee").
                 Whereas, the Optionee is a partner in Baker & Hostetler, an
Ohio general partnership, which acts as general counsel to the Company and its
subsidiaries and affiliates, and
                 Whereas, the Company desires to hire the Optionee as its
Senior Vice President and Chief Legal Officer upon his resignation from such
law firm and believes it to be in the best interests of the Company to provide
incentives to the Optionee which are based on increases in the value of the
Common Shares, $l. 00 par value ("Shares"), of the Company, and
                 Whereas, the Optionee has agreed to resign from such law firm
and to commence employment with the Company in the aforementioned capacity on
or about May 1, l989,
                 Now, therefore, in consideration of the mutual covenants
hereinafter set forth and for other good and valuable consideration, the
parties hereto hereby agree as follows:
                 1.  GRANT OF OPTION.  The Company hereby grants to the
Optionee, subject to ratification and approval hereof by the Board of Directors
of the Company, the right and option to
 purchase from the Company from time to
time an aggregate of 75,000 Shares of the Company (the "Option") (such number
being subject to adjustment as set forth in Section 10) on the terms and
conditions set forth herein.
                 2.  VESTING AND TERM OF OPTION.
                 (a) The Option may be exercised as to 75,000 Shares at any
time beginning six months after the date this agreement is ratified and
approved by the Board of Directors of the Company (unless the Optionee dies or
becomes disabled prior to the expiration of such six month period, in which
case the Option may be exercised as to such 75,000 Shares by his legal
representative

<PAGE>   2
or guardian (his "Personal Representative") as provided in Section 7).
                 (b) Notwithstanding the foregoing paragraph (a) of this
Section 2, the Option shall expire at 5:00 p.m. Cleveland, Ohio, time on March
16, 1999 and shall not be exercisable thereafter, except as provided in Section
7.
                 3.  OPTION PRICE.  The option price for each Share subject to
the Option (the "Option Price Per Share") is $29.5O (subject to adjustment as
set forth in Section 9).
                 4.  EXERCISE OF OPTION.
                 (a) The Optionee (or his Personal Representative, in the event
of his death or disability) shall exercise the Option by delivering to the
Company written notice specifying the number of Shares with respect to which
the Option is being exercised.  Such notice shall be accompanied by payment in
full for the Shares being purchased in the form of cash, a certified check, or
such number of Common Shares of the Company as then have a value equal to the
exercise price, as well as any amount (also payable as aforesaid) required to
be withheld on the optionee's behalf by the Company under applicable tax laws,
as provided in Section 8.
                 (b) No Shares shall be issued until full payment therefor has
been made, and the Optionee shall have none of the rights of a shareholder of
the Company until they are so issued.
                 (c) Upon payment in full for the Shares purchased pursuant to
an exercise of the Option, the Company shall issue and deliver to the Optionee
share certificates for the number of Shares purchased by the Optionee.
                 5.  NONTRANSFERABILITY.  The Option shall not be transferable
other than by will or the laws of descent and distribution, and the Option may
be exercised, during the lifetime of the Optionee, only by the Optionee or his
Personal Representative.
                 6.  TERMINATION OF EMPLOYMENT OR MANAGEMENT AGREEMENT.
Notwithstanding the provisions of Section 2 above, in the event the Optionee's
employment with the Company is terminated by the Company for cause (a
termination due to Optionee's disability not being for cause) or is terminated

<PAGE>   3
by the Optionee for any reason (other than death or disability), the Option may
be exercised by the Optionee only as to any part or all of the Shares subject
to the Option which were exercisable but unexercised immediately prior to such
event, at any time before, and the Option shall terminate at 5:00 pm.
Cleveland, Ohio, time on and may not be exercised at any time after, the date
that is one month after the date of such termination, but not beyond the
original term of the Option as provided in Section 2.  Nothing in this
Agreement shall confer upon the Optionee any right to continue in the employ of
the Company or interfere in any way with any right the Company may otherwise
have to terminate his employment at any time.
                 7.  DEATH OR DISABILITY OF THE OPTIONEE.  Notwithstanding the
provisions of Sections 2 and 4(a) above, if the Optionee shall die or become
disabled (which shall be defined as being unable to perform his duties for the
Company for a period of six consecutive months, as determined by the Company in
good faith) while he shall be employed by the Company, and prior to the
expiration of the Option, the Option may be exercised, in case of his death, by
a legatee or legatees of the Optionee under his last will or by his Personal
Representative or distributees, or, in case of his disability, by the Optionee
or his Personal Representative, as to any or all of the Shares subject to the
Option which were exercisable but unexercised immediately prior to such event,
at any time before, and the Option shall terminate at 5:00 pm. Cleveland, Ohio,
time on and may not be exercised at any time after, the date that is one year
after the date of the appointment of the Optionee's Personal Representative, in
case of his death, or one year after the appointment of a Personal
Representative for Optionee, in case of his disability.
                 8.  TAXES.  The Company shall have the right to require the
Optionee (or his Personal Representative) to pay to the Company the amount of
taxes, if any, which the Company is or will be required to withhold with
respect to any Shares to be issued in connection with the exercise of the

<PAGE>   4
Option before any certificates for the Shares are delivered pursuant to the
Option.
                 9.  ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES
PURCHASABLE.  In the event of any change in the number of outstanding Shares by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of Shares or a similar
corporate change, the Board of Directors shall determine the extent to which
such change equitably requires an adjustment in the number of Shares or other
securities subject to the Option and in the Option Price Per Share and such
adjustment shall be made by the Company.
                 1O.   SECURITIES LAW COMPLIANCE; REGISTRATION RIGHTS.
                 (a) The Option may not be exercised and the Company shall not
be required to issue any Shares hereunder if such issuance, in the judgment of
the Company, would constitute a violation of any state or federal law, or of
the rules or regulations of any governmental regulatory body or securities
exchange.  The Company, in its sole discretion, may require the Optionee to
furnish the Company with appropriate representations and a written investment
agreement prior to the exercise of the Option and the delivery of any Shares
pursuant to the Option.
                 (b) The Shares to be issued in connection with the exercise of
the Option may not have been registered under the Securities Act of 1933, as
amended (the "1933 Act"), at the time they are issued and, in such event, may
not be offered for sale, sold or otherwise transferred or disposed of in the
absence of such registration or an opinion of counsel satisfactory to the
Company to the effect that such a transfer or disposition may be made without
any such registration.  The certificates for the Shares will, in such event,
include a legend setting forth the foregoing restriction and the transfer of
such Shares may be subject to a stop order on the books of the transfer agent.

<PAGE>   5
                 (c) Notwithstanding the preceding paragraphs (a) and (b) of
this Section 10, during such times as there is neither a registration statement
in effect under the 1933 Act covering the resale by Optionee of any Shares
obtained pursuant to his exercise of the Option nor any exemption from
registration available to him for any sale by him of any such Shares, Optionee
shall have the right to registration under the 1933 Act as set forth in Exhibit
A hereto.
                 11.  NOTICES.  Notices, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
sent by prepaid facsimile transmission, telex, cable, commercial overnight
courier or certified mail, addressed to the intended recipient at the address
set forth at the end of this Agreement, or at such other address as such
intended recipient may hereafter have designated most recently to the other
party hereto with specific reference to this Section 11.
                 12.  ENTIRE AGREEMENT.  This Agreement constitutes the entire
agreement with respect to the subject matter hereof, supersedes all prior
written and oral agreements with respect thereto and may be modified only by an
instrument in writing signed by each of the parties hereto.
                 13.  BINDING EFFECT.  The provisions contained in this
Agreement shall, upon ratification and approval hereof by the Board of
Directors of the Company, be binding upon and inure to the benefit of the
parties hereto, the successors and assigns of the Company, and the Optionee's
Personal Representative and other successors expressly described herein.
                 14.     APPLICABLE LAW.  This Agreement and the construction 
and interpretation of the provisions hereof shall be governed by the laws of the
State of Ohio.

<PAGE>   6
            IN WITNESS WHEREOF, the Company has caused this Agreement to be
duly executed by its officer thereunto duly authorized, and the Optionee has
hereunto set his hand, all as of the day and year first above written.

6000 Parkland Blvd.                                  THE PROGRESSIVE CORPORATION
Mayfield Heights, Ohio 44124
Attn:  P. B. Lewis, President                        By: /s/ P. B. Lewis   
                                                         ----------------------
                                                         P.B. Lewis, President




2767 Belgrave Road                                       /s/ David M. Schneider
Pepper Pike, Ohio 44124                                  ----------------------
                                                         David M. Schneider

<PAGE>   7
                                   EXHIBIT A

                             Registration of Stock
                             ---------------------
                 1.1      REQUIRED REGISTRATION.  If at any time, the Company
receives a written request from the Optionee for the registration of any Shares
obtained by the Optionee pursuant to the exercise of the Option (the "Stock"),
the Company shall, at its sole expense, prepare and file a registration
statement under the Securities Exchange Act of 1933, as amended (the "1933
Act"), covering the Stock which is subject to such request and shall use
reasonable efforts to cause such registration statement to become effective;
provided, however, that the Company shall not be required to prepare and file
more than one such registration statement.  In the event that the Optionee
requests registration and thereafter determines for any reason not to proceed
with any such registration at any time before any registration statement has
been filed with the Securities and Exchange Commission (the "SEC"), then the
Optionee shall not be deemed to have exercised his rights to require the
Company to register Stock pursuant to this Section 1.1 if the Optionee agrees
(i) to bear his own expenses incurred in connection therewith and (ii) to
reimburse the Company for the expenses incurred by it attributable to the
proposed registration of the Stock.

                 1.2      LIMITATION ON REGISTRATION.  Notwithstanding the
provisions of Section 1.1 hereof, the Company shall have the absolute right to
delay or suspend the preparation and filing of a registration statement for up
to ninety (90) days if in the reasonable judgment of the Company such
preparation and filing would harm or hinder in any material fashion the ability
of the Company or any subsidiary of the Company to conduct their respective
affairs or would have a material adverse effect on the business, properties,
financial condition or prospects of the Company or any subsidiary.

                 1.3      REGISTRATION PROCEDURES.  If and whenever the Company
is required by the provisions hereof to effect the registration of Stock under
the 1933 Act, the Company will:
                 (a)      promptly prepare and file with the SEC a registration
statement with respect to such Stock, and use all reasonable efforts to cause
such registration statement to become and remain effective for such period, not
to exceed 90 days, as may be reasonably necessary to effect the sale of such
Stock;
                 (b)      prepare and file with the SEC such amendments to any
such registration statement and supplements to any prospectus contained therein
as may be necessary to keep such registration statement effective for such
period, not to exceed 90 days, as may be reasonably necessary to effect the
sale of such Stock;
                 (c)      use all reasonable efforts to qualify the Stock for
sale in the State of Ohio and in such other states as may be reasonably
requested by the Optionee;
                 (c)      furnish to the Optionee and to the underwriters of
the Stock being registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the public
offering of such Stock;
                 (d)      notify the Optionee, promptly after it shall receive
notice thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
                 (e)      notify the Optionee promptly of any request by the
SEC for the amending or supplementing of such registration statement or
prospectus or for additional information;

<PAGE>   8
                 (f)      prepare and file with the SEC, promptly upon the
request of the Optionee, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for the Optionee (and
concurred in by counsel for the Company) is required under the 1933 Act or the
rules and regulations thereunder in connection with the distribution of the
Stock by the Optionee;
                 (g)      prepare and promptly file with the SEC and promptly
notify the Optionee of the filing of any amendment or supplement to such
registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to the Stock
is required to be delivered under the 1933 Act, any event shall have occurred
as the result of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
                 (h)      advise the Optionee, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance of any stop order by the
SEC suspending the effectiveness of such registration statement or the
initiation or threatening of any proceeding for that purpose and promptly use
reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
                 (i)      as much time as practicably possible prior to the
filing of any amendment or supplement to such registration statement or
prospectus, furnish copies thereof to the Optionee and refrain from filing any
such amendment or supplement to which the Optionee shall have reasonably
objected on the grounds that such amendment or supplement does not comply in
all material respects with the requirements of the 1933 Act or the rules and
regulations thereunder, unless in the opinion of counsel for the Company the
filing of such amendment or supplement is reasonably necessary to protect the
Company from any liabilities under any applicable federal or state law and such
filing will not violate applicable law; and
                 (j)      At the request of the Optionee, furnish on the
effective date of the registration statement and, if such registration includes
an underwritten public offering, at the closing provided for in the
underwriting agreement: (i) an opinion, dated each such date, of the counsel
representing the Company for the purposes of such registration, addressed to
the underwriters, if any, and to the Optionee, stating that such registration
statement has become effective under the 1933 Act (such effective registration
statement hereinafter the "Registration Statement") and that (A) to the best of
such counsel's knowledge no stop order suspending the effectiveness thereof has
been issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the 1933 Act, (B) the Registration Statement,
related prospectus at the time the Registration Statement becomes effective
(the "Prospectus") and each amendment or supplement thereto comply as to form
in all material respects with the requirements of the 1933 Act and the
applicable rules and regulations of the Commission thereunder (except that such
counsel need express no opinion as to financial data contained therein), (C)
such counsel has no reason to believe that the Registration Statement, the
Prospectus or any amendment or supplement thereto contain any untrue statement
of a material fact or omits to statement a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading (except that such
counsel need express no opinion as to financial data contained therein).  The
opinion of such counsel pursuant to subparagraphs (B) and (C) of this Section
1.3 may be based solely upon such counsel's participation in the preparation of
the Registration Statement and prospectus and review and discussion of the
contents thereof, but without independent check or verification, except as
specified.  The Company agrees to make a good faith effort to have any "comfort
letter" from the independent public accountants of the Company which is
addressed to the underwriters in connection with such public offering also
addressed to the Optionee.

<PAGE>   9
                 1.4      EXPENSES OF REGISTRATION.  With respect to the
registration requested pursuant to Section 1.1 hereof, the Company shall bear
the following fees, costs and expenses: All registration, filing and NASD fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or underwriters
of such securities (only in a registration pursuant to Section 1.1 and only if
the Company and/or Optionee are required to bear such fees and disbursements),
and all legal fees and disbursements and other expenses of complying with state
securities or blue sky laws of any jurisdictions in which the securities to be
offered are to be registered or qualified.  Fees and disbursements of counsel
and accountants for the Optionee, underwriting discounts and commissions,
transfer taxes for Optionee and any other expenses incurred by the Optionee not
expressly included above shall be borne by the Optionee.

                 1.5      INDEMNIFICATION.

                 (a)      The Company will indemnify and hold harmless the
Optionee and any underwriter (as defined in the 1933 Act) for the Optionee and
each person, if any, who controls such underwriter within the meaning of the
1933 Act, from and against any and all loss, damage, liability, cost and
expense (including, without limitation, attorneys fees and expenses) to which
the Optionee or any such underwriter or controlling person may become subject
under the 1933 Act or otherwise, insofar as such losses, damages, liabilities,
costs or expenses are caused by any untrue statement or alleged untrue
statement of any material fact contained in such registration statement, any
prospectus contained therein or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, damage, liability, cost or expense arises out of or
is based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished in writing by
the Optionee, such underwriter or such controlling person specifically for use
in the preparation of any registration statement, any prospectus or any
amendment or supplement thereto.
                 (b)      The Optionee will indemnify and hold harmless the
Company, any underwriter and each person, if any, who controls the Company or
such underwriter, from and against any and all loss, damage, liability, cost or
expense (including, without limitation, attorneys fees and expenses) to which
the Company, the underwriter or any controlling person may become subject under
the 1933 Act or otherwise, insofar as such losses, damages, liabilities, costs
or expenses are caused by any untrue or alleged untrue statement of any
material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in
reliance upon and in strict conformity with written information furnished by
the Optionee specifically for use in the preparation of such registration
statement or prospectus or any amendment or supplement thereto.
                 (c)      If any party indemnified under this Section 1.5 (the
"Claimant") desires to make a claim against any other (the "Indemnitor") under
subsection (a) or (b) above, the Claimant shall give prompt written notice to
the Indemnitor of the institution of any actions, suits, governmental
investigations, other proceedings or demands at any time instituted against or
made upon the Claimant in connection with which the Claimant could claim
indemnification under this Section 1.5 and shall advise the Indemnitor in
writing, to the extent known, of the amount and circumstances surrounding the
same.  The failure of the Claimant to give any notice required by this

<PAGE>   10
subsection (c) shall not relieve the Indemnitor from any liability which may
arise otherwise than pursuant to this Section 1.5.  If the Indemnitor or a
group of Indemnitors agrees in writing that it is responsible to indemnify
(fully and completely) for a claim under this Section 1.5, the Claimant shall
give such Indemnitor (at the sole expense of the Indemnitor) full authority to
defend, adjust, compromise or settle the action, suit, investigation,
proceeding or demand as to which notice has been given and such Indemnitor
shall not be liable to such Claimant pursuant to the provisions of (a) or (b)
of this Section for any legal or other expense subsequently incurred by such
Claimant in connection with such action, suit, investigation, proceeding or
demand (other than reasonable costs of investigation) unless (i) the parties
involved in such action, suit, investigation proceeding or demand include both
the Claimant and the Indemnitor in which instance the Claimant shall have the
right to select separate counsel to participate in the matter on behalf of such
Claimant, (ii) the Indemnitor shall not have employed counsel satisfactory to
the Claimant to represent the Claimant within a reasonable time after the
notice of the commencement of the proceeding, or (iii) the Indemnitor has
authorized the employment of counsel for the Claimant at the expense of the
Indemnitor.

                 1.6      LOCKUP AGREEMENT.  In consideration of the Company's
agreements under this Article, the Optionee agrees in connection with any
registration of the Company's securities in which the Optionee is afforded an
opportunity to participate that, upon the request of the Company or the
underwriters managing any underwritten offering of the Company's securities,
not to sell, make any short sale of, loan, grant any option for the purchase
of, or otherwise dispose of any Shares (other than those included in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for such period of time (not to exceed 180
days) from the effective date of such registration statement as the Company or
the underwriters may specify.

                 1.7      SELECTION OF UNDERWRITERS.  The Optionee shall have
the right to select the managing underwriter or underwriters in connection with
any underwritten public offering of Stock, subject to the consent of the
Company (which shall not be unreasonably withheld).

                 1.8      DEFINITIONS.  In the event of any conflict between
the meaning of the terms used in this Exhibit and in the Option to which it is
attached, the definitions contained in this Exhibit shall control.1



<PAGE>   1
                                                                   EXHIBIT 10(L)

                          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.

                  (c) "Board" means the Board of Directors of the Company.

                  (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.

                  (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.


                                       2

<PAGE>   3


                  (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.

                  Any interpretation and administration of the Plan by the
Committee, and all actions and determinations of the Commit-


                                       3

<PAGE>   4

tee, 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 more than 300,000 shares of Stock (subject


                                       4

<PAGE>   5

         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


                                       5

<PAGE>   6

                  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 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


                                       6


<PAGE>   7

                  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 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


                                       7

<PAGE>   8

                  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 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


                                       8

<PAGE>   9

         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 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.


                                       9

<PAGE>   10

                      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 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


                                       10

<PAGE>   11

                  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 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).


                                       11

<PAGE>   12

                      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.

                      (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


                                       12

<PAGE>   13

                  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.

                           (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.


                                       13

<PAGE>   14

                           (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.

                  (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

                                       14

<PAGE>   15

                  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.

                           (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.

                                       15

<PAGE>   16

                           (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 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;


                                       16

<PAGE>   17

                         (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 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.


                                       17

<PAGE>   18


                  (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.

                           (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.


                                       18

<PAGE>   19

                           (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;

         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

                                       19

<PAGE>   20

         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


                                       20

<PAGE>   21

                  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

                           (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).

                                       21

<PAGE>   22


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 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


                                       22

<PAGE>   23

         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
         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


                                       23

<PAGE>   24

         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.

                  (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.


                                       24




<PAGE>   1
                                                                   EXHIBIT 10(M)
                                                                    

                     THE PROGRESSIVE CORPORATION EXECUTIVE
                           DEFERRED COMPENSATION PLAN





<PAGE>   2



                               TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                        PAGE NO.
                                   ARTICLE 1
                                  DEFINITIONS
<S>                                                                            <C>
1.1      "Affiliated Company"                                                  1
1.2      "Annual Deferral Account" or "Account"                                1
1.3      "Beneficiary"                                                         1
1.4      "Change in Control"                                                   1
1.5      "Code"                                                                1
1.6      "Committee"                                                           1
1.7      "Company"                                                             1
1.8      "Company Stock Fund"                                                  1
1.9      "Deferral Agreement"                                                  1
1.10     "Deferral"                                                            1
1.11     "Disabled" and "Disability"                                           1
1.12     "Distribution Event"                                                  2
1.13     "Eligible Executive"                                                  2
1.14     "ERISA"                                                               2
1.15     "Fixed Deferral Period"                                               2
1.16     "Fixed Income Fund"                                                   2
1.17     "Gainsharing Award"                                                   2
1.18     "Investment Fund"                                                     2
1.19     "Participant"                                                         2
1.20     "Plan"                                                                2
1.21     "Plan Year"                                                           2
1.22     "Termination of Employment"                                           2
1.23     "Stock"                                                               2
1.24     "Trust"                                                               2
1.25     "Trust Agreement"                                                     2
1.26     "Trustee"                                                             3
1.27     "Valuation Date"                                                      3

                                   ARTICLE 2
                         DEFERRAL OF GAINSHARING AWARDS

2.1      Method of Deferral                                                    3
2.2      Deferral Agreement Provisions                                         3
2.3      Fixed Deferral Periods                                                3

                                   ARTICLE 3
                                 DISTRIBUTIONS

3.1      Date of Distribution                                                  4
3.2      Method of Distribution                                                4
3.3      Amount of Distribution                                                4
3.4      Form of Distribution                                                  4
                                                                               4

                                   ARTICLE 4
                                    ACCOUNTS

4.1      Establishment of Annual Deferral Accounts                             4
4.2      Initial Investment of Accounts                                        4
4.3      Valuation of Investment Funds                                         5
</TABLE>




                                       i



<PAGE>   3


<TABLE>

<S>                                                                           <C>
4.4      Valuation of Accounts                                                 5
4.5      Nature of Accounts                                                    5
4.6      Account Statements                                                    5

                                   ARTICLE 5
                                INVESTMENT
 FUNDS

5.1      Investment Funds                                                      6
5.2      Investment Elections of Participants                                  6
5.3      Nature of Investment Funds                                            6
5.4      Liquidation of Investment Funds                                       6

                                   ARTICLE 6
                                     TRUST

6.1      Establishment of Trust                                                6

                                   ARTICLE 7
                       PLAN OPERATION AND ADMINISTRATION

7.1      Powers of Committee                                                   7
7.2      Nondiscriminatory Exercise of Authority                               7
7.3      Reliance on Tables, etc                                               7
7.4      Indemnification                                                       8
7.5      Notices to Committee                                                  8

                                   ARTICLE 8
                               CLAIMS PROCEDURES

8.1      Establishment of Claims Procedures                                    8
8.2      Claims Denials                                                        8
8.3      Appeals of Denied Claims                                              8
8.4      Review of Appeals                                                     9

                                   ARTICLE 9
                     AMENDMENT AND TERMINATION OF THE PLAN

9.1      Amendment                                                             9
9.2      Termination                                                           9
9.3      Liquidation of the Trust                                             10

                                   ARTICLE 10
                            MISCELLANEOUS PROVISIONS

10.1     Headings                                                             10
10.2     Plan Not Contract of Employment                                      10
10.3     Severability                                                         10
10.4     Prohibition on Assignment                                            10
10.5     Number and Gender                                                    10
10.6     Governing Law                                                        10
10.7     Satisfaction of Claims                                               11
10.8     No Warranties                                                        11
10.9     Tax Withholding                                                      11
10.10    Facility of Payment                                                  11
10.11    Repayment of Gainsharing Awards                                      11
10.12    Stock Subject to the Plan                                            11
10.13    Conditions to Effectiveness of Plan                                  11
</TABLE>




                                       ii



<PAGE>   4



                     THE PROGRESSIVE CORPORATION EXECUTIVE
                           DEFERRED COMPENSATION PLAN

The Progressive Corporation hereby establishes The Progressive Corporation
Executive Deferred Compensation Plan, effective as of January 1, 1995.

The Plan is established for the purposes of providing deferred compensation for
a select group of management and highly compensated employees within the meaning
of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.

The Plan is intended to be an unfunded plan for purposes of ERISA and the Code
and is not intended to satisfy the qualification requirements of Section 401 of
the Code.

                                   ARTICLE 1
                                  DEFINITIONS

1.1      "Affiliated Company" means any corporation included in the affiliated
         group of corporations as defined in Section 1504 of the Code
         (determined without regard to 1504(b)) of which the Company is the
         common parent corporation.

1.2      "Annual Deferral Account" or "Account" shall have the meaning set forth
         in Section 4.1.

1.3      "Beneficiary" means such person(s) as the Participant has designated. A
         Participant may change his Beneficiary designation at any time. All
         Beneficiary designations (including changes) shall be made in writing
         on such forms as the Committee shall prescribe, and shall become
         effective only when received and accepted by the Committee; provided,
         however, that a Beneficiary designation (including a change) received
         by the Committee after the designating Participant's death shall be
         disregarded. In the absence of a Beneficiary designation, or if the
         designated Beneficiary is no longer living or in existence at the time
         of the Participant's death, all distributions payable from the Plan
         upon the Participant's death shall be paid to the Participant's estate.

