-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MuapbvKMES5TlkwxwemnkeK86E6QbetXL9IX6MU7XCF+uqMfTBWN0cIcl6o2jnxF 7pto2KHTAQ9sSCPAQbmLsA== 0000950131-98-002955.txt : 19980504 0000950131-98-002955.hdr.sgml : 19980504 ACCESSION NUMBER: 0000950131-98-002955 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19980501 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINCINNATI FINANCIAL CORP CENTRAL INDEX KEY: 0000020286 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 310746871 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-51677 FILM NUMBER: 98608832 BUSINESS ADDRESS: STREET 1: 6200 S GILMORE RD CITY: FAIRFIELD STATE: OH ZIP: 45014 BUSINESS PHONE: 5138702000 MAIL ADDRESS: STREET 1: 6200 SOUTH GILMORE ROAD CITY: FAIRFIELD STATE: OH ZIP: 45014-5141 S-3 1 FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- CINCINNATI FINANCIAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- OHIO 31-0746871 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION INCORPORATION OR ORGANIZATION) NUMBER) CINCINNATI FINANCIAL CORPORATION HEADQUARTERS 6200 SOUTH GILMORE ROAD FAIRFIELD, OHIO 45014 (513) 870-2000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- THEODORE F. ELCHYNSKI SENIOR VICE PRESIDENT 6200 SOUTH GILMORE ROAD FAIRFIELD, OHIO 45014 (513) 870-2000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) COPY TO: W. PHILIP SHEPARDSON, JR. EDWARD S. BEST BECKMAN, WEIL, SHEPARDSON AND FALLER, MAYER, BROWN & PLATT LLC 190 SOUTH LASALLE STREET 1200 MERCANTILE CENTER CHICAGO, ILLINOIS 60603 120 EAST FOURTH STREET (312) 782-0600 CINCINNATI, OHIO 45202 (513) 621-2100 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: [_] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF SECURITIES TO BE TO BE OFFERING PRICE OFFERING PRICE REGISTRATION REGISTERED REGISTERED PER UNIT (1) (1) FEE - ----------------------------------------------------------------------------------- Debentures due 2028..... $350,000,000 100% $350,000,000 $103,250 - -----------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- (1) Estimated solely for purposes of calculating the registration fee. ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MAY 1, 1998 PROSPECTUS $350,000,000 CINCINNATI FINANCIAL CORPORATION % DEBENTURES DUE 2028 -------- Cincinnati Financial Corporation ("Cincinnati Financial" or the "Company") is offering $350,000,000 aggregate principal amount of its % Debentures due , 2028 (the "Debentures"). Interest on the Debentures will be payable semiannually in arrears on and of each year, commencing , 1998. The Debentures will mature on , 2028. The Debentures are not redeemable prior to maturity. The Debentures will be represented by global securities ("Global Securities") registered in the name of the nominee of The Depository Trust Company ("DTC"). Beneficial interests in such certificates will be shown on, and transfers thereof will be effected only through, records maintained by DTC's participants. Owners of beneficial interests in the certificates representing the Debentures will be entitled to physical delivery of Debentures in certificated form in the amount of their respective beneficial interests only under the limited circumstances described herein. See "Description of the Debentures--Book-Entry, Delivery and Form." -------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON- TRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNT THE COMPANY(1)(2) - -------------------------------------------------------------------------------- Per Debenture......................... - -------------------------------------------------------------------------------- Total................................. - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Plus accrued interest, if any, from , 1998 to date of delivery. (2) Before deducting expenses payable by the Company estimated at $ . -------- The Debentures are offered subject to receipt and acceptance by the Underwriters, to prior sale and to the Underwriters' right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of Global Securities representing the Debentures will be made through the facilities of DTC on or about , 1998, against payment therefor in immediately available funds. -------- SALOMON SMITH BARNEY CREDIT SUISSE FIRST BOSTON A.G. EDWARDS & SONS, INC. MCDONALD & COMPANY SECURITIES, INC. , 1998 CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE DEBENTURES, INCLUDING PURCHASES OF THE DEBENTURES TO STABILIZE THEIR MARKET PRICE AND PURCHASES OF THE DEBENTURES TO COVER ANY SHORT POSITION IN THE DEBENTURES MAINTAINED BY THE UNDERWRITERS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." FOR NORTH CAROLINA INVESTORS: THE DEBENTURES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS DOCUMENT. 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"). Reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, or at the Commission's worldwide web site at http://www.sec.gov. The Company has filed with the Commission a Registration Statement on Form S-3 (together with all amendments and exhibits, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), relating to the Debentures. This Prospectus does not contain all of the information set forth in the Registration Statement as permitted by the rules and regulations of the Commission. For information with respect to the Company and the Debentures, reference is hereby made to such Registration Statement. The Registration Statement may be inspected without charge by anyone at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from the Commission upon payment of the prescribed fees. Statements contained in this Prospectus as to the contents of any contract or other document referred to 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 all respects by such reference. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company's Annual Report on Form 10-K for the year ended December 31, 1997 is incorporated herein by reference. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Debentures shall be deemed to be incorporated in this Prospectus by reference and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein (or in the applicable Prospectus) or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein 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 The Company will provide, without charge to any person to whom a copy of this Prospectus is delivered, upon the written or oral request of such person, a copy of any document incorporated by reference herein other than exhibits to such document unless such exhibits are specifically incorporated by reference in such document. Requests for such copies should be directed to the Company's principal executive offices located at Cincinnati Financial Corporation Headquarters, 6200 South Gilmore Road, Fairfield, Ohio 45014, Attention: Investor Relations (telephone: 513-870-2000). 3 THE COMPANY GENERAL Cincinnati Financial, through its subsidiaries, has written commercial and personal property and casualty insurance since 1951. The Company's insurance subsidiaries are licensed to write property and casualty insurance in all 50 states and the District of Columbia but focus on the Midwest and Southeast regions of the United States, where the Company believes it has a significant presence. Cincinnati Financial's property and casualty operations generated $1.5 billion of net premiums written in 1997 and accounted for 96% of the Company's 1997 premium income. The Company had total assets of $9.5 billion and shareholders' equity of $4.7 billion as of December 31, 1997. Cincinnati Financial also provides life, health and accident insurance and, to a lesser extent, financing and leasing services. The Company's property and casualty insurance subsidiaries are rated A++ (Superior) by A.M. Best Company ("A.M. Best"), placing them in the top 7% of property and casualty insurers based on their A.M. Best ratings. These subsidiaries also maintain AA+ (Excellent) claims-paying ability ratings from Standard & Poor's Ratings Services, a division of The McGraw-Hill Company. Cincinnati Financial distributes its products through a limited number of independent agencies (973 at December 31, 1997), a significant number of which own shares of the Company's stock. The Company believes that its strong relationship with and commitment to servicing these agencies are key elements in the Company's successful business operations and expansion. Its network of 67 field marketing representatives provides a local presence for the Company and strengthens the Company's relationships with its agents. The Company also supports its independent agencies with competitive products, rates and compensation. For example, the Company offers multi-year policy terms (i.e., three- to five-years) on many of its commercial and personal lines products. In a 1997 independent survey of 30,000 agents and brokers across 16 commercial product lines, the Company earned the highest overall score. Management has emphasized strict underwriting discipline and employee productivity, and as a result, Cincinnati Financial has outperformed the industry on an underwriting basis. The Company has achieved an average combined ratio of 100.2% for the five years ended December 31, 1997, compared to an industry average of 104.6% for the same period, based on industry data provided by A.M. Best. Through the quarter ended December 31, 1997, the Company had achieved an underwriting profit for the fifth consecutive quarter. PROPERTY AND CASUALTY INSURANCE The Company's principal insurance subsidiary, The Cincinnati Insurance Company ("CIC"), actively underwrites fire, automobile, casualty, bonds, and related forms of property and casualty insurance in 27 states. The Company's other property and casualty subsidiaries are The Cincinnati Casualty Company ("CCC"), which operates on a direct billing basis, and The Cincinnati Indemnity Company ("Cincinnati Indemnity"), which markets nonstandard policies for preferred risk accounts. Net written property and casualty premiums totaled $1.5 billion for 1997, an increase of 6.4% over the prior year. The combined ratio for the Company's property and casualty operations was 97.7% for 1997. Commercial Insurance The Company generally targets small to medium-sized commercial accounts. Cincinnati Financial's principal commercial lines products include commercial multi-peril, commercial automobile and workers' compensation insurance, which accounted for 36%, 20% and 19%, respectively, of 1997 commercial lines net premiums written. The Company has generated $987.3 million of commercial lines net premiums written in 1997, representing approximately 67% of the Company's total property and casualty net premiums written. 