<PAGE> 1
Reg. No. 333-01745
Filed Pursuant to Rule 424(b)(5)
PROSPECTUS SUPPLEMENT
(To Prospectus Dated March 29, 1996)
THE PROGRESSIVE CORPORATION
$100,000,000
7.30% Notes due 2006
Interest payable June 1 and December 1
ISSUE PRICE: 100%
The Notes will bear interest from May 28, 1996, at the rate of 7.30% per annum,
payable semiannually on June 1 and December 1, commencing December 1, 1996. The
Notes will not be redeemable prior to maturity and will not be subject to any
sinking fund. See "Certain Terms of Notes."
The Notes will be represented by one or more global notes ("Global Notes"),
which will be deposited with The Depository Trust Company (the "Depositary") and
will be registered in the name of its nominee. Beneficial ownership of the Notes
will be limited to institutions that have accounts with the Depositary
("Participants") or persons that hold interests through Participants. A
beneficial interest in a Global Note will be shown on, and transfers thereof
will be effected only through, records maintained by the Participants. A
beneficial interest in a Global Note will be exchanged for Notes in certificated
form only under the limited circumstances described herein. See "Certain Terms
of Notes--Book-Entry System."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR THE NORTH CAROLINA
INSURANCE COMMISSIONER NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE
SECURITIES COMMISSION OR SUCH COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNT (2) COMPANY (1)(3)
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note 100% .379% 99.621%
- ------------------------------------------------------------------------------
Total $100,000,000 $379,000 $99,621,000
- ------------------------------------------------------------------------------
<FN>
(1) Plus accrued interest, if any, from May 28, 1996.
(2) The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting net expenses payable by the Company estimated at $85,000.
See "Underwriting."
</TABLE>
The Notes are offered, subject to prior sale, when, as and if accepted by the
Underwriter and subject to approval of certain legal matters by Davis Polk &
Wardwell, counsel for the Underwriter. It is expected that delivery of the
Global Notes will be made on or about May 28, 1996, through the facilities of
the Depositary, against payment therefor in same-day funds.
J.P. MORGAN & CO.
May 22, 1996
<PAGE> 2
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER
OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN OR IN THE ACCOMPANYING PROSPECTUS IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF. NEITHER
THIS PROSPECTUS SUPPLEMENT NOR THE ACCOMPANYING PROSPECTUS CONSTITUTES AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY NOTES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Use of Proceeds....................................................................... S-3
Capitalization........................................................................ S-3
Selected Consolidated Financial Information........................................... S-4
Certain Terms of Notes................................................................ S-7
Underwriting.......................................................................... S-9
PROSPECTUS
Available Information................................................................. 2
Incorporation of Certain Documents by Reference....................................... 2
The Company........................................................................... 4
Use of Proceeds....................................................................... 4
Selected Consolidated Financial Information........................................... 5
Description of Debt Securities........................................................ 8
Plan of Distribution.................................................................. 13
Legal Matters......................................................................... 14
Experts............................................................................... 14
</TABLE>
S-2
<PAGE> 3
USE OF PROCEEDS
Approximately $82 million of the net proceeds of the Notes will be used to
redeem all of the Company's outstanding 9 3/8% Serial Preferred Shares, Series
A, which have been called for redemption on May 31, 1996, and to pay for accrued
but unpaid dividends thereon through the redemption date. The balance of the net
proceeds will be used for general corporate purposes.
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1996, as adjusted to reflect the issuance of the Notes offered hereby and to
give effect to the redemption of the Company's 9 3/8% Serial Preferred Shares,
Series A, at $25.00 per share plus accrued and unpaid dividends thereon through
May 31, 1996.
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN MILLIONS)
<S> <C> <C>
Funded debt (1):
7.30% Notes......................................................... $ -- $ 99.6
6.60% Notes......................................................... 198.7 198.7
7% Notes............................................................ 148.3 148.3
8 3/4% Notes........................................................ 29.3 29.3
10% Notes........................................................... 149.5 149.5
10 1/8% Subordinated Notes.......................................... 149.4 149.4
Other funded debt................................................... .7 .7
-------- ----------
Total funded debt.............................................. 675.9 775.5
-------- ----------
Shareholders' equity:
9 3/8% Serial Preferred Shares, Series A, issued and outstanding
3.2.............................................................. 78.4 --
Common Shares, $1.00 par value, issued and outstanding 72.2......... 72.2 72.2
Paid-in capital..................................................... 380.0 380.0
Net unrealized appreciation on investment securities................ 26.6 26.6
Retained earnings (2)............................................... 949.4 945.2
-------- ----------
Total shareholders' equity..................................... 1,506.6 1,424.0
-------- ----------
Total funded debt and shareholders' equity.......................... $2,182.5 $ 2,199.5
======== =========
<FN>
- ---------------
(1) See Note 10 to the Company's annual consolidated financial statements
incorporated herein by reference for information regarding the Company's
outstanding funded debt.
(2) Adjusted to reflect the difference between the redemption price of $25.00
per share and the net proceeds received by the Company for the Preferred
Shares of $24.11 per share, the accrued and unpaid dividends thereon through
the redemption date and the estimated net expenses of this offering.