1.4      "Change in Control" means a "Change in Control" or "Potential Change in
         Control" within the meaning of The Progressive Corporation 1989
         Incentive Plan (amended and restated as of April 24, 1992 and as
         further amended as of July 1, 1992 and February 5, 1993).

1.5      "Code" means the Internal Revenue Code of 1986, as amended.

1.6      "Committee" means the Executive Compensation Committee of the Board of
         Directors of the Company, or any successor committee.

1.7      "Company" means The Progressive Corporation, an Ohio corporation, or
         its successors.

1.8      "Company Stock Fund" means an Investment Fund consisting of Stock.

1.9      "Deferral Agreement" means a written agreement entered into by an
         Eligible Executive pursuant to Article 2.

1.10     "Deferral" means an amount credited to an Annual Deferral Account
         pursuant to a Deferral Agreement.

1.11     "Disabled" and "Disability" means that a Participant is expected to be
         unable to perform the duties of his usual occupation for at least
         twelve (12) consecutive months, as determined by the Committee.



                                       1



<PAGE>   5



1.12     "Distribution Event" means, as to each Participant, the earliest of the
         following events:

         (i)      the Participant's death;

         (ii)     the date that the Participant is determined by the Committee
                  to be Disabled;

         (iii)    the Participant's Termination of Employment; or

         (iv)     Change in Control.

1.13     "Eligible Executive" means the Company's Chief Executive Officer, Chief
         Operating Officer, Chief Investment and Capital Officer, Chief Legal
         Officer, Chief Financial Officer, Chief Information Officer, Chief
         Human Resources Officer, Division Presidents and any other executive of
         the Company or any Affiliated Company who is designated in writing as
         an Eligible Executive by the Committee, excluding, however, any of the
         foregoing individuals who are not residents of the United States or are
         not working at a location in the United States.

1.14     "ERISA" means the Employee Retirement Income Security Act of 1974, as
         amended.

1.15     "Fixed Deferral Period" shall have the meaning set forth in Section
         2.3.

1.16     "Fixed Income Fund" means the Vanguard Investment Contract Trust or
         such other Investment Fund as may be designated by the Committee as the
         Fixed Income Fund within the meaning of the Plan.

1.17     "Gainsharing Award" means any bonus or other incentive award payable
         with respect to a Plan Year under The Progressive Corporation 1994
         Executive Bonus Plan, The Progressive Corporation 1994 Gainsharing Plan
         or any other plan or program as may be designated by the Committee.

1.18     "Investment Fund" means a device established from time to time by the
         Committee pursuant to Section 5.1 that is used to calculate gains and
         losses in amounts deferred by Participants under the Plan.

1.19     "Participant" means an Eligible Executive who has deferred receipt of a
         portion of any Gainsharing Award pursuant to a Deferral Agreement.
         Participation shall begin on the date that a Deferral Account is
         established in the name of the Participant and shall end on the date
         that the Participant dies or receives a distribution of the balance of
         all his Deferral Accounts.

1.20     "Plan" means The Progressive Corporation Executive Deferred
         Compensation Plan, as set forth herein and as it may be amended from
         time to time.

1.21     "Plan Year" means 1995 and each subsequent calendar year.

1.22     "Termination of Employment" means the voluntary or involuntary
         cessation of a Participant's active employment with the Company and all
         Affiliated Companies as a result of any reason other than death,
         Disability and approved leave of absence.

1.23     "Stock" means the Common Shares, $1.00 par value, of the Company.

1.24     "Trust" shall mean the trust maintained pursuant to the Trust Agreement
         and known as The Progressive Corporation Executive Deferred
         Compensation Trust.

1.25     "Trust Agreement" shall mean the agreement of trust between the Company
         and the Trustee executed in furtherance of the Plan, as the same may be
         amended from time to time.



                                       2



<PAGE>   6




1.26     "Trustee" shall mean the person selected from time to time by the
         Company to serve as trustee under the Trust Agreement.

1.27     "Valuation Date" shall mean each day that the New York Stock Exchange
         is open for trading.


                                   ARTICLE 2
                          DEFERRAL OF GAINSHARING AWARDS

2.1      Method of Deferral.

         Each Eligible Executive may elect to defer receipt of all or a portion
         of his/her Gainsharing Award in respect of any Plan Year in excess of
         applicable tax withholding and other deductions required to be made in
         respect of the Gainsharing Award by signing a Deferral Agreement and
         delivering it to the Committee. If a Gainsharing Award is payable in
         installments, each installment, whether or not payable in the same Plan
         Year, shall be subject to the same Deferral Agreement.

2.2      Deferral Agreement Provisions.

         Each Deferral Agreement must satisfy all of the following requirements:

         (a)      it must be in writing and be in the form specified by the
                  Committee;

         (b)      it must be irrevocable;

         (c)      it must apply to only one Gainsharing Award;

         (d)      it must be signed by the Eligible Executive making the
                  Deferral and be delivered to the Committee prior to the Plan
                  Year in which the applicable Gainsharing Award will be earned;

         (e)      it must specify the percentage of the Eligible Executive's
                  Gainsharing Award to be deferred, which percentage shall not
                  be less than ten percent (10%). The same deferral percentage
                  shall apply to each installment of a Gainsharing Award covered
                  by the Deferral Agreement. However, a Deferral Agreement may
                  provide for the deferral of a percentage of that portion of a
                  Gainsharing Award that exceeds a specified gross dollar
                  amount, which percentage shall not be less than ten percent
                  (10%). Notwithstanding the preceding provisions of this
                  Section 2.2(e), no Deferral shall be less than such dollar
                  amount as the Committee may specify from time to time. All
                  Deferrals shall be reduced by applicable tax withholding and
                  other legally required deductions;

         (f)      it must specify whether the balance of the Annual Deferral
                  Account to be established pursuant to that Deferral Agreement
                  will be distributed in a lump sum or in three (3) annual
                  installments; and

         (g)      it must contain such other provisions, conditions and
                  limitations as may be required by the Company or the
                  Committee.

2.3      Fixed Deferral Periods.

         If an Eligible Executive wishes to defer receipt of all or a portion of
         any Gainsharing Award for a fixed period of time ("Fixed Deferral
         Period"), then his/her Deferral Agreement relating to such Gainsharing
         Award shall specify that Fixed Deferral Period, which shall not be less
         than two (2) years following the end of the Plan Year in which the
         Gainsharing Award will be earned.



                                       3



<PAGE>   7





                                   ARTICLE 3
                                 DISTRIBUTIONS

3.1      Date of Distribution.

         The balance of each Annual Deferral Account of a Participant shall be
         distributed within thirty (30) days following the earlier of (i) the
         date a Distribution Event occurs, (ii) the date on which the Fixed
         Deferral Period, if any, applicable to such Account expires, or (iii)
         the date, if any, selected by the Company, in its sole discretion,
         pursuant to Section 9.2.

3.2      Method of Distribution.

         Each distribution of the balance of an Annual Deferral Account made on
         account of the Participant's death shall be made to the Participant's
         Beneficiary. Each distribution made on account of the Participant's
         death or Disability, termination of the Plan or a Change in Control
         shall be paid in a lump sum. Each distribution made on account of the
         Participant's Termination of Employment or expiration of a Fixed
         Deferral Period shall be paid in either a lump sum or installments, as
         specified in the applicable Deferral Agreement. If a Participant
         elects to receive payment in installments and dies prior to payment of
         all installments, the balance remaining unpaid at his/her death shall
         be paid to his/her Beneficiary in a lump sum. Installment payments
         shall be paid annually for three years.
        
3.3      Amount of Distribution.

         The amount of each lump sum payment shall be equal to the balance of
         the Annual Deferral Account, as of the Valuation Date immediately
         preceding the date of distribution. The amount of each installment
         payment shall be equal to the balance of the Annual Deferral Account as
         of the Valuation Date immediately preceding the date of payment
         multiplied by a fraction, the numerator of which is one and the
         denominator of which is the number of years remaining in the period
         over which installments are to be paid. Installment distributions to be
         made in Stock shall be rounded to the nearest whole share.

3.4      Form of Distribution.

         All distributions shall be made in cash, except that a distribution
         representing amounts invested in the Company Stock Fund shall be made
         in Stock.

                                   ARTICLE 4
                                   ACCOUNTS

4.1      Establishment of Annual Deferral Accounts.

         The Committee shall establish an Annual Deferral Account in the name of
         each Participant for each Gainsharing Award, or portion thereof, that
         is the subject of a Deferral Agreement. Such Account shall be
         established as of the first date that such Gainsharing Award or portion
         otherwise would have been paid to the Participant. Each Annual Deferral
         Account shall be credited with the deferred portion of such Gainsharing
         Award. Thereafter, all Annual Deferral Accounts shall be valued and
         administered as provided in this Article.

4.2      Initial Investment of Accounts.

         All initial credits to an Annual Deferral Account of a Participant
         shall be deemed to be invested in such Investment Funds as the
         Participant shall elect in accordance with Article 5. The number of
         shares of Stock to be credited to a Participant's Account by virtue of
         a Participant's election to invest a portion of a Deferral in the
         Company Stock Fund shall be



                                       4



<PAGE>   8



         determined on the date of the Deferral, based on the closing price of
         Stock on the immediately preceding Valuation Date as quoted in the New
         York Stock Exchange composite trading. However, the amount of a
         Deferral otherwise elected by the Participant to be invested in the
         Company Stock Fund shall be reduced to the extent necessary to insure
         that only whole shares of Stock are credited and an amount
         corresponding to any fractional shares shall be invested in the Fixed
         Income Fund.

4.3      Valuation of Investment Funds.

         As of each Valuation Date, the Trustee shall compute the value of each
         Investment Fund from which shall be determined the net gain or loss of
         such Investment Fund since the immediately preceding Valuation Date.
         The net gain or loss shall include any unrealized and realized profits
         and losses, and any dividends, interest or other income and any
         expenses which are due or accrued, but shall not include distributions
         from such Investment Fund or dividends transferred to the Fixed Income
         Fund pursuant to the following sentence. Notwithstanding the preceding
         provisions of this Section, any cash dividends paid in respect of Stock
         shall not be considered part of the gain of the Company Stock Fund;
         instead, those dividends shall be considered as having been transferred
         to the Fixed Income Fund as of the date such dividends are paid. In
         determining the value of each Investment Fund, the Trustee shall use
         the following values: securities listed on any nationally recognized
         securities exchange shall be valued at the closing price reported on
         any such exchange on the Valuation Date, or, if there were no sales on
         the Valuation Date, then at the quoted bid price on the Valuation Date.
         Securities not listed on a recognized securities exchange shall be
         valued at the quoted closing bid price on the Valuation Date. A unit of
         participation in a common trust fund maintained by the Trustee or a
         share in a mutual fund shall be valued at the unit value, or share
         price respectively, in effect at the close of business on the Valuation
         Date. Securities with respect to which there were no available sale
         prices or bid prices on the Valuation Date, and any other investments,
         shall be valued at prices deemed by the Trustee to represent the fair
         market value thereof on the Valuation Date.

4.4      Valuation of Accounts.

         As of each Valuation Date, the net gain or loss of each Investment Fund
         shall be allocated among the appropriate Annual Deferral Accounts in
         accordance with such procedures as the Committee shall establish, which
         procedures shall apply uniformly to all Participants.

4.5      Nature of Accounts.

         All credits to each Annual Deferral Account of each Participant shall
         be recorded as a liability on the books of the Company. However, no
         Participant or Beneficiary shall have any proprietary rights of any
         nature with respect to any Account of any Participant or with respect
         to any funds, securities or other property owned by the Company or any
         Affiliated Company that is held in the Trust or that otherwise may be
         represented from time to time by Investment Funds. All payments under
         the Plan shall be made from the Trust or from the Company's general
         funds and in no event shall any Participant or Beneficiary have any
         claims or rights to any payment hereunder that are superior to any
         claims or rights of any general creditor of the Company.

4.6      Account Statements.

         The Committee will furnish each Participant with quarterly statements
         of the value of each of his/her Annual Deferral Accounts.



                                       5



<PAGE>   9



                                   ARTICLE 5
                                INVESTMENT FUNDS

5.1      Investment Funds.

         The Committee shall establish and maintain the Company Stock Fund and
         such other Investment Funds as are specified from time to time by the
         Company. In this regard, the Company may choose to offer as Investment
         Funds any investment vehicles, including without limitation: (i)
         securities issued by investment companies advised by affiliates of the
         Trustee, (ii) guaranteed investment contracts recommended by the
         Trustee, and (iii) collective investment trusts maintained by the
         Trustee.

5.2      Investment Elections of Participants.

         Each Participant shall make an investment election in the manner
         prescribed by the Committee, directing the manner in which his/her
         Deferrals shall be deemed to be invested. Each investment election must
         be made at the time the applicable Deferral Agreement is signed and may
         not be revoked or changed. Each Participant may make a separate
         investment election for each of his/her Annual Deferral Accounts. Each
         investment election shall specify that Deferrals shall be deemed to be
         deposited in one or more of the Investment Funds in percentages that
         are each an integral multiple of 1% and that in the aggregate equal
         100% of the Deferral. Except as expressly provided in Section 4.3,
         amounts deemed to be invested in an Investment Fund pursuant to this
         Section may not be transferred to another Investment Fund.

5.3      Nature of Investment Funds.

         Notwithstanding anything in the Plan, Trust or any Deferral Agreement
         to the contrary, no Participant shall have any rights or interests in
         any particular funds, securities or property of the Company, any
         Affiliated Company or the Trust, or in any investment vehicle in which
         Deferrals are deemed to be invested, by virtue of any investment
         election made by the Participant under the Plan or any transactions
         engaged in by the Trust. Each Annual Deferral Account, however, shall
         be credited/charged in accordance with Article 4 with gains/losses as
         if the Participant in fact had made a corresponding actual investment.

5.4      Liquidation of Investment Funds.

         If any Investment Fund is liquidated or otherwise ceases to exist
         without a successor, then that portion of each Account balance that
         previously has been deemed to have been invested in that Investment
         Fund shall be deemed to have been transferred to an Investment Fund
         consisting of guaranteed investment contracts issued by banks and/or
         insurance companies or, if none, such other Investment Fund selected by
         the Committee.

                                   ARTICLE 6
                                     TRUST

6.1      Establishment of Trust.

         The Company shall establish and maintain a Trust to provide a source of
         funds to assist the Company in meeting its liabilities under the Plan.
         Within thirty (30) days following the end of each Plan Year ending
         after the Trust has become irrevocable pursuant to the Trust Agreement,
         the Company shall be required to irrevocably deposit additional cash or
         other property to the Trust in an amount sufficient to pay each
         Participant or Beneficiary the benefits payable pursuant to the terms
         of the Plan as of the close of that Plan year.



                                       6



<PAGE>   10



         The principal of the Trust, and any earnings thereon, shall be held
         separate and apart from other funds of Company and shall be used
         exclusively for the uses and purposes of Plan Participants and general
         creditors of the Company as set forth herein and in the Trust
         Agreement. Plan Participants and their Beneficiaries shall have no
         preferred claim on, or any beneficial ownership interest in, any assets
         of the Trust. Any rights created under the Plan and the Trust Agreement
         shall be mere unsecured contractual rights of Plan Participants and
         their Beneficiaries against Company. Any assets held by the Trust will
         be subject to the claims of the Company's general creditors under
         federal and state law in the event of Insolvency, as defined in the
         Trust Agreement. All assets deposited in the Trust shall be held,
         administered and distributed by the Trustee in accordance with the
         Trust Agreement. The Company shall pay directly, or reimburse the
         Trustee for, all taxes due in respect of any income or gains on Trust
         assets.

                                   ARTICLE 7
                       PLAN OPERATION AND ADMINISTRATION

7.1      Powers of Committee.

         The Committee will have full power to administer the Plan. Such power
         includes, but is not limited to, the following authority:

         (a)      to make and enforce such rules and regulations as it deems
                  necessary or proper for the efficient administration of the
                  Plan;

         (b)      to interpret the Plan and to decide all matters arising
                  thereunder, including the right to resolve or remedy any
                  ambiguities, inconsistencies or omissions. All such
                  interpretations shall be final and binding on all parties;

         (c)      to compute the amounts payable to any Participant or
                  Beneficiary or other person in accordance with the provisions
                  of the Plan;

         (d)      to authorize disbursements from the Trust or the Plan;

         (e)      to keep such records and submit such filings, elections,
                  applications, returns or other documents or forms as may be
                  required under ERISA, the Code or other applicable law;

         (f)      to appoint such agents, counsel, accountants and consultants
                  as may be desirable to assist in administering the Plan;

         (g)      To exercise the other powers that are expressly granted to it
                  herein, or that are impliedly necessary for it to carry out
                  any of its responsibilities hereunder; and

         (h)      by written instrument, to delegate any of the foregoing
                  powers.

7.2      Nondiscriminatory Exercise of Authority.

         The Committee shall exercise its authority in a nondiscriminatory
         manner so that all persons similarly situated will receive
         substantially the same treatment.

7.3      Reliance on Tables, etc.

         The Committee will be entitled, to the extent permitted by law, to rely
         conclusively on all tables, valuations, certificates, opinions and
         reports which are furnished by any accountant, Trustee, counsel or
         other expert retained by the Committee to assist it in administering
         the Plan.



                                       7



<PAGE>   11




7.4      Indemnification.

         In addition to whatever rights of indemnification to which employees,
         officers and directors of the Company and the Affiliated Companies may
         be entitled under the articles of incorporation, regulations or bylaws
         of the Company or the Affiliated Companies, under any provision of law,
         or under any other agreement, the Company shall satisfy any liabilities
         actually and reasonably incurred by any such employee, officer or
         director, including expenses, attorneys' fees, judgments, fines and
         amounts paid in settlement, in connection with any threatened, pending,
         or completed action, suit, or proceeding which is related to the
         exercise or failure to exercise by such person or persons of any of the
         powers, authority, responsibilities, or discretion of the Company, the
         Affiliated Companies or the Committee provided under the Plan or the
         Trust Agreement, or reasonably believed by such person or persons to be
         provided thereunder, and any action taken by such person or persons in
         connection therewith.

7.5      Notices to Committee.

         The Committee shall designate one or more addresses to which notices
         and other communications to the Committee shall be sent. No notice or
         other communication shall be considered to have been given to or
         received by the Committee until it has been delivered to the
         Committee's attention at one of such designated addresses.

                                   ARTICLE 8
                               CLAIMS PROCEDURES

8.1      Establishment of Claims Procedures.

         The Committee shall establish reasonable procedures under which a
         claimant, who may be a Participant or Beneficiary, may present a claim
         for benefits under this Plan.

8.2      Claims Denials.

         Unless such claim is allowed in full by the Committee, written notice
         of the denial shall be furnished to the claimant within ninety (90)
         days (which may be extended by a period not to exceed an additional
         ninety (90) days if special circumstances so require and proper written
         notice to the claimant is given prior to the expiration of the initial
         ninety (90) day period) setting forth the following in a manner
         calculated to be understood by the claimant:

         (a)      The specific reason(s) for the denial;

         (b)      Specific reference(s) to any pertinent provision(s) of the
                  Plan or rules promulgated pursuant thereto on which the denial
                  is based;

         (c)      A description of any additional information or material as may
                  be necessary to perfect the claim, together with an
                  explanation of why it is necessary; and

         (d)      An explanation of the steps to be taken if the claimant wishes
                  to resubmit his/her claim for review.

8.3      Appeals of Denied Claims.

         Within a reasonable period of time after the denial of the claim, but
         in any event not to be more than sixty (60) days, the claimant or
         his/her duly authorized representative may make written application to
         the Committee for a review of such denial. The claimant or his/her
         representative may review documents held by the Committee and pertinent
         to the denial of



                                       8



<PAGE>   12



         such claim, and may submit a written statement of issues and comments
         together with such application for review.

8.4      Review of Appeals.

         If an appeal is timely filed, the Committee shall conduct a full and
         fair review of the claim and mail or deliver to the claimant its
         written decision within sixty (60) days after the claimant's request
         for review (which may be extended by a period not to exceed an
         additional sixty (60) days if special circumstances or a hearing so
         require and proper written notice to the claimant is given prior to the
         expiration of the initial sixty (60) day period). Such decision shall:

                  (i)      Be written in a manner calculated to be 
                           understandable by the claimant;

                  (ii)     State the specific reason(s) for the decision;

                  (iii)    Make specific reference to pertinent provision(s) of 
                           the Plan upon which such decision is based; and

                  (iv)     Be final and binding on all parties.

                                   ARTICLE 9
                     AMENDMENT AND TERMINATION OF THE PLAN

9.1      Amendment.

         The Company may amend the Plan and Trust Agreement in any respect at
         any time for any reason by action of the Committee without liability to
         any Participant, Beneficiary or other person for any such amendment or
         for any other action taken pursuant to this Section 9.1, provided that
         any amendment required to be approved by the Company's shareholders
         pursuant to Section 162(m) of the Code shall not be effective until
         approved by the Company's shareholders in accordance with the
         requirements of Section 162(m) and further provided that no such
         amendment shall be made retroactively in a manner that would deprive
         any Participant of any rights or benefits which have accrued to his/her
         benefit under the Plan as of the date such amendment is proposed to be
         effective, unless such amendment is necessary to comply with applicable
         law.

9.2      Termination.

         The Company may terminate the Plan at any time for any reason by action
         of the Committee without any liability to any Participant, Beneficiary
         or other person for any such termination or for any other action taken
         pursuant to this Section 9.2. Following termination of the Plan, and
         notwithstanding the provisions of any Deferral Agreement entered into
         prior to such termination, no additional Deferrals may be made
         hereunder, but all existing Accounts shall continue to be administered
         in accordance with the Plan, as in effect immediately prior to
         termination, and shall be distributed in accordance with such terms of
         the Plan and the applicable Deferral Agreements, unless and until the
         Company elects to accelerate distribution as provided below. At any
         time on or after the effective date of termination of the Plan, the
         Company, in its sole discretion, may elect to accelerate the
         distribution of the entire balance of each Participant's Accounts. Such
         accelerated distributions shall be made in accordance with Article 3,
         except that all distributions shall be made in a lump sum based on the
         value of the Accounts, determined as of the Valuation Date immediately
         preceding the date of distribution. Upon the completion of
         distributions to all Participants or Beneficiaries, as the case may be,
         no Participant, Beneficiary or person claiming under or through them,
         will have any claims in respect of the Plan.



                                       9



<PAGE>   13



9.3      Liquidation of the Trust.

         The Trust shall continue in existence after the termination of the Plan
         for such period of time as may be required to complete the liquidation
         thereof in accordance with the terms of this Article 9.

                                   ARTICLE 10
                            MISCELLANEOUS PROVISIONS

10.1     Headings.

         The headings of the Plan have been inserted for convenience of
         reference only and are not to be deemed controlling in any
         constructions of the provisions herein (other than with respect to
         defined terms).

10.2     Plan Not Contract of Employment.

         The existence of the Plan shall not create, evidence or change any
         contract of employment with any Participant. The right of the Company
         and all Affiliated Companies to take corrective, disciplinary or other
         action with respect to their employees, including terminating their
         respective employment at any time for any reason, shall not be affected
         by any provision of this Plan, and the Company and the Affiliated
         Companies will not be deemed responsible to provide continuing
         employment for any reason, at any time solely by reason of this Plan.

10.3     Severability.

         If any provision of the Plan shall be invalid, such provision shall be
         fully severable, and the remainder of the Plan and the application
         thereof shall not be affected thereby.

10.4     Prohibition on Assignment.

         No right or interest under the Plan of any Participant or Beneficiary
         shall be subject at any time or in any manner to anticipation,
         alienation, assignment (either at law or in equity), encumbrance (as
         security or otherwise), garnishment, levy, execution, or other legal or
         equitable process, and no Participant or Beneficiary shall have the
         power at any time or in any manner to anticipate, transfer, assign
         (either at law or in equity), alienate, or subject to attachment,
         garnishment, levy, execution or other legal or equitable process, or in
         any way encumber, such Participant's or Beneficiary's rights or
         interests under the Plan, and any attempt to do so shall be void;
         provided, however, that the Company shall have the unrestricted right
         to set off against or recover out of any payments due a Participant or
         Beneficiary at the time such payments would have otherwise been payable
         hereunder, any amounts owed the Company or any Affiliated Company by
         such Participant or Beneficiary.

10.5     Number and Gender.

         Any use of the singular shall be interpreted to include the plural and
         the plural the singular. Any use of the masculine, feminine or neuter
         shall be interpreted to include the masculine, feminine and neuter, as
         the context shall require.

10.6     Governing Law.

         To the extent not preempted by Federal law, the provisions of the Plan
         shall be construed, regulated and administered under the laws of the
         State of Ohio.



                                       10

<PAGE>   14



10.7     Satisfaction of Claims.

         Any payment to any Participant or Beneficiary in accordance with the
         terms of the Plan shall, to the extent thereof, be in full satisfaction
         of all claims hereunder, whether they be against the Company, the
         Committee, or the Trustee, any of whom may require the Participant or
         Beneficiary (or legal representative), as a condition precedent to such
         payment to execute a release and receipt therefor.

10.8     No Liability.

         Participation in the Plan is entirely at the risk of each Participant.
         Neither the Company, any Affiliated Company, the Committee, the Trustee
         nor any other person associated with the Plan shall have any liability
         for any loss or diminution in the value of Accounts, or for any failure
         of the Plan to effectively defer recognition of income or to achieve
         any Participant's desired tax treatment or financial results.

10.9     Tax Withholding.

         All payments under the Plan shall be subject to federal, state and
         local income tax withholding and other legally required deductions.