4 Personal Insurance The Company's principal personal lines products include personal automobile and homeowners' insurance, which accounted for 59% and 29%, respectively, of 1997 personal lines net premiums written. Automobile insurance products include both physical damage and liability coverages. Cincinnati Financial generated $483.3 million of personal lines net premiums written in 1997, representing approximately 33% of the Company's total property and casualty net premiums written. Underwriting The Company's field marketing representatives have primary responsibility for the underwriting of policy submissions, which the Company believes allows it to be more responsive to the needs of its independent agents and their prospective insureds. The Company also believes that, given the nature of its target market, its field marketing representatives are generally better able to evaluate submissions than a centralized underwriting department. The Company believes that its strict underwriting discipline has contributed to its average combined ratio of 100.2% over the last five years, compared to the industry average of 104.6%. Despite a competitive pricing environment, especially within the commercial lines market, Cincinnati Financial was able to achieve an underwriting profit in 1997 and its lowest combined ratio, 97.7%, since 1988. Distribution By being very selective in its choice of agents, the Company develops stronger relationships, earns more loyalty and expects a higher percentage of agency premium. Consequently, Cincinnati Financial is represented by fewer than 1,000 independent agencies. A typical agency's total annual production is between $4 million and $5 million. The Company estimates that it receives approximately 40% of the total annual production of agencies with which it has a developed relationship. Agents are supported by a team of 67 field marketing representatives who work from their homes, thus eliminating the expense of branch offices. The Company seeks to further strengthen relationships with its independent agents through innovative commission structures which include a profit-sharing program. Claims Management The Company is committed to providing timely, personal and fair management of claims. Claims management is provided by over 600 field claims representatives who have the authority to adjust most claims in the field. The Company believes its decentralized claims adjusting process allows the Company to be more responsive to its insureds and claimants. The Company also believes an efficient and fair adjustment of claims further strengthens its relationships with its independent agencies. The Company has developed a number of successful claims management programs to help identify and manage potential fraudulent claims. Reserves The Company's insurance reserve liabilities are estimated by Management based upon Company experience data. The Company establishes property and casualty insurance reserves, including adjustments of estimates, using information from internal analysis and review by external actuaries, who perform an annual review of the Company's reserves. The Company believes that its high retention rates and multi-year policies better enable the Company to evaluate its book of business, thus reducing uncertainty in establishing reserves. Such reserves are related to various lines of business and will be paid out over future periods. Management believes that environmental exposures are minimal as a result of the types of risks the Company has insured. Historically, most commercial accounts written post-date the coverages which afford clean-up costs and Superfund responses. The Company currently has approximately $58 million reserved for environmental and asbestos losses, of which $16 million consist of case reserves, $19 million consist of loss adjustment expense reserves and $23 million consist of IBNR reserves. 5 Reinsurance The Company limits the maximum net loss that can arise by large risks or risks concentrated in areas of exposure by reinsuring with (ceding to) other insurers or reinsurers. The Company's current net retention levels are generally $2,000,000 per claim. The Company reinsures with companies that have strong claims-paying ratings. The composition of its reinsurers has not changed, and the Company has not experienced any uncollectible reinsurance amounts or coverage disputes with its reinsurers, in more than ten years. The Company has excess of loss treaties with Swiss Reinsurance Company, American Reinsurance Company, Employers Reinsurance Company and General Reinsurance Corporation. LIFE INSURANCE Through The Cincinnati Life Insurance Company ("Cincinnati Life"), the Company actively underwrites life insurance and accident and health insurance in 29 states and has policies in force in 46 states and the District of Columbia. Ordinary individual life insurance and annuity products constitute the majority of Cincinnati Life's product lines. Cincinnati Life distributes its products primarily through the Company's independent property and casualty agencies. In addition, Cincinnati Life has established a worksite marketing program and is developing relationships with independent life insurance agents in markets outside of the property and casualty operations' geographic area. Cincinnati Life generated $92.4 million of net premiums written in 1997 which accounted for approximately 4% of the Company's total 1997 premium income. FINANCIAL SERVICES CFC Investment Company ("CFC Investment") leases and finances vehicles and equipment for the Company's agents and their clients and owns certain real estate in the Cincinnati metropolitan area. CFC Investment's leasing and financing activities create an additional source of income for the Company while serving to improve the Company's relationships with its independent agents and such independent agents' relationships with their customers. Approximately half of the leasing customer base is comprised of independent property and casualty agencies and a large portion of the Company's business comes from agent referrals of their commercial insurance clients. Many agencies lease or finance agency management systems that are funded through Cincinnati Financial under incentive agreements requiring specified levels of premium growth and profitability. Net after-tax earnings in 1997 rose to $2.2 million versus $1.2 million in 1996. INVESTMENTS The Company's primary investment strategy is to achieve superior returns in the form of capital appreciation and income, while maintaining sufficient liquidity to meet both its immediate and long-term insurance obligations. The Company implements this strategy through investing in equity securities and medium-risk fixed maturity securities, which it believes have the potential for ratings increases. The Company believes that investing in equity securities offers it the opportunity to earn optimal returns through increasing dividends and capital appreciation. The Company has utilized a long-term, buy and hold strategy with respect to its equity portfolio, resulting in an accumulation of significant unrealized gains on equity investments. While the Company classifies all of its fixed maturity securities as available for sale, the Company often holds such securities to maturity absent a change in credit risk or the call of the securities by the issuer. Equity and fixed income securities accounted for 68% and 31%, respectively, of the Company's total invested assets and 57% and 43%, respectively, of the total invested assets of the Company's insurance subsidiaries, at December 31, 1997. Investment grade securities represented 58% of Cincinnati Financial's fixed income portfolio and 69% of the fixed income portfolio of the Company's insurance subsidiaries at December 31, 1997. Tax-exempt securities, which are all held by the Company's insurance subsidiaries, represented 32% of the Company's fixed income portfolio at December 31, 1997. Neither the Company nor its subsidiaries invest in derivative instruments or real-estate related securities. For further information concerning the Company's investment strategy and portfolio, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 of Notes to Consolidated Financial Statements incorporated by reference herein. 6 YEAR 2000 ISSUES The Company has continued system and network upgrades to address Year 2000 issues. Management believes that the few systems not yet Year 2000 compliant will be technically compliant by mid-year 1999. CORPORATE INFORMATION The Company was incorporated in Ohio on March 4, 1992. The address of the Company's principal executive office is Cincinnati Financial Corporation Headquarters, 6200 South Gilmore Road, Fairfield, Ohio 45014 and its telephone number is (513) 870-2000. USE OF PROCEEDS The net proceeds from the sale of the Debentures offered hereby (after deducting underwriting discounts and commissions and estimated expenses of the Offering) are estimated to be approximately $ million. A portion of the net proceeds will be used to repay approximately $281 million of indebtedness and the remaining net proceeds will be used for general corporate purposes, including the financing of an expansion of the Company's headquarters. As of March 31, 1998, the indebtedness to be repaid had maturities of 90 days or less and had a weighted average interest rate equal to 6.24%. 7 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of December 31, 1997 and as adjusted to give effect to the offering of the Debentures hereby and the application of the net proceeds therefrom. The following table should be read in conjunction with the Company's Consolidated Financial Statements, and the Notes thereto, incorporated by reference herein.