</TABLE>
S-3
<PAGE> 4
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information concerning the
Company and its subsidiaries for the five years ended December 31, 1995, and for
the three months ended March 31, 1996 and 1995, should be read in conjunction
with the more detailed information and financial statements available as
described under "Available Information" and "Incorporation of Certain Documents
by Reference" in the accompanying Prospectus. The information for the interim
periods is unaudited but, in the opinion of management, includes all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of such information. The interim results of operations may not be indicative of
the results expected for the full year. All per share amounts have been adjusted
to reflect the 3-for-1 stock split of the Common Shares effected on December 8,
1992.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Direct premiums written:
Personal lines.......... $ 753.2 $ 626.8 $2,644.6 $2,181.7 $1,548.9 $1,214.6 $1,047.4
Commercial lines........ 107.2 99.2 424.3 463.4 417.5 422.2 489.4
-------- -------- -------- -------- -------- -------- --------
Total direct premium
written................. $ 860.4 $ 726.0 $3,068.9 $2,645.1 $1,966.4 $1,636.8 $1,536.8
======== ======== ======== ======== ======== ======== ========
Net premiums
written(1)(2)........... $ 810.2 $ 686.9 $2,912.8 $2,457.2 $1,819.2 $1,451.2 $1,324.6
======== ======== ======== ======== ======== ======== ========
Revenues:
Premiums earned(2)...... $ 732.0 $ 624.3 $2,727.2 $2,191.1 $1,668.7 $1,426.1 $1,286.9
Investment income(3).... 52.7 44.8 199.1 158.5 134.5 139.0 144.8
Net realized gains on
security sales(4).... 4.9 15.4 46.7 23.8 107.9 14.5 7.4
Service revenues........ 9.4 9.3 38.9 41.9 43.7 53.3 54.0
Proposition 103 reserve
reduction(5)......... -- -- -- -- -- 106.0 --
-------- -------- -------- -------- -------- -------- --------
Total revenues............ 799.0 693.8 3,011.9 2,415.3 1,954.8 1,738.9 1,493.1
-------- -------- -------- -------- -------- -------- --------
Expenses:
Losses and loss
adjustment
expenses(6).......... 525.4 436.9 1,943.8 1,397.3 1,028.0 930.9 858.0
Policy acquisition
costs................ 120.1 106.6 459.6 391.5 311.6 304.1 313.7
Other underwriting
expenses............. 41.0 44.0 167.2 150.8 151.3 141.5 162.1
Investment expenses..... 1.8 2.1 8.1 8.7 10.2 17.0 22.5
Service and other
expenses............. 9.3 8.4 30.2 31.9 36.9 57.6 56.1
Interest expense........ 14.3 14.3 57.1 55.3 39.7 44.5 47.8
Non-recurring
items(7)............. -- -- -- -- 4.0 64.6 --
-------- -------- -------- -------- -------- -------- --------
Total expenses............ 711.9 612.3 2,666.0 2,035.5 1,581.7 1,560.2 1,460.2
-------- -------- -------- -------- -------- -------- --------
Income before income taxes
and cumulative effect of
accounting change....... 87.1 81.5 345.9 379.8 373.1 178.7 32.9
Provision for income
taxes................... 23.8 20.8 95.4 105.5 105.8 39.1 --
-------- -------- -------- -------- -------- -------- --------
Income before cumulative
effect of accounting
change.................. 63.3 60.7 250.5 274.3 267.3 139.6 32.9
Cumulative effect of
accounting change(8).... -- -- -- -- -- 14.2 --
-------- -------- -------- -------- -------- -------- --------
Net income................ $ 63.3 $ 60.7 $ 250.5 $ 274.3 $ 267.3 $ 153.8 $ 32.9
======== ======== ======== ======== ======== ======== ========
</TABLE>
S-4
<PAGE> 5
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Per Common Share(6)(9):
Income before cumulative
effect of accounting
change:
Primary.............. $.82 $.79 $3.26 $3.59 $3.59 $2.09 $.41
Fully diluted........ .82 .79 3.24 3.59 3.58 1.85 .41
Net income:
Primary.............. .82 .79 3.26 3.59 3.59 2.32 .41
Fully diluted........ .82 .79 3.24 3.59 3.58 2.05 .41
Ratio of earnings to fixed
charges(10)............. 6.7x 6.4x 6.6x 7.3x 9.2x 4.6x 1.6x
Ratio of earnings to
combined fixed charges
and preferred share
dividend require-
ments(10)............... 5.7x 5.4x 5.6x 6.1x 7.1x 3.7x 1.5x
GAAP operating ratios:
Loss and loss adjustment
expense ratio(6)..... 71.8% 70.0% 71.3% 63.8% 61.6% 65.3% 66.7%
Underwriting expense
ratio................ 22.0% 24.1% 23.0% 24.7% 27.7% 31.2% 37.0%
-------- -------- -------- -------- -------- -------- --------
Combined ratio(6)....... 93.8% 94.1% 94.3% 88.5% 89.3% 96.5% 103.7%
======== ======== ======== ======== ======== ======== ========
Statutory operating
ratios:
Loss and loss adjustment
expense ratio(6)..... 72.3% 70.4% 71.6% 64.2% 62.6% 68.3% 65.7%
Underwriting expense
ratio................ 19.9% 22.6% 21.4% 22.4% 25.4% 29.8% 33.5%
-------- -------- -------- -------- -------- -------- --------
Combined ratio(6)(11)... 92.2% 93.0% 93.0% 86.6% 88.0% 98.1% 99.2%
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets(12)....... $5,686.7 $4,850.9 $5,352.5 $4,675.1 $4,011.3 $3,440.9 $3,317.2
Funded debt............ 675.9 675.7 675.9 675.6 477.1 568.5 644.0
Shareholders'
equity(6)(12)....... 1,506.6 1,241.9 1,475.8 1,151.9 997.9 629.0 465.7
<FN>
- ---------------
(1) Total direct premiums written net of reinsurance.
(2) From 1989 until the second quarter of 1992, the Company maintained a
reserve for potential premium refunds under rollback and refund provisions
of California's Proposition 103. For the twelve months ended December 31,
1992 and 1991, net premiums written and premiums earned were reduced $10.2
million and $49.7 million, respectively. As a result, net income for the
twelve months ended December 31, 1992 and 1991, were reduced $6.7 million,
or $.09 per share, and $32.8 million, or $.43 per share, respectively.
(3) Investment income includes dividends and interest.
(4) Increase in net realized gains on security sales for the twelve months
ended December 31, 1993, is primarily due to the sale of certain equity
securities held in the Company's investment portfolio, which accounted for
$74.3 million of the total gain.
(5) On June 12, 1992, the Company reached 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 Company's Proposition 103 premium refund
and rollback reserve was reduced by $106.0 million and net income was
increased $70.0 million, or $.97 per share, for the year ended December 31,
1992.
</TABLE>
S-5
<PAGE> 6
(6) In 1994, the Company eliminated its "supplemental reserve," resulting in a
one-time decrease to loss and loss adjustment expenses of $71.0 million, or
$.62 per share, and increasing the combined ratio 3.2 points and
shareholders' equity $46.2 million. See paragraph 5 of the "Results of
Operations" section in Management's Discussion and Analysis of Financial
Condition and Results of Operations, incorporated by reference from the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
(7) Non-recurring items include (a) a $4.0 million charge resulting from the
redemption of the Company's 8 3/4% Debentures due 2017 in December 1993,
(b) a $10 million payment to Alfred Lerner made in December 1992, pursuant
to an agreement under which he agreed, among other matters, to convert $75
million in principal amount of the Company's Floating Rate Convertible
Subordinated Debentures due 2008 (the "Convertible Debentures") into
9,000,000 Common Shares and to terminate his employment agreement with the
Company, and (c) a one-time charge, including an additional incentive fee
for the period ended June 30, 1992, in the amount of $54.6 million paid by
the Company to Progressive Partners Limited Partnership ("Progressive
Partners") for terminating the Company's Investment Management Agreement
with Progressive Partners. In December 1992, Mr. Lerner sold in an
underwritten public offering 5,175,000 of the Common Shares received upon
the conversion of the Convertible Debentures and since that date has sold
the balance of such Common Shares.
(8) Effective January 1, 1992, the Company 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
Company 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, for the year ended December 31,
1992; the deferred tax asset writedown was taken in 1991, as required under
SFAS 96.
(9) 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 earnings per share are computed using the
weighted average number of Common Shares and equivalents, including stock
options, outstanding during the period. Prior to December 16, 1992 (the
date of conversion of the Convertible Debentures), fully diluted earnings
per share assumed the conversion of the Convertible Debentures and the
effects of related interest expense and income taxes. See Note 7 above.
(10) Earnings consist of income before income taxes and cumulative effect of
accounting change ($14.2 million in 1992) and before fixed charges. Fixed
charges consist of interest and amortization on indebtedness and the
portion of rents representative of the interest factor. Combined fixed
charges and preferred share dividend requirements consist of fixed charges
and pretax earnings required to pay preferred share dividends.