10.10    Facility of Payment.

         If the Committee determines that a Participant or Beneficiary entitled
         to receive a payment under this Plan is (at the time such payment is to
         be made) a minor or physically, mentally or legally incompetent to
         receive such payment and that another person or an institution has
         legal custody of such minor or incompetent individual, the Committee
         may cause payment to be made to such person or institution having
         custody of such Participant or Beneficiary. Such payment, to the extent
         made, shall operate as a complete discharge of obligation by the
         Committee, the Company, the Trustee and the Trust.

10.11    Repayment of Gainsharing Awards.

         If any amount credited to an Annual Deferral Account represents a
         portion of a Gainsharing Award that is subsequently found to be
         repayable by the Participant to the Company or any Affiliated Company
         pursuant to the plan pursuant to which the Gainsharing Award was made,
         the amount of that credit shall nevertheless remain unaffected by that
         repayment obligation, and the Participant shall make the required
         repayment out of his/her own funds.

10.12    Stock Subject to the Plan.

         Subject to adjustment as provided below, the total number of shares of
         Stock reserved and available for issuance in connection with the Plan
         is Three Hundred Thousand (300,000). Any Stock issued hereunder may
         consist, in whole or in part, of authorized and unissued shares or
         treasury shares. If there is a 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 as may be
         approved by the Committee in its sole discretion; provided that the
         number of shares of Stock to be issued in connection with the Plan
         shall always be a whole number. Any fractional shares shall be
         eliminated and the value of such fractional shares shall be deemed to
         have been transferred to the Fixed Income Fund as of the effective date
         of such substitution or adjustment.



                                       11


<PAGE>   15


10.13    Conditions to Effectiveness of Plan.

         Notwithstanding anything in this Plan, the Trust or any Deferral
         Agreement to the contrary, the effectiveness of the Plan, the Trust and
         all Deferral Agreements is conditioned on the Plan being approved by
         the Company's shareholders at the 1995 Annual Meeting of Shareholders
         in accordance with Section 162(m) of the Code, Rule 16b-3 under the
         Securities Exchange Act of 1934 and other applicable law. If the Plan
         is not so approved, the Plan, the Trust and all Deferral Agreements
         shall be considered void ab initio and all amounts previously deferred
         pursuant to those Deferral Agreements shall be paid forthwith to the
         appropriate Participants as if those Deferral Agreements had never
         existed.

IN WITNESS WHEREOF, the Company has caused this instrument to be executed by its
duly authorized officers as of this _____ day of ____________________, 1994.

                                    THE PROGRESSIVE CORPORATION

                                    By:
                                       -------------------------------

                                    Title:
                                          ----------------------------


                                       12






<PAGE>   1
                                                                      EXHIBIT 11

                          THE PROGRESSIVE CORPORATION
                       COMPUTATION OF EARNINGS PER SHARE
                     (millions - except per share amounts)





<TABLE>
<CAPTION>
                                      1994                      1993                          1992
                              -----------------------------------------------------------------------------
                                              Per                          Per                        Per
                                Amount       Share         Amount         Share        Amount       Share
                              -----------------------------------------------------------------------------
 <S>                           <C>           <C>          <C>             <C>         <C>           <C>
 PRIMARY:
 Net income                    $274.3                     $267.3                      $153.8
 Less:  Preferred stock
  dividends                      (8.6)                      (9.2)                       (9.4)
                              -----------------------------------------------------------------------------
                               $265.7        $3.59        $258.1          $3.59       $144.4        $2.32
                              =============================================================================

 Average shares
  outstanding                    71.6                       69.3                        60.7
 Net effect of dilutive
  stock options                   2.4                        2.5                         1.6
                              -----------------------------------------------------------------------------
   Total                         74.0                       71.8                        62.3
                              =============================================================================


 FULLY DILUTED:

 Net income                    $274.3                     $267.3                      $153.8
 Add:  Interest on
  convertible debt
    instrument (net of             --                         --                         3.0
    taxes)
 Less:  Preferred stock
  dividends                      (8.6)                      (9.2)                       (9.4)
                              -----------------------------------------------------------------------------
                               $265.7        $3.59        $258.1          $3.58       $147.4        $2.05
                              =============================================================================

 Average shares
  outstanding                    71.6                       69.3                        60.7
 Net effect of dilutive
  stock options                   2.4                        2.7                         2.6
 Net effect of convertible
  debt instrument                  --                         --                         8.6
                              -----------------------------------------------------------------------------
   Total                         74.0                       72.0                        71.9
                              =============================================================================
</TABLE>






<PAGE>   1
                                                                      EXHIBIT 13




PROGRESSIVE                                                             1994






                                  [ARTWORK]

<PAGE>   2



<TABLE>
<S>                               <C>
1994 Financial Highlights         Vision, Core Values and Objectives        Letter to Shareholders            Financial Review 
           2                                     8                                    16                              32

</TABLE>



<PAGE>   3
[ARTWORK]

<PAGE>   4
                                   Diversity
                                  reminds me
                                  of the art
                                of pointillism:
                                    perfect
                                individual dots
                                   up close;
                                blurred images
                                   from five
                                  paces back;
                                  remarkable
                                    clarity
                                of each point's
                                    purpose
                                      and
                                value from the
                                   intended
                                 perspective.



<PAGE>   5

                                 Progressive's
                        Golden Rule Core Value requires
                  us to respect all people, value the differ-
               ences among  them  and  deal with  them  in  the
             way we want to be dealt with. To build on this Core
             Value, "Diversity" is  the theme of our 1994  Annual
            Report. For Progressive, "Diversity" is about changing
            in ways that enhance and enrich our systems,  and about
              embracing and nurturing our changing  mosaic of  peo-
                ple, customers, strategies, culture and environment.
                Reactions to this theme from our people, customers
               and agents appear as statements throughout this re-
              port.  Artist Carter Kustera responded to "Diversity"
            by creating a large series of silhouette drawings with
           text inspired by his interest in daytime TV talk shows,
                 and is not intended to represent any Progressive
                person. Kustera isolates and recognizes the in-
                  dividual
 and the abstraction created when
                 hundreds of different personalities are
                    represented as a whole, which makes
                 the viewer a participant in this collage of
                   colorful identities. Kustera's drawings
                           will be a part of Progressive's
                             growing collection of
                             contemporary art.


<PAGE>   6

<TABLE>
2                                                      1994 Financial Highlights
                                                     -----------------------------






<CAPTION>
(millions-except per share amounts)                                                       AVERAGE ANNUAL COMPOUNDED
                                                                                         RATE OF INCREASE (DECREASE)
                                                      1994       1993      % CHANGE       1990-1994       1985-1994
<S>                                               <C>        <C>           <C>             <C>             <C>
FOR THE YEAR
 Direct premiums written                          $2,645.1   $1,966.4            35              15              24
 Net premiums written                              2,457.2    1,819.2            35              16              23
 Net premiums earned                               2,191.1    1,668.7            31              13              23
 Total revenues                                    2,415.3    1,954.8            24              12              23
 Operating income                                    212.7      197.3             8              15              28
 Net income                                          274.3      267.3             3              29              35
 Per share:                                                           
   Operating income                                   2.76       2.61             6              19              26
   Net income                                         3.59       3.33            --              31              33
 Underwriting margin                                  11.5%      10.7%
                                                                      
AT YEAR-END                                                           
 Consolidated shareholders' equity                $1,151.9   $  997.9            15              21              31
 Common Shares outstanding                            71.2       72.1            (1)             (1)              1
 Book value per Common Share                      $  14.97   $  12.62            19              21              29
 Return on average shareholders' equity               27.4%      36.0%
                                                                  
                                                                             1-YEAR          5-YEAR         10-YEAR
STOCK PRICE APPRECIATION (DEPRECIATION)(1)
 Progressive                                                                  (13.1)%          22.9%           26.7%
 S&P 500                                                                        1.3 %           8.7%           14.3%
            
<FN>
(1)Assumes dividend reinvestment
</TABLE>



<PAGE>   7
                                                                               3
                                   I am not
                                expected to be
                                 like everyone
                                     else.
                                    We can
                                 bring our own
                                   gifts of
                                 individuality
                                     into
                                the workplace.





                Operating income per share, which excludes real-
                ized gains on security sales and one-time items, 
                increased 6 percent to $2.76.


                The Core business grew 38 percent with a 7 per-
                cent underwriting profit.


                The $71 million supplemental reserve was elimi-
                nated, increasing net income per share $.62, book 
                value per share $.65, underwriting profit margin 
                3.2 percentage points and shareholders' equity 
                $46.2 million.


                Underwriting profit, excluding the elimination of 
                the supplemental reserve, was 8.3 percent, com-
                pared to the property-casualty industry's estimated
                underwriting loss of 9.4 percent.


<PAGE>   8
4
                                It is important
                                   to define
                                 Progressive's
                                 understanding
                            of the term diversity.
                                It is difficult
                             to embrace a concept
                                  many of us
                                    do not
                                  understand.





                        ABOUT PROGRESSIVE  The Progressive 
                        insurance organization began busi-
                        ness in 1937. Progressive Casualty In-
                        surance Company was founded in 
                        1956.  The Progressive Corporation, an 
                        insurance holding company formed in 
                        1965, owns 60 operating subsidiaries 
                        and has one mutual insurance com-
                        pany affiliate.  The companies provide 
                        personal automobile insurance and 
                        other specialty property-casualty in-
                        surance and related services sold pri-
                        marily through independent insurance 
                        agents in the United States and 
                        Canada. The 1994 estimated industry 
                        premiums, which include personal 
                        auto insurance in the U.S. and Ontario, 
                        Canada, as well as insurance for com-
                        mercial vehicles, were $119 billion and 
                        Progressive's share was 2.0 percent.


<PAGE>   9
                                   [ARTWORK]


<PAGE>   10
                                   [ARTWORK]


<PAGE>   11
                                   [ARTWORK]


<PAGE>   12
8
                       Vision, Core Values and Objectives
                     --------------------------------------


Communicating a clear picture of who we are, what we strive to achieve
(Vision), what guides our behavior (Core Values), how we measure our
performance (Objectives), and how we will achieve them (Strategies) permits all
people associated with Progressive to understand and help us achieve our vision
and objectives.
VISION  We seek to be an excellent, innovative, growing and enduring business
by reducing the human trauma and economic costs of auto accidents in
cost-effective and profitable ways that delight customers. We seek to earn a
superior return on equity and to provide a positive environment to attract
quality people and achieve ambitious growth plans.
CORE VALUES  Progressive's Core Values are pragmatic statements of what works
best for us in the real world. Core Values govern our decisions and behavior.
We want them understood and embraced by all Progressive people. Core Values are
standards by which we measure ourselves. Growth and change provide new
perspective and require regular refinement of Core Values.  
INTEGRITY  We revere honesty. We adhere to high ethical standards, report
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 be clear and open about 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.  "Quality" is
Progressive's process for teaching and encouraging our people to improve
performance and reduce the costs of what they do for customers. We base reward
on results and promotion on ability.
PROFIT  The opportunity to earn a profit is how the competitive free-enterprise
system motivates companies to invest to enhance human health and happiness. Our
outrage about the numbers of people killed each year on U.S. roads,
approximately 40,000 in 1994, leads Progressive to work hard to reduce human
trauma and economic costs from automobile accidents.


<PAGE>   13
                                                                               9
                                     Being
                                  who you are
                                without fear of
                                   reprisal,
                                   malicious
                                  prejudice,
                                 and imposing
                                   unwanted
                                 positions on
                                    others-
                                while affording
                                    others
                                   the same
                                   freedom.




                              Financial Objectives
                            ------------------------

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 that is at least 15 percentage 
points greater than the rate of inflation (measured by the Consumer Price Index 
(CPI) which was 2.7 percent in 1994, averaged 3.5 percent over the past five 
years and 3.7 percent over the past ten years). Return on equity was 27.4 
percent in 1994, averaged 26.8 percent over the past five years and 25.8 
percent over the past ten years.  
PROFITABILITY  Progressive is driven by the goal of producing a 4 percent 
underwriting profit. The core business had an underwriting profit of 7.3 
percent in 1994, an underwriting profit of 6.4 percent for the past five years 
and 6.8 percent for the past ten years. Estimated industry results for the 
personal auto insurance market for the same periods were underwriting losses of 
2.7 percent, 3.8 percent and 5.6 percent.  
GROWTH  We seek increases in volume that are at least 15 percentage points 
greater than the rate of inflation. For the core business, volume is measured 
by net premiums



<PAGE>   14
10
                                   Inclusive
                                    rather
                                     than
                                  exclusive.
                                      Not
                                  just about
                                     race
                                  and gender.
                                    We are
                                all different.
                                  Appreciate
                                      and
                                    nurture
                                     those
                                 differences.

written, which increased 37.7 percent in 1994, 21.2 percent compounded annually
over the past five years and 23.6 percent over the past ten years. Net premiums
written in the personal auto insurance market for the same periods grew 4.5
percent, 5.8 percent and 8.5 percent.  
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 at our first public stock 
offering on April 15, 1971, owned 7,689 shares on December 31, 1994, with a 
market value of $269,000, for a 23.7 percent annual return, compared to the 6.6 
percent return achieved by investors in the Standard & Poor's 500 during the 
same period. In addition, the shareholder received dividends, which were $1,615 
in 1994.  
In the ten years since December 31, 1984, Progressive shareholders have 
realized compound returns of 26.7 percent, compared to 14.3 percent for the S&P 
500. In the five years since December 31, 1989, Progressive shareholders' 
returns were 22.9 percent, compared to 8.7 percent for the S&P 500. In 1994, 
the returns were (13.1) percent on Progressive shares and 1.3 percent for the 
S&P 500.
 The repurchase of Progressive stock is another way the Company increases
shareholder value. Over the years, when we have adequate capital and
Progressive's stock is attractively priced, we have repurchased our shares.
Since 1971, we spent $526.2 million to repurchase shares, at an average cost of
$6.49 per share. In 1994, we repurchased 1,080,300 Common Shares for $34.0
million, at an average cost of $31.44 per share.


<PAGE>   15
                                                                              11













<TABLE>
<CAPTION>
                                                                              1994            LAST 5 YEARS      LAST 10 YEARS
<S>                                                                           <C>             <C>               <C>
RETURN ON SHAREHOLDERS' EQUITY
 Goal                                                                         17.7%           18.5%             18.7%
 Companywide                                                                  27.4            26.8              25.8

UNDERWRITING PROFIT (LOSS)
 Goal                                                                          4.0             4.0               4.0
 Core Business                                                                 7.3             6.4               6.8
 Industry-Personal Auto Insurance Market                                      (2.7)           (3.8)             (5.6)

GROWTH (ANNUALIZED)
 Goal                                                                         17.7            18.5              18.7
 Core Business                                                                37.7            21.2              23.6
 Industry-Personal Auto Insurance Market                                       4.5             5.8               8.5
</TABLE>



<PAGE>   16
                                   [ARTWORK]


<PAGE>   17
                                   [ARTWORK]


<PAGE>   18
                                   [ARTWORK]


<PAGE>   19
                                   [ARTWORK]


<PAGE>   20
                             Letter to Shareholders
                           --------------------------


                    Progressive--Auto Insurer for All People
                  -------------------------------------------

In 1994, we made great strides toward repositioning Progressive to offer
automobile insurance to all U.S. licensed operators through independent
insurance agents and other distribution methods. This customer-driven approach
is increasing our rate of growth and market share, which, in turn, lets us
reduce the costs of doing business and become still more competitive.
 We are building intrinsic value in the form of a growing customer base, and a
broad array of products and services delivered when and how customers most want
them. Progressive's people are responding superbly to the challenge of managing
explosive growth, reaffirming how good they are, as well as the strength of
Progressive's Vision, Values and Strategy.
 We grew in 1994 by increasing our share of the approximately $20 billion
nonstandard auto insurance market and by beginning to grow in the approximately 
$80 billion standard and preferred auto insurance market. We work hard and 
invest heavily in people and processes to reduce the human trauma and economic 
costs of auto accidents. Our results include the cost of these investments 
designed to make us more competitive for all auto insurance.
 Progressive shareholders are best served by executing meaningful, long-term
strategies. Success requires translating premium growth into commensurate
earnings growth, so our stock price reflects the intrinsic value we are now
creating.
 From its beginnings, Progressive's most important competitive advantage has
been having superior people, measured by their intelligence, work ethic,
ambition, creativity and demonstrated performance. Many companies pay lip
service to this idea. At Progressive, it is a way of life. Our people's
teamwork and esprit has never been higher. Our performance-based Gainsharing
compensation lets them enjoy the benefits of competitive and productivity
improvements so long as they continue to meet or exceed the Company's ambitious
objectives.
 Progressive's evolution accelerated greatly six years ago, when Proposition 103
in California forced us to understand consumer discontent with auto insurance
at the same time that Allstate's success in nonstandard auto insurance forced
us to respond to consumer demand for lower prices and improved service.
 These events led us to redefine Progressive as a consumer-focused auto insurer
offering all auto owners and operators vastly better service at lower cost. We
must continue to spend less to run our enterprise, even as we work hard and
creatively to enhance our customers' and agents' experience of doing business
with Progressive.
 Future growth will come from adding to the number of states where we seek to
insure all auto risks, from working with the independent agents dedicated to
regaining market share and from integrating other buying options into a
consumer-focused, brand experience in ways that attract customers and support
the forward-looking agents who will succeed in the 21st century.
 When we were a nonstandard auto insurer experimenting with commercial
insurance, Progressive was compared to other specialty property-casualty
insurers dealing in secondary markets. The new Progressive seeks to write all
auto risks, and to be continuously less involved in non-auto commercial
insurance. We are now the 7th largest U.S. private passenger auto insurer with
2.2 percent market share, surpassed only by State Farm Mutual, Allstate,
Farmers Group, USAA, Nationwide and GEICO, which, along with Safeco, are the
companies to which we compare ourselves.


<PAGE>   21
                                   [ARTWORK]


<PAGE>   22
18
                                      An
                                  opportunity
                                    to see
                              and solve problems
                             from a wider variety
                                      of
                                 perspectives.




                                    Results
                                  -----------


Operating income, which excludes realized gains on security sales and one-time
items, is the best measure of how well we perform in our operations. Operating
income increased to $212.7 million, or $2.76 per share, compared to $197.3
million, or $2.61 per share, in 1993.  Operating income excludes the $71.0
million elimination of the supplemental reserve and realized gains of $23.8
million in 1994 and $107.9 million of realized gains, primarily from the sale
of equity securities, in 1993. Net income increased 3 percent to $274.3
million, or $3.59 per share, in 1994, compared to $267.3 million, or $3.58 per
share, in 1993. Return on shareholders' equity was 27.4 percent, compared to
36.0 percent in 1993.
 We have historically established case and IBNR reserves by product, with the
objective of being accurate to within +/-2 percent. Pricing has been based
only on case and IBNR reserves, which have historically been redundant. To give
ourselves an even higher level of comfort about loss reserve adequacy, we had
set our aggregate reserves near the upper end of the reasonable range of total
reserve estimates. We called the difference between total reserves and the sum
of our case and IBNR reserves a "supplemental reserve." In 1994, we eliminated
the $71.0 million supplemental reserve because it made our estimates of total
reserves excessively conservative and was out of step with industry practices.
The effects of the elimination were a one-time 1994 earnings increase of $.62
per share, a 3.2 percentage point improvement in the underwriting profit margin
and a $46.2 million addition to capital.
 Net premiums written increased 35 percent to $2,457.2 million, compared to
$1,819.2 million in 1993. We achieved an 8.3 percent underwriting profit (11.5
percent including the elimination of the supplemental reserve), compared to
10.7 percent in 1993. We reduced underwriting expenses by 3.0 percentage
points, after a reduction of 3.5 percentage points in 1993.


<PAGE>   23
                                                                              19


                          Progressive's Core Business
                        -------------------------------

Ninety-five percent of Progressive's net premiums written come from 13 Core
divisions, which write insurance for private passenger autos and small
commercial and recreational vehicles. Core business net premiums written grew
38 percent to $2,341 million, compared to $1,700 million in 1993. The
underwriting profit margin was 7 percent, compared to 10 percent in 1993.
 Progressive's new auto insurance and management strategies make us optimistic
about meeting ambitious profit and growth objectives.
 In 1994, we consolidated our new customer services into an emerging Progressive
brand by expanding service in a number of states and testing ways to project
the brand to potential customers. We also assimilated new approaches to
managing into a process where more people are empowered, better focused and
constantly improving the delivery of around-the-clock, immediate response,
information-rich service, designed to delight customers.
 The principal elements of Progressive's brand were first offered in Miami,
Florida, in 1991. We have continuously improved that initial offering, which is
now being sold throughout Florida, in Texas and in Ohio, and will be expanded
to more states in 1995.
 We use a combination of television commercials, direct mail and other media to 
urge consumers to try our unique, free Express Quote(SM) service by calling 1
800 AUTO PRO.(R) Callers spend about 15 minutes with our insurance counselors to
obtain accurate auto insurance premium prices for their specific situation from
State Farm, Allstate, Progressive and the third or fourth largest auto insurer
in their state and to learn about the following Progressive auto insurance
improvements:
 ASSISTANCE AFTER AN ACCIDENT, OR OTHER LOSS, is Progressive's most important
service, so we implore our customers to call 1-800-274-4499 immediately after
any incident. 24 hours a day, 7 days a week, a Progressive person answers the
phone, takes the information, authorizes emergency measures and almost always
can have a Progressive claim rep face-to-face with the customer or claimant
within a few hours.
 CONSUMERS ABHOR BEING REJECTED, so Progressive offers a price to every licensed
driver. As we became more comfortable with the test rates for the 80+ percent
of the market we are serving for the first time, we allowed their volume to
grow to between five


<PAGE>   24
20

and ten percent of total 1994 volume. 
CONSUMERS PREFER DIFFERENT WAYS TO BUY, so we offer choices--with an 
independent agent, over the telephone, at a Progressive location or by mail. 
Many independent agents, who were threatened by multi-distribution and lower 
commissions, realize that by concentrating on explaining the consumers' choices 
at the point-of-sale, they can make good money on Progressive's new low-cost 
auto insurance, while regaining lost private passenger auto market share. Other 
agents use our commission options to match the different levels of service 
provided to different insureds. Independent agents accounted for over 90 
percent of 1994 volume.
CONSUMERS WANT TO DO BUSINESS WHEN IT'S CONVENIENT FOR THEM, so we are
available 24 hours a day, 7 days a week, to deliver any service and/or answer
any question.
Progressive's unique approach to management continues to evolve along with its
business strategy. In 1994, we were pleased to be recognized by management
scholars and writers, as well as by USA Today and Fortune, for the success of
our "management re-engineering," which includes the following:
TOTAL QUALITY MANAGEMENT dovetails with our Excellence Core Value--doing better
than we did before--and empowers Progressive people to change how they function
if the change measurably improves customer service or reduces costs, and if it
does not disrupt others in the work chain.  Because measurement is essential to
TQM, we have dramatically improved our ability to measure performance and to
control quality.
TEAMWORK has replaced intense internal competition as the way we work. We
continue to improve the ways in which we motivate, manage and reward teams.
STEADY COST REDUCTION has been, and continues to be, critical to our strategy,
and, along with profit and growth, is the basis for our people's Gainsharing
awards. Underwriting expenses were 24 percent of premiums in 1994, compared to
26 percent in 1993 and 31 percent in 1989.
PROCESS MANAGEMENT has been added to senior line managers' profit and loss
responsibilities, eliminating much staff-line friction and fostering
cooperation among divisions and departments.
THOROUGH TESTING of new ideas has replaced our former propensity to seize
perceived opportunities and grow them as fast as possible.
PERFORMANCE-BASED COMPENSATION pays our people very well for exceptional
performance, makes contingent pay significant to everyone and fosters the
achievement of our demanding objectives.


<PAGE>   25
                                                                              21
                                 Adapt to the
                                    changes
                                in the industry
                                   caused by
                                 competition,
                                     risk,
                               investments, and
                                  government
                                   rules and
                                 regulations.
                                Being prepared
                                  in advance,
                                   to accept
                                  changes and
                             being able to adapt,
                                   makes you
                                the leader and
                                not a follower.
                                       



                      Progressive's Diversified Businesses
                    ----------------------------------------

Diversified divisions provide combinations of service and indemnity to
businesses. In 1994, Diversified divisions' net premiums written and
underwriting profits were $115 million and 21 percent, respectively, compared
to $118 million and 14 percent in 1993. The Diversified divisions produced
service revenue and pretax profits of $41.9 million and $10.0 million,
respectively, in 1994, compared to $43.7 million and $6.8 million in 1993.