AS OF DECEMBER 31, 1997 ---------------------- AS ACTUAL ADJUSTED ---------- ---------- (IN THOUSANDS) Short-term debt (including current maturities)......... $ 280,558 $ -- Long-term debt......................................... 58,430 408,430 ---------- ---------- Total debt........................................... $ 338,988 $ 408,430 Shareholders' equity: Common stock (par value $2 per share; 200,000 authorized, 169,391 issued) (1)................................. $ 338,782 $ 338,782 Paid-in capital (1).................................. 203,282 203,282 Retained earnings.................................... 1,341,730 1,341,730 Unrealized gains on investments...................... 2,905,756 2,905,756 ---------- ---------- $4,789,550 $4,789,550 Less treasury shares at cost (3,036 shares) (1)...... (72,585) (72,585) ---------- ---------- Total shareholders' equity......................... $4,716,965 $4,716,965 ---------- ---------- Total capitalization............................. $5,055,953 $5,125,395 ========== ==========
- -------- (1) Restated to account for 3-for-1 stock split payable May 15, 1998 to shareholders of record at April 24, 1998. 8 SELECTED CONSOLIDATED FINANCIAL AND OTHER INFORMATION The selected consolidated financial information set forth below for the Company as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 are derived from the audited financial statements incorporated by reference herein. The selected consolidated financial information set forth below for the Company as of December 31, 1995, 1994 and 1993 and for each of the years in the two-year period ended December 31, 1994 are derived from the audited financial statements not included elsewhere herein. This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements, and Notes thereto, incorporated by reference herein.
AT OR FOR YEAR ENDED DECEMBER 31, -------------------------------------------------------------- 1997 1996 1995 1994 1993(1) ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT RATIOS) INCOME STATEMENT INFORMATION: Premium income........ $1,516,378 $1,422,897 $1,314,126 $1,219,033 $1,140,791 Investment income (less expense)....... 348,597 327,307 300,015 262,649 239,436 Realized gains on investments.......... 69,230 47,946 30,781 19,557 51,529 Other income.......... 8,179 10,599 10,729 11,267 10,396 Net income............ 299,375 223,760 227,350 201,230 216,024 BALANCE SHEET INFORMATION: Cash and invested assets............... $8,877,218 $6,404,337 $5,545,328 $4,249,995 $4,154,648 Total assets.......... 9,493,425 7,045,514 6,109,298 4,734,279 4,602,288 Reserves.............. 2,418,981 2,321,448 2,146,798 1,922,392 1,748,484 Long-term obligations. 58,430 79,847 80,000 80,000 80,000 Shareholders' equity.. 4,716,965 3,162,889 2,657,971 1,940,047 1,947,338 OTHER PROPERTY AND CASUALTY DATA-- STATUTORY BASIS: Net premiums written.. $1,471,603 $1,383,525 $1,295,852 $1,190,824 $1,123,780 Policyholders' surplus.............. 2,148,746 1,393,954 1,073,497 790,870 809,985 Loss ratio............ 58.3% 61.6% 57.6% 63.3% 63.5% Loss expense ratio.... 10.1 13.8 14.7 9.8 8.7 Underwriting expense ratio................ 29.3 27.6 27.1 27.5 27.9 ---------- ---------- ---------- ---------- ---------- Combined ratio (2).... 97.7% 103.0% 99.4% 100.6% 100.1% Ratio of net premiums written to policyholders' surplus (3).......... 0.68x 0.99x 1.21x 1.51x 1.39x RATIO OF EARNINGS TO FIXED CHARGES (4)...... 19.4x 14.9x 17.8x 25.8x 36.8x
- -------- (1) Earnings for the year ended December 31, 1993 include a $13,845,000 credit for the cumulative effect of a change in the method of accounting for income taxes to conform with FASB Statement No. 109 and a net charge of $8,641,000 related to the effect of the 1993 increase in income tax rates on deferred taxes recorded for various prior year items. (2) The combined ratio is an industry measurement of the profitability of property and casualty insurance underwriting. This ratio is the sum of the ratio of incurred losses and loss adjustment expenses to net earned premiums (the "loss and LAE ratio") and the ratio of underwriting expenses incurred to net premiums written (the "underwriting expense ratio"). A combined ratio less than 100% generally indicates an underwriting profit; a combined ratio greater than 100% generally indicates an underwriting loss. (3) Ratio represents statutory net property and casualty premiums written for the year divided by statutory policyholders' surplus at the end of the year attributable to the property and casualty business. (4) For purposes of computing the ratio of earnings to fixed charges, earnings consist of net income before income tax expense (excluding interest costs capitalized) plus fixed charges to the extent that such charges are included in the determination of earnings. Fixed charges consist of interest costs (including interest costs capitalized) plus one-third of minimum rental payments under operating leases (estimated by Management to be the interest factor of such rentals). 9 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion is intended to supplement the data contained in the Consolidated Financial Statements, and Notes thereto, of Cincinnati Financial and its subsidiaries incorporated by reference herein. The Company has five subsidiaries. The lead property and casualty insurance subsidiary, CIC, markets a broad range of business and personal policies in 27 states through an elite corps of 973 independent insurance agencies. Also engaged in the property and casualty business are CCC, which works on a direct billing basis, and Cincinnati Indemnity, which markets nonstandard policies for preferred risk accounts. Cincinnati Life markets life, health and accident policies through property and casualty agencies and independent life agencies. CFC Investment complements the insurance subsidiaries with leasing, financing and real estate services. Investment operations are the Company's primary source of profits, with a total return strategy emphasizing investment in fixed maturities securities as well as equity securities that contribute to current earnings through dividend increases and add to net worth through long- term appreciation. The following discussion and related Consolidated Financial Statements, and Notes thereto, incorporated by reference herein contain certain forward- looking statements that involve potential risks and uncertainties. The Company's future results could differ materially from those discussed. Factors that could cause or contribute to such differences include, but are not limited to: unusually high levels of catastrophe losses due to changes in weather patterns or other natural causes; changes in insurance regulations or legislation that place the Company at a disadvantage in the marketplace; recession or other economic conditions resulting in lower demand for insurance products; sustained decline in overall stock market values negatively impacting the Company's equity portfolio and the ability to generate investment income; and, the potential inability of the Company and/or the independent agents with which it works to complete the necessary information system changes required to handle Year 2000 issues. Readers are cautioned that the Company undertakes no obligation to review or update the forward-looking statements included in this material. RESULTS OF OPERATION Overview of Results Primarily as a result of continued market penetration and entry into new states, the Company's revenues have increased at a compound annual rate of 8.3%, reaching $1.942 billion in 1997, with property/casualty net written premiums growing at a compound annual rate of 7.7% to $1.472 billion over the past five years. In the same five-year period, total net income, including realized capital gains, grew at a compound annual rate of 11.8% to $299.4 million from $216.0 million while net operating income increased at a compound annual rate of 11.5% to $254.4 million from $182.5 million in 1993. Book value grew at a 22.2% compound annual rate over the same period. A number of factors, including the Company's strong reputation among independent insurance agencies and Management's belief that the Company can achieve additional market penetration in states in which it currently operates, have led Management to target $2 billion in direct written premiums during the year 2000, up from $1.621 billion in 1997. At the same time, the Company seeks to generate an underwriting profit and maximize annual growth in investment income. The following discusses and analyzes results for the three-year period ending December 31, 1997 and provides insight into Management's strategic direction for the Company.