(11) Industry combined ratios for the personal auto insurance market, presented
on a statutory basis and obtained from A.M. Best Company Inc.'s "Best's
Review -- P/C Insurance Edition" dated January 1996, are set forth below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995(EST.) 1994 1993 1992 1991
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
102.3% 101.3% 101.7% 102.0% 104.7%
</TABLE>
(12) As of December 31, 1993, the Company elected to early adopt SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities." In
November 1995, the Financial Accounting Standards Board issued a special
report entitled "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities." Concurrent with the
initial adoption of this implementation guidance, the Company was able to
reassess the appropriateness of the classifications of all securities held
at that time. As a result, on December 1, 1995, the Company reclassified
its entire held-to-maturity portfolio of $248.4 million to
available-for-sale, recognizing $10.4 million in gross unrealized gains.
S-6
<PAGE> 7
CERTAIN TERMS OF NOTES
The following summary of the terms of the Notes offered hereby (included in
the defined term "Debt Securities" in the Prospectus) supplements, and to the
extent inconsistent therewith replaces, the description of the general terms and
provisions of Debt Securities set forth in the Prospectus, to which description
reference is hereby made.
GENERAL
The 7.30% Notes due 2006 (the "Notes") offered hereby are an issue of the
Debt Securities described in the Prospectus and will be issued as a separate
series of Debt Securities under the Indenture dated as of September 15, 1993, as
amended and supplemented (the "Indenture") between the Company and State Street
Bank and Trust Company, as Trustee (the "Trustee"). The Notes are limited to an
aggregate principal amount of $100,000,000. In addition to the Notes, the
Company may issue from time to time other series of Debt Securities under the
Indenture consisting of debentures, notes or other unsecured evidences of
indebtedness, but such other series will be separate from and independent of the
Notes. The Indenture does not limit the amount of Debt Securities or any other
debt which may be incurred by the Company. In addition, the provisions of the
Indenture do not afford holders of the Notes protection in the event of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect holders of the
Notes. Under the Indenture, the Company is entitled to defease the Notes subject
to compliance with the terms of the Indenture. See "Description of Debt
Securities--Defeasance" in the Prospectus. The Notes are the third series of
Debt Securities to be issued under the Indenture. Reference is made to the
Prospectus for a description of other general terms of the Debt Securities.
The Notes will mature on June 1, 2006. Interest on the Notes will accrue
from May 28, 1996, and will be payable semiannually on June 1 and December 1,
commencing December 1, 1996, to the persons in whose names the Notes are
registered at the close of business on the May 15 or November 15 prior to the
payment date at the annual rate set forth on the cover page of this Prospectus
Supplement. The Notes will be issued as fully registered Notes in denominations
of $1,000 or integral multiples thereof.
The Notes will not be subject to redemption at the option of the Company or
through the operation of a sinking fund.
The Notes will not be listed on a securities exchange.
BOOK-ENTRY SYSTEM
The Notes will be represented by one or more fully registered Global Notes
which will be deposited with, or on behalf of, the Depositary and registered in
the name of the Depositary's nominee. Unless and until it is exchanged in whole
or in part for Notes in certificated form, no Global Note may be transferred
except as a whole by the Depositary to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary.
The Depositary has advised the Company as follows: It is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934 (the "Exchange Act"). The
Depositary was created to hold securities for its participating organizations
(the "Participants") and to facilitate the clearance and settlement of
securities transactions between Participants in such securities through
electronic book-entry changes in accounts of its Participants. Participants
include securities brokers and dealers (including the Underwriter), banks, trust
companies, clearing corporations and certain other organizations, some of whom
or representatives of which own the Depositary. Access to the Depositary's
system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("indirect participants"). Persons
who are not Participants may beneficially own securities held by the Depositary
only through Participants or indirect participants.
S-7
<PAGE> 8
The Depositary has advised the Company that upon the issuance of the Global
Notes, the Depositary will credit on its book-entry system the respective
principal amounts of the individual Notes represented by such Global Notes to
the accounts of the appropriate Participants. The accounts to be credited shall
be designated by the Underwriter. Ownership of beneficial interests in the
Global Notes will be limited to Participants or persons that own beneficial
interests through Participants. Ownership of beneficial interests in the Global
Notes will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depositary's Participants or persons that
hold through Participants. The laws of some states require that certain
purchasers of securities take physical delivery of such securities. Such laws
may limit the market for beneficial interests in the Global Notes.
So long as the Depositary, or its nominee, is the registered owner of the
Global Notes, the Depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the Global Notes for all purposes under
the Indenture. Except as provided below, owners of beneficial interests in the
Global Notes will not be entitled to have Notes registered in their names, will
not receive or be entitled to receive physical delivery of Notes in certificated
form and will not be considered the owners or holders thereof under the
Indenture. Accordingly, each person owning a beneficial interest in the Global
Notes must rely on the procedures of the Depositary and, if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest, to exercise any rights of a holder under the Indenture. The
Company understands that under existing industry practices, in the event that
the Company requests any consent or action of holders or if an owner of a
beneficial interest in the Global Notes desires to give a consent or take any
action which a holder is entitled to give or take under the Indenture, the
Depositary would authorize the Participants holding the relevant beneficial
interests to give such consent or take such action, and such Participants would
authorize beneficial owners holding through such Participants to give such
consent or take such action or would otherwise act upon the instructions of
beneficial owners holding through them.
Principal, premium, if any, and interest payments on the Global Notes
registered in the name of the Depositary or its nominee will be made by the
Trustee to the Depositary or such nominee as the registered owner of the Global
Notes. Under the terms of the Indenture, the Company and the Trustee will treat
the persons in whose names the Global Notes are registered as the sole owner or
holder of the Global Notes for the purpose of receiving payment of principal,
premium, if any, and interest on the Global Notes and for all other purposes
whatsoever. Therefore, neither the Company, the Trustee nor any paying agent has
any direct responsibility or liability for the payment of principal, premium, if
any, or interest on the Global Notes to owners of beneficial interests in the
Global Notes. Neither the Company, the Trustee nor any paying agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Notes, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any action or inaction of the Depositary or its
nominee or any Participant.
If (x) the Depositary is at any time unwilling or unable to continue as
Depositary or the Depositary ceases to be a clearing agency registered under the
Exchange Act, (y) the Company executes and delivers to the Trustee an order to
the effect that the Global Notes shall be transferable and exchangeable for
Notes in definitive form or (z) an Event of Default has occurred and is
continuing with respect to the Notes, the Global Notes will be transferable or
exchangeable for Notes in definitive form of like tenor in an equal aggregate
principal amount. Such definitive Notes shall be registered in such name or
names as the Depositary shall instruct the Trustee.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriter in immediately
available funds. While the Notes are represented by the Global Notes, all
payments of principal, premium, if any, and interest will be made by the Company
to the Depositary in immediately available funds.
S-8
<PAGE> 9
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to J. P. Morgan Securities Inc. (the
"Underwriter"), and the Underwriter has agreed to purchase, the $100,000,000
aggregate principal amount of Notes.
Under the terms and conditions of the Underwriting Agreement, the
Underwriter is committed to purchase all of the Notes offered hereby if any are
purchased.
The Underwriter initially proposes to offer the Notes directly to the
public at the public offering price set forth on the cover page of this
Prospectus Supplement and to certain dealers at such price less a concession not
in excess of .35% of the principal amount of the Notes. The Underwriter may
allow, and such dealers may reallow, a concession not in excess of .25% of the
principal amount of the Notes to certain other dealers. After the Notes are
released for sale to the public, the public offering price and such concessions
may be changed by the Underwriter.