<PAGE>   26
                                   [ARTWORK]


<PAGE>   27
                                   [ARTWORK]


<PAGE>   28
24


                       Investments and Capital Management
                     --------------------------------------

The balance of revenue and profit comes from interest, dividends and capital
gains produced by Progressive's assets. Progressive's investment and capital
management are managed by our subsidiary, Progressive Partners, Inc., based in
Rye, New York.
 Progressive Partners employs conservative investment and capital management
philosophies, intended to preserve our focus on underwriting and to ensure that
we have enough capital to support all the insurance premium we can write
profitably. We believe that insurance companies create shareholder value by
taking risks to improve their offering to consumers, not by generating cash to
be invested aggressively. During 1994, we were neither harmed nor distracted by
the speculative investment strategies that impaired many enterprises.
 The Company's investment portfolio increased to $3,180.0 million at December
31, 1994, from $2,786.4 million at December 31, 1993. For 1994, total
investment income (interest, dividends and realized capital gains) was $182.3
million before taxes and $146.7 million after taxes, compared to $242.4 million
before taxes and $177.2 million after taxes in 1993. In 1994, we realized $23.8
million in capital gains, compared to $107.9 million in 1993. The large
difference was principally attributable to the $74.3 million gain recorded on
the sale of  our investment in MBNA in 1993. On December 31, 1994, our
portfolio had $41.1 million in unrealized losses, compared to $70.2 million in
unrealized gains in 1993. This decrease was due largely to the adverse impact
on our fixed-income portfolio of rapidly rising interest rates throughout 1994.
 Progressive seeks incremental returns through active management of its assets
and measures performance on a total return basis. In 1994, the taxable
equivalent total return was 3.7 percent. This was 4.3 percentage points, or
$134 million, better than the benchmark against which we measure performance.
The most important factors accounting for this improvement were maintaining
relatively short average bond maturities and investing heavily in intermediate
municipal bonds that outperformed other fixed income categories. The quality of
the portfolio remained exceptional with high-grade fixed-income instruments
averaging about 92 percent of invested assets throughout the year.
 In January 1994, near the lows in interest rates for the year, we issued $200
million of 6.60 percent, 10-year notes. We expect this transaction, and the
$327 million of debt and equity financing completed in 1993, will preclude the
need to raise additional capital for the foreseeable future.
 During 1994, we repurchased 1,080,300 Progressive Common Shares at an average
cost of $31.44 per share.


<PAGE>   29
                                                                              25
                                      The
                                 diversity of
                                   humanity
                                will always be
                                 reflective of
                                truth, freedom,
                                  peace, love
                                 and justice.
                                As we evolve to
                                    embrace
                                our diversity,
                                   we learn
                               to express these
                                  attributes
                                 of humanity.







                                1994 Initiatives
                              --------------------

Progressive's total concentration on auto insurance means that every initiative
is designed to improve customer product, price and service.
DIVERSITY Our growth plans suggest that most new hires will be either claim or
customer service representatives. Our objective is to have the demographics of
the people we hire for these positions reflect the demographics of the
communities where our offices are located, and ultimately the demographics of
our customers.
TV COMMERCIALS We produced new commercials highlighting Express Quote(SM)
service, building on the theme of changing auto insurance consumers'
expectations.
COMMUNITY ORGANIZATION We began experimenting with moving profit and growth
responsibility for high potential communities from state-focused division
presidents to community managers to put us closer to customers and to manage
hyper-growth better.
NEW HEADQUARTERS After years of having our Cleveland people in many different
buildings along the I-271 corridor east of Cleveland, we completed and moved
into 517,800 square feet of new space on our Wilson Mills Road, 42-acre site,
where Information Services occupies the building that was our headquarters from
1974 through 1986, improving internal communication and reducing costs.


<PAGE>   30
26
                                     Risks
                                   ---------



Progressive faces tremendous opportunity. We point out risks to help our
shareholders understand the Company better, not because our risk level is
greater than that of other businesses.
LEGISLATIVE AND REGULATORY RISK Insurance laws and regulations change
continually. In 1994, the political climate may have improved. Consumers,
enjoying a respite from inflationary price increases, have moderated their
demands for reform. We rely on our division presidents and product managers to
help regulators and legislators resolve issues in the way that best serves
consumers.
UNPREDICTABLE UNDERWRITING MARGIN AND GROWTH RATE Our strategy is to strive to
achieve a four percent underwriting profit margin target in each program. We
cannot predict with precision the timing and pace of the decrease in
underwriting margins, nor the rate of growth. With margins now closer to four
percent, we monitor each program to ensure that rates are adjusted promptly and
adequately.
UNPREDICTABLE INVESTMENT INCOME The average duration of our $2.9 billion
fixed-income portfolio is approximately 2.5 years, meaning investment income is
unusually sensitive to short-term interest rates. We continue to maintain a
short average maturity to support our operating strategy, but have recently
lengthened the portfolio somewhat.
PRICING RISK We continue to learn how to price standard and preferred auto
insurance, but have not yet conclusively proved our expertise. We minimize this
risk by controlling volume in these new programs and changing rates immediately
when experience dictates.
HOMEOWNERS INSURANCE This type of insurance would be risky if our auto
insurance market share objectives require we offer it. The current situation of
having no plans to write homeowners may also present a risk because many
consumers prefer to buy all their insurance from one company. In 1995, we will
assess demand for homeowners and develop a plan to satisfy our customers'
needs.
GROWTH ITSELF Our 30 percent growth and excellent return on equity over the
past two years are because our customers value Progressive's service. Our $638
million growth in 1994 was more than our total net premiums written in 1985.
Although we have experience managing hyper-growth, we have never hired and
trained so many people so fast. We measure quality in all operations and will
slow growth if quality slips.  
ADVERTISED BRAND Consumer advertising and brand awareness require higher 
performance standards. In 1994, we increased our appreciation of the ability 
of consumers to make wise choices, which in turn increased our urgency to 
respond to their demand for improved service at lower cost.
COMPETITOR RESPONSE Other insurers will react to Progressive's attempt to
change consumers' auto insurance experience, but we cannot predict when and how
their response will affect our growth and profitability. We monitor competitors
and will promptly incorporate their product and service improvements in our
consumer offering.


<PAGE>   31
                                                                              27

                                Diverse skills
                                   and ideas
                                create tension.
                                    Tension
                              catalyzes personal
                                      and
                                organizational
                                    growth.
                             Successful, evolving
                                 organizations
                                embrace rather
                                     than
                                avoid tension.





                                  The Future
                                --------------

Progressive is leading a wave of change in the United States' system for
dealing with auto accident injuries and property damage. We are reducing auto
accident victims' trauma and costs, improving how consumers feel about auto
insurance and being rewarded for our leadership.  Success so far encourages us
to expand at a pace that tests our ability to provide the service we aspire to
deliver.
 We begin 1995 as we began all other years--excited, respectful of the challenge
implicit in our objectives and strategy, humbled by our failures, proud of
having responded to them and confident that our excellent people will continue
to achieve superior results.
 Much will be required to realize our vision. At Progressive, it is always as 
if we are just beginning our business and so we look at a future that is 
brighter than ever.
 We deeply appreciate the customers we are privileged to serve. Thank you for
your business, and thanks especially to the more than 30,000 independent
insurance agents who chose to do business with Progressive in 1994. We are
particularly grateful for our shareholders' continued confidence. To the men
and women who make Progressive a great company, thanks for all your
contributions in 1994 and the promise you bring to our future.

/s/ Joy Love and Peace
      Peter Lewis


Peter B. Lewis, Chairman, President
and Chief Executive Officer

<PAGE>   32
                                   [ARTWORK]


<PAGE>   33
                                   [ARTWORK]


<PAGE>   34
                                   [ARTWORK]


<PAGE>   35
                                   [ARTWORK]


<PAGE>   36
32


<TABLE>

                                                       1994 Financial Review
                                                     -------------------------



<S>                                                       <C>                                 <C>
   Consolidated Financial Statements                        Loss Reserves                       Direct Premiums Written by State 
                34                                               48                                            48

Quarterly Financial and Common Share Data                 Ten Year Summaries                  Management's Discussion and Analysis
                49                                               50                                            54

</TABLE>





                                   [ARTWORK]


<PAGE>   37
                                                                              33

          Report of Coopers & Lybrand L.L.P., Independent Accountants
        ---------------------------------------------------------------


TO THE BOARD OF DIRECTORS AND SHAREHOLDERS,
THE PROGRESSIVE CORPORATION:

We have audited the accompanying consolidated balance sheets of The Progressive
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of The Progressive Corporation and
subsidiaries' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Progressive 
Corporation and subsidiaries as of December 31, 1994 and 1993, and the 
consolidated results of their operations and their cash flows for each of the 
three years in the period ended December 31, 1994, in conformity with generally 
accepted accounting principles.


/s/ Coopers & Lybrand L.L.P.

Cleveland, Ohio
January 26, 1995



<PAGE>   38
34

<TABLE>
                                                 Consolidated Statements of Income
                                               -------------------------------------



                                                                        (millions-except per share amounts)
<CAPTION>
 For the years ended December 31,                                 1994              1993              1992
<S>                                                           <C>               <C>               <C>
NET PREMIUMS WRITTEN                                          $2,457.2          $1,819.2          $1,451.2
                                                              ========          ========          ========

REVENUES
  Premiums earned                                             $2,191.1          $1,668.7          $1,426.1
  Investment income                                              158.5             134.5             139.0
  Net realized gains on security sales                            23.8             107.9              14.5
  Service revenues                                                41.9              43.7              53.3
  Proposition 103 reserve reduction                                 --                --             106.0
                                                              --------          --------          --------
   Total revenues                                              2,415.3           1,954.8           1,738.9
                                                              --------          --------          --------

EXPENSES
  Losses and loss adjustment expenses                          1,397.3           1,028.0             930.9
  Policy acquisition costs                                       391.5             311.6             304.1
  Other underwriting expenses                                    150.8             151.3             141.5
  Investment expenses                                              8.7              10.2              17.0
  Service expenses                                                31.9              36.9              57.6
  Interest expense                                                55.3              39.7              44.5
  Non-recurring items(1)                                            --               4.0              64.6
                                                              --------          --------          --------
   Total expenses                                              2,035.5           1,581.7           1,560.2
                                                              --------          --------          --------

NET INCOME
  Income before Federal income taxes                             379.8             373.1             178.7
  Provision for Federal income taxes                             105.5             105.8              39.1
                                                              --------          --------          --------
  Income before cumulative effect of accounting change           274.3             267.3             139.6
  Cumulative effect of adopting SFAS 109                            --                --              14.2
                                                              --------          --------          --------
  Net income                                                   $ 274.3           $ 267.3           $ 153.8
                                                              ========          ========          ========

PER SHARE
  Income before cumulative effect:
   Primary                                                     $  3.59           $  3.59           $  2.09
   Fully diluted                                                  3.59              3.58              1.85
  Cumulative effect of adopting SFAS 109:
   Primary                                                          --                --               .23
   Fully diluted                                                    --                --               .20
  Net income:
   Primary                                                     $  3.59           $  3.59           $  2.32
   Fully diluted                                                  3.59              3.58              2.05

<FN>
(1)See Note 7-Debt and Note 11-Related Party Transactions for discussion.

See notes to consolidated financial statements.
                                                                                        The Progressive Corporation and Subsidiaries
</TABLE>


<PAGE>   39

<TABLE>
                                                                                                                                35

                                                    Consolidated Balance Sheets
                                                  -------------------------------

<CAPTION>
                                                                                                               (millions)
 December 31,                                                                                       1994             1993
<S>                                                                                          <C>           <C>
ASSETS
 Investments:
       Held-to-maturity:
         Fixed maturities, at amortized cost (market: $343.8 and $327.4)                     $     337.6     $      309.1
       Available-for-sale:
         Fixed maturities, at market (amortized cost: $2,129.7 and $1,761.9)                     2,087.0          1,792.6
         Equity securities, at market (cost: $481.0 and $433.2)                                    476.3            453.9
       Short-term investments, at amortized cost (market: $279.2 and $231.3)                       279.1            230.8
                                                                                             -----------     ------------
          Total investments                                                                      3,180.0          2,786.4
 Cash                                                                                               13.4              8.7
 Accrued investment income                                                                          43.4             33.7
 Premiums receivable, net of allowance for doubtful accounts of $15.6 and $8.7                     542.4            380.6
 Reinsurance recoverables                                                                          379.7            380.9
 Prepaid reinsurance premiums                                                                       83.2             84.6
 Deferred acquisition costs                                                                        161.6            124.6
 Federal income taxes                                                                              103.2             78.5
 Property and equipment, net of accumulated depreciation of $116.7 and $107.1                      143.3            106.7
 Other assets                                                                                       24.9             26.6
                                                                                             -----------     ------------
           Total assets                                                                      $   4,675.1     $    4,011.3
                                                                                             ===========     ============

LIABILITIES AND SHAREHOLDERS' EQUITY
 Unearned premiums                                                                           $   1,036.7     $      772.0
 Loss and loss adjustment expense reserves                                                       1,434.4          1,348.6
 Policy cancellation reserve                                                                        47.3             60.1
 Accounts payable and accrued expenses                                                             329.2            355.6
 Funded debt                                                                                       675.6            477.1
                                                                                             -----------     ------------
          Total liabilities                                                                      3,523.2          3,013.4
                                                                                             -----------     ------------
 Shareholders' equity:
  Serial Preferred Shares (authorized 20.0)
   9-3/8% Serial Preferred Shares, Series A, no par value,
          cumulative, liquidation preference $25.00 per share (issued
          and outstanding 3.5 and 3.6)                                                              85.8             87.9
  Common Shares, $1.00 par value (authorized 200.0, issued 82.4 and 82.2,
       including treasury shares of 11.2 and 10.1)                                                  71.2             72.1
  Paid-in capital                                                                                  357.1            357.6
  Net unrealized appreciation (depreciation) on investment securities                              (30.7)            33.5
  Retained earnings                                                                                668.5            446.8
                                                                                             -----------     ------------
       Total shareholders' equity                                                                1,151.9            997.9
                                                                                             -----------     ------------
          Total liabilities and shareholders' equity                                         $   4,675.1     $    4,011.3
                                                                                             ===========     ============

<FN>
See notes to consolidated financial statements.                                         The Progressive Corporation and Subsidiaries
</TABLE>


<PAGE>   40

<TABLE>

                                    Consolidated Statements of Changes in Shareholders' Equity
                                  --------------------------------------------------------------
36
<CAPTION>
                                                                       (millions-except per share amounts)

  For the years ended December 31,                                1994              1993              1992
<S>                                                       <C>              <C>                <C>
PREFERRED SHARES, NO PAR VALUE
 Balance, Beginning of year                               $       87.9     $        96.4      $       96.4
  Treasury shares purchased-cost basis                            (2.1)             (8.5)               --
                                                          ------------     -------------      ------------
 Balance, End of year                                     $       85.8     $        87.9      $       96.4
                                                          ------------     -------------      ------------

COMMON SHARES, $1.00 PAR VALUE
 Balance, Beginning of year                               $       72.1     $        67.1      $       21.1
  Stock options exercised                                          0.2                .1                .5
  Stock rights issued (cancelled)                                   --                --               (.1)
  Sale of Common Shares                                             --               5.0                --
  Treasury shares purchased                                       (1.1)              (.1)             (1.9)
  Capitalization of stock split                                     --                --              38.5
  Conversion of convertible debenture                               --                --               9.0
                                                          ------------     -------------      ------------
 Balance, End of year                                     $       71.2     $        72.1      $       67.1
                                                          ------------     -------------      ------------

PAID-IN CAPITAL
 Balance, Beginning of year                               $      357.6     $       180.7      $      118.7
  Stock options exercised                                          4.9               1.7               3.7
  Stock rights issued                                               --               3.5               2.8
  Sale of Common Shares                                             --             172.0                --
  Treasury shares purchased                                       (5.4)              (.3)            (10.5)
  Conversion of convertible debenture                               --                --              66.0
                                                          ------------     -------------      ------------
 Balance, End of year                                     $      357.1     $       357.6      $      180.7
                                                          ------------     -------------      ------------

NET UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENT SECURITIES
 Balance, Beginning of year                               $       33.5     $        77.5      $       20.7
  Change in net unrealized appreciation (depreciation)           (64.2)            (44.0)             56.8
                                                          ------------     -------------      ------------
 Balance, End of year                                     $      (30.7)    $        33.5      $       77.5
                                                          ------------     -------------      ------------

RETAINED EARNINGS
 Balance, Beginning of year                               $      446.8     $       207.3      $      208.8
  Net income                                                     274.3             267.3             153.8
  Cash dividends on Preferred Shares (9-3/8% annually)            (8.5)             (9.2)             (9.4)
  Cash dividends on Common Shares ($.210, $.200                   
     and $.191 per share)                                        (14.9)            (13.9)            (11.4)
  Treasury shares purchased: Preferred Shares                     (0.2)             (1.3)               --
                             Common Shares                       (27.5)             (2.0)            (93.5)
  Capitalization of stock split                                     --                --             (38.5)
  Other, net                                                      (1.5)             (1.4)             (2.5)
                                                          ------------     -------------      ------------
 Balance, End of year                                     $      668.5     $       446.8      $      207.3
                                                          ------------     -------------      ------------

TOTAL SHAREHOLDERS' EQUITY                                $    1,151.9     $       997.9      $      629.0
                                                          ============     =============      ============

<FN>
The 9-3/8% Serial Preferred Shares, Series A, may be redeemed at the Company's option any time on or after 
May 31, 1996. 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
</TABLE>



<PAGE>   41

<TABLE>
                                               Consolidated Statements of Cash Flows
                                             -----------------------------------------                                            37


                                                                                                                   (millions)
<CAPTION>
 For the years ended December 31,                                                     1994              1993             1992
<S>                                                                             <C>               <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Income before cumulative effect of accounting change                          $    274.3        $    267.3      $     139.6
  Adjustments to reconcile income to net
         cash provided by operating activities:
       Depreciation and amortization                                                  19.3              16.1             24.3
       Net realized gains on security sales                                          (23.8)           (107.9)           (14.5)
       Changes in:
         Unearned premiums                                                           264.7             157.2             19.8
         Loss and loss adjustment expense reserves                                    85.8              74.4            197.1
         Accounts payable and accrued expenses                                        14.9               6.2           (154.9)
         Policy cancellation reserve                                                 (12.8)              8.0            (13.5)
         Prepaid reinsurance premiums                                                  1.4              (6.6)             5.3
         Reinsurance recoverables                                                      1.2             (23.1)          (103.0)
         Premiums receivable                                                        (161.8)            (68.6)            11.3
         Deferred acquisition costs                                                  (37.0)            (23.3)             8.9
         Federal income taxes                                                          9.9               2.0             22.7
         Other, net                                                                   15.2              21.8              7.5
                                                                                ----------        ----------      -----------
          Net cash provided by operating activities                                  451.3             323.5            150.6

CASH FLOWS FROM INVESTING ACTIVITIES
 Purchases:
       Held-to-maturity: fixed maturities                                            (89.6)           (118.1)          (135.0)
       Available-for-sale: fixed maturities                                       (1,463.1)         (1,215.6)        (1,089.6)
                           equity securities                                        (350.2)           (358.4)          (123.3)
                                                                                                                                  
 Sales:
       Available-for-sale: fixed maturities                                          731.6             325.6            419.4
                           equity securities                                         298.3             269.6            134.1
 Maturities, paydowns, calls and other:
       Held-to-maturity: fixed maturities                                             58.6              59.5            262.2
       Available-for-sale: fixed maturities                                          354.5             526.6            354.1
                           equity securities                                          17.7              56.5               --
 Net (purchases) sales of short-term investments                                     (48.3)             69.2            188.1
 (Receivable) payable on securities                                                  (41.3)             55.9            (21.4)
 Purchase of property and equipment                                                  (58.2)            (60.0)           (17.5)
 Sale of property and equipment                                                         --                --              5.4
                                                                                ----------        ----------      -----------
          Net cash used in investing activities                                     (590.0)           (389.2)           (23.5)

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from exercise of stock options                                              5.1               1.8              4.2
  Proceeds from issuance of Common Shares                                               --             177.0               --
  Proceeds from funded debt                                                          198.4             148.2            170.0
  Payments of funded debt                                                              (.4)           (240.2)          (170.9)
  Dividends paid to shareholders                                                     (23.4)            (23.1)           (20.8)
  Acquisition of treasury shares                                                     (36.3)            (12.2)          (105.9)
                                                                                ----------        ----------      -----------
          Net cash provided by (used in) financing activities                        143.4              51.5           (123.4)
                                                                                ----------        ----------      -----------
  Increase (decrease) in cash                                                          4.7             (14.2)             3.7
  Cash, Beginning of year                                                              8.7              22.9             19.2
                                                                                ----------        ----------      -----------
  Cash, End of year                                                             $     13.4        $      8.7      $      22.9
                                                                                ==========        ==========      ===========

<FN>
See notes to consolidated financial statements.                                         The Progressive Corporation and Subsidiaries
</TABLE>



<PAGE>   42

                  Notes to Consolidated Financial Statements
                ----------------------------------------------
38

December 31, 1994, 1993 and 1992

1.  REPORTING AND ACCOUNTING POLICIES

BASIS OF CONSOLIDATION AND REPORTING  The accompanying consolidated financial
statements include the accounts of The Progressive Corporation and subsidiaries
(the Company). All the subsidiaries are wholly owned. All significant
intercompany accounts and transactions are eliminated in consolidation. The
Company's investments in subsidiaries exceeded their underlying book value at
dates of acquisition by $4.0 million, of which $1.6 million remains.
INVESTMENTS  Held-to-maturity: fixed maturity securities are securities which
the Company has the positive intent and ability to hold to maturity. These
securities are reported at amortized cost with the difference between the
original cost and redemption value of these securities earned over the lives of
the respective issues and included in investment income.
 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, reflected in shareholders' equity.
 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 shareholders' equity.
 Financial instruments with off-balance-sheet risk include futures, options,
short positions, forward positions and interest rate swap agreements, and are
carried in the appropriate available-for-sale portfolio based on the nature of
the instrument. Those instruments held or issued for purposes other than
trading are carried at market value; changes in value of futures, options 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
shareholders' equity 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 "realized gains
or losses on security sales." Those instruments entered into for the purpose of
hedging are carried at market value; changes in value are deferred and 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.
 Trading securities are securities bought and held principally for the purpose
of selling them in the near term and are reported at market value. Changes in
market value are reflected in earnings. The Company had no trading securities
or financial instruments with off-balance-sheet risk held or issued for trading
purposes at December 31, 1994 and 1993.
 Short-term investments include certificates of deposit, commercial paper and
other securities maturing within one year and are reported at amortized cost,
which approximates market.
 Risk is individually evaluated for all positions, including financial
instruments with off-balance-sheet risk.
 Realized gains and losses on sales of securities are computed based on the
first-in first-out method.
 PROPERTY AND EQUIPMENT  Property and equipment is 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.
Capitalized interest costs were $1.6 million in 1994, $2.7 million in 1993 and
$.3 million in 1992.
 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 percent 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 in Canada, 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. 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.
REINSURANCE  The Company's reinsurance transactions are primarily attributable
to premiums written under state-mandated involuntary plans for commercial
vehicles (Commercial Auto Insurance Plans-CAIP), for which the Company retains
no indemnity risk. The remaining reinsurance arises from the Company seeking to
reduce its loss exposure in its non-auto businesses. Prepaid reinsurance
premiums are recognized on a pro rata basis over the period of risk.
EARNINGS PER SHARE  Net income is reduced by Preferred Share dividends earned
during the period and the excess of the fair value over the carrying amount of
Preferred Shares repurchased for both the primary and fully diluted earnings
per share calculations. Primary and fully diluted earnings per share are
computed using the weighted number of Common


<PAGE>   43
Shares and equivalents, including stock options, assumed outstanding during the
period. For 1992, fully diluted earnings per share also assumed the conversion
of the convertible debt instrument and the effects of related interest expense
and income taxes.
DEFERRED ACQUISITION AND OTHER 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.
 In 1993, the Company early adopted Statement of Position (SOP) 93-7, "Reporting
on Advertising Costs," which provides guidance on financial reporting of
advertising costs. Included in "other assets" for 1994 and 1993 are $2.9
million and $1.6 million, respectively, of direct-response advertising costs,
which are capitalized and amortized over the estimated period of the benefits.
The amounts charged to advertising expense during 1994 and 1993 were $1.0
million and $.1 million, respectively. Direct-response advertising costs
consist of direct mail, television and radio expenses and are amortized over a
21- to 66-month period.
SERVICE REVENUES AND EXPENSES  Service revenues 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 Federal income taxes of $89.8 million, $91.0 million and $4.0
million in 1994, 1993 and 1992, respectively. Total interest paid was $48.3
million for 1994, $38.3 million for 1993 and $44.2 million for 1992. In 1992,
the $75.0 million Floating Rate Convertible Subordinated Debenture due 2008 was
converted into 9.0 million Common Shares.
 The Company effected a 3-for-1 stock split in the form of a dividend to
shareholders on December 8, 1992. The Company reflected the issuance of the
additional Common Shares by transferring $38.5 million from retained earnings
to the common stock account. All per share, average equivalent share amounts
and stock prices were adjusted to give effect to the split. Treasury shares
were not split.
RECLASSIFICATIONS  Certain amounts in the financial statements for prior
periods were reclassified to conform with the 1994 presentation.

2.  INVESTMENTS

As of December 31, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) 119, "Disclosures About Derivative Financial Instruments and
Fair Value of Financial Instruments." As of December 31, 1993, the Company
elected to early adopt SFAS 115, "Accounting for Certain Investments in Debt
and Equity Securities." The adoption of SFAS 115 did not have any effect on the
Company's results of operations or financial position.