CHANGE CHANGE CHANGE CHANGE 1997 ($) (%) 1996 ($) (%) 1995 -------- ------ ------ -------- ------ ------ -------- (IN MILLIONS, EXCEPT PERCENTAGES) Revenues................ $1,942.4 $133.7 7% $1,808.7 $153.0 9% $1,655.7 Net Operating Income.... 254.4 61.8 32 192.6 (14.7) (7) 207.3 Net Capital Gains (after tax)................... 45.0 13.8 44 31.2 11.2 56 20.0 Net Income.............. 299.4 75.6 34 223.8 (3.5) (2) 227.3 Catastrophe Losses...... 25.5 (39.2) (60) 64.7 37.6 138 27.1
10 The Company's financial results for the three years ending December 31, 1997 reflect steady growth in new insurance business and high retention of renewal business quoted on behalf of the Company's independent insurance agents, offset by competitive property and casualty pricing. In addition, 1997 marked a return to a more normal level of catastrophe losses from the unusually high 1996 level. Results for 1997 also reflect the Company's consistent underwriting philosophy and strategy--maintaining high underwriting standards by carefully evaluating individual risks, reviewing agency performance and controlling overall expenses. Net operating income for 1997 rose substantially over the prior year. The Company generated 6.5% growth in pre-tax investment income and an underwriting profit versus an underwriting loss in 1996, primarily due to lower catastrophe losses. In 1996, net operating income declined 7% because of the catastrophe losses, while pre-tax investment income rose 9.1%. The contribution from net realized capital gains after-tax rose in both years primarily due to the sale of equity securities. PROPERTY AND CASUALTY INSURANCE OPERATIONS
CHANGE CHANGE CHANGE CHANGE 1997 ($) (%) 1996 ($) (%) 1995 -------- ------ ------ -------- ------ ------ -------- (IN MILLIONS, EXCEPT PERCENTAGES AND RATIOS) Gross Written Premiums.. $1,566.7 $90.7 6.1% $1,476.0 $98.6 7.2% $1,377.4 Net Written Premiums.... 1,471.6 88.1 6.4 1,383.5 87.6 6.8 1,295.9 Net Earned Premiums..... 1,453.5 87.0 6.4 1,366.5 103.2 8.2 1,263.3 Loss and LAE Ratio...... 68.4% N/A (9.3) 75.4% N/A 4.3 72.3% Expense Ratio........... 29.3 N/A 6.2 27.6 N/A 1.8 27.1 Combined Ratio.......... 97.7 N/A (5.1) 103.0 N/A 3.6 99.4
Premiums While premium growth rates have declined in 1997 and 1996, the Company's property and casualty group continued to increase net written premiums at rates well above estimated industry growth rates. In 1997 and 1996, the primary source of growth was personal lines insurance, for which net written premiums advanced 12.4% in 1997 (9.4% in 1996), while commercial lines insurance growth was 3.6% (5.6% in 1996). During 1997 and 1996, the commercial insurance market experienced intense price competition, most notably in workers' compensation where market-share competition and mandated rate reductions in some states led to renewal account discounts of as much as a third from the previous year's premium. The Company is committed to prudent underwriting standards and emphasizing account profitability. The emphasis on profitability contributed to the 53.2% pure loss ratio for the commercial lines area, in line with the 54.8% reported in 1996. As a result of market factors, direct written workers' compensation premiums in 1997 declined 6% and growth in other commercial insurance lines was limited. Management believes these competitive forces will continue for at least the next six to twelve months. To help offset these pressures, the Company is emphasizing personal lines insurance, entering new states to expand market opportunities, pursuing a marketing strategy that permits field representatives to spend more time assisting the independent insurance agents and expanding its life insurance operations. The Company sees heightened interest from independent insurance agents in writing personal lines insurance as a means of buffering the price competition in the commercial sector and stabilizing their revenue. The Company is taking advantage of this trend by encouraging independent agents to move to the Company their proven, profitable business. Agents who are streamlining operations by reducing the number of carriers they represent have been rolling over entire books of business to the Company. Management believes Cincinnati Financial can achieve additional market penetration by leveraging its strong relationships with independent agencies and entering new states. The Company also can take advantage 11 of key competitive advantages of Cincinnati Financial's insurance products, for example three- and five-year policies for many types of insurance coverage. At year-end 1997, approximately 98% of the Company's property and casualty premium volume was in states in which the Company has had a presence since 1994 or earlier. Over the past three years, the Company has added nine marketing representatives in several established states, restructuring territories so that each representative has fewer agencies to serve. This has allowed field representatives to appoint additional agencies and, more importantly, spend more time with each agent. During 1998, Management anticipates adding two marketing territories in existing regions. Entry into new states also has been a source of premium growth. During 1997, the states the Company entered between 1994 and 1997 contributed more than $28 million of property and casualty premium volume. An example of these successful new market entries is Minnesota, where premium volume reached $11.7 million in 1997, up from $800,000 in 1994. During 1996 and 1997, the Company began marketing commercial lines in North Dakota and added personal lines in Arkansas, Maryland, Minnesota, North Dakota, Pennsylvania and Vermont. During 1998, Management anticipates beginning to market insurance products in Montana and in two planned upstate New York territories. Five western states currently are being researched with the intention of selecting one or two additional states in which to seek approval during 1998 to market the Company's products in 1999. The Company's criteria for entry into new states include a favorable regulatory climate. Expenses The Company recorded a $24.8 million underwriting profit in 1997 compared with an $45.0 million underwriting loss in 1996 and a $1.4 million underwriting profit in 1995. The 1997 underwriting profit, reflected by a combined ratio of 97.7%, was primarily the result of a more normal level of catastrophe losses contributing to a seven point reduction in the loss and loss adjustment expense ratio compared with 1996. The return to a more normal level of catastrophe losses also helped offset a one and seven-tenths point increase in the expense ratio. The underwriting loss in 1996, reflected by a combined ratio of 103.0%, was the result of the higher catastrophe losses, as well as a half percentage point increase in the expense ratio over 1995. The expense ratio increased in both years as the Company raised spending on staff and costs associated with upgrading technology and facilities to accommodate anticipated growth in premium volume while making computer systems Year 2000 compliant. Because the Company issues three- and five-year policies, Management believes that Year 2000 compliance issues have been initiated for most of the computer systems. Many systems are already Year 2000 compliant; most other programs will be compliant by year-end 1998, with the balance completed during 1999. Management believes this goal will be attained. The Company's largest risk lies with Year 2000 compliance by its independent agencies, which handle most of the customer billing and collections. In response to this concern, the Company is proactively contacting agents regarding this issue and will be monitoring each agency's actions closely. Adding to expenses in 1997 were higher profit-sharing commissions to many of the Company's independent insurance agents, due to the overall profitability of the business they wrote. In 1997, catastrophe losses accounted for 1.8% of the combined ratio, more closely in line with the Company's historic results and in contrast to the unusually high 4.7% from ten large storms in 1996. In 1995, catastrophe losses accounted for 2.1% of the combined ratio. Due to the nature of catastrophic events, Management is unable to predict accurately the frequency or potential cost of such occurrences in the future; however, the Company has continued not to market property and casualty insurance in California, not to write flood insurance, to review exposure to huge disasters and reduce coverage in certain coastal regions in an effort to control such catastrophe losses. For property catastrophes, the Company retains the first $25 million of losses and is reinsured to cover 95% of the losses from $25 million up to $200 million. As discussed in the Notes to the Consolidated Financial Statements incorporated by reference herein, the Company's insurance reserve liabilities are estimated by Management based upon Company experience data. The Company consistently