The Company does not intend to apply for listing of the Notes on a
securities exchange, but has been advised by the Underwriter that the
Underwriter intends to make a market in the Notes. The Underwriter is not
obligated, however, to make a market in the Notes and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading markets for the Notes.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
In the ordinary course of their respective businesses, the Underwriter and
its affiliates have engaged and may in the future engage in investment banking
or commercial banking transactions, or both, with the Company and its
affiliates. The Underwriter has agreed to reimburse the Company for $40,000 of
out-of-pocket expenses incurred directly by the Company in connection with this
offering.
S-9
<PAGE> 10
PROSPECTUS
THE PROGRESSIVE CORPORATION
DEBT SECURITIES
---------------------
The Progressive Corporation (the "Company") may issue and offer from time
to time in one or more series up to $200,000,000 in aggregate initial public
offering price of its debt securities consisting of debentures, notes or other
unsecured evidences of indebtedness (the "Debt Securities"). The Debt Securities
will rank on a parity with all other current and future unsecured and
unsubordinated indebtedness of the Company and prior to subordinated
indebtedness, if any. The Debt Securities may be offered to the public on terms
determined by market conditions. The Debt Securities may be sold for U.S.
dollars or foreign denominated currency or currency units, and principal of and
any interest on the Debt Securities may likewise be payable in U.S. dollars or
foreign denominated currency or currency units. The currency or currency units
for which the Debt Securities may be purchased and the currency or currency
units in which principal of and interest on the Debt Securities will be payable
will be specifically designated in one or more supplements to this Prospectus
(each a "Prospectus Supplement").
The specific designation, aggregate principal amount, authorized
denominations, purchase price, maturity, any premium, any interest rate (which
may be fixed or variable) or manner of calculation thereof, any interest payment
dates, any optional or mandatory redemption terms, any sinking fund provisions,
listing on a securities exchange, and any other specific terms relating to any
series of Debt Securities, and the name of each dealer, underwriter or agent, if
any, involved in the sale of any series of Debt Securities and any compensation
to any such dealer, underwriter or agent, will be set forth in a Prospectus
Supplement.
This Prospectus may not be used to consummate sales of Debt Securities
unless accompanied by a Prospectus Supplement.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR THE NORTH CAROLINA
INSURANCE COMMISSIONER NOR HAS THE SECURITIES AND EXCHANGE COMMISSION,
ANY STATE SECURITIES COMMISSION OR SUCH COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Debt Securities may be sold directly to purchasers or to dealers or
underwriters or through agents to be designated from time to time, subject to
the approval of certain legal matters by counsel for such purchasers, dealers,
underwriters or agents. Net proceeds to the Company will be the purchase price
in the case of a purchaser or dealer, the public offering price less
underwriting discount in the case of an underwriter or the purchase price less
commission in the case of an agent less, in each case, other attributable
issuance and distribution expenses. See "Plan of Distribution" for possible
indemnification arrangements for dealers, underwriters and agents.
The date of this Prospectus is March 29, 1996
<PAGE> 11
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION MAY NOT BE LEGALLY MADE. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street N.W., Room 1024, Washington, D.C. 20549, and at the following regional
offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York
10048, and The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street N.W.,
Washington, D.C. 20549. Reports, proxy statements and other information
concerning the Company may also be inspected at the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus omits certain of the information contained in
the Registration Statement, and reference is hereby made to the Registration
Statement and related exhibits for further information with respect to the
Company and the securities offered hereby. Statements contained herein
concerning the provisions of any document are not necessarily complete and, in
each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. These
documents may be inspected without charge at the office of the Commission at
Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C. 20549, and copies may
be obtained at fees and charges prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995, filed with the Commission on March 15, 1996; and
(2) All other reports filed by the Company pursuant to Section 13(a)
or 15(d) of the Exchange Act since the end of the Company's fiscal year
referred to in (1) above.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of this offering are hereby incorporated by
reference into this Prospectus and shall be deemed a part hereof from the
respective dates of filing of such reports and documents. Any statement
contained in a document incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference in this Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
2
<PAGE> 12
The Company will furnish without charge to each person to whom a Prospectus
is delivered, upon written or oral request, a copy of any or all of the
foregoing documents incorporated herein by reference (other than certain
exhibits). Requests for such documents should be directed to Jeffrey W. Basch,
Chief Accounting Officer, The Progressive Corporation, at 6300 Wilson Mills
Road, Mayfield Village, Ohio 44143 or by telephone at (216) 446-2851.
3
<PAGE> 13
THE COMPANY
The Company is an insurance holding company which has 64 operating
subsidiaries and one mutual insurance company affiliate. Progressive Casualty
Insurance Company is the principal operating subsidiary. The insurance company
subsidiaries and affiliate provide personal automobile insurance and other
specialty property/casualty insurance and related services throughout the United
States and in Canada. Of the approximately 250 United States insurance company
groups writing private passenger auto insurance, the Progressive insurance group
ranked 7th in size based on 1994 direct premiums written, as reported by A.M.
Best Company Inc. in their 1994 A(2) report for all private passenger auto
writers.
The Company's core business, which accounted for 97% of the Company's total
net premiums written in 1995, writes insurance for private passenger
automobiles, recreational vehicles and small fleets of commercial vehicles. The
substantial portion of this business is written under nonstandard automobile
programs, which provide insurance for private passenger automobile risks that
have been rejected or cancelled by other insurers. The Progressive insurance
group is a major participant in the nonstandard automobile segment of the
property/casualty insurance industry. The Company also writes standard and
preferred auto risks, which represented between 5% and 10% of total core
business volume in 1995.
The Company's diversified businesses, which accounted for 3% of total net
premiums written in 1995, offer collateral protection coverage for automobile
lenders and loan tracking for financial institutions, directors and officers
liability and fidelity coverage for American Bankers Association member
community banks, and underwriting and claim servicing for state involuntary
residual market commercial and personal auto programs and other commercial
enterprises.
Prospective purchasers of Debt Securities should be aware that ownership of
Debt Securities may involve certain risks. For example, the Company encounters
vigorous competition in the automobile insurance and other property/casualty
markets in which it operates. See the "Competitive Factors" discussion contained
in Item 1 of the Company's 1995 Annual Report on Form 10-K. In addition, the
Company's business is subject to extensive state regulation. See the "Insurance
Regulation" discussion contained in Item 1 of the Company's 1995 Annual Report
on Form 10-K.
The Company's principal executive office is located at 6300 Wilson Mills
Road, Mayfield Village, Ohio 44143, and its telephone number is (216) 461-5000.
USE OF PROCEEDS
Except as otherwise provided in an applicable Prospectus Supplement, the
net proceeds will be used by the Company for general corporate purposes. Unless
and until otherwise applied, the net proceeds will be added to the investment
portfolios of the Company or its subsidiaries and may be used, in whole or in
part, to support premium growth. Such proceeds will be invested in securities of
approximately the same quality and maturities as those currently held in such
investment portfolios. A discussion of the nature of such securities, and the
risks relating thereto, is set forth in the "Investments" section of
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's 1995 Annual Report on Form 10-K.