<TABLE>
The components of pretax investment income at December 31 were:

<CAPTION>
         (millions)                                                                   1994               1993               1992
<S>                                                                           <C>                 <C>              <C>
Held-to-maturity:    fixed maturities                                         $       18.4        $      17.4      $        23.2
Available-for-sale:  fixed maturities                                                103.8               88.7               82.4
                     equity securities                                                23.2               19.8               23.4
Short-term investments                                                                13.1                8.6               10.0
                                                                              ------------        -----------      -------------
       Investment income                                                             158.5              134.5              139.0
                                                                              ------------        -----------      -------------

Gross realized gains:
      Held-to-maturity: fixed maturities                                               1.1                1.0                 .5
      Available-for-sale: fixed maturities                                            49.6               20.9               14.9
                          equity securities                                           23.0              102.3                4.5
Gross realized losses:
      Held-to-maturity: fixed maturities                                              (0.7)                --                 --
      Available-for-sale: fixed maturities                                           (40.2)              (4.6)              (4.2)
                          equity securities                                           (9.0)             (11.7)              (1.2)
                                                                              ------------        -----------      -------------
       Net realized gains on security sales                                           23.8              107.9               14.5
                                                                              ------------        -----------      -------------
                                                                              $      182.3        $     242.4      $       153.5
                                                                              ============        ===========      =============
</TABLE>



<PAGE>   44

<TABLE>
40
         Changes in unrealized gains (losses) on fixed maturities and equity securities were:


<CAPTION>
         (millions)                                                             1994              1993            1992
<S>                                                                       <C>               <C>             <C>
Unrealized gains (losses):
      Held-to-maturity:  fixed maturities                                 $    (12.1)       $     (2.5)     $    (28.3)
                                                                          ==========        ==========      ==========
      Available-for-sale: fixed maturities                                $    (73.4)       $      1.6      $     29.1
                         equity securities                                     (25.4)            (67.6)           56.9
      Deferred income taxes                                                     34.6              22.0           (29.2)
                                                                          ----------        ----------      ----------
                                                                          $    (64.2)       $    (44.0)     $     56.8
                                                                          ==========        ==========      ==========
</TABLE>




<TABLE>
The composition of the investment portfolio at December 31 was:


<CAPTION>
         (millions)                                                            GROSS             GROSS
                                                                           UNREALIZED       UNREALIZED        MARKET
                                                                COST            GAINS           LOSSES         VALUE
<S>                                                       <C>             <C>               <C>             <C>
1994
 Held-to-maturity:
  State and local government obligations                  $    337.6      $      8.4        $     (2.2)     $    343.8
                                                          ----------      ----------        ----------      ----------
 Available-for-sale:                                                            
  U.S. government obligations                                   30.1              --              (1.3)           28.8
  State and local government obligations                     1,210.2             8.9             (20.1)        1,199.0
  Foreign government obligations                                23.7              --               (.7)           23.0
  Corporate debt securities                                    179.8             2.7             (14.4)          168.1
  Asset-backed securities                                      634.9             1.4             (20.0)          616.3
  Other debt securities                                         51.0             4.4              (3.6)           51.8
                                                          ----------      ----------        ----------      ----------
                                                             2,129.7            17.4             (60.1)        2,087.0
  Equity securities                                            481.0             6.1             (10.8)          476.3
  Short-term investments                                       279.1             0.1                --           279.2
                                                           ----------      ----------        ----------      ----------
                                                          $  3,227.4      $     32.0        $    (73.1)     $  3,186.3
                                                          ==========      ==========        ==========      ==========
1993
 Held-to-maturity:
  State and local government obligations                  $    309.1      $     19.8        $     (1.5)     $    327.4
                                                          ----------      ----------        ----------      ----------
 Available-for-sale:                                                                                                  
  U.S. government obligations                                   20.5              .3                --            20.8
  State and local government obligations                       819.8            18.2              (2.3)          835.7
  Foreign government obligations                                31.8             3.8              (1.8)           33.8
  Corporate debt securities                                    107.5             5.4               (.2)          112.7
  Asset-backed securities                                      732.8             8.3              (4.9)          736.2
  Other debt securities                                         49.5             4.7               (.8)           53.4
                                                          ----------      ----------        ----------      ----------
                                                             1,761.9            40.7             (10.0)        1,792.6
  Equity securities                                            433.2            21.1               (.4)          453.9
  Short-term investments                                       230.8              .5                --           231.3
                                                          ----------      ----------        ----------      ----------
                                                          $  2,735.0      $     82.1        $    (11.9)     $  2,805.2
                                                          ==========      ==========        ==========      ==========
</TABLE>



<TABLE>
The composition of fixed maturities by maturity at December 31, 1994 was:
<CAPTION>
         (millions)                                               HELD-TO-MATURITY                  AVAILABLE-FOR-SALE
                                                                              MARKET                            MARKET
                                                                     COST      VALUE                   COST      VALUE
<S>                                                             <C>        <C>                    <C>        <C>
Less than one year                                              $   107.8  $   108.6              $   611.3  $   605.2
One to five years                                                   179.5      182.2                1,142.6    1,109.4
Five to ten years                                                    20.8       21.8                  160.9      156.9
More than ten years                                                  29.5       31.2                  214.9      215.5
                                                                --------------------              --------------------
                                                                $   337.6  $   343.8              $ 2,129.7  $ 2,087.0
                                                                ====================              ====================


<FN>
Securities which do not have a single maturity date are reported at average maturity.
</TABLE>



<PAGE>   45
At December 31, 1994, bonds in the principal amount of $58.0 million were on 
deposit with various regulatory agencies to meet statutory requirements.




<TABLE>
The components of financial instruments with off-balance-sheet risk were:


<CAPTION>
         (millions)                                                    MARKET VALUE (CARRYING VALUE)   CONTRACT/NOTIONAL VALUE
                                                                              AT DECEMBER 31,              AT DECEMBER 31,

                                                                             1994           1993          1994         1993
<S>                                                                    <C>            <C>            <C>          <C>
Forward and future positions:
 Assets                                                                $     13.3     $     66.0     $   755.4    $   901.2
 Liabilities                                                                   --             .3            --         26.5
Option positions-assets                                                        --            (.2)           --         64.0
Interest rate swap positions-liabilities                                    (11.7)         (62.6)        423.2        659.6
Unmatched short foreign currency positions-liabilities                         --            1.9            --         80.9
                                                                       -------------------------     ----------------------
                                                                       $      1.6     $      5.4     $ 1,178.6    $ 1,732.2
                                                                       =========================     ======================
</TABLE>


Financial instruments with off-balance-sheet risk are used to manage the risks
and enhance the yields of the available-for-sale portfolio. This is
accomplished by modifying the basis, duration or interest rate characteristics
of the portfolio, or hedging securities. 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;
unless otherwise noted, collateral is not required to support the credit risk.
 The Company had no uncollateralized lines and letters of credit as of December
31, 1994. As of December 31, 1993, the Company had committed $20.0 million in
uncollateralized lines and letters of credits, of which none were outstanding
and subject to credit risk as of December 31, 1993.


3.  REINSURANCE

In 1993, the Company adopted SFAS 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts." SFAS 113 required
amounts related to ceded reinsurance to be shown gross on the financial
statements. Prior practice allowed ceding enterprises to report insurance
activities net of the effects of reinsurance. The implementation of SFAS 113
resulted in the Company reporting ceded unearned premiums reserves as "prepaid
reinsurance premiums" on the balance sheet and reporting ceded unpaid losses
and amounts recoverable on paid losses as "reinsurance recoverables." SFAS 113
also provides risk transfer criteria and prescribes the accounting and
reporting standards for reinsurance contracts.
 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, 1994 and
1993, 64 percent and 69 percent, respectively, of the "prepaid reinsurance
premiums" and 72 percent and 75 percent, respectively, of the "reinsurance
recoverables" relate to CAIP, for which the Company retains no indemnity risk.



<TABLE>
The effect of reinsurance on premiums written and earned as of December 31 is as follows:

<CAPTION>
         (millions)                                       1994                        1993                     1992
                                                  WRITTEN        EARNED       WRITTEN        EARNED    WRITTEN       EARNED
<S>                                             <C>           <C>           <C>           <C>          <C>        <C>
Direct premiums                                 $ 2,645.1     $ 2,378.4     $ 1,966.4     $ 1,808.8    $ 1,636    $ 1,619.4
Assumed                                               2.9           4.9           9.2           9.7        4.3          1.9
Ceded                                              (190.8)       (192.2)       (156.4)       (149.8)    (189.9)      (195.2)
                                                -----------------------     -----------------------    --------------------
Net premiums                                    $ 2,457.2     $ 2,191.1     $ 1,819.2     $ 1,668.7  $ 1,451.2    $ 1,426.1
                                                =======================     =======================  ======================
</TABLE>


Losses and loss adjustment expenses are net of reinsurance ceded of $145.9
million in 1994, $138.8 million in 1993 and $196.7 million in 1992.

<PAGE>   46
42


4.  FEDERAL INCOME TAXES

The provision for Federal income taxes in the accompanying consolidated
statements of income differs from the statutory rates as follows:



<TABLE>
<CAPTION>
         (millions)                                           1994                  1993                1992
<S>                                                  <C>            <C>       <C>           <C>        <C>            <C>
Income before Federal income taxes                   $  379.8                 $  373.1                 $  178.7
                                                     ========                 ========                 ========
                                                                                                     
Tax at statutory rate                                $  132.9     35%            130.6      35%        $   60.8       34%
Tax effect of:                                                                                       
  Exempt interest income                                (24.8)    (6)            (15.4)     (4)           (12.9)      (7)
  Dividends received deduction                           (3.4)    (1)             (4.3)     (1)            (6.4)      (4)
  Other items, net                                         .8     --              (5.1)     (2)            (2.4)      (1)
                                                     ----------------         -----------------        ------------------
                                                     $  105.5     28%         $  105.8      28%        $   39.1       22%
                                                     ================         =================        ==================
</TABLE>
                                                                       

The current portion of the Federal income tax provision was $113.0 million in
1994, $90.3 million in 1993 and $8.2 million in 1992.


Deferred Federal income taxes reflect the impact for financial statement
reporting purposes of "temporary differences" between the financial statement
carrying amounts and tax bases of assets and liabilities. At December 31, 1994
and 1993, the components of the net deferred tax asset were as follows:


<TABLE>
<CAPTION>
         (millions)
                                                                                               1994          1993
<S>                                                                                     <C>           <C>
Deferred tax assets:
 Unearned premium reserve                                                               $      66.8   $      48.1
 Non-deductible accruals                                                                       25.7          25.4
 Off-balance-sheet financial instruments                                                        9.6            --
 Capitalized expenditures                                                                       3.9           2.1
 Loss reserve discounting                                                                        .5           5.2
 Unrealized losses                                                                             16.7            --
 Other                                                                                          1.0            --
Deferred tax liabilities:                                                                              
 Deferred acquisition costs                                                                   (56.6)        (43.6)
 Unrealized gains                                                                                --         (18.0)
 Other                                                                                           --          (5.5)
                                                                                        -----------   -----------
Net deferred tax asset                                                                  $      67.6   $      13.7
                                                                                        ===========   ===========
                                                                                                       
</TABLE>



Deferred Federal income taxes include noninterest bearing special estimated tax
deposits made pursuant to Section 847 of the Internal Revenue Code of $46.6
million and $40.5 million at December 31, 1994 and 1993, respectively. As of
December 31, 1994, a deferred tax asset of $9.6 million was recorded to reflect
accelerated recognition of gains on off-balance-sheet financial instruments.
 The Omnibus Budget Reconciliation Act of 1993 increased the maximum tax rate
for corporations from 34 percent to 35 percent, effective for tax years 
beginning after December 31, 1992.  As a result of this change in rate, the
Company was able to write up the value of its deferred tax asset. The effect of
this write-up was to increase net deferred tax assets which increased net
income by $2.1 million, or $.03 per share, in 1993.  
 Effective January 1, 1992, the Company adopted SFAS 109, "Accounting for
Income Taxes," which changed the method of accounting for income taxes. The
cumulative effect of adopting SFAS 109 was to restore deferred tax assets and
increase net income $14.2 million, or $.20 per share, in 1992. The Company is
able to demonstrate that the benefit of deferred tax assets is fully
realizable.
 As of December 31, 1994, the Company included in "Federal income taxes" $2.0
million of foreign tax credit carryover. Of this amount, $.9 million and $1.1
million will expire at the end of 1996 and 1997, respectively, unless
previously used.

<PAGE>   47
                                                                             43


5.  LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

In 1994, the Company adopted SOP 94-5, "Disclosures of Certain Matters in the
Financial Statements of Insurance Enterprises." The adoption of SOP 94-5 had no
effect on results of operations or financial condition.

Activity in the loss and loss adjustment expense reserves, prepared in
accordance with generally accepted accounting principles, is summarized as
follows:


<TABLE>
<CAPTION>
         (millions)                                                                                                
                                                                                    1994           1993          1992
<S>                                                                                  <C>            <C>           <C>
Balance at January 1                                                           $   1,348.6    $   1,274.2   $   1,077.1
 Less reinsurance recoverables on unpaid losses                                      334.8          316.7         213.7
                                                                               -----------   ------------   -----------
Net Balance at January 1                                                           1,013.8          957.5         863.4
                                                                               -----------   ------------   -----------
Incurred related to:
 Current year                                                                      1,539.8        1,126.5         982.4
 Prior years                                                                        (142.5)         (98.5)        (51.5)
                                                                               -----------   ------------   -----------
   Total incurred                                                                  1,397.3        1,028.0         930.9
Paid related to:
 Current year                                                                        893.9          604.9         483.4
 Prior years                                                                         417.0          366.8         353.4
                                                                               -----------   ------------   -----------
   Total paid                                                                      1,310.9          971.7         836.8
                                                                               -----------   ------------   -----------
Net Balance at December 31                                                         1,100.2        1,013.8         957.5
 Plus reinsurance recoverables on unpaid losses                                      334.2          334.8         316.7
                                                                               -----------   ------------   -----------
Balance at December 31                                                         $   1,434.4   $    1,348.6   $   1,274.2
                                                                               ===========   ============   ===========
</TABLE>
                      

During 1994, based on a review of the adequacy of its total loss reserves, the 
Company eliminated its $71.0 million "supplemental re serve" ($46.2 million    
after tax), resulting in a one-time increase in earnings of $.62 per share. The
Company historically established case and IBNR reserves by product with the    
objective of being accurate to within plus or minus 2 percent. Pricing has been
based on these estimates of reserves by product. Because the Company desired a 
very high degree of comfort that aggregate reserves were adequate, aggregate   
reserves were established near the upper end of the reasonable range of        
reserves, and the difference between such aggregate reserves and the midpoint  
of the reasonable range of case and IBNR reserves was called the "supplemental 
reserve." The Company concluded, after examining its historical aggregate      
reserves, that the practice of setting aggregate reserves at the upper end of  
the range of reasonable reserves provided an unnecessarily high level of       
comfort. Even without the high level of comfort provided by the "supplemental  
reserve," the Company's reserves have historically been redundant by           
approximately 2 percent to 4 percent over the most recent 5 years. The Company 
believes that this change in the estimate of its reserves will place it more in
line with the practices of other companies in the industry.                    
 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, results of operations, cash flows or financial condition.           
 During 1994, the Company settled the dispute arising out of its 1985          
acquisition of American Star Insurance Company, over the seller's refusal to   
pay certain losses on pre-sale business written by American Star. Total        
reserves on this business, which are mainly for product liability and          
environmental claims, are $29.7 million, of which $9.9 million is recoverable  
from reinsurers. The Company will continue to monitor these exposures, adjust  
the related reserves appropriately as additional information becomes known and 
disclose any material developments. See Management's Discussion and Analysis   
for further discussion.                                                        
                                                                               
                                                                               
6.  LITIGATION                                                                 
                                                                               
The Company, or its subsidiaries, are named as defendant in various lawsuits   
generally relating to their business. Numerous legal actions arise from claims 
made under insurance policies issued by the subsidiaries or in connection with 
previous reinsurance agreements. These actions were considered by the Company  
in establishing its loss and loss adjustment expense reserves. The Company     
believes that the ultimate disposition of these and other pending lawsuits will
not materially impact the Company's results of operations, cash flows or       
financial position.                                                           
                                                                               
                                                                               
                                                                               

<PAGE>   48
44

7.  DEBT

During 1994, the maximum amount of bank borrowings outstanding was $8.5 
million, and the daily average amount outstanding was $.1 million, at an
average annual interest rate of 5.0 percent.


Funded debt at December 31 consisted of:



<TABLE>                                  
<CAPTION>                                                                                                    
         (millions)                                                                                1994           1993
<S>                                                                                                 <C>            <C>
6.60% Notes                                                                                  $     198.5     $      --
7% Notes                                                                                           148.2          148.2
8 3/4% Notes                                                                                        29.0           28.8
10% Notes                                                                                          149.4          149.3
10 1/8% Subordinated Notes                                                                         149.3          149.2
Other funded debt                                                                                    1.2            1.6
                                                                                             -----------     -----------
                                                                                             $     675.6     $    477.1
                                                                                             ===========     ===========
</TABLE>
 
Funded debt includes amounts the Company has borrowed and contributed to the    
capital of its insurance subsidiaries or borrowed for other long-term
purposes.



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 had the right to borrow up to $50.0 million. In February
1994, the Company reduced this revolving credit arrangement to $20.0 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.
 In February 1994, the Company terminated a four-year credit facility with
Morgan Guaranty Trust Company of New York, originally entered into in May 1990,
under which the Company had the right to borrow up to $75.0 million.
 In February 1994, the Company terminated a five-year credit facility agreement
with a group of banks, originally entered into in October 1989, under which the
Company secured the right to borrow up to $235.0 million and request an
additional $235.0 million.  
 In January 1994, the Company sold $200.0 million of its 6.60% Notes due 2004.
The Notes are noncallable, and interest is payable semiannually. The fair
value of these Notes was $174.2 million at December 31, 1994.
 In October 1993, the Company sold $150.0 million of noncallable 7% Notes due
2013 with interest payable semiannually. The fair value of these Notes was
$124.6 million and $145.3 million at December 31, 1994 and 1993, respectively.
 In May 1989, the Company issued $30.0 million of 8-3/4% Notes due 1999 in
exchange for $30.0 million of the 8-3/4% Debentures due 2017. These Notes are
noncallable and interest is payable semiannually. The fair value of these Notes
was $30.3 million and $33.7 million at December 31, 1994 and 1993,
respectively.
 In December 1988, the Company sold $150.0 million of 10% Notes due 2000 and
$150.0 million of 10-1/8% Subordinated Notes due 2000. All such Notes are
noncallable. Interest is payable semiannually on both issues. The fair values
of the 10% Notes and 10-1/8% Subordinated Notes were $159.8 million and $159.7
million, respectively, at December 31, 1994 and $180.6 million and $181.2
million, respectively, at December 31, 1993.
 In February 1987, the Company sold $100.0 million, $70.0 million after the May
1989 debt exchange, of 8-3/4% Debentures due 2017 with interest payable
semiannually. In December 1993, the Company redeemed the entire $70.0 million
principal amount of these Debentures. The Company redeemed the Debentures at
105.425 percent of the principal amount, plus accrued interest, with the
proceeds of the sale of certain securities in its investment portfolios. A $4.0
million charge on debt extinguishment was recorded as a "non-recurring item."
 As of December 31, 1994, the Company was in compliance with its debt covenants.
 Aggregate principal payments on funded debt outstanding at December 31, 1994
are $.4 million for 1995 and 1996, $.3 million for 1997, $.1 million for 1998,
$30.0 million for 1999, and $650.0 million thereafter.


8.  LEASE COMMITMENTS

The Company has operating lease commitments with terms greater than one year
for equipment and office space, some with options to renew at the end of the
lease periods. The minimum rental commitments under all such noncancelable
leases at December 31, 1994 are as follows (in millions): 1995-$23.8;
1996-$17.1; 1997-$6.6; 1998-$2.3; 1999-$.8; and thereafter-$0. Total rental
expense incurred by the Company for 1994, 1993 and 1992 was $29.1 million,
$31.3 million and $35.4 million, respectively.


<PAGE>   49
                                                                        45

9.  EMPLOYEE BENEFIT PLANS

RETIREMENT PLANS  The Company has a two-tiered Retirement Security Program. The
first tier is a self-directed defined contribution pension plan covering all    
employees who meet requirements as to age and length of service. Contributions
vary from one percent to five percent of annual eligible compensation up to the
Social Security wage base, based on years of eligible service. Prior to January
1, 1994, the defined contribution plan was Company directed, covered only
eligible employees hired after December 31, 1988 and was funded at 1.3 percent
of annual eligible compensation up to the Social Security wage base. Company
contributions were $3.2 million in 1994, $.7 million in 1993 and $.5 million in
1992.
 The second tier is a long-term savings plan under which the Company
matches, up to a maximum of three percent of an employee's annual contribution
in Company stock. Company contributions were $4.4 million in 1994, $3.8 million
in 1993 and $3.6 million in 1992.
 The Company has a defined benefit pension plan which covered employees
hired before January 1, 1989 who meet requirements as to age and length of
service. This plan and future benefit accruals were curtailed on December 31,
1993, and the Company recognized a $1.5 million gain. The benefits accruals,
based on years of service and the employee's career average compensation up to
the Social Security tax base, were frozen as of December 31, 1993. The
Company's funding policy is to contribute annually the maximum amount that can
be deducted for Federal income tax purposes.


The following table sets forth the defined benefit plan information as of
December 31:



<TABLE>
<CAPTION>
         (millions)                                                                 1994          1993          1992
<S>                                                                            <C>
Actuarial present value of benefit obligations:
      Vested benefit obligation                                                $      13.6       $     15.8     $      9.2
                                                                               ============      ===========    ===========
      Accumulated benefit obligation                                           $      13.6       $     16.8     $     12.3
                                                                               ============      ===========    ===========
      Projected benefit obligation for service rendered to date                $      13.6       $     16.8     $     16.6
Plan assets at fair value, primarily government and corporate taxable bonds           17.1             17.9           13.6
                                                                               ------------      -----------    -----------
Plan assets net of projected benefit obligation                                        3.5              1.1           (3.0)
Unrecognized actuarial gains                                                          (3.0)            (1.9)          (3.6)
Unrecognized prior service cost                                                         --               --             .7
Unrecognized transition asset at January 1, 1987, recognized over 21 years             (.3)             (.3)           (.3)
                                                                               ------------      -----------    -----------
Pension asset (liability) recognized in the consolidated balance sheets        $        .2       $     (1.1)    $     (6.2)
                                                                               ============      ===========    ===========
Net pension cost included the following components:
      Service cost-benefits earned during the period                           $        --       $      1.9     $      2.5
      Interest cost on projected benefit obligation                                    1.3              1.2            1.1
      Actual return on plan assets                                                      .1             (1.2)          (1.3)
      Net amortization and deferral                                                   (1.6)             (.5)           (.4)
                                                                               ------------      -----------    -----------
      Net periodic pension cost (return)                                       $       (.2)      $      1.4     $      1.9
                                                                               ============      ===========    ===========
</TABLE>




The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation was 8.0 percent for 1994, 7.0 percent
for 1993 and 8.0 percent for 1992. The expected long-term rate of return on
assets was 8.0 percent for 1994, 1993 and 1992.  The rate of increase in future
compensation levels was 8.0 percent in 1992.

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. In 1993, the Company
early adopted SFAS 112, "Accounting for Postemployment Benefits." The Company's
obligation was $1.3 million and $.9 million at December 31, 1994 and 1993,
respectively.
POSTRETIREMENT BENEFITS  The Company provides postretirement health and life
benefits to all employees who met requirements as to age and length of service
at December 31, 1988. The Company recognized its obligation of $.4 million at
December 31, 1994, 1993 and 1992. As of December 31, 1994, the Company has
fully funded its retirees' portion of the postretirement benefit obligation and
will review this funded status annually. 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.
INCENTIVE COMPENSATION PLANS  The Company's 1989 Incentive Plan provides for
the granting of stock options and other stock-based awards to key employees of
the Company. The 6,500,000 Common Shares authorized under the Incentive Plan
have been registered. Outside of the Incentive Plan, the Company registered
1,425,000 Common Shares


<PAGE>   50
46
relating to stock options granted to key employees of the Company. 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
were granted at the fair market value at the date of grant.


A summary of all stock option activity during the three years ended December
31, follows:

<TABLE>
<CAPTION>
                                         1994                           1993                         1992

                              Number of       Option Prices    Number of      Option Prices   Number of     Option Prices
Options Outstanding              Shares           Per Share       Shares          Per Share      Shares         Per Share
<S>                               <C>               <C>           <C>              <C>            <C>             <C>
Beginning of year             4,488,887   $ 7.666 to 29.625   4,123,003   $ 7.666 to 19.833   3,301,176   7.666 to 19.833
      Add (deduct):
      Granted                 1,156,450    31.000 to 38.750     693,325              29.625   1,581,750  15.458 to 18.833
      Exercised                (198,959)    7.666 to 19.666     (96,443)    9.250 to 19.666    (531,497)  7.666 to 18.291
      Cancelled                (182,556)   11.250 to 31.000    (230,998)    9.125 to 29.625    (228,426)  9.125 to 19.375
                              ---------   -----------------   ---------    ----------------   ---------  ----------------
End of year                   5,263,822   $ 7.666 to 38.750   4,488,887    $7.666 to 29.625   4,123,003  $7.666 to 19.833
                              =========   =================   =========    ================   =========  ================
Exercisable, end of year      1,128,902   $ 7.666 to 31.000     934,592    $7.666 to 19.833     759,238  $7.666 to 19.666
                              =========   =================   =========    ================   =========  ================
Available, end of year        1,834,279                       2,808,173                       1,270,500        
                              =========                       =========                       =========  
</TABLE>


The Company's 1985 Restricted Stock Plan, which awarded to key employees Common
Shares which vested over future employment periods, expired on December 31,
1993. 
 The amounts charged to income for incentive compensation plans, including
an executive cash bonus program for key members of management and a gainsharing
payment to all other employees, were $32.0 million in 1994, $24.7 million in
1993 and $12.0 million in 1992.