has established property and casualty insurance reserves, including adjustments of 12 estimates, using information from internal analysis and review by external actuaries. Though uncertainty always exists as to the adequacy of established reserves, Management believes this uncertainty is less than it otherwise would be, due to the stability of the Company's book of business. Such reserves are related to various lines of business and will be paid out over future periods. Reserves for environmental claims have been reviewed and the Company believes that the reserves are adequate. Environmental exposures are minimal as a result of the types of risks the Company has insured in the past. Historically, most commercial accounts written post-date the coverages which afford clean-up costs and Superfund responses. Life and Accident and Health The Company's life insurance subsidiary, Cincinnati Life, had total net premium income for 1997 of $62.9 million, up from $56.4 million in 1996 and $50.9 million in 1995. Life insurance premiums were $54.7 million, $48.7 million and $43.6 million, respectively. Cincinnati Life contributed 10% of the Company's operating income in 1997, 1996 and 1995. During 1997, the Company hired a new president for Cincinnati Life. Under his direction, Cincinnati Life is expanding worksite marketing activities, introducing a competitive new life insurance product series and researching opportunities to sell life insurance in states in which the Company does not have property and casualty agency representation. The initiatives, which were undertaken in the second half of 1997, had little impact on results for the year. Management believes, however, that opportunities exist to increase Cincinnati Life's contribution to total operating income through expanded life insurance sales. Investment Income and Investments Investment income rose 6.5% to $348.6 million in 1997 and increased 9.1% to $327.3 million in 1996. The slower growth rate in 1997 reflected the amount of fixed maturities investments called early and the generally lower interest rate environment. The increases were primarily the result of investing the cash flows from operating activities and dividend increases from equity securities in the investment portfolio. In 1997, 34 of the 62 common stocks in the Company's investment portfolio increased dividends during the year, adding more than $8.1 million to future annualized investment earnings. The Company's primary investment strategy is to maintain liquidity to meet both immediate and long-term insurance obligations through the purchase and maintenance of medium-risk, fixed maturity and equity securities, while earning optimal returns on the equity portfolio through higher dividends and capital appreciation. The Company's investment decisions on an individual insurance company basis are influenced by insurance statutory requirements designed to protect policyholders from investment risk. Cash generated from insurance operations is invested almost entirely in corporate, municipal, public utility and other fixed maturity securities or equity securities. Such securities are evaluated prior to purchase based on yield and risk. Investments in common stocks have emphasized securities with an annual dividend yield of at least 2%-3% and annual dividend increases. The Company's portfolio of equity investments had an average dividend yield to cost of 7.8% at December 31, 1997. Management's strategy in equity investments includes identifying approximately ten to twelve companies, for the core of the investment portfolio, in which the Company can accumulate 10%-20% of their common stock. Interest and Income Taxes The Company's income tax expense was $95.2 million, $58.7 million and $67.8 million for 1997, 1996 and 1995, respectively, while the effective tax rate was 24.12%, 20.77% and 22.98%, for the same periods. The higher tax rate in 1997 primarily was due to the strong underwriting profit recorded for the year and higher capital gains. The lower rate in 1996 was partially the result of a higher percentage of net income earned from tax-exempt interest on state, municipal and political subdivision fixed maturities and dividends received on equity investments. The Company incurred no additional alternative minimum tax expenses for 1997, 1996 and 1995. 13 CASH FLOW AND LIQUIDITY
FOR THE YEAR ENDED DECEMBER 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- (IN MILLIONS) Net cash provided by operating activities.. $ 427.0 $ 308.3 $ 389.5 Net cash used in investing activities...... (282.5) (224.8) (443.9) Net cash (used) provided in financing activities................................ (124.2) (43.7) 26.2 Net increase (decrease) in cash............ 20.2 39.9 (28.2) Cash at beginning of year.................. 59.9 20.0 48.3 Cash at end of year........................ 80.2 59.9 20.0 Supplemental Interest paid............................ 21.8 20.9 16.0 Income taxes paid........................ 95.5 65.0 67.0
Cash Flow Over the past three years, operating cash flows have been sufficient to meet operating needs and provide for financing needs and increased investment. Management expects operating cash flow will continue to be the Company's primary source of funds because no substantial changes are anticipated in the Company's mix of business nor are there plans to reduce protection by ceded reinsurance agreements with financially stable reinsurance companies. Further, the Company has no significant exposure to assumed reinsurance. Assumed reinsurance comprised no more than 3% of gross premiums in each of the last three years. The change in net cash used in investing activities reflected a steady increase over the three years in calls of fixed maturity investments, offset in 1997 by increased purchases of fixed maturities and equity securities. Cash flows used in net purchases of fixed maturity and equity securities, respectively, amounted to $122.6 million and $134.1 million in 1997, $98.0 million and $95.4 million in 1996, and $309.7 million and $114.9 million in 1995. Over the three-year period, the primary increases in net cash used for financing activities were for the payment of cash dividends and the purchase of treasury shares. Notes Payable--Increases in notes payable, primarily short-term debt used to enhance liquidity, were reduced from $91.9 million in 1995 to $41.1 million in 1996 to $18.5 million in 1997. Management used short-term debt for cash management and other purposes. Dividends--The Company has increased cash dividends to shareholders for 37 consecutive years and, periodically, the Board of Directors authorizes stock dividends or splits. In February 1997, the Company's Board voted to increase the regular quarterly dividend by four cents to an indicated annual rate of $1.64 per share. On February 7, 1998, the Board authorized a 12.2% increase, raising the regular quarterly dividend by five cents to an indicated annual rate of $1.84. On April 4, 1998, the Board declared a three-for-one stock split to be distributed on May 15, 1998, to shareholders of record as of April 24, 1998. Since 1987, the Company's Board of Directors has authorized four additional stock splits or stock dividends: a 5% stock dividend in 1996; a 5% stock dividend in 1995; a three-for-one stock split in 1992; and, a 5% stock dividend in 1987. After the stock split in 1998, a shareholder who purchased one CIC share before 1957 would own 1,947 Cincinnati Financial shares, if all shares from accrued stock dividends and splits were held. The Company's policy for the past ten years has been to reinvest approximately 70% of net income in future growth and to distribute remaining income as dividends. The ability of the Company to continue paying cash dividends is subject to such factors as the Board of Directors may deem relevant. 