4
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following selected consolidated financial information concerning the
Company and its subsidiaries for the five years ended December 31, 1995, should
be read in conjunction with the more detailed information and financial
statements incorporated by reference herein and available as described under
"Available Information" and "Incorporation of Certain Documents by Reference."
All per share amounts have been adjusted to reflect the 3-for-1 stock split of
the Common Shares effected on December 8, 1992.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Direct premiums written:
Personal lines........................... $2,644.6 $2,181.7 $1,548.9 $1,214.6 $1,047.4
Commercial lines......................... 424.3 463.4 417.5 422.2 489.4
-------- -------- -------- -------- --------
Total direct premium written............... $3,068.9 $2,645.1 $1,966.4 $1,636.8 $1,536.8
======== ======== ======== ======== ========
Net premiums written(1)(2)................. $2,912.8 $2,457.2 $1,819.2 $1,451.2 $1,324.6
======== ======== ======== ======== ========
Revenues:
Premiums earned(2)....................... $2,727.2 $2,191.1 $1,668.7 $1,426.1 $1,286.9
Investment income(3)..................... 199.1 158.5 134.5 139.0 144.8
Net realized gains on security
sales(4).............................. 46.7 23.8 107.9 14.5 7.4
Service revenues......................... 38.9 41.9 43.7 53.3 54.0
Proposition 103 reserve reduction(5)..... -- -- -- 106.0 --
-------- -------- -------- -------- --------
Total revenues............................. 3,011.9 2,415.3 1,954.8 1,738.9 1,493.1
-------- -------- -------- -------- --------
Expenses:
Losses and loss adjustment expenses(6)... 1,943.8 1,397.3 1,028.0 930.9 858.0
Policy acquisition costs................. 459.6 391.5 311.6 304.1 313.7
Other underwriting expenses.............. 167.2 150.8 151.3 141.5 162.1
Investment expenses...................... 8.1 8.7 10.2 17.0 22.5
Service and other expenses............... 30.2 31.9 36.9 57.6 56.1
Interest expense......................... 57.1 55.3 39.7 44.5 47.8
Non-recurring items(7)................... -- -- 4.0 64.6 --
-------- -------- -------- -------- --------
Total expenses............................. 2,666.0 2,035.5 1,581.7 1,560.2 1,460.2
-------- -------- -------- -------- --------
Income before income taxes and cumulative
effect of accounting change.............. 345.9 379.8 373.1 178.7 32.9
Provision for income taxes................. 95.4 105.5 105.8 39.1 --
-------- -------- -------- -------- --------
Income before cumulative effect of
accounting change........................ 250.5 274.3 267.3 139.6 32.9
Cumulative effect of accounting
change(8)................................ -- -- -- 14.2 --
-------- -------- -------- -------- --------
Net income................................. $ 250.5 $ 274.3 $ 267.3 $ 153.8 $ 32.9
======== ======== ======== ======== ========
</TABLE>
5
<PAGE> 15
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Common Share(6)(9):
Income before cumulative effect of
accounting change:
Primary............................... $3.26 $3.59 $3.59 $2.09 $.41
Fully diluted......................... 3.24 3.59 3.58 1.85 .41
Net income:
Primary............................... 3.26 3.59 3.59 2.32 .41
Fully diluted......................... 3.24 3.59 3.58 2.05 .41
Ratio of earnings to fixed charges(10)..... 6.6x 7.3x 9.2x 4.6x 1.6x
Ratio of earnings to combined fixed charges
and preferred share dividend
requirements(10)......................... 5.6x 6.1x 7.1x 3.7x 1.5x
GAAP operating ratios:
Loss and loss adjustment expense
ratio(6).............................. 71.3% 63.8% 61.6% 65.3% 66.7%
Underwriting expense ratio............... 23.0% 24.7% 27.7% 31.2% 37.0%
-------- -------- -------- -------- --------
Combined ratio(6)........................ 94.3% 88.5% 89.3% 96.5% 103.7%
======== ======== ======== ======== ========
Statutory operating ratios:
Loss and loss adjustment expense
ratio(6).............................. 71.6% 64.2% 62.6% 68.3% 65.7%
Underwriting expense ratio............... 21.4% 22.4% 25.4% 29.8% 33.5%
-------- -------- -------- -------- --------
Combined ratio(6)(11).................... 93.0% 86.6% 88.0% 98.1% 99.2%
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Total assets(12)......................... $5,352.5 $4,675.1 $4,011.3 $3,440.9 $3,317.2
Funded debt.............................. 675.9 675.6 477.1 568.5 644.0
Shareholders' equity(6)(12).............. 1,475.8 1,151.9 997.9 629.0 465.7
<FN>
- ---------------
(1) Total direct premiums written net of reinsurance.
(2) From 1989 until the second quarter of 1992, the Company maintained a
reserve for potential premium refunds under rollback and refund provisions
of California's Proposition 103. For the twelve months ended December 31,
1992 and 1991, net premiums written and premiums earned were reduced $10.2
million and $49.7 million, respectively. As a result, net income for the
twelve months ended December 31, 1992 and 1991, were reduced $6.7 million,
or $.09 per share, and $32.8 million, or $.43 per share, respectively.
(3) Investment income includes dividends and interest.
(4) Increase in net realized gains on security sales for the twelve months
ended December 31, 1993, is primarily due to the sale of certain equity
securities held in the Company's investment portfolio, which accounted for
$74.3 million of the total gain.
(5) On June 12, 1992, the Company reached 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 Company's Proposition 103 premium refund
and rollback reserve was reduced by $106.0 million and net income was
increased $70.0 million, or $.97 per share, for the year ended December 31,
1992.
(6) In 1994, the Company eliminated its "supplemental reserve," resulting in a
one-time decrease to loss and loss adjustment expenses of $71.0 million, or
$.62 per share, and increasing the combined ratio 3.2 points and
shareholders' equity $46.2 million. See paragraph 5 of the "Results of
Operations" section
</TABLE>
6
<PAGE> 16
in Management's Discussion and Analysis of Financial Condition and Results
of Operations, incorporated by reference from the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
(7) Non-recurring items include (a) a $4.0 million charge resulting from the
redemption of the Company's 8 3/4% Debentures due 2017 in December 1993,
(b) a $10 million payment to Alfred Lerner made in December 1992, pursuant
to an agreement under which he agreed, among other matters, to convert $75
million in principal amount of the Company's Floating Rate Convertible
Subordinated Debentures due 2008 (the "Convertible Debentures") into
9,000,000 Common Shares and to terminate his employment agreement with the
Company, and (c) a one-time charge, including an additional incentive fee
for the period ended June 30, 1992, in the amount of $54.6 million paid by
the Company to Progressive Partners Limited Partnership ("Progressive
Partners") for terminating the Company's Investment Management Agreement
with Progressive Partners. In December 1992, Mr. Lerner sold in an
underwritten public offering 5,175,000 of the Common Shares received upon
the conversion of the Convertible Debentures and since that date has sold
the balance of such Common Shares.
(8) Effective January 1, 1992, the Company 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 Company 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,
for the year ended December 31, 1992; the deferred tax asset writedown was
taken in 1991, as required under SFAS 96.