10.  STATUTORY FINANCIAL INFORMATION

At December 31, 1994, $102.1 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 Company cannot include the net admitted
assets required to meet the minimum statutory surplus requirements of the
states where the subsidiaries are licensed.
 During 1994, the insurance subsidiaries paid aggregate cash dividends of 
$52.6 million to the Company, and one subsidiary remitted $20.1 million of 
surplus by redeeming and subsequently retiring a portion of its shares. Based 
on the dividend laws currently in effect, the insurance subsidiaries may pay 
aggregate dividends of $177.0 million in 1995 without prior approval from 
regulatory authorities.
 Statutory policyholders' surplus was $949.2 million and $701.9 million at 
December 31, 1994 and 1993, respectively. Statutory net income was $230.3
million, $188.6 million and $61.7 million for the years ended December 31,
1994, 1993 and 1992, respectively. During 1994, the insurance subsidiaries
began to reduce loss reserves for anticipated salvage and subrogation
recoveries in accordance with statutory accounting principles. Previously,
salvage and subrogation was not reflected in the statutory financial statements
until actually recovered. As a result of this change, statutory policyholders'
surplus increased $39.9 million during 1994.  
 As of December 31, 1994, the Company's insurance subsidiaries, as part of 
their statutory filings, are required to disclose their risk-based capital 
(RBC) requirements. The National Association of Insurance Commissioners 
developed an 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.

11.  RELATED PARTY TRANSACTIONS

In April 1988, the Company sold to Alfred Lerner, then Chairman of the
Company's Board of Directors, a $75.0 million Floating Rate Convertible
Subordinated Debenture due 2008 (convertible debenture). On December 16, 1992,
the convertible debenture was converted into 9,000,000 Common Shares. On the
same date, Mr. Lerner sold, in an underwritten public offering, 5,175,000 of
the Common Shares received upon such conversion. In 1993, Mr. Lerner sold the
remaining 3,825,000 shares. The public offering was completed pursuant to the
terms of the registration rights provisions of


<PAGE>   51
                                                                          47
the convertible debenture, under which the Company paid $5.1 million in
underwriting and other expenses of the offering, which were charged directly to
shareholders' equity. In addition, Mr. Lerner ended his employment agreement
with the Company, and the Company paid him $10.0 million. Prior to the
conversion, the Company incurred interest expense on the convertible debenture
of $4.5 million in 1992.
 As of June 30, 1992, the Company exercised its right to terminate the
Investment Management Agreement with Progressive Partners Limited Partnership
(Progressive Partners) as part of its strategy to compete more effectively by
lowering costs. Mr. Lerner had a 50 percent interest in Progressive Partners.
Upon such termination, the Company paid Progressive Partners a one-time
termination fee, and an additional incentive fee for the period ended June 30,
1992, in the aggregate amount of $54.6 million, determined according to a
formula contained in the Investment Management Agreement. Progressive Partners'
investment staff became employed by a wholly-owned subsidiary of the Company
and continues to provide the Company with investment and capital management
services. Prior to the termination of the Agreement, the Company incurred
investment management service fees to Progressive Partners of $10.5 million for
1992.
 In January 1991, the Company purchased 4,851,000 shares (adjusted for the 
2-for-1 stock split paid February 12, 1993), or 4.9 percent, of MBNA 
Corporation in connection with its initial public offering. At the time of the
transaction, Mr. Lerner was Chairman of the Board and Chief Executive Officer
of MBNA Corporation and owned 10 percent of its common stock. During 1993, the
Company sold its entire holding of MBNA Corporation, recognizing realized gains
of $74.3 million.

12.  SEGMENT INFORMATION

The operating segments of the Company and subsidiaries are classified into
Insurance and Service. Expense allocations are based on assumptions and
estimates; stated segment operating results would change if different methods
were applied. The Company does not allocate assets to segments.



<TABLE>
<CAPTION>
For the years ended December 31,                       1994                      1993                     1992

         (millions)                                           Pretax                    Pretax                  Pretax
                                               Revenues Profit (Loss)   Revenues  Profit (Loss)  Revenues  Profit (Loss)
<S>                                              <C>          <C>          <C>         <C>         <C>          <C>
Insurance operations                         $  2,191.1   $   251.5   $  1,668.7   $   177.8   $  1,426.1    $    49.6
Service operations                                 41.9        10.0         43.7         6.8         53.3         (4.3)
                                             ----------   ---------   ----------   ---------   ----------    ---------
      Total operations                          2,233.0       261.5      1,712.4       184.6      1,479.4         45.3
Proposition 103 reserve reduction                    --          --           --          --        106.0        106.0
Total investment income                           182.3       182.3        242.4       242.4        153.5        153.5
Interest expense and other costs                     --       (64.0)          --       (53.9)          --       (126.1)
                                             ----------   ---------   ----------   ---------   ----------    ---------
                                             $  2,415.3   $   379.8   $  1,954.8   $   373.1   $  1,738.9    $   178.7
                                             ==========   =========   ==========   =========   ==========    =========
</TABLE>



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 2-Investments and
Note 7-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)                                                                     1994                   1993
                                                                                             Market                 Market
                                                                                  Cost        Value         Cost     Value
<S>                                                                               <C>          <C>          <C>       <C>
Investments:
       Held-to-maturity: fixed maturities                                       $337.6        $343.8      $309.1     $327.4
       Available-for-sale: fixed maturities                                    2,129.7       2,087.0     1,761.9    1,792.6
                          equity securities                                      481.0         476.3       433.2      453.9
       Short-term investments                                                    279.1         279.2       230.8      231.3
Funded debt                                                                     (675.6)       (649.8)     (477.1)    (542.4)
</TABLE>
                                                                   



<PAGE>   52
48
                                Loss Reserves
                                 -------------
               Not covered by report of independent accountants
                                      

<TABLE>
<CAPTION>
                                                                                              GAAP Combined Ratio
                                                                                                        Adjusted to
                                              Year-End        Current         % Year-End                    Reflect
                                               Reserve       Estimate     Reserve Amount                       Loss
                                                Amount       of Total          Unpaid at          As        Reserve
Year                                        (millions)    Redundancy1  December 31, 1994    Reported    Development
<S>                                               <C>             <C>                <C>        <C>            <C>
1994(2) . . . . . . . . . . . . . . . .      $   1,434             NA                100%       88.5             NA
1993  . . . . . . . . . . . . . . . . .          1,349             10%                51        89.3           91.6
1992  . . . . . . . . . . . . . . . . .          1,274             15                 28        96.5           94.0
1991  . . . . . . . . . . . . . . . . .          1,077             12                 18       103.7          103.1
1990  . . . . . . . . . . . . . . . . .            858             13                 13        99.0           96.8
1989  . . . . . . . . . . . . . . . . .            750             10                  6       101.2           98.3
1988  . . . . . . . . . . . . . . . . .            654              6                  3        97.1           99.8
</TABLE>


The chart represents what the underwriting results for prior years would        
have been if year-end reserves were as subsequent payments and current reserves
now suggest. For example, the 89.3 GAAP combined ratio as reported for 1993 was
positively impacted 2.3 points because reserve redundancy which existed at
December 31, 1992 decreased by $37.7 million during 1993.

1 The percentage will change as claims unpaid at December 31, 1994 are   
  ultimately settled or the reserves adjusted.  

2 In 1994, the $71.0 million "supplemental reserve" was eliminated, resulting in
  a one-time favorable impact to the GAAP combined ratio of 3.2 points. See
 
 Management's Discussion and Analysis for further discussion.

NA = Not applicable


                            Direct Premiums Written
                            -----------------------
                Not covered by report of independent accountants
                                       

<TABLE>
<CAPTION>
(millions)
                          1994                 1993                1992                1991                 1990
<S>                      <C>     <C>         <C>     <C>          <C>   <C>           <C>     <C>         <C>     <C>
Florida            $    369.9   14.0%   $   265.6   13.5%      $ 195.3  11.9%       $173.9   11.3%   $   169.3   12.5%
Texas                   246.4    9.3        146.6    7.4         117.0   7.2          96.2    6.3         64.4    4.7
Ohio                    232.0    8.8        175.9    8.9         140.7   8.6         137.1    8.9        116.8    8.6
New York                195.2    7.4        170.4    8.7         156.8   9.6         132.1    8.6        105.2    7.7
Pennsylvania            161.2    6.1        113.0    5.8          70.1   4.3          52.8    3.4         53.0    3.9
Georgia                 129.7    4.9        120.0    6.1         114.6   7.0         122.9    8.0        106.4    7.8
California              126.8    4.8         80.2    4.1          90.6   5.5         156.1   10.2        177.8   13.1
All other             1,183.9   44.7        894.7   45.5         751.7  45.9         665.7   43.3        565.9   41.7
                   ----------  ------  ----------  ------   ---------- ------     --------  ------  ----------  ------
      Total        $  2,645.1  100.0%  $  1,966.4  100.0%   $  1,636.8 100.0%     $1,536.8  100.0%  $  1,358.8  100.0%
                   ==========  ======  ==========  ======   ========== ======     ========  ======  ==========  ======
</TABLE>


                                     The Progresive Corporation and Subsidiaries

<PAGE>   53
                                                                          49

<TABLE>
                  Quarterly Financial and Common Share Data
                  -----------------------------------------
               Not covered by report of independent accountants
                                      
(millions-except per share amounts)
<CAPTION>
                                          Net Income       Operating Income1

                                                                                                               Stock Price
                           Operating                   Per                 Per        High-Low   Dividends    Appreciation
Year            Quarter     Revenues       Total    Share2    Total3    Share2          Price4   Per Share   (Depreciation)5
                                                                                                                 
<S>                 <C>   <C>            <C>        <C>      <C>         <C>      <C>              <C>          <C>
1994  . . . . . . .  1     $   488.2      $ 48.1     $ .62    $ 49.8     $ .64    $40 1/2-27 3/4    $  .050
                     2         547.1        60.5       .79      54.7       .71     35 5/8-28 1/2       .050
                     3         582.3        64.8       .85      57.4       .75     38 7/8-33 1/4       .055
                     4         615.4       100.9      1.34(6)   50.8       .66     38 3/8-32 1/4       .055
                           ---------      ------     -----    ------     -----    --------------    -------        -----
                           $ 2,233.0      $274.3     $3.59(6) $212.7     $2.76    $40 1/2-27 3/4    $  .210       (13.1)%
                           =========      ======     =====    ======     =====    ==============    =======        =====
                                                                                              
1993  . . . . . . .  1     $   382.8      $ 51.6     $ .71     $39.9     $ .54    $36 1/8-26 5/8    $  .050
                     2         423.3        79.7      1.11      54.5       .75     36 1/4-27 1/2       .050
                     3         442.8        82.6      1.09      54.7       .71     44 1/4-31 3/4       .050
                     4         463.5        53.4       .68      49.3       .63     46 1/8-38 3/8       .050
                           ---------      ------     -----    ------     -----    --------------    -------        -----
                           $ 1,712.4      $267.3     $3.58    $197.3     $2.61    $46 1/8-26 5/8    $  .200        39.8%
                           =========      ======     =====    ======     =====    ==============    =======        =====
                                                                                              
1992  . . . . . . .  1     $   346.4      $ 36.1     $ .47(7) $ 18.0      $.22    $18 7/8-14 3/4    $  .047
                     2         365.7        40.1       .53      32.4       .41         19-15 5/8       .047
                     3         373.7        44.7       .62      42.0       .58         22-18 7/8       .047
                     4         393.6        32.9       .45(8)   37.4       .51     29 3/8-21 3/8       .050
                           ---------      ------     -----    ------     -----    --------------    -------        -----
                           $ 1,479.4      $153.8     $2.05    $129.8     $1.72    $29 3/8-14 3/4    $  .191        63.3%
                           =========      ======     =====    ======     =====    ==============    =======        =====
<FN>
All per share amounts and stock prices were adjusted for the December 8, 1992,
3-for-1 stock split.  

1 Represents net income less realized gains and losses on security sales
  and one-time items.  

2 Presented on a fully diluted basis. The sum does not equal the total
  because the average equivalent shares differ in the periods.  

3 For 1993, the sum of the quarterly operating income does not equal the total
  due to the retroactive impact of the Omnibus Budget Reconciliation Act of 1993.

4 Prices as reported on the New York Stock Exchange.                         

5 Represents annual rate of return on Progressive Common Shares, including
  quarterly dividend reinvestment.  

6 In the fourth quarter 1994, the "supplemental reserve" was eliminated,
  resulting in a one-time increase of $71.0 million before taxes, or $.63 per
  share for the quarter and $.62 per share for the year. See Management's
  Discussion and Analysis for further discussion.  

7 For the first quarter 1992, income before cumulative effect of accounting
  change was $21.9 million, or $.28 per share.  

8 Adjustments which adversely impacted earnings during the fourth quarter
  1992 were the payment to Alfred Lerner (see Note 11-Related Party Transactions
  for further discussion) and reserve adjustments based on routine actuarial
  analysis completed during the quarter.

</TABLE>
                                                                      

                                   The Progressive Corporation and Subsidiaries


<PAGE>   54

<TABLE>
50
                     Ten Year Summary--Financial Highlights
                     --------------------------------------
                Not covered by report of independent accountants

<CAPTION>
                                                                  (millions-except per share amounts and number of people employed)

                                                                                                1994             1993
<S>                                                                                         <C>            <C>
INSURANCE COMPANIES SELECTED FINANCIAL INFORMATION
       AND OPERATING STATISTICS-STATUTORY BASIS
 Reserves:
       Loss and loss adjustment expense                                                     $  1,100.2     $   1,053.7
       Unearned premiums                                                                         954.8           688.9
 Policyholders' surplus1                                                                         949.2           701.9
 Ratios:
       Net premiums written to policyholders' surplus                                              2.6             2.6
       Loss and loss adjustment expense reserves to policyholders' surplus                         1.2             1.5
       Loss and loss adjustment expense                                                           64.2            62.6
       Underwriting expense                                                                       22.4            25.4
                                                                                            ----------     -----------
       Statutory combined ratio                                                                   86.6            88.0

SELECTED CONSOLIDATED FINANCIAL INFORMATION-GAAP BASIS
  Total revenues                                                                            $  2,415.3     $   1,954.8
  Total assets2                                                                                4,675.1         4,011.3
  Total shareholders' equity3                                                                  1,151.9           997.9
  Common Shares outstanding                                                                       71.2            72.1
  Book value per Common Share3                                                              $    14.97     $     12.62
  Return on average shareholders' equity4                                                         27.4%           36.0%
  Funded debt outstanding                                                                   $    675.6     $     477.1
  Ratio of funded debt to capital                                                                   37%             32%
  GAAP underwriting margin3                                                                       11.5            10.7
  Number of people employed                                                                      7,544           6,101
                                                                                        
<FN>                                                                                    
1 During 1994, the Company began accruing for salvage and subrogation recoverables. See Note 10-Statutory Financial Information.

2 Pursuant to SFAS 113, amounts for 1990 through 1992 were restated. See Note 3-Reinsurance.

3 In 1994, the $71.0 million "supplemental reserve" was eliminated, increasing book value per share $.65, underwriting profit margin
  3.2 percent and shareholders' equity $46.2 million. See Management's Discussion and Analysis for further discussion.

4 Net income minus preferred share dividends divided by average common shareholders' equity.
  All share and per share amounts were adjusted for stock splits.
</TABLE>



<PAGE>   55
                                                                              51


<TABLE>





<CAPTION>
       1992        1991        1990       1989        1988        1987        1986        1985
     <S>         <C>         <C>        <C>        <C>         <C>         <C>         <C>



      $ 994.7     $ 901.7     $ 827.4    $ 787.7     $ 685.5     $ 496.1     $ 342.0     $ 226.6
        538.5       513.6       474.1      467.6       505.0       446.8       323.9       219.4
        658.3       676.7       636.7      578.1       495.0       452.0       312.0       230.1

          2.2         2.0         1.9        2.0         2.6         2.5         2.5         2.3
          1.5         1.3         1.3        1.4         1.4         1.1         1.1         1.0
         68.3        65.7        62.1       65.9        62.9        58.3        61.0        65.6
         29.8        33.5        31.1       31.4        33.2        35.8        34.3        33.6
     --------    --------    --------   --------    --------    --------     -------     -------
         98.1        99.2        93.2       97.3        96.1        94.1        95.3        99.2


     $1,738.9    $1,493.1    $1,376.2   $1,392.7    $1,355.8    $1,066.2     $ 749.4     $ 507.1
      3,440.9     3,317.2     2,912.4    2,643.7     2,316.3     1,782.5     1,259.2       810.8
        629.0       465.7       408.5      435.2       417.2       395.0       311.4       118.4
         67.1        63.3        69.3       76.2        80.7        86.1        84.0        65.1
     $   7.94    $   5.83    $   5.89   $   5.71    $   5.17    $   4.59     $  3.71     $  1.82
         34.7%        6.7%       21.5%      17.4%       25.9%       24.7%       26.9%       36.9%
     $  568.5    $  644.0    $  644.4   $  645.9    $  479.2    $  216.9     $ 100.8     $ 158.7
           47%         58%         61%        60%         53%         35%         24%         57%
          3.5        (3.7)        1.0       (1.2)        2.9         5.6         4.3         0.0
        5,591       6,918       6,370      6,049       5,854       5,879       4,711       3,266
</TABLE>


The Progressive Corporation and Subsidiaries


<PAGE>   56
52

<TABLE>
             Ten Year Summary--GAAP Consolidated Operating Results
             -----------------------------------------------------
               Not covered by report of independent accountants

<CAPTION>
                                                                                (millions-except per share amounts)
                                                                                                1994             1993
<S>                                                                                       <C>             <C>
Direct premiums written:
      Personal lines                                                                        $  2,181.7      $   1,548.9
      Commercial lines                                                                           463.4            417.5
                                                                                            ----------       ----------
Total direct premiums written                                                                  2,645.1          1,966.4
      Reinsurance assumed                                                                          2.9              9.2
      Reinsurance ceded                                                                         (190.8)          (156.4)
                                                                                            ----------       ----------
Net premiums written                                                                           2,457.2          1,819.2
      Net change in unearned premiums reserve1                                                  (266.1)          (150.5)
                                                                                            ----------       ----------
Premiums earned                                                                                2,191.1          1,668.7
                                                                                            ----------       ----------
Expenses:
      Losses and loss adjustment expenses2                                                     1,397.3          1,028.0
      Policy acquisition costs                                                                   391.5            311.6
      Other underwriting expenses                                                                150.8            151.3
                                                                                            ----------       ----------
Total underwriting expenses                                                                    1,939.6          1,490.9
                                                                                            ----------       ----------
Underwriting profit (loss) before taxes                                                          251.5            177.8
Provision (benefit) for Federal income taxes                                                      88.0             62.2
                                                                                            ----------       ----------
Underwriting profit (loss) after taxes                                                           163.5            115.6
Service operations profit (loss) after taxes                                                       6.5              4.4
                                                                                            ----------       ----------
                                                                                                 170.0            120.0
Investment income after taxes                                                                    131.2            107.1
Net realized gains (losses) on security sales after taxes                                         15.5             70.1
Interest expense after taxes                                                                     (35.9)           (25.8)
Proposition 103 reserve reduction after taxes                                                       --               --
Non-recurring items after taxes                                                                     --             (2.6)
Other expense after taxes3                                                                        (6.5)            (1.5)
                                                                                            ----------       ----------
Income before Federal tax adjustments
       and cumulative effect of accounting change                                                274.3            267.3
Federal tax adjustments4                                                                            --               --
Cumulative effect of accounting change5                                                             --               --
                                                                                            ----------       ----------
Net income                                                                                  $    274.3      $     267.3
                                                                                            ==========      ===========
Per share
      Net income2                                                                           $     3.59      $      3.58
      Dividends                                                                                   .210             .200
Average equivalent shares
      Primary                                                                                     74.0             71.8
      Fully diluted                                                                               74.0             72.0
Common Share Price
      High                                                                                  $    40 1/2     $    46 1/8
      Low                                                                                        27 3/4          26 5/8
      Close6                                                                                     35              40 1/2
<FN>
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.

  See Management's Discussion and Analysis for further discussion.

3 Reflects investment expenses after taxes and other tax adjustments.

4 1991 reflects a deferred tax asset write-down; 1990 reflects a fresh start tax benefit; and 1985 reflects benefits from capital
  loss carry forwards.

5 1992 reflects adoption of SFAS 109, "Accounting for Income Taxes," and 1987 reflects adoption of SFAS 96, "Accounting for
  Income Taxes."

6 Represents the closing price at December 31.

  All share and per share amounts were adjusted for stock splits.
</TABLE>



<PAGE>   57
                                                                           53


<TABLE>
<CAPTION>




     1992         1991        1990       1989        1988        1987        1986       1985
   <S>         <C>         <C>        <C>         <C>         <C>         <C>         <C>
   $1,214.6    $1,047.4    $  876.0   $  800.1    $  817.0    $  690.2    $  526.2    $  396.4
      422.2       489.4       482.8      487.0       521.0       488.0       303.9       145.0
   --------    --------    --------   --------    --------    --------    --------    --------
    1,636.8     1,536.8     1,358.8    1,287.1     1,338.0     1,178.2       830.1       541.4
        4.3          .1          .1        7.2         9.4        19.5         9.2         1.6
     (189.9)     (212.3)     (162.6)    (134.0)      (72.4)      (81.2)      (58.4)      (20.1)
   --------    --------    --------   --------    --------    --------    --------    --------
    1,451.2     1,324.6     1,196.3    1,160.3     1,275.0     1,116.5       780.9       522.9
      (25.1)      (37.7)       (5.1)      36.2       (59.6)     (122.1)     (103.7)      (78.1)
   --------    --------    --------   --------    --------    --------    --------    --------
    1,426.1     1,286.9     1,191.2    1,196.5     1,215.4       994.4       677.2       444.8
   --------    --------    --------   --------    --------    --------    --------    --------

      930.9       858.0       762.9      799.3       752.0       571.9       406.6       288.4
      304.1       313.7       292.7      296.7       321.3       292.6       190.2       130.1
      141.5       162.1       123.7      114.9       106.6        74.4        51.8        26.4
   --------    --------    --------   --------    --------    --------    --------    --------
    1,376.5     1,333.8     1,179.3    1,210.9     1,179.9       938.9       648.6       444.9
   --------    --------    --------   --------    --------    --------    --------    --------
       49.6       (46.9)       11.9      (14.4)       35.5        55.5        28.6         (.1)
       16.9       (15.9)        4.0       (2.9)       10.0        12.2        13.1         (.7)
   --------    --------    --------   --------    --------    --------    --------    --------
       32.7       (31.0)        7.9      (11.5)       25.5        43.3        15.5          .6
       (2.8)       (1.4)        2.8        2.5        (1.3)       (1.0)         --          --
   --------    --------    --------   --------    --------    --------    --------    --------
       29.9       (32.4)       10.7       (9.0)       24.2         4.3        15.5          .6
      110.4       121.1       126.4      135.3        91.3        59.3        45.1        31.3
        9.6         4.9        (8.4)       (.4)       12.3        (1.9)        9.4        10.0
      (29.4)      (31.6)      (32.0)     (32.5)      (10.5)       (6.5)       (3.3)       (4.8)
       70.0          --          --         --          --          --          --          --
      (42.6)         --          --         --          --          --          --          --
       (8.3)      (14.9)      (13.2)     (15.4)       (9.2)       (3.4)       (2.0)       (1.7)
   --------    --------    --------   --------    --------    --------    --------    --------

      139.6        47.1        83.5       78.0       108.1        89.8        64.7        35.4
         --       (14.2)        9.9         --          --          --          --          .2
       14.2          --          --         --          --         3.7          --          --
   --------    --------    --------   --------    --------    --------    --------    --------
   $  153.8    $   32.9    $   93.4   $   78.0    $  108.1    $   93.5    $   64.7    $   35.6
   ========    ========    ========   ========    ========    ========    ========    ========

   $   2.05    $    .41    $   1.19   $    .94    $   1.23    $   1.08    $    .77    $    .52
       .191        .172        .160       .147        .133        .077        .019        .017

       62.3        66.6        72.9       79.8        84.0        86.7        85.5        70.5
       71.9        75.6        82.5       89.1        90.9        86.7        85.5        70.5

   $ 29 3/8    $ 20 5/8    $ 18 3/4   $ 14 1/2    $ 10 3/4    $ 11 7/8    $ 12 7/8    $  7
     14 3/4      15          11          7 1/2       7 1/4       8 1/2       6 3/4       3 3/8
     29 1/8      18          17 1/8     12 7/8       7 5/8      10 1/8      10 3/8       6 7/8
</TABLE>


                                    The Progressive Corporation and Subsidiaries


<PAGE>   58
54

                     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 48 through 53, should
be read in conjunction with the following discussion of our 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 and other
outstanding securities, to redeem debt, and for other business purposes. In
1994, the Company sold $200.0 million of its 6.60% Notes due 2004. During 1994,
the Company repurchased .1 million of its Serial Preferred Shares, Series A,
for a cost of $2.3 million and 1.1 million of its Common Shares for a cost of
$34.0 million.

        During the three-year period ended December 31, 1994, the Company sold
4,950,000 Common Shares for net proceeds of $177.0 million and repurchased 3.1
million Common Shares at a total cost of $142.3 million (average cost of $24.21
per share, split effected) and .5 million Serial Preferred Shares at a total
cost of $12.1 million (average cost of $27.37 per share). The Company also sold
$350.0 million of notes, repaid $170.0 million borrowed under its credit
facilities, and redeemed the entire $70.0 million of its 8 3/4% Debentures.
During the same period, The Progressive Corporation received $299.8 million
from its insurance subsidiaries, net of capital contributions made to these
subsidiaries. The regulatory restrictions on subsidiary dividends are described
in Note 10 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. The Company also has available a $20.0
million revolving credit agreement. The Company believes it has sufficient
borrowing capacity and other capital resources to support current and
anticipated growth.