14 FINANCIAL CONDITION Assets Cash and marketable securities of $8.831 billion make up 93.0% of the Company's $9.493 billion of assets; this compares with 90.3% in 1996 and 90.2% in 1995. The Company has only minor investments in real estate and mortgages, which are typically illiquid. At December 31, 1997, the Company's portfolio of fixed maturity securities had an average yield-to-cost of 8.4% and an average maturity of 12 years. For the insurance companies' purposes, strong emphasis has been placed on purchasing current income-producing securities and maintaining such securities as long as they continue to meet the Company's yield and risk criteria. Historically, municipal bonds have been attractive due to their tax-exempt feature. Essential service (e.g., schools, sewer, water, etc.) bonds issued by municipalities are prevalent in this area. Many of these bonds are not rated due to the small size of their offerings. At year-end 1997 and 1996, investments totaling approximately $836 million and $729 million ($797 million and $706 million at cost) of the Company's $8.797 billion and $6.344 billion investment portfolio related to securities rated non-investment grade or not rated by Moody's Investors Service or Standard & Poor's. Such investments, which tend to have higher yields, historically have benefited the Company's results of operations. Further, many have been upgraded to investment grade while owned by the Company. Because of alternative minimum tax considerations, the Company uses a blend of tax-exempt and taxable fixed maturity securities. Tax exempt bonds comprised 10% of invested assets as of December 31, 1997, compared with 14% at year-end 1996 and 16% at year-end 1995. Additional information regarding the composition of investments, together with maturity data regarding investments in fixed maturities, is included in the Notes to Consolidated Financial Statements incorporated by reference herein. Market Risk The Company could incur losses due to adverse changes in market rates and prices. The Company's primary market risk exposures are to changes in price for equity securities and changes in interest rates and credit ratings for fixed maturity securities. The Company could alter the existing investment portfolios or change the character of future investments to manage exposure to market risk. The Company, with the Board of Directors, administers and oversees investment risk through the Investment Committee, which provides executive oversight of investment activities. The Company has specific investment guidelines and policies that define the overall framework used daily by investment portfolio managers to limit the Company's exposure to market risk. Liabilities and Shareholders' Equity At December 31, 1997, long- and short-term debt were 4%, insurance reserves were 25% and total shareholders' equity was 50% of total assets, with remaining liabilities consisting of unearned premiums, deferred income taxes and other liabilities. Debt--Total long- and short-term debt was less than 5% of total assets at year-end 1997 and 1996. At December 31, 1997 and 1996, long-term debt consisted of $58.4 million and $79.8 million, respectively, of convertible debentures. Short-term debt is used to provide working capital as discussed above. Equity--Shareholders' equity has continued to grow as a percentage of total assets, reaching 50% for 1997 from 45% for 1996 and 44% for 1995, due to retained earnings and unrealized appreciation of investments. Statutory risk- based capital requirements became effective for life insurance companies in 1993 and for property and casualty companies in 1994. The Company's capital has been well above required amounts in each year since those effective dates.
AT DECEMBER 31, -------------------------- 1997 1996 1995 -------- -------- -------- (IN MILLIONS) Shareholders' equity excluding retained earnings and unrealized gains on investments........ $ 469.5 $ 502.3 $ 342.0 Retained earnings.................................... 1,341.7 1,132.9 1,156.6 Unrealized gains on investments...................... 2,905.8 1,527.7 1,159.4 -------- -------- -------- Total shareholders' equity......................... $4,717.0 $3,162.9 $2,658.0 ======== ======== ========
15 As a long-term investor, the Company has followed a buy-and-hold strategy for more than 38 years. A significant amount of unrealized appreciation on equity investments has been generated as a result of this policy. Unrealized appreciation on equity investments, before deferred income taxes, was $4.273 billion as of December 31, 1997 and constituted 49% of the total investment portfolio; 71% of the equities investment portfolio; and, after deferred income taxes, 59% of total shareholders' equity. Such unrealized appreciation, before deferred income taxes, amounted to $2.203 billion and $1.618 billion, at year-end 1996 and 1995, respectively. On November 22, 1996, the Board of Directors authorized the repurchase of up to three million of the Company's outstanding shares as Management deemed appropriate over an unspecified period of time. As of December 31, 1997, the Company had repurchased 934,041 shares, at an accumulated cost of $68.1 million. 16 DESCRIPTION OF THE DEBENTURES The Debentures are to be issued under an Indenture (the "Indenture") between the Company and The First National Bank of Chicago, as Trustee (the "Trustee"), a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following summaries of the material provisions of the Indenture and the Debentures do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Indenture, including the definitions therein of certain terms, and such Debentures. Wherever particular articles, sections or defined terms of an Indenture are referred to, it is intended that such articles, sections or defined terms shall be incorporated herein by reference, and the statement in connection with which such reference is made is qualified in its entirety by such reference. GENERAL The Debentures are limited to $350,000,000 aggregate principal amount and will mature on , 2028. The Debentures will be issued only in fully registered form without coupons in denominations of $1,000 and any integral multiple thereof. No service charge will be made for any registration of transfer or exchange of Offered Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Debentures will bear interest at the rate per annum set forth on the cover page of this Prospectus from , 1998, or from the most recent interest payment date to which interest has been paid or provided for, payable semiannually in arrears on and of each year, beginning on , 1998, to the persons in whose names the Debentures are registered at the close of business on the next preceding or , as the case may be. The Debentures are not redeemable prior to maturity. BOOK-ENTRY, DELIVERY AND FORM The Debentures will be issued in the form of fully registered Global Securities. The Global Securities will be deposited with, or on behalf of, The Depository Trust Company, New York, New York (the "Depository' and registered in the name of the Depository's nominee. Except as set forth below, the Global Securities may be transferred, in whole and not in part, only to another nominee of the Depository or to a successor of the Depository or its nominee. The Depository has advised the Company and the Underwriters as follows: It is a limited-purpose trust company which was created to hold securities for its participating organizations (the "Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic book-entry changes in accounts of its Participants. Participants include securities brokers and dealers (including the Underwriters), banks, trust companies, clearing corporations and certain other organizations. Access to the Depository's book-entry 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 Depository only through Participants or indirect participants. The Depository has also advised that pursuant to procedures established by it (i) upon the issuance by the Company of the Debentures, the Depository will credit the accounts of Participants designated by the Underwriters with the principal amount of the Debentures purchased by the Underwriters, and (ii) ownership of beneficial interests in the Global Securities will be shown on, and the transfer of that ownership will be effected only through, records maintained by the Depository (with respect to Participants' interests), the Participants and the indirect participants. The laws of some states require that certain persons take physical delivery in definitive form of securities which they own. Consequently, the ability to transfer beneficial interests in the Global Securities is limited to such extent. 17 So long as a nominee of the Depository is the registered owner of the Global Securities, such nominee will be considered the sole owner or holder of the Debentures for all purposes under the Indenture. Except as provided below, owners of beneficial interests in the Global Securities will not be entitled to have Debentures registered in their names, will not receive or be entitled to receive physical delivery of Debentures in definitive form and will not be considered the owners or holders thereof under the Indenture. Neither the Company, the Trustee, any Paying Agent nor the Registrar 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 Global Securities, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Principal and interest payments on the Global Securities registered in the name of the Depository's nominee will be made by the Company through the Paying Agent to the Depository's nominee as the registered owner of the Global Securities. Under the terms of the Indenture, the Company and the Trustee will treat the persons in whose names the Debentures are registered as the owners of such Debentures for the purpose of receiving payments of principal and interest on such Debentures 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 or interest on the Debentures to owners of beneficial interests in the Global Securities. The Depository has advised the Company and the Trustee that its present