(9) 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 earnings per share are computed using the
weighted average number of Common Shares and equivalents, including stock
options, outstanding during the period. Prior to December 16, 1992 (the
date of conversion of the Convertible Debentures), fully diluted earnings
per share assumed the conversion of the Convertible Debentures and the
effects of related interest expense and income taxes. See Note 7 above.
(10) Earnings consist of income before Federal income taxes and cumulative
effect of accounting change ($14.2 million in 1992) and before fixed
charges. Fixed charges consist of interest and amortization on indebtedness
and the portion of rents representative of the interest factor. Combined
fixed charges and preferred share dividend requirements consist of fixed
charges and pretax earnings required to pay preferred share dividends.
(11) Industry combined ratios for the personal auto insurance market, presented
on a statutory basis and obtained from A.M. Best Company Inc.'s "Best's
Review -- P/C Insurance Edition" dated January 1996, are set forth below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1995(EST.) 1994 1993 1992 1991
----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
102.3% 101.3% 101.7% 102.0% 104.7%
</TABLE>
(12) As of December 31, 1993, the Company elected to early adopt SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities." In
November 1995, the Financial Accounting Standards Board issued a special
report entitled "A Guide to Implementation of Statement 115 on Accounting
for Certain Investments in Debt and Equity Securities." Concurrent with the
initial adoption of this implementation guidance, the Company was able to
reassess the appropriateness of the classifications of all securities held
at that time. As a result, on December 1, 1995, the Company reclassified
its entire held-to-maturity portfolio of $248.4 million to
available-for-sale, recognizing $10.4 million in gross unrealized gains.
7
<PAGE> 17
DESCRIPTION OF DEBT SECURITIES
The Company may offer under this Prospectus and one or more Prospectus
Supplements Debt Securities not exceeding $200,000,000 in aggregate initial
public offering price. The following description of the terms of the Debt
Securities sets forth certain general terms and provisions of the Debt
Securities which may be offered under a Prospectus Supplement. The particular
terms and provisions of the Debt Securities offered by any Prospectus Supplement
and the extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Debt Securities.
The Debt Securities offered hereby will represent unsecured general
obligations of the Company and will rank on a parity with all other existing and
future unsecured and unsubordinated indebtedness of the Company and prior to
subordinated indebtedness, if any. The Debt Securities are to be issued under an
Indenture dated as of September 15, 1993 (which, as heretofore supplemented and
amended, is referred to herein as the "Indenture") between the Company and State
Street Bank and Trust Company, as Trustee (the "Trustee"). Debt Securities may
be issued in one or more series under the Indenture. The Indenture does not
limit the amount of Debt Securities or any other debt which may be incurred by
the Company. In addition, the provisions of the Indenture do not afford holders
of the Debt Securities protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving the Company that may adversely affect holders of the Debt Securities.
The following summaries of certain provisions of the Indenture do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture, which is an exhibit to the Registration
Statement of which this Prospectus is a part. Certain capitalized terms used
herein are defined in the Indenture. References are to sections or articles of
the Indenture.
GENERAL
The Indenture does not limit the amount of Debt Securities which may be
issued thereunder and provides that Debt Securities may be issued in series
thereunder up to the aggregate principal amount which may be authorized from
time to time by the Company. The Debt Securities may be denominated and payable
in U.S. dollars, foreign currencies or units based on or relating to U.S. or
foreign currencies. Debt Securities may be offered to the public on terms
determined by market conditions at the time of sale.
Reference is made to the appropriate Prospectus Supplement for the
following terms of each series of Debt Securities in respect of which this
Prospectus is being delivered: (1) the designation, aggregate principal amount
and authorized denominations of such Debt Securities; (2) the purchase price of
such Debt Securities (expressed as a percentage of the principal amount
thereof); (3) the date on which such Debt Securities will mature; (4) the rate
or rates (which may be fixed or variable) per annum at which such Debt
Securities will bear interest, if any, or the method by which such rate or rates
will be determined; (5) the coin or currency or units based on or relating to
currencies in which Debt Securities may be purchased and in which payment of
principal and interest will be made; (6) the periods for which and the dates on
which such interest, if any, will be payable; (7) the place or places where the
principal of and interest, if any, on such Debt Securities will be payable; (8)
the terms of any mandatory or optional redemption (including any sinking fund);
(9) whether such Debt Securities will be issuable in registered form or bearer
form (with or without coupons) or both, and, if Debt Securities in bearer form
will be issued, restrictions applicable to the exchange of one form for another
and to the offer, sale and delivery of Debt Securities in bearer form; (10)
whether, and under what circumstances, the Company will pay additional amounts
on such Debt Securities held by a person who is not a U.S. person (as defined in
an appropriate Prospectus Supplement) in respect of any tax, assessment or
governmental charge withheld or deducted, and if so, whether the Company will
have the option to redeem such Debt Securities rather than pay such additional
amounts; and (11) any other specific terms of such series. If a Prospectus
Supplement specifies that Debt Securities are denominated in a currency other
than U.S. dollars or U.S. currency units, such Prospectus Supplement shall also
specify the denomination in which such Debt Securities will be issued and the
coin or currency or currency unit in which the principal of and premium, if any,
and interest on such Debt Securities will be payable, which may be U.S. dollars
based upon the exchange rate for such other currency or currency unit existing
on or about the time a payment is due.
8
<PAGE> 18
Debt Securities may be presented for exchange and registered Debt
Securities may be presented for transfer in the manner, at the places and
subject to the restrictions set forth in the Indenture. Such services will be
provided without charge, other than any tax or other governmental charge payable
in connection therewith, but subject to the limitations provided in the
Indenture. Debt Securities in bearer form and the coupons, if any, pertaining
thereto will be transferable by delivery.
The Debt Securities will be unsecured. The Debt Securities will rank on a
parity with all other existing and future unsecured and unsubordinated
indebtedness of the Company and prior to subordinated indebtedness, if any.
Because the Company is a holding company, however, its rights and the rights of
its creditors to participate in the assets of any subsidiary upon the latter's
liquidation or recapitalization (and thus the ability of holders of the Debt
Securities to benefit as creditors of the Company in such liquidation or
recapitalization) will be subject to the prior claims of the subsidiary's
creditors, except to the extent that the Company may itself be a creditor with
recognized claims (other than as a holder of the subsidiary's outstanding shares
of capital stock) against the subsidiary.
In addition, insurance statutes in many states limit the extent to which
regulated insurance companies may pay dividends and transfer assets to their
affiliates and either prohibit or require prior approval for the payment of
dividends and other distributions in excess of such limits. Since a source of
the Company's internally generated cash flow is dividends paid to it by its
subsidiaries, the Company's ability to meet its obligations (including the
obligation to pay principal of and premium, if any, and interest on the Debt
Securities) may be affected by any such limitations or prior approval
requirements.