        The Company's insurance operations create liquidity by collecting and
investing premiums written from new and renewal business in advance of paying
claims. For the three years ended December 31, 1994, operations generated a
positive cash flow of $925.4 million, and cash flow is expected to be positive
in both the short-term and reasonably foreseeable future. The Company's
substantial investment portfolio is highly liquid, consisting almost entirely
of readily marketable securities. The Company does not expect any material
changes in its cash requirements and is not aware of any trends, events or
uncertainties that are reasonably likely to have a material effect on its
liquidity.

        Capital expenditures for the three years ended December 31, 1994,
aggregated $130.3 million. In 1994, the Company completed its new corporate
office complex in Mayfield Village, Ohio. The new facility consists of 517,800
square feet of space and replaces office space held under expiring leases in a
number of locations in the Cleveland area. The cost of the project was $75.5
million, and is being funded through operating cash flows. As of December 31,
1994, $71.7 million of the project's cost had been paid.

        In June 1992, the Company reached an agreement with the California
Department of Insurance to refund approximately $50 million of premiums
(including interest) on business written between November 8, 1988 and November
7, 1989 to approximately 260,000 policyholders, thereby settling all rollback
and refund exposure since Proposition 103 was adopted in November 1988. As a
result, the Proposition 103 premium refund and rollback reserve was reduced by
$106.0 million.

        During 1992, the Company changed its financial arrangement with
Progressive Partners Limited Partnership (Progressive Partners), its investment
manager, as part of its strategy to compete more effectively for private
passenger auto insurance by lowering costs. Under the new arrangement,
Progressive Partners' people, now employed by a wholly-owned Progressive
subsidiary, continue to provide the Company with investment and capital
management. The transaction involved paying Progressive Partners a one-time fee
for terminating the investment management contract, and an additional incentive
fee for the period ended June 30, 1992, in the aggregate amount of $54.6
million. This transaction reduced the Company's costs for investment and
capital management.

        In December 1992, Mr. Alfred Lerner, then Chairman of the Company,
converted his $75.0 million Floating Rate Convertible Subordinated Debenture
due 2008 into 9,000,000 Common Shares and sold 5,175,000 of those Common Shares
in an underwritten public offering. The public offering was completed pursuant
to the registration rights provisions of the convertible debenture, under which
the Company paid $5.1 million in underwriting and other expenses of the
offering. These expenses were charged directly to shareholders' equity in
accordance with generally accepted accounting principles. On the same date, Mr.
Lerner agreed to a termination of his employment agreement with the Company,
and, in connection with these transactions, the Company paid Mr. Lerner $10.0   
million.

INVESTMENTS  The Company invests in fixed maturity, short-term and equity
securities. The Company's investment strategy recognizes its need to maintain
capital adequate to support its insurance operations. Therefore, the Company
evaluates the risk/reward trade-offs of investment opportunities, measuring
their effects on stability, diversity, overall quality and liquidity of the
investment portfolio. The majority ($2,319.4 million, or 72.9% in 1994 and
$2,135.1

                                   The Progressive Corporation and Subsidiaries

<PAGE>   59
                                                                             55

million, or 76.6% in 1993) of the portfolio was in short-term and
intermediate-term, investment-grade fixed-income securities. A relatively small
portion ($476.3 million, or 15.0% in 1994 and $453.9 million, or 16.3% in 1993)
of the investment portfolio was invested in preferred and common equity
securities providing risk/reward balance and diversification. The remainder of
the portfolio was invested in long-term investment-grade fixed-income
securities ($245.0 million, or 7.7% in 1994 and $77.6 million, or 2.8% in 1993)
and non-investment-grade fixed-income securities ($139.3 million, or 4.4% in
1994 and $119.8 million, or 4.3% in 1993). The non-investment-grade
fixed-income securities, although constituting only a small portion of the
portfolio, offer the Company high returns and added diversification without a
significant adverse effect on the stability and quality of the investment
portfolio as a whole. These securities may involve greater risks often related
to creditworthiness, solvency and relative liquidity of the secondary trading
market. Financial instruments with off-balance-sheet risk are used to manage
the risks and enhance the yields of the available-for-sale portfolio. This is
accomplished by modifying the basis, duration or interest rate characteristics
of the portfolio, or hedging securities. 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;
unless otherwise noted, collateral is not required to support the credit risk.
The weighted average fully taxable equivalent book yield of the portfolio was
6.7%, 6.8% and 7.9% for the years ended December 31, 1994, 1993 and 1992, 
respectively.

        As of December 31, 1994, the Company's portfolio had $41.1 million in
unrealized losses, compared to $70.2 million in unrealized gains in 1993.  This
decrease was due largely to the adverse impact on the Company's fixed-income
portfolio of rapidly rising interest rates throughout 1994.

        As of December 31, 1994, the Company held $154.6 million of
Collateralized Mortgage Obligations ("CMOs"), which represented 4.9% of the
total investment portfolio. There are two types of securities held in the CMO
Portfolio. As of December 31, 1994, sequential bonds represented 61.3% of the
portfolio ($94.8 million) and had an average life of 2.1 years. Planned
Amortization Class bonds represented 38.7% of the portfolio ($59.8 million) and
had an average life of 2.0 years. The portfolio contains no residual interests.

        CMOs held by the Company are highly liquid with readily available
quotes and, at December 31, 1994, had an average life of 2.0 years. Eighty-
five percent of the CMOs held by the Company are rated AAA by Moody's or
Standard & Poor's. As of December 31, 1994, the Company's total CMO portfolio
had an unrealized loss of $6.6 million. The single largest unrealized loss in
any CMO security was $.9 million, or only 9.2% of such position.

        Investments in the Company's portfolio have varying degrees of risk.
Equity securities generally have greater risks than the non-equity portion of
the portfolio since these securities are subordinate to rights of debt holders
and other creditors of the issuer. As of December 31, 1994, the mark-to-market
net losses in the Company's equity portfolio were $4.7 million ($3.1 million,
net of taxes), as compared to net gains of $20.7 million ($13.5 million, net of
taxes) in 1993.

        The 1994 marketable equity portfolio consisted of three principal
components: (i) $15.6 million, or 3.3%, of standard adjustable rate preferreds,
(ii) $338.0 million, or 71.0%, of perpetual preferreds with mechanisms that may
provide an opportunity to liquidate at par, and (iii) $122.7 million, or 25.7%,
of common stocks. The 1993 marketable equity portfolio consisted of three
principal components; (i) $73.0 million, or 16.1%, of standard adjustable rate
preferreds, (ii) $283.4 million, or 62.4%, of perpetual preferreds with
mechanisms that may provide an opportunity to liquidate at par, and (iii) $97.5
million, or 21.5%, of common stocks.

        The Company continually evaluates the creditworthiness of each issuer
for all securities held in its portfolio. 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. Evidence reviewed may include the recent operating results and
financial position of the issuer, information about its industry, recent
announcements and other information. The Company retains a staff of experienced
security analysts to compile, review and evaluate such information.

        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. It is
the Company's general policy to dispose of securities when the Company
determines that the issuer is unable to reverse its deteriorating financial
condition and the prospects for its business within a reasonable period of
time. In less severe circumstances, the Company may decide to dispose of a
portion of its holdings in a specific issuer when the risk profile of the
investment becomes greater than its tolerance for such risk.

RESULTS OF OPERATIONS  Operating income, which excludes realized gains and
losses and one-time items, was $212.7 million, or $2.76 per share, in 1994,
$197.3 million, or $2.61 per share, in 1993 and $129.8 million, or $1.72 per
share, in 1992. The GAAP combined ratio was 91.7 (88.5 including the
elimination of the supplemental reserve discussed below) in 1994, 89.3 in 1993
and 96.5 in 1992.

        Direct premiums written increased 35% to $2,645.1 million in 1994,
compared to $1,966.4 million in 1993 and $1,636.8 million in 1992. Net premiums
written increased 35% to $2,457.2 million in 1994, compared to $1,819.2 million
in 1993 and $1,451.2 million in 1992. The difference between direct and net
premiums written is largely attributable to premiums written under
state-mandated involuntary Commercial Auto Insurance Plans (CAIP), for which
the Company retains no indemnity risk, of $115.4 million in 1994, $98.0 million
in 1993 and $142.2 million in 1992. The Company provided policy and claim
processing services to 28 state CAIPs in 1994 and 1993, compared to 26 in 1992.
Premiums earned,


<PAGE>   60
56

which are a function of the amount of premiums written in the current and prior
periods, increased 31% in 1994, compared to 17% in 1993 and 11% in 1992.
 The Company's Core divisions' net premiums written grew 38%, 25% and 18% for
1994, 1993 and 1992, respectively, driven by an increase in unit sales,
resulting from the Company's ability to keep rates relatively flat over the
last three years. The Company continues to experiment with writing standard and
preferred auto risks which represented between five and ten percent of total
1994 Core business volume. The Company anticipates continued growth in its Core
business in 1995, which could result from the number of states where we seek to
insure all auto risks, from working with independent agents dedicated to
regaining market share and from integrating other buying options. The Core
divisions generated underwriting profits of 7% in 1994, 10% in 1993 and 8% in
1992. The Company's strategy is to achieve a four percent underwriting margin;
the Company cannot predict the timing and pace of the decrease in underwriting
margins, nor the rate of growth, but monitors each program to ensure that rates
are adjusted promptly and adequately.
 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. Claims
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 collected.
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 64% in 1994, compared to 62% in 1993 and
65% in 1992.
 During 1994, based on a review of the adequacy of its total loss reserves, the
Company eliminated its $71.0 million "supplemental reserve," resulting in a
one-time increase of $.62 per share, a 3.2 percentage point increase in the
underwriting profit margin and a $46.2 million increase in capital. The Company
historically established case and IBNR reserves by product with the objective
of being accurate to within plus or minus 2%. Pricing has been based on these
estimates of reserves by product. Because the Company desired a very high
degree of comfort that aggregate reserves were adequate, aggregate reserves
were established near the upper end of the reasonable range of reserves, and
the difference between such aggregate reserves and the midpoint of the
reasonable range of case and IBNR reserves was called the "supplemental
reserve." The Company concluded, after examining its historical aggregate
reserves, that the practice of setting aggregate reserves at the upper end of
the range of reasonable reserves provided an unnecessarily high level of
comfort. Even without the high level of comfort provided by the "supplemental
reserve," the Company's reserves have historically been redundant by
approximately 2% to 4% over the most recent 5 years.  The Company believes that
this change in the estimate of its reserves will place it more in line with the
practices of other companies in the industry.
 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, results of operation, cash flows or financial condition.
 During 1994, the Company settled the dispute, arising out of its 1985
acquisition of American Star Insurance Company (since renamed National
Continental Insurance Company), over the seller's refusal to pay certain losses
on pre-sale business written by American Star. Under the settlement, National
Continental received $10.1 million from the seller and agreed to be solely
responsible for the next $20 million of gross losses. The seller will
thereafter be responsible for half the losses, net of reinsurance, if it
achieves certain minimum net worth requirements. In addition to the $10.1
million, National Continental will be entitled to the proceeds of various
treaty and facultative reinsurance policies that had been purchased by American
Star. National Continental has established reserves for these exposures, which
are mainly for product liability and environmental claims, in amounts it
believes to be adequate based on information currently available to it,
including a recent study by independent actuaries. Total reserves on this
business are $29.7 million, of which $9.9 million is recoverable from
reinsurers. The Company will continue to monitor these exposures, adjust the
related reserves appropriately as additional information becomes known and
disclose any material developments.
 Policy acquisition and other underwriting expenses as a percentage of premiums
earned were 25% in 1994, compared to 28% in 1993 and 31% in 1992. The decrease
reflects cost-cutting measures, as well as process improvements, changed
workflows and lower commission programs.
 Service businesses generated a pretax operating profit of $10.0 million in
1994, compared to a pretax profit of $6.8 million in 1993 and a pretax loss of
$4.3 million in 1992.
 Recurring investment income (interest and dividends) increased 18% to $158.5
million in 1994, compared to $134.5 million in 1993 and $139.0 million in 1992,
primarily due to an increase in the average investment portfolio. Net realized
gains on security sales were $23.8 million in 1994, $107.9 million in 1993 and
$14.5 million in 1992. A significant portion of the 1993 realized gains
resulted from the sale of certain equity securities held in the Company's
investment portfolio.
 President Clinton signed the Omnibus Budget Reconciliation Act of 1993, which,
among other items, increased the statutory tax rate to 35%.  Effective January
1, 1992, the Company adopted SFAS 109. The cumulative effect of adopting SFAS
109 increased net income $14.2 million, or $.20 per share. The Company is able
to demonstrate that the benefit of deferred tax assets is fully realizable.


<PAGE>   61
                                                                              57


<TABLE>
                             Directors and Officers
                             ----------------------
<S>                                                                     <C>
DIRECTORS                                                               CORPORATE OFFICERS     
Milton N. Allen1,2                                                                             
Director,                                                               Peter B. Lewis,        
various corporations                                                    Chairman, President and
                                                                        Chief Executive Officer
B. Charles Ames1                                                                               
Partner,                                                                David M. Schneider,    
Clayton, Dubilier &                                                     Secretary              
Rice, Inc.                                                                                     
(management consulting)                                                 Charles B. Chokel,     
                                                                        Treasurer              
Stephen R. Hardis1,2                                                                           
Vice Chairman,                                                          CORPORATE SUPPORT TEAM 
Chief Financial and Administrative Officer,                             Charles B. Chokel      
Eaton Corporation                                                       Peter B. Lewis         
(manufacturing)                                                         Bruce W. Marlow        
                                                                        Michael C. Murr        
Peter B. Lewis2                                                         David M. Schneider     
Chairman of the Board, President and                                    Tiona M. Thompson      
Chief Executive Officer                                                                        
                                                                        DIVISION PRESIDENTS,   
Norman S. Matthews3                                                     PRODUCT AND            
Consultant,                                                             PROCESS LEADERS        
formerly President, Federated                                                                  
Department Stores, Inc.                                                 Alan R. Bauer          
(retailing)                                                             William P. Cadden      
                                                                        G. Edward Combs        
Donald B. Shackelford3                                                  Jeffrey J. Dailey      
Chairman,                                                               Allan W. Ditchfield    
State Savings Bank                                                      W. Thomas Forrester    
(savings and loan)                                                      William H. Graves      
                                                                        Michael J. Hanerty     
Dr. Paul B. Sigler3                                                     Moira A. Lardakis      
Professor, Yale University and Investigator,                            Robert E. Mathe        
Howard Hughes Medical Institute                                         Robert J. McMillan     
(medical research and education)                                        Glenn M. Renwick       
                                                                        Andrew W. Rogacki      
                                                                        David L. Roush         
                                                                        Gregory J. Trapp       
                                                                        Robert T. Williams     
                       
                       
1 Audit Committee member
2 Executive Committee member
3 Executive Compensation
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
28, 1995, at 10:00 a.m. There were 4,911 shareholders of record on December 31,
1994.

PRINCIPAL OFFICE
The principal office of The Progressive Corporation is at 6300 Wilson Mills
Road, Mayfield Village, Ohio 44143.

TRANSFER AGENT AND REGISTRAR
If you have questions about your Common or Preferred Shares account, write or
call: Corporate Trust Customer Service, National City Bank, 1900 East Ninth
Street, Cleveland, Ohio 44114. Phone: (216) 575-2498 or (800) 622-6757

COUNSEL
Baker & Hostetler, Cleveland, Ohio

COMMON AND PREFERRED SHARES
The Progressive Corporation's Common Shares (symbol PGR) and Series A Preferred
Shares (symbol PGRPrA) are traded on the New York Stock Exchange. Dividends are
customarily paid on the last day of each quarter.

INVESTOR RELATIONS
Any shareholder wishing to receive public financial information on the Company,
write or call: The Progressive Corporation, Investor Relations, 
6300 Wilson Mills Road, Box E61, Mayfield Village, Ohio 44143. 
Phone: (216) 446-7260

TOLL-FREE TELEPHONE NUMBERS
For assistance after an accident or to report a loss, 24 hours a day, 7 days a
week, call: 1-800-274-4499 
For Progressive's toll-free 24-hour auto insurance shopping service, call: 
1 800 AUTO PRO(R) (1-800-288-6776) 
For 24 Hour Policy Service, call: 1-800-888-7764

Printed on Recycled Paper

Design: Nesnadny + Schwartz, Cleveland + New York + Toronto
Silhouette Drawings: Carter Kustera, New York
Printing: Fortran Printing, Cleveland

</TABLE>



<PAGE>   62
                                   [artwork]


<PAGE>   63
PROGRESSIVE

The Progressive Corporation
6300 Wilson Mills Road
Mayfield Village, Ohio 44143
216-461-5000



<PAGE>   1
                                      EXHIBIT 21

SUBSIDIARIES OF THE PROGRESSIVE CORPORATION


<TABLE>
<CAPTION>
                                                                                        Jurisdiction
Name of Subsidiary                                                                      of Incorporation
- ------------------                                                                      ----------------
<S>                                                                                     <C>
Airy Insurance Center, Inc.                                                             Pennsylvania
Allied Insurance Agency, Inc.                                                           Ohio
Classic Insurance Company                                                               Wisconsin
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
Insurance Confirmation Services, Inc.                                                   Delaware
Lakeside Insurance Agency, Inc.                                                         Ohio
Maryland Auto Insurance Solutions, Inc.                                                 Maryland
Mountain Laurel Assurance Company                                                       Pennsylvania
Mountainside Insurance Agency, Inc.                                                     Colorado
National Continental Insurance Company                                                  New York
Pacific Motor Club                                                                      California
Paloverde Insurance Company of Arizona                                                  Arizona
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 Gulf Insurance Company                                               Mississippi
Progressive American Life Insurance Company                                             Ohio
       Progressive Life Insurance,
 Ltd.                                                 Turks & Caicos Islands
Progressive Bayside Insurance Company                                                   Florida
Progressive Casualty Insurance Company                                                  Ohio
       PC Investment Company                                                            Delaware
         Auto Pro Insurance Company                                                     Florida
         Marathon Insurance Company                                                     California
         Ohana Insurance Company of Hawaii, Inc.                                        Hawaii
         Preferred Consumers Insurance Company                                          Florida
         Progressive Express Insurance Company                                          Florida
         Progressive Indemnity Insurance Company                                        Louisiana
         Progressive Michigan Insurance Company                                         Michigan
         Progressive Security Insurance Company                                         Louisiana
         Progressive Value Insurance Company                                            Louisiana
       Progressive Specialty Insurance Company                                          Ohio
Progressive Insurance Agency, Inc.                                                      Ohio
Progressive Investment Company, Inc.                                                    Delaware
Progressive Max Insurance Company                                                       Ohio
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 Partners, Inc.                                                              New York
Progressive Preferred Insurance Company                                                 Ohio
Progressive Premium Budget, Inc.                                                        Ohio
Progressive Southeastern Insurance Company                                              Florida
Pro-West Insurance Company                                                              California
Tampa Insurance Services, Inc.                                                          Florida
The Paradyme Corporation                                                                Ohio
The Progressive Agency, Inc.                                                            Virginia
Transportation Recoveries, Inc.                                                         Ohio
United Financial Adjusting Company                                                      Ohio
United Financial Casualty Company                                                       Missouri
Village Transport Corp.                                                                 Delaware
Wilson Mills Land Co.                                                                   Ohio
</TABLE>


                 Each subsidiary is wholly owned by its parent.



<PAGE>   1
                                                                      EXHIBIT 24


                               POWER OF ATTORNEY
                               -----------------

         KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
David M. Schneider, 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 1994,
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 14th day of March, 1995.


                                              Position(s) with
Signature                                     The Progressive Corporation
- ---------                                     ---------------------------


/s/ Peter B. Lewis                            Chairman, President,
 Chief
- ------------------------------                Executive Officer
Peter B. Lewis                                and Director

<PAGE>   2
                               POWER OF ATTORNEY
                               -----------------

         KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Peter B. Lewis, David M. Schneider, 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 1994, 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 15th day of March, 1995.


                                              Position(s) with
Signature                                     The Progressive Corporation
- ---------                                     ---------------------------


/s/ Jeffrey W. Basch
- -----------------------------
Jeffrey W. Basch                              Chief Accounting Officer






<PAGE>   3
                               POWER OF ATTORNEY
                               -----------------

         KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Peter B. Lewis, David M. Schneider, 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 1994, 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 13th day of March, 1994.


                                              Position(s) with
Signature                                     The Progressive Corporation
- ---------                                     ---------------------------


/s/ Charles B. Chokel
- ----------------------------------------
Charles B. Chokel                                  Chief Financial Officer






<PAGE>   4
                               POWER OF ATTORNEY
                               -----------------

         KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Peter B. Lewis, David M. Schneider, 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 1994, 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 14th day of March, 1995.


                                              Position(s) with
Signature                                     The Progressive Corporation
- ---------                                     ---------------------------


/s/ Milton N. Allen
- ----------------------------------
Milton N. Allen                               Director






<PAGE>   5
                               POWER OF ATTORNEY
                               -----------------

         KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Peter B. Lewis, David M. Schneider, 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 1994, 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 14th day of March, 1995.


                                              Position(s) with
Signature                                     The Progressive Corporation
- ---------                                     ---------------------------


/s/ B. Charles Ames
- ------------------------------------
B. Charles Ames                               Director






<PAGE>   6
                               POWER OF ATTORNEY
                               -----------------

         KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Peter B. Lewis, David M. Schneider, 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 1994, 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 14th day of March, 1995.


                                              Position(s) with
Signature                                     The Progressive Corporation
- ---------                                     ---------------------------


/s/ Stephen R. Hardis
- ----------------------------------
Stephen R. Hardis                             Director






<PAGE>   7
                               POWER OF ATTORNEY
                               -----------------

         KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Peter B. Lewis, David M. Schneider, 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 1994, 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 17th day of March, 1995.


                                              Position(s) with
Signature                                     The Progressive Corporation
- ---------                                     ---------------------------


/s/ Norman S. Matthews
- ----------------------------------
Norman S. Matthews                            Director






<PAGE>   8
                               POWER OF ATTORNEY
                               -----------------

         KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Peter B. Lewis, David M. Schneider, 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 1994, 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 14th day of March, 1995.


                                              Position(s) with
Signature                                     The Progressive Corporation
- ---------                                     ---------------------------


/s/ Donald B. Shackelford
- ----------------------------------
Donald B. Shackelford                         Director






<PAGE>   9
                               POWER OF ATTORNEY
                               -----------------

         KNOW ALL MEN BY THESE PRESENTS, that I hereby constitute and appoint
Peter B. Lewis, David M. Schneider, 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 1994, 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 23rd day of March, 1995.


                                              Position(s) with
Signature                                     The Progressive Corporation
- ---------                                     ---------------------------


/s/ Paul B. Sigler
- ---------------------------------
Paul B. Sigler                                Director








<TABLE> <S> <C>

<ARTICLE> 7 
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   YEAR
<FISCAL-YEAR-END>                          DEC-31-1994
<PERIOD-START>                             JAN-01-1994
<PERIOD-END>                               DEC-31-1994
<DEBT-HELD-FOR-SALE>                         2,087,000
<DEBT-CARRYING-VALUE>                          337,600
<DEBT-MARKET-VALUE>                            343,800
<EQUITIES>                                     476,300
<MORTGAGE>                                           0
<REAL-ESTATE>                                        0
<TOTAL-INVEST>                               3,180,000
<CASH>                                          13,400
<RECOVER-REINSURE>                             379,700
<DEFERRED-ACQUISITION>                         161,600
<TOTAL-ASSETS>                               4,675,100
<POLICY-LOSSES>                              1,434,400
<UNEARNED-PREMIUMS>                          1,036,700
<POLICY-OTHER>                                       0
<POLICY-HOLDER-FUNDS>                                0
<NOTES-PAYABLE>                                675,600
<COMMON>                                        71,200
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                     85,800
<OTHER-SE>                                     994,900
<TOTAL-LIABILITY-AND-EQUITY>                 4,675,100
<PREMIUMS>                                   2,191,100
<INVESTMENT-INCOME>                            149,800
<INVESTMENT-GAINS>                              23,800
<OTHER-INCOME>                                  41,900
<BENEFITS>                                   1,397,300
<UNDERWRITING-AMORTIZATION>                    391,500
<UNDERWRITING-OTHER>                           150,800
<INCOME-PRETAX>                                379,800
<INCOME-TAX>                                   105,500
<INCOME-CONTINUING>                            274,300
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   274,300
<EPS-PRIMARY>                                     3.59
<EPS-DILUTED>                                     3.59
<RESERVE-OPEN>                               1,012,400
<PROVISION-CURRENT>                          1,539,800
<PROVISION-PRIOR>                            (142,500)
<PAYMENTS-CURRENT>
                             894,000
<PAYMENTS-PRIOR>                               417,000
<RESERVE-CLOSE>                              1,098,700
<CUMULATIVE-DEFICIENCY>                      (142,500)
        

</TABLE>




<PAGE>   1
                                                                      EXHIBIT 28

Form 2  ANNUAL STATEMENT FOR THE YEAR 1994 OF THE  PROGRESSIVE INSURANCE GROUP



                SCHEDULE P - ANALYSIS OF LOSSES AND LOSS EXPENSES

  Notes to Schedule P
 1. The Parts of Schedule P:
    Part 1 - Detailed information on losses and loss expenses.
    Part 2 - History of incurred losses and allocated expenses.
    Part 3 - History of loss and allocated expense payments.
    Part 4 - History of bulk and incurred but not reported reserves.
    Part 5 - History of claims.
    Part 6 - History of premiums earned.
    Schedule P Interrogatories.