practice is, upon receipt of any payment of principal or interest, to credit immediately the accounts of the Participants with payment in amounts proportionate to their respective holdings in principal amount of beneficial interests in the Global Securities as shown on the records of the Depository. Payments by Participants and indirect participants to owners of beneficial interests in the Global Securities will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or in "street name" and will be the responsibility of such Participants or indirect participants. If the Depository is at any time unwilling or unable to continue as depository and a successor depository is not appointed by the Company within 90 days, the Company will issue Debentures in definitive form in exchange for the Global Securities. In addition, the Company may at any time determine not to have the Debentures represented by Global Securities and, in such event, will issue Debentures in definitive form in exchange for the Global Securities. In either instance, an owner of a beneficial interest in the Global Securities will be entitled to have Debentures equal in principal amount to such beneficial interest registered in its name and will be entitled to physical delivery of such Debentures in definitive form. Debentures so issued in definitive form will be issued in denominations of $1,000 and integral multiples thereof and will be issued in registered form only, without coupons. SAME-DAY SETTLEMENT AND PAYMENT Settlement for the Debentures will be made by the Underwriters in immediately available funds. All payments of principal and interest will be made by the Company in immediately available funds. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. In contrast, the Debentures will trade in the Depository's Same-Day Funds Settlement System until maturity, and secondary market trading activity in the Debentures will therefore be required by the Depository to settle in immediately available funds. COVENANTS Limitation on Liens of Stock of Subsidiaries The Indenture prohibits the Company and its Subsidiaries from directly or indirectly creating, assuming, incurring or permitting to exist any Indebtedness secured by any lien on the capital stock of any Designated Subsidiary unless the Debentures (and, if the Company so elects, any other Indebtedness of the Company that is 18 not subordinate to the Debentures and with respect to which the governing instruments require, or pursuant to which the Company is otherwise obligated, to provide such security) shall be secured equally and ratably with such Indebtedness for at least the time period such other Indebtedness is so secured. The term "Designated Subsidiary" means any present or future consolidated subsidiary of the Company, the consolidated net worth of which constitutes at least 10% of the consolidated net worth of the Company. As of March 31, 1998, the Company's Designated Subsidiaries were CIC and Cincinnati Life. "Indebtedness" is defined in the Indenture as the principal of and any premium and interest due on indebtedness of a Person, whether outstanding on the date of such Indenture or thereafter created, incurred or assumed, which is (a) indebtedness for money borrowed, and (b) any amendments, renewals, extensions, modifications and refunds of any such indebtedness. For the purposes of this definition, "indebtedness for money borrowed" means (i) any obligation of, or any obligation guaranteed by, such Person for the repayment of borrowed money, whether or not evidenced by bonds, debentures, notes or other written instruments, (ii) any obligation of, or any such obligation guaranteed by, such Person evidenced by bonds, debentures, notes or similar written instruments, including obligations assumed or incurred in connection with the acquisition of property, assets or businesses (provided, however, that the deferred purchase price of any other business or property or assets shall not be considered Indebtedness if the purchase price thereof is payable in full within 90 days from the date on which such indebtedness was created), and (iii) any obligations of such Person as lessee under leases required to be capitalized on the balance sheet of the lessee under generally accepted accounting principles and leases of property or assets made as part of any sale and lease-back transaction to which such Person is a party. For purposes of this covenant only, Indebtedness also includes any obligation of, or any obligation guaranteed by, any Person for the payment of amounts due under a swap agreement or similar instrument or agreement, or under a foreign currency hedge exchange or similar instrument or agreement. Limitations on Disposition of Stock of Designated Subsidiaries The Indenture also provides that so long as any Debentures are outstanding and except in a transaction otherwise governed by such Indenture, the Company may not issue, sell, transfer or otherwise dispose of any shares of, securities convertible into, or warrants, rights or options to subscribe for or purchase shares of, capital stock (other than preferred stock having no voting rights of any kind) of any Designated Subsidiary, and will not permit any Designated Subsidiary to issue (other than to the Company) any shares (other than director's qualifying shares) of, or securities convertible into, or warrants, rights or options to subscribe for or purchase shares of, capital stock (other than preferred stock having no voting rights of any kind) of any Designated Subsidiary, if, after giving effect to any such transaction and the issuances of the maximum number of shares issuable upon the conversion or exercise of all such convertible securities, warrants, rights or options, the Company would own, directly or indirectly, less than 80% of the shares of such Designated Subsidiary (other than preferred stock having no voting rights of any kind); provided, however, that (i) any issuance, sale, transfer or other disposition permitted by the Company may only be made for at least a fair market value consideration as determined by the Board of Directors pursuant to a Board Resolution adopted in good faith and (ii) the foregoing shall not prohibit any such issuance or disposition of securities if required by any law or any regulation or order of any governmental or insurance regulatory authority. Notwithstanding the foregoing, (i) the Company may merge or consolidate any Designated Subsidiary into or with another direct wholly owned Subsidiary of the Company and (ii) the Company may, subject to the provisions set forth in "Consolidation, Merger and Sale of Assets" below, sell, transfer or otherwise dispose of the entire capital stock of any Designated Subsidiary at one time for at least a fair market value consideration as determined by the Board of Directors pursuant to a Board Resolution adopted in good faith. CONSOLIDATION, MERGER AND SALE OF ASSETS The Indenture provides that the Company may, without the consent of the Holders, consolidate with, or sell, lease or convey all or substantially all of its assets to, or merge into any other corporation, provided that in any such case, (i) the successor corporation shall be a corporation organized and existing under the laws of the 19 United States or a State thereof, and such corporation shall expressly assume the due and punctual payment of the principal of (and premium, if any) and interest on all the applicable Debentures, according to their tenor, and the due and punctual performance and observance of all the covenants and conditions of the Indenture to be performed by the Company by supplemental indenture satisfactory to the applicable Trustee, executed and delivered to the applicable Trustee by such corporation; and (ii) immediately after giving effect to such transaction, no Default shall have occurred and be continuing. Other than the covenants described above, the Indenture does not contain any covenants or other provisions designed to afford holders of the Debentures protection in the event of a takeover, recapitalization or a highly leveraged transaction involving the Company. MODIFICATION OF THE INDENTURE With the consent of the holders ("Holders") of more than 50% in aggregate principal amount of the Debentures then outstanding under the Indenture, waivers, modifications and alterations of the terms of the Indenture may be made which affect the rights of the Holders of the Debentures, except that no such modification or alteration may be made which will (a) extend the time or terms of payment of the principal at maturity of, or the interest on, any of the Debentures, or reduce principal or premium or the rate of interest, without the consent of the Holder thereof, or (b) without the consent of all of the Holders of the Debentures then outstanding, reduce the percentage of the Debentures the Holders of which are required to consent (i) to any such supplemental indenture, (ii) to rescind and annul a declaration that the