GLOBAL SECURITIES
The Debt Securities may be issued in the form of one or more global
securities (a "Global Security") that will be deposited with a depositary (a
"Depositary") or with a nominee for a Depositary identified in an appropriate
Prospectus Supplement and registered in the name of the Depositary or a nominee
thereof. In such case, one or more Global Securities will be issued in a
denomination or aggregate denominations equal to the portion of the aggregate
principal amount of outstanding Debt Securities to be represented by such Global
Security or Securities. Unless and until it is exchanged in whole or in part for
Debt Securities in definitive registered form, a Global Security may not be
transferred, except as a whole by the Depositary for such Global Security to a
nominee of such Depositary or by a nominee of such Depositary to such Depositary
or another nominee of such Depositary or by such Depositary or any such nominee
to a successor of such Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to any Debt
Securities to be represented by a Global Security will be described in a
Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, WAIVER AND NOTICE
As to any series of Debt Securities, an Event of Default is defined in the
Indenture as (a) default for 30 days in payment of any interest on the Debt
Securities of such series; (b) default in payment of principal of or premium, if
any, on the Debt Securities of such series when due either at maturity, upon
redemption, by declaration or otherwise; (c) default in the payment of a sinking
fund installment, if any, on the Debt Securities of such series; (d) default by
the Company in the performance of any other covenant or warranty contained in
the Indenture for the benefit of such series which shall not have been remedied
for a period of 60 days after notice given as specified in the Indenture; and
(e) certain events of bankruptcy, insolvency and reorganization of the Company.
(Section 5.1 of the Indenture.) An Event of Default with respect to a particular
series of Debt Securities issued under the Indenture does not necessarily
constitute an Event of Default with respect to any other series of Debt
Securities issued thereunder. The Indenture provides that the Trustee may
withhold notice to the holders of Debt Securities of any series of any default
(except in payment of principal of, or premium, if any, or interest on such Debt
Securities) if the Trustee considers it in the interest of the holders of Debt
Securities of such series to do so; provided, however, that in the case of a
default of the character specified in clause (d) above, no such notice to
holders of Debt Securities of such series shall be given until at least 30 days
after the occurrence thereof. (Section 5.11 of the Indenture.)
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The Indenture provides that (1) if an Event of Default described in clause
(a), (b), (c) or (d) above with respect to a particular series of Debt
Securities shall have occurred and be continuing, either the Trustee or the
holders of at least 25% in principal amount of the Debt Securities of such
series then outstanding may declare the entire principal (or, in the case of
original issue discount Debt Securities, the portion thereof specified in the
terms thereof) of all outstanding Debt Securities of such series and the
interest accrued thereon, if any, to be due and payable immediately and (2) if
an Event of Default described in clause (e) above shall have occurred and be
continuing, either the Trustee or the holders of at least 25% in principal
amount of all Debt Securities then outstanding thereunder (voting as one class)
may declare the entire principal (or, in the case of original issue discount
Debt Securities, the portion thereof specified in the terms thereof) of all Debt
Securities then outstanding thereunder and the interest accrued thereon, if any,
to be due and payable immediately, but upon certain conditions such declarations
may be annulled and past defaults (except for defaults in the payment of
principal of or premium, if any, or interest on such Debt Securities) may be
waived by the holders of a majority in principal amount of the Debt Securities
of such series (or of all series thereunder, as the case may be) then
outstanding. (Sections 5.1 and 5.10 of the Indenture.)
The Indenture provides that holders of a majority in principal amount of
the outstanding Debt Securities of each series affected (with each series voting
as a separate class) shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee under the
Indenture with respect to Debt Securities of such series, subject to certain
limitations specified in the Indenture, provided that the holders of Debt
Securities shall have offered to the Trustee reasonable security or indemnity
against expenses and liabilities. (Sections 5.9 and 6.2(d) of the Indenture.)
The Indenture requires the annual delivery by the Company to the Trustee of a
written statement as to the absence of certain defaults under the Indenture.
(Section 3.5 of the Indenture.) Whenever the Indenture provides for an action
by, or the determination of any of the rights of, or any distribution to,
holders of Debt Securities denominated in U.S. dollars and in any other currency
or currency unit, in the absence of any provision to the contrary in the form of
Debt Security of any particular series, any amount in respect of any Debt
Security denominated in a currency or currency unit other than U.S. dollars
shall be treated for any such action or distribution as the amount of U.S.
dollars that could be obtained for such amount on such reasonable basis of
exchange and as of such date as the Company reasonably specifies to the Trustee
or in the absence of such specification, as the Trustee may determine. (Section
11.11 of the Indenture.) Under the terms of the Indenture, the holders of a
majority in aggregate principal amount of all series of the Debt Securities to
be affected thereby at the time outstanding may waive compliance with certain
covenants contained in the Indenture. (Section 5.10 of the Indenture.)
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than 66 2/3% in aggregate principal
amount of the Debt Securities of all series affected by such modification at the
time outstanding (voting as one class), to modify the Indenture or any
supplemental indenture or the rights of the holders of such Debt Securities;
provided that no such modification shall (i) extend the final maturity of any
Debt Security, or reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest thereon, or change the currency or
currency unit of payment thereof, or change the method by which amounts of
payments of principal or interest thereon are determined, or reduce the portion
of the principal amount of an original issue discount Debt Security due and
payable upon acceleration of the maturity thereof or the portion of the
principal amount thereof provable in bankruptcy, or reduce any amount payable
upon redemption of any Debt Security, or impair or affect the right of a holder
to institute suit for the payment thereof or, if the Debt Securities provide
therefor, any right of repayment at the option of the holder of a Debt Security,
without the consent of the holders of each Debt Security so affected or (ii)
reduce the aforesaid percentage of Debt Securities of any series, the consent of
the holders of which is required for any such modification, without the consent
of the holder of each Debt Security so affected. (Section 8.2 of the Indenture.)
The Indenture also provides that the Company and the Trustee may from time to
time execute supplemental indentures. (Section 8.1 of the Indenture.)
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CONSOLIDATIONS, MERGERS, AND SALES OF ASSETS
The Company may not merge or consolidate with any other corporation or sell
or convey all or substantially all of its assets to any Person, unless either
the Company shall be the continuing corporation or the successor corporation
shall be a corporation organized under the laws of the United States or any
state thereof and shall expressly assume the payment of the principal of and
interest on the Debt Securities and the performance and observance of all the
covenants and conditions of the Indenture binding upon the Company, and,
immediately after such merger or consolidation, or such sale or conveyance, the
Company or such successor corporation shall not be in default in the performance
of any such covenant or condition. (Article Nine of the Indenture.) No
quantitative or other established meaning has been given to the phrase "all or
substantially all" by courts which have interpreted this phrase in various
contexts. In interpreting this phrase, courts make a subjective determination as
to the portion of assets sold or conveyed, considering such factors as the value
of the assets sold or conveyed and the proportion of an entity's income derived
from the assets sold or conveyed. Accordingly, there may be uncertainty as to
whether holders of the Debt Securities can determine whether the Company has
sold or conveyed all or substantially all of its assets and exercise any
remedies such holders may have upon the occurrence of any such transaction.
DEFEASANCE
The Indenture provides that, unless the terms of any series of Debt
Securities provide otherwise, the Company will be discharged from obligations in
respect of the outstanding Debt Securities of any series and the provisions of
the Indenture with respect thereto (excluding certain obligations, such as
obligations to register the transfer or exchange of such outstanding Debt
Securities, to replace stolen, lost or mutilated certificates or coupons, and to
hold moneys for payment in trust), upon the irrevocable deposit, in trust, of
cash or U.S. Government obligations (as defined in the Indenture) which, through
the payment of interest and principal thereof in accordance with their terms,
will provide cash in an amount sufficient to pay the principal of and premium,
if any, and interest on and mandatory sinking fund payments, if any, in respect
of outstanding Debt Securities of such series on the stated dates such payments
are due in accordance with the terms of the Indenture and such outstanding Debt
Securities, provided that the Company has received an opinion of counsel to the
effect that such a discharge will not be deemed, or result in, a taxable event
with respect to holders of such outstanding Debt Securities and that certain
other conditions are met. (Section 10.1(B) of the Indenture.)