 2. Lines of business A through M, R and S are groupings of the lines of 
    business used on page 14, the state page.

 3. Reinsurance A, B, C, and D (lines N to Q) are:
    Reinsurance A = nonproportional property (1988 and subsequent)
    Reinsurance B = nonproportional liability (1988 and subsequent)
    Reinsurance C = financial lines (1988 and subsequent)
    Reinsurance D = old Schedule O line 30 (1987 and prior)


                           SCHEDULE P--PART 1--SUMMARY
                                 (000 omitted)

<TABLE>
<S>          <C>           <C>           <C>           <C>           <C>           <C>           <C>
_________________________________________________________________________________________________________________
|      1      |              Premiums Earned            |               Loss and Loss Expense Payments          |
|             |_________________________________________|_______________________________________________________|
|             |      2      |      3      |      4      |                           |        Allocated Loss     |
|  Years In   |             |             |             |        Loss Payments      |       Expense Payments    |
|    Which    |             |             |             |___________________________|___________________________|
|Premiums Were|             |             |             |      5      |      6      |      7      |      8      |
| Earned and  |   Direct    |             |             |   Direct    |             |   Direct    |             |
| Losses Were |     and     |             |     Net     |     and     |             |     and     |             |
|  Incurred   |   Assumed   |    Ceded    |(Cols. 2 - 3)|   Assumed   |    Ceded    |   Assumed   |    Ceded    |
|_____________|_____________|_____________|_____________|_____________|_____________|_____________|_____________|
|  1. Prior...|   X X X X   |   X X X X   |   X X X X   |         737
 |       6,022 |         804 |       5,298 |
|  2. 1985....|     461,512 |       9,678 |     451,834 |     249,321 |       6,052 |      15,696 |         897 |
|  3. 1986....|     726,141 |      42,619 |     683,522 |     324,139 |      14,908 |      21,574 |       1,093 |
|  4. 1987....|   1,066,680 |      64,496 |   1,002,184 |     484,551 |      31,795 |      30,481 |       1,377 |
|  5. 1988....|   1,292,530 |      67,431 |   1,225,099 |     650,409 |      39,898 |      37,551 |       1,195 |
|  6. 1989....|   1,357,845 |     109,736 |   1,248,109 |     710,694 |      80,579 |      38,936 |       1,441 |
|  7. 1990....|   1,397,185 |     144,903 |   1,252,282 |     667,191 |      85,295 |      32,791 |       1,763 |
|  8. 1991....|   1,528,677 |     199,174 |   1,329,503 |     726,347 |     106,148 |      29,825 |       3,088 |
|  9. 1992....|   1,579,938 |     195,139 |   1,384,799 |     751,091 |      96,880 |      27,925 |       3,071 |
| 10. 1993....|   1,795,466 |     150,074 |   1,645,392 |     797,759 |      65,918 |      16,480 |       1,714 |
| 11. 1994....|   2,359,681 |     191,788 |   2,167,893 |     797,807 |      37,339 |      10,815 |       1,171 |
|_____________|_____________|_____________|_____________|_____________|_____________|_____________|_____________|
| 12. Totals  |   X X X X   |   X X X X   |   X X X X   |   6,160,046 |     570,834 |     262,858 |      22,107 |
|----------------------------------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<S>          <C>           <C>           <C>           <C>         
________________________________________________________________________
|      1      |     Loss and Loss Expense Payments       |              |
|             |__________________________________________|              |
|             |      9      |     10      |      11      |     12       |
|  Years In   |             |             |              |              |
|    Which    |             |             |              |  Number of   |
|Premiums Were|   Salvage   | Unallocated |    Total     |   Claims     |
| Earned and  |     and     |    Loss     |   Net Paid   |  Reported-   |
| Losses Were | Subrogation |   Expense   |(Cols. 5 - 6 +| Direct and   |
|  Incurred   |  Received   |  Payments   |  7 - 8 + 10) |   Assumed    |
|_____________|_____________|_____________|______________|______________|
|  1. Prior...|           0 |           0 |      (9,779) |   X X X X    |
|  2. 1985....|      13,558 |      25,947 |     284,014  |   X X X X    |
|  3. 1986....|      19,398 |      40,936 |     370,648  |   X X X X    |
|  4. 1987....|      44,416 |      66,769 |     548,629  |   X X X X    |
|  5. 1988....|      76,427 |      95,143 |     742,010  |   X X X X    |
|  6. 1989....|      77,094 |     108,215 |     775,826  |   X X X X    |
|  7. 1990....|      57,211 |     119,395 |     732,320  |   X X X X    |
|  8. 1991....|      48,874 |     139,297 |     786,233  |   X X X X    |
|  9. 1992....|      46,025 |     110,702 |     789,767  |   X X X X    |
| 10. 1993....|      41,980 |     121,433 |     868,020  |   X X X X    |
| 11. 1984....|      34,867 |     126,579 |     896,691  |   X X X X    |
|_____________|_____________|_____________|______________|______________|
| 12. Totals  |     459,849 |     954,416 |   6,784,379  |   X X X X    |
- ------------------------------------------------------------------------- 
</TABLE>



<TABLE>
<S>          <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
_______________________________________________________________________________________________________________________________
|             |                      Losses Unpaid                    |             Allocated Loss Expenses Unpaid            |
|             |_______________________________________________________|_______________________________________________________|
|  Years In   |          Case Basis       |         Bulk + IBNR       |          Case Basis       |         Bulk + IBNR       |
|    Which    |___________________________|___________________________|___________________________|___________________________|
|Premiums Were|     13      |     14      |     15      |     16      |     17      |     18      |     19      |     20      |
| Earned and  |   Direct    |             |   Direct    |             |   Direct    |             |   Direct    |             |
| Losses Were |     and     |             |     and     |             |     and     |             |     and     |             |
|  Incurred   |   Assumed   |    Ceded    |   Assumed   |    Ceded    |   Assumed   |    Ceded    |   Assumed   |    Ceded    |
|_____________|_____________|_____________|_____________|_____________|_____________|_____________|_____________|_____________|
|  1. Prior...|      12,174 |       3,578 |      15,000 |       4,714 |       6,300 |       1,561 |           0 |           0 |
|  2. 1985....|         140 |           3 |           0 |           0 |          24 |           0 |           0 |           0 |
|  3. 1986....|         592 |          10 |           0 |           0 |          38 |           0 |           0 |           0 |
|  4. 1987....|       1,992 |         138 |           0 |           0 |         341 |          55 |           0 |           0 |
|  5. 1988....|      10,524 |       1,203 |         162 |          84 |       1,080 |         185 |          17 |          12 |
|  6. 1989....|      15,697 |       4,299 |         905 |         303 |       2,337 |         162 |          95 |          42 |
|  7. 1990....|      32,418 |      10,984 |       7,912 |       2,672 |       4,780 |         661 |         870 |         360 |
|  8. 1991....|      64,467 |      28,593 |      10,184 |       5,379 |       8,416 |         917 |       1,118 |         503 |
|  9. 1992....|     114,940 |      45,764 |      32,476 |      14,819 |      17,614 |       1,994 |       3,537 |       1,521 |
| 10. 1993....|     203,844 |      66,773 |      45,894 |      16,448 |      27,842 |       3,091 |       4,207 |       1,393 |
| 11. 1994....|     493,082 |      71,026 |     149,558 |      37,025 |      52,545 |       4,233 |      13,911 |       3,215 |
|_____________|_____________|_____________|_____________|_____________|_____________|_____________|_____________|_____________|
| 12. Totals  |     949,869 |     232,370 |     262,091 |      81,443 |     121,316 |      12,859 |      23,755 |       7,046 |
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>



<TABLE>
<S>          <C>           <C>           <C>           <C>         
________________________________________________________________________
|             |             |              |              |            |
|             |     21      |      22      |     23       |     24     |
|  Years In   |             |              |              |            |
|    Which    |             |              |              |  Number of |
|Premiums Were|   Salvage   | Unallocated  |    Total     |   Claims   |
| Earned and  |     and     |    Loss      |  Net Losses  |Outstanding-|
| Losses Were | Subrogation |  Expenses    | and Expenses | Direct and |
|  Incurred   | Anticipated |   Unpaid     |    Unpaid    |   Assumed  |
|_____________|_____________|______________|______________|____________|
|  1. Prior...|           0 |           0  |      23,621  |   X X X X  |
|  2. 1985....|           0 |           0  |         161  |   X X X X  |
|  3. 1986....|          32 |           5  |         624  |   X X X X  |
|  4. 1987....|         111 |          51  |       2,190  |   X X X X  |
|  5. 1988....|         272 |         139  |      10,438  |   X X X X  |
|  6. 1989....|         582 |         371  |      14,600  |   X X X X  |
|  7. 1990....|       1,613 |         781  |      32,084  |   X X X X  |
|  8. 1991....|       2,665 |       1,867  |      50,661  |   X X X X  |
|  9. 1992....|       4,227 |       4,260  |     108,728  |   X X X X  |
| 10. 1993....|       9,430 |      10,991  |     205,072  |   X X X X  |
| 11. 1994....|      41,903 |      46,179  |     639,777  |   X X X X  |
|_____________|_____________|______________|______________|____________|
| 12. Totals  |      60,835 |      64,643  |   1,087,956  |   X X X X  |
- ------------------------------------------------------------------------
</TABLE>
      


<TABLE>
<S>          <C>           <C>           <C>           <C>           <C>           <C>           <C>           <C>
_______________________________________________________________________________________________________________________________
|             |                                         |      Loss and Loss Expense Percentage   |      Discount for Time    |
|             |  Total Losses and Loss Expenses Incurred|         (Incurred/Premiums Earned)      |       Value of Money      |
|  Years In   |_________________________________________|_________________________________________|___________________________|
|    Which    |             |             |             |             |             |             |             |             |
|Premiums Were|     25      |     26      |     27      |     28      |     29      |     30      |     31      |     32      |
| Earned and  |   Direct    |             |             |   Direct    |             |             |             |             |
| Losses Were |     and     |             |             |     and     |             |             |             |    Loss     |
|  Incurred   |   Assumed   |    Ceded    |    Net      |   Assumed   |    Ceded    |     Net     |    Loss     |   Expense   |
|_____________|_____________|_____________|_____________|_____________|_____________|_____________|_____________|_____________|
|  1. Prior...|   X X X X   |   X X X X   |   X X X X   |   X X X X   |   X X X X   |   X X X X   |          0  |          0  |
|  2. 1985....|     291,128 |       6,952 |     284,176 |        63.1 |        71.8 |        62.9 |          0  |          0  |
|  3. 1986....|     387,283 |      16,012 |     371,272 |        53.3 |        37.6 |        54.3 |          0  |          0  |
|  4. 1987....|     584,184 |      33,365 |     550,819 |        54.8 |        51.7 |        55.0 |          0  |          0  |
|  5. 1988....|     795,024 |      42,576 |     752,448 |        61.5 |        63.1 |        61.4 |          0  |          0  |
|  6. 1989....|     877,251 |      86,826 |     790,425 |        64.6 |        79.1 |        63.3 |          0  |          0  |
|  7. 1990....|     866,139 |     101,735 |     764,404 |        62.0 |        70.2 |        61.0 |          0  |          0  |
|  8. 1991....|     981,521 |     144,627 |     836,894 |        64.2 |        72.6 |        62.9 |          0  |          0  |
|  9. 1992....|   1,062,544 |     164,049 |     898,495 |        67.3 |        84.1 |        64.9 |          0  |          0  |
| 10. 1993....|   1,228,429 |     155,337 |   1,073,092 |        68.4 |       103.5 |        65.2 |          0  |          0  |
| 11. 1994....|   1,690,477 |     154,008 |   1,536,468 |        71.6 |        80.3 |        70.9 |          0  |          0  |
|_____________|_____________|_____________|_____________|_____________|_____________|_____________|_____________|_____________|
| 12. Totals  |   X X X X   |   X X X X   |   X X X X   |   X X X X   |   X X X X   |   X X X X   |          0  |          0  |
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>




<TABLE>
<S>          <C>           <C>            <C>
__________________________________________________________
|             |             |  Net Balance Sheet Reserves |
|             |     33      |        After Discount       |
|  Years In   |             |_____________________________|
|    Which    |             |              |              |
|Premiums Were|Inter-Company|      34      |     35       |
| Earned and  |   Pooling   |              |    Loss      |
| Losses Were |Participation|    Losses    |  Expenses    |
|  Incurred   | Percentage  |    Unpaid    |   Unpaid     |
|_____________|_____________|______________|______________|
|  1. Prior...|   X X X X   |      18,882  |       4,739  |
|  2. 1985....|             |         138  |          24  |
|  3. 1986....|             |         581  |          42  |
|  4. 1987....|             |       1,853  |         337  |
|  5. 1988....|             |       9,399  |       1,039  |
|  6. 1989....|             |      12,000  |       2,600  |
|  7. 1990....|             |      26,675  |       5,409  |
|  8. 1991....|             |      40,680  |       9,981  |
|  9. 1992....|             |      86,833  |      21,896  |
| 10. 1993....|             |     166,517  |      38,555  |
| 11. 1994....|             |     534,590  |     105,187  |
|_____________|_____________|______________|______________|
| 12. Totals  |   X X X X   |     898,147  |     189,809  |
- ----------------------------------------------------------- 
</TABLE>


                                       72

<PAGE>   2
Form 2
                  ANNUAL STATEMENT FOR THE YEAR 1994 OF THE
                         PROGRESSIVE INSURANCE GROUP

SCHEDULE P - PART 2 - SUMMARY

<TABLE>
<S>              <C>           <C>          <C>          <C>          <C>        <C>          <C>          <C> 
_______________________________________________________________________________________________________________________ 
|                |                                                                                                     |
|       1        |                INCURRED LOSSES AND ALLOCATED EXPENSES REPORTED AT YEAR END (000 OMITTED)            |
|                |_____________________________________________________________________________________________________| 
|     Years      |      2      |     3      |     4      |     5    |     6      |     7      |     8      |      9    |
|   in Which     |             |            |            |          |            |            |            |           |
|  Losses Were   |             |            |            |          |            |            |            |           |
|   Incurred     |     1985    |    1986    |    1987    |   1988   |    1989    |    1990    |    1991    |    1992   |
|________________| ____________|____________|____________|__________|____________|____________|____________|___________|
|                |             |            |            |          |            |            |            |           |
| 1. Prior.......|    82,053   |    82,984  |    77,363  |   70,991 |    69,639  |    68,860  |    69,870  |   71,046  |
| 2. 1985........|   274,757   |   269,226  |   268,315  |  262,237 |   261,392  |   258,581  |   258,380  |  258,206  |
| 3. 1986........|   X X X X   |   382,994  |   353,616  |  351,417 |   340,706  |   334,564  |   331,385  |  330,779  |
| 4. 1987........|   X X X X   |   X X X X  |   555,993  |  524,333 |   504,689  |   492,954  |   490,684  |  485,339  |
| 5. 1988........|   X X X X   |   X X X X  |   X X X X  |  719,839 |   684,469  |   663,722  |   666,604  |  663,150  |
| 6. 1989........|   X X X X   |   X X X X  |   X X X X  |  X X X X |   786,249  |   734,190  |   710,990  |  704,871  |
| 7. 1990........|   X X X X   |   X X X X  |   X X X X  |  X X X X |   X X X X  |   751,597  |   692,671  |  676,616  |
| 8. 1991........|   X X X X   |   X X X X  |   X X X X  |  X X X X |   X X X X  |   X X X X  |   792,930  |  753,500  |
| 9. 1992........|   X X X X   |   X X X X  |   X X X X  |  X X X X |   X X X X  |   X X X X  |   X X X X  |  900,892  |
|10. 1993........|   X X X X   |   X X X X  |   X X X X  |  X X X X |   X X X X  |   X X X X  |   X X X X  |  X X X X  |
|11. 1994        |   X X X X   |   X X X X  |   X X X X  |  X X X X |   X X X X  |   X X X X  |   X X X X  |  X X X X  |
|________________| ____________|____________|____________|__________|____________|____________|____________|___________|
</TABLE>
                                                                     
                  

<TABLE>
<S>              <C>          <C>          <C>           <C>           
 ______________________________________________________________________
|        1        |  (cont.) INCURRED LOSSES |       DEVELOPMENT        |
|                 |__________________________|__________________________|
|                 |            |             |             |            |
|      Years      |     10     |     11      |     12      |     13     |
|    in Which     |            |             |             |            |
|   Losses Were   |            |             |    One      |    Two     |
|    Incurred     |    1993    |    1994     |    Year     |    Year    |
|_________________|____________|_____________|_____________|____________|
|                 |            |             |             |            |
|  1. Prior.......|     72,630 |     81,663  |     9,033   |    10,617  |
|  2. 1985........|    258,144 |    258,229  |        85   |        23  |
|  3. 1986........|    330,825 |    330,330  |      (495)  |      (449) |
|  4. 1987........|    484,182 |    483,999  |      (183)  |    (1,340) |
|  5. 1988........|    664,095 |    657,166  |     (6,929) |    (5,984) |
|  6. 1989........|    700,038 |    681,839  |    (18,199) |   (23,032) |
|  7. 1990........|    663,002 |    644,228  |    (18,774) |   (32,388) |
|  8. 1991........|    725,991 |    695,730  |    (30,261) |   (57,770) |
|  9. 1992........|    833,470 |    783,533  |    (49,937) |  (117,359) |
| 10. 1993........|  1,013,665 |    940,668  |    (72,851) |   X X X X  |
| 11. 1994........|    X X X X |  1,363,711  |    X X X X  |   X X X X  |
|_________________|____________|_____________|_____________|____________|
                                12. Totals   |   (188,511) |  (227,682) |
                                             |_____________|____________|

</TABLE>

                                                          

SCHEDULE P - PART 3 - SUMMARY

<TABLE>
<S>              <C>           <C>          <C>          <C>          <C>        <C>          <C>          <C> 
                  _____________________________________________________________________________________________________
        1        |                 CUMULATIVE PAID LOSSES AND ALLOCATED EXPENSES AT YEAR END (000 OMITTED)              
                 |______________________________________________________________________________________________________| 
                 |            |            |            |          |            |            |            |             |
      Years      |     2      |     3      |     4      |     5    |     6      |     7      |     8      |       9     |
    in Which     |            |            |            |          |            |            |            |             |
   Losses Were   |            |            |            |          |            |            |            |             |
    Incurred     |    1985    |    1986    |    1987    |    1988  |    1989    |    1990    |    1991    |     1992    |
                 |____________|____________|____________|__________|____________|____________|____________|_____________|
                 |            |            |            |          |            |            |            |             |
  1. Prior.......|     000    |    31,463  |    50,460  |   57,742 |     60,827 |    63,436  |    64,860  |     66,821  |
  2. 1985........|   134,374  |   202,467  |   228,629  |  243,849 |    251,045 |   255,162  |   256,497  |    257,708  |
  3. 1986........|   X X X X  |   168,353  |   255,882  |  291,744 |    312,656 |   322,815  |   326,820  |    328,152  |
  4. 1987........|   X X X X  |   X X X X  |   240,199  |  360,939 |    420,316 |   447,789  |   467,599  |    476,252  |
  5. 1988........|   X X X X  |   X X X X  |   X X X X  |  318,747 |    482,587 |   545,480  |   582,880  |    617,027  |
  6. 1989........|   X X X X  |   X X X X  |   X X X X  |  X X X X |    362,510 |   521,039  |   595,914  |    636,386  |
  7. 1990........|   X X X X  |   X X X X  |   X X X X  |  X X X X |    X X X X |   354,849  |   499,445  |    569,700  |
  8. 1991........|   X X X X  |   X X X X  |   X X X X  |  X X X X |    X X X X |   X X X X  |   369,194  |    533,684  |
  9. 1992........|   X X X X  |   X X X X  |   X X X X  |  X X X X |    X X X X |   X X X X  |   X X X X  |    415,371  |
 10. 1993........|   X X X X  |   X X X X  |   X X X X  |  X X X X |    X X X X |   X X X X  |   X X X X  |    X X X X  |
 11. 1994........|   X X X X  |   X X X X  |   X X X X  |  X X X X |    X X X X |   X X X X  |   X X X X  |    X X X X  |
                 |____________|____________|____________|__________|____________|____________|____________|_____________|
</TABLE>









<TABLE>
<S>              <C>           <C>          <C>          <C>           
 ______________________________________________________________________ 
|        1        | (cont.) CUMULATIVE PAID |             |            |
|                 |_________________________|     12      |     13     |
|                 |            |            |             |            |
|      Years      |     10     |     11     |  Number of  |  Number of |
|    in Which     |            |            |   Claims    |   Claims   |
|   Losses Were   |            |            |   Closed    |   Closed   |
|    Incurred     |    1993    |    1994    |  With Loss  |   Without  |
|                 |            |            |   Payment   |    Loss    |
|                 |            |            |             |   Payment  |
|_________________|____________|____________|_____________|____________|
|                 |            |            |             |            |
|  1. Prior.......|    67,091  |    58,042  |   X X X X   |   X X X X  |
|  2. 1985........|   257,991  |   258,067  |   X X X X   |   X X X X  |
|  3. 1986........|   328,815  |   329,711  |   X X X X   |   X X X X  |
|  4. 1987........|   480,425  |   481,860  |   X X X X   |   X X X X  |
|  5. 1988........|   636,778  |   646,867  |   X X X X   |   X X X X  |
|  6. 1989........|   657,870  |   667,611  |   X X X X   |   X X X X  |
|  7. 1990........|   598,833  |   612,925  |   X X X X   |   X X X X  |
|  8. 1991........|   614,888  |   646,936  |   X X X X   |   X X X X  |
|  9. 1992........|   597,616  |   679,065  |   X X X X   |   X X X X  |
| 10. 1993........|   513,910  |   746,587  |   X X X X   |   X X X X  |
| 11. 1994........|   X X X X  |   770,113  |   X X X X   |   X X X X  |
|_________________|____________|____________|_____________|____________|

</TABLE>



SCHEDULE P - PART 4 - SUMMARY

<TABLE>
<S>              <C>           <C>          <C>          <C>          <C>        <C>          <C>          <C>
                  _______________________________________________________________________________________________________
   1             | BULK AND INCURRED BUT NOT REPORTED RESERVES ON LOSSES AND ALLOCATED EXPENSES AT YEAR END (000 OMITTED) |
                 |________________________________________________________________________________________________________| 
                 |             |            |            |            |            |           |             |            | 
       Years     |      2      |     3      |     4      |     5      |     6      |     7     |      8      |     9      | 
    in Which     |             |            |            |            |            |           |             |            | 
   Losses Were   |             |            |            |            |            |           |             |            | 
    Incurred     |     1985    |    1986    |    1987    |    1988    |    1989    |    1990   |     1991    |    1992    | 
                 |_____________|____________|____________|____________|____________|___________|_____________|____________|
  1. Prior.....  |     27,457  |    17,951  |    12,238  |     4,097  |     3,431  |     1,728 |      1,667  |     1,614  | 
  2. 1985......  |     52,241  |    23,471  |    15,767  |     7,600  |     4,247  |       117 |          0  |         2  | 
  3. 1986......  |    X X X X  |    83,987  |    35,929  |    23,115  |    10,239  |     3,162 |          0  |        63  | 
  4. 1987......  |    X X X X  |   X X X X  |   126,103  |    57,172  |    31,435  |    13,026 |      4,203  |       178  | 
  5. 1988......  |    X X X X  |   X X X X  |   X X X X  |   161,589  |    70,035  |    33,821 |     14,301  |     2,013  | 
  6. 1989......  |    X X X X  |   X X X X  |   X X X X  |   X X X X  |   179,116  |    62,544 |     27,935  |    15,702  | 
  7. 1990......  |    X X X X  |   X X X X  |   X X X X  |   X X X X  |   X X X X  |   146,165 |     57,375  |    28,293  | 
  8. 1991......  |    X X X X  |   X X X X  |   X X X X  |   X X X X  |   X X X X  |  X X X X  |    155,871  |    51,534  | 
  9. 1992......  |    X X X X  |   X X X X  |   X X X X  |   X X X X  |   X X X X  |  X X X X  |    X X X X  |   151,702  | 
 10. 1993......  |    X X X X  |   X X X X  |   X X X X  |   X X X X  |   X X X X  |  X X X X  |    X X X X  |   X X X X  | 
 11. 1994......  |    X X X X  |   X X X X  |   X X X X  |   X X X X  |   X X X X  |  X X X X  |    X X X X  |   X X X X  | 
                 |_____________|____________|____________|____________|____________|___________|_____________|____________|
</TABLE>



<TABLE>
<S>              <C>          <C>            
 ___________________________________________
|        1        | (cont.) BULK AND INCURRED|
|                 |__________________________|
|                 |            |             |
|      Years      |     10     |     11      |
|    in Which     |            |             |
|   Losses Were   |            |             |
|    Incurred     |    1993    |    1994     |
|_________________|____________|_____________|
|  1. Prior.......|    1,263   |     10,286  |
|  2. 1985........|        5   |          0  |                        
|  3. 1986........|       36   |          0  |                        
|  4. 1987........|      814   |          0  |                        
|  5. 1988........|    6,663   |         83  |                        
|  6. 1989........|   14,096   |        655  |                        
|  7. 1990........|   17,575   |      5,750  |                        
|  8. 1991........|   29,932   |      5,420  |                        
|  9. 1992........|   54,711   |     19,673  |                        
| 10. 1993........|  132,250   |     32,260  |                        
| 11. 1994........|  X X X X   |    123,230  |                 
|_________________|____________|_____________|
</TABLE>
                         
                                      73