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect and the Trustee, on demand
of and at the expense of the Company, shall execute appropriate instruments
acknowledging the satisfaction and discharge of the Indenture upon compliance
with certain enumerated conditions, including the Company having paid all sums
payable by the Company under the Indenture, when either (a) the Company shall
have delivered to the Trustee for cancellation all Debt Securities theretofore
authenticated or (b) all Debt Securities not theretofore delivered to the
Trustee for cancellation shall have become due and payable or are by their terms
to become due and payable within one year. (Section 10.1(A) of the Indenture.)
GOVERNING LAW
The Debt Securities and the Indenture will be governed by the laws of the
State of New York. (Section 11.8 of the Indenture.)
CONCERNING THE TRUSTEE
The Company entered into the Indenture with The First National Bank of
Boston, as Trustee ("FNBB"), pursuant to which the Company may issue one or more
series of its debt securities. Effective October 2, 1995, State Street Bank and
Trust Company acquired the trust business of FNBB, and, as a result, State
Street Bank and Trust Company became and is currently the Trustee under the
Indenture. State Street Bank and Trust Company may from time to time make loans
to the Company, and various subsidiaries of the
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Company may participate in loan syndications or other investments offered by
State Street Bank and Trust Company from time to time, in the normal course of
business. State Street Bank and Trust Company also serves as trustee for the
Company's outstanding 10% Notes due December 15, 2000, 10 1/8% Subordinated
Notes due December 15, 2000, 8 3/4% Notes due June 1, 1999, 7% Notes due October
1, 2013 and 6.60% Notes due January 15, 2004.
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PLAN OF DISTRIBUTION
The Company may sell the Debt Securities being offered hereby (i) through
agents, (ii) through underwriters, (iii) through dealers or (iv) directly to one
or more purchasers. The Prospectus Supplement with respect to a particular
offering of Debt Securities will set forth the terms of the offering of such
Debt Securities, including the name or names of the specific agents, dealers or
underwriters (including managing underwriters, if any), the purchase price and
the proceeds to the Company from such sales, any underwriting discounts, agency
fees or commissions and other items constituting compensation to the
underwriters, agents or dealers, initial public offering price, any discounts or
concessions to be allowed or reallowed or paid to dealers, the securities
exchange, if any, on which such Debt Securities may be listed, and the place and
time of delivery of the Debt Securities offered.
Debt Securities may be offered and sold through agents designated by the
Company from time to time. Unless otherwise indicated in the applicable
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment. Any such agent may be deemed to be an
underwriter, as that term is defined in the Securities Act, of any Debt
Securities so offered and sold. Agents may be entitled under agreements which
may be entered into with the Company to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with, or perform services for, the Company
in the ordinary course of business.
If an underwriter or underwriters are utilized in the sale of any Debt
Securities, the Company will execute an underwriting agreement with such
underwriter or underwriters at the time an agreement for such sale is reached.
Such underwriter or underwriters will acquire Debt Securities for their own
account and may resell such Debt Securities from time to time in one or more
transactions, including negotiated transactions, at fixed public offering prices
or at varying prices determined at the time of sale. Debt Securities may be
offered to the public either through underwriting syndicates represented by
managing underwriters, or by underwriters without a syndicate. The underwriters
may be entitled, under the relevant underwriting agreement, to indemnification
by the Company against certain liabilities, including liabilities under the
Securities Act. If any underwriter or underwriters are utilized in the sale of
any Debt Securities, unless otherwise set forth in the applicable Prospectus
Supplement, the underwriting agreement will provide that the obligations of the
underwriters will be subject to certain conditions precedent and that the
underwriters with respect to a sale of such Debt Securities will be obligated to
purchase all such Debt Securities if any are purchased.
If a dealer is utilized in the sale of any Debt Securities in respect of
which this Prospectus is delivered, the Company will sell such Debt Securities
to the dealer, as principal. The dealer may then resell such Debt Securities to
the public at varying prices to be determined by such dealer at the time of
resale. Any such dealer may be deemed to be an underwriter, as such term is
defined in the Securities Act, of the Debt Securities so offered and sold.
Dealers may be entitled, under agreements which may be entered into with the
Company, to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act. The name of any such dealer and
the terms of the transaction will be set forth in a Prospectus Supplement
relating thereto.
Offers to purchase Debt Securities may be solicited directly by the Company
and sales thereof may be made by the Company directly to institutional investors
or others, who may be deemed to be underwriters within the meaning of the
Securities Act with respect to any sale thereof. The terms of any such sales
will be described in a Prospectus Supplement relating thereto.
If so indicated in an appropriate Prospectus Supplement, the Company may
authorize agents and underwriters to solicit offers by certain institutions to
purchase Debt Securities from the Company at the public offering price set forth
in such Prospectus Supplement pursuant to delayed delivery contracts
("Contracts") providing for payment and delivery on the date stated in such
Prospectus Supplement. Each Contract will be for an amount not less than and,
unless the Company otherwise agrees, the aggregate principal amount of Debt
Securities sold pursuant to Contracts shall be not less nor more than the
respective amounts stated in such Prospectus Supplement. Institutions with whom
Contracts, when authorized, may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but shall in all cases be
subject to the approval of
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the Company in its sole discretion. The obligations of a purchaser under any
Contract will not be subject to any conditions except that any related sale of
Debt Securities to underwriters shall have occurred and the purchase by an
institution of the Debt Securities covered by its Contract shall not at the time
of delivery be prohibited under the laws of any jurisdiction in the United
States to which such institution is subject. A commission indicated in such
Prospectus Supplement will be paid to underwriters and agents soliciting
purchases of Debt Securities pursuant to Contracts accepted by the Company. The
underwriters or agents will not have any responsibility in respect of the
validity or performance of Contracts.
The place and time of delivery of the Debt Securities in respect of which
this Prospectus is delivered will be set forth in an accompanying Prospectus
Supplement.
LEGAL MATTERS
Unless otherwise indicated in a Prospectus Supplement relating to the Debt
Securities, certain legal matters in connection with the Debt Securities will be
passed upon for the Company by Baker & Hostetler, Cleveland, Ohio. Certain legal
matters in connection with the Debt Securities offered hereby will be passed
upon for any purchasers, dealers, underwriters or agents by Davis Polk &
Wardwell, New York, New York. Davis Polk & Wardwell may rely as to all matters
of Ohio law on the opinion of Baker & Hostetler, and Baker & Hostetler may rely
as to all matters of New York law on the opinion of Davis Polk & Wardwell. Davis
Polk & Wardwell may represent the Company from time to time in connection with
certain legal matters.
EXPERTS
The consolidated financial statements and financial statement schedules of
The Progressive Corporation and subsidiaries as of December 31, 1995, and for
each of the years in the three-year period then ended, all incorporated by
reference in the Registration Statement of which this Prospectus forms a part,
have been incorporated herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
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