Debentures are due and payable as a result of the occurrence of an Event of Default, (iii) to waive any past Event of Default under the Indenture and its consequences, and (iv) to waive compliance with certain other provisions contained in the Indenture. In addition, as indicated under "Events of Default" below, Holders of more than 50% in aggregate principal amount of the Debentures then outstanding may waive past Events of Default in certain circumstances and may direct the Trustee in enforcement of remedies. The Company and the Trustee may, without the consent of any Holders, modify and supplement the Indenture (i) to evidence the succession of another corporation to the Company under the Indenture; (ii) to evidence and provide for the replacement of the Trustee; (iii) with the Company's concurrence, to add to the covenants of the Company for the benefit of the Holders; (iv) to modify the Indenture to permit the qualification of any supplemental indenture under the Trust Indenture Act of 1939; and (v) for certain other purposes. DEFEASANCE, SATISFACTION AND DISCHARGE TO MATURITY OR REDEMPTION Defeasance. If the Company shall deposit with the Trustee, in trust, at or before maturity or redemption, lawful money or direct obligations of the United States or obligations the principal of and interest on which are guaranteed by the United States (or by such other government) in such amounts and maturing at such times that the proceeds of such obligations to be received upon the respective maturities and interest payment dates of such obligations will provide funds sufficient, in the opinion of a nationally- recognized firm of independent public accountants, to pay when due the principal (and premium, if any) and interest to maturity or to the redemption date, as the case may be, with respect to the Debentures then outstanding, then the Company may cease to comply with the terms of the Indenture, including the restrictive covenants described under "Limitation on Liens of Stock of Subsidiaries" and "Limitations on Disposition of Stock of Designated Subsidiaries" above and the Events of Default described in clauses (c) and (d) under "Events of Default" below, except for (i) the Company's obligation to duly and punctually pay the principal of (and premium, if any) and interest on the Debentures if the Debentures are not paid from the money or securities held by the Trustee, and (ii) the Events of Default described in clauses (a), (b), (c) and (d) under "Events of Default" below, and (iii) certain other provisions of the Indenture including, among others, those relating to registration, transfer and exchange, lost or stolen securities and maintenance of place of payment. Defeasance of the Debentures is subject to the satisfaction of certain specified conditions, including, among others, (i) the absence of an Event of Default at the date of the deposit, and (ii) the perfection of the Holders' security interest in such deposit. 20 Satisfaction and Discharge. Upon the deposit of money or securities contemplated above and the satisfaction of certain conditions, the Company may also cease to comply with its obligation duly and punctually to pay the principal of (and premium, if any) and interest on the Debentures, or with any Events of Default with respect thereto, and thereafter the Holders of the Debentures shall be entitled only to payment out of the money or securities deposited with the Trustee. Such conditions include, among others, except in certain limited circumstances involving a deposit made within one year of maturity or redemption, (i) the absence of an Event of Default at the date of deposit or on the 91st day thereafter, (ii) the delivery to the Trustee by the Company of an opinion of nationally-recognized tax counsel, or receipt by the Company from, or publication of a ruling by the United States Internal Revenue Service, to the effect that Holders of the Debentures will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and discharge and will be subject to Federal income tax on the same amounts and in the same manner and at the same times as would have been the case if such deposit and discharge had not occurred, and (iii) that such satisfaction and discharge will not result in the delisting of the Debentures from any nationally-recognized exchange on which they are listed. Federal Income Tax Consequences. Under current Federal income tax law, the deposit and defeasance described above under "Defeasance" will not result in a taxable event to any Holder of Debentures or otherwise affect the Federal income tax consequences of an investment in the Debentures. The Federal income tax treatment of the deposit and discharge described above under "Satisfaction and Discharge" is not clear. A deposit and discharge may be treated as a taxable exchange of such Debentures for beneficial interests in the trust consisting of the deposited money or securities. In that event, a Holder of Debentures may be required to recognize gain or loss equal to the difference between the Holder's adjusted basis for the Debentures and the amount realized in such exchange (which generally will be the fair market value of the Holder's beneficial interest in such trust). Thereafter, such Holder may be required to include in income a share of the income, gain and loss of the trust. As described above, it is generally a condition to such a deposit and discharge to obtain an opinion of tax counsel, or receipt by the Company from, or publication of a ruling by the United States Internal Revenue Service, to the effect that such deposit and discharge will not alter the Holders' tax consequences that would have been applicable in the absence of the deposit and discharge. Purchasers of the Debentures should consult their own advisors with respect to the tax consequences to them of such deposit and discharge, including the applicability and effect of tax laws other than Federal income tax law. EVENTS OF DEFAULT With respect to the Debentures, an Event of Default is defined in the Indenture as being: (a) default for 30 days in payment of any interest on the Debentures; (b) failure to pay principal or premium with respect to the Debentures, if any, when due; (c) failure to observe or perform any other covenant in the Indenture or Debentures (other than a covenant or warranty, a default in whose performance or whose breach is specifically dealt with in the section of the Indenture governing Events of Default), if such failure continues for 30 days after written notice by the Trustee or the Holders of at least 25% in aggregate principal amount of the Debentures then outstanding; (d) uncured or unwaived failure to pay principal of or interest on any other obligation for borrowed money of the Company beyond any period of grace with respect thereto if (i) the aggregate principal amount of any such obligation is in excess of $50,000,000 and (ii) the default in such payment is not being contested by the Company in good faith and by appropriate proceedings; or (e) certain events of bankruptcy, insolvency, receivership or reorganization. The Trustee or the Holders of 25% in aggregate principal amount of the outstanding Debentures may declare the Debentures immediately due and payable upon the occurrence of any Event of Default (after expiration of any applicable grace period); in certain cases, the Holders of a majority in principal amount of the Debentures then outstanding may waive any past default and its consequences, except a default in the payment of principal, premium, if any, or interest (including sinking fund payments). Each Indenture provides that the Trustee shall, within 90 days after the occurrence of a default with respect the Debentures which is continuing, give to the Holders of the Debentures notice of all uncured defaults known to it (the term default to include the events specified above without grace periods); provided that, except in the 21 case of default in the payment of principal (or premium, if any) or interest on any of the Debentures, the Trustee shall be protected in withholding such notice if it in good faith determines that the withholding notice is in the interest of the Debenture Holders. Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default with respect to the Debentures shall occur and be continuing, the Indenture provides that the Trustee shall be under no obligation to exercise any of its rights or powers under the Indenture at the request, order or direction of any of the Holders of Debentures outstanding unless such Holders shall have offered to the Trustee reasonable indemnity. The right of a Holder to institute a proceeding with respect to the Indenture is subject to certain conditions precedent including notice and indemnity to the Trustee, but the Holder has a right to receipt of principal, premium, if any, and interest (subject to certain limitations with respect to defaulted interest) on their due dates or to institute suit for the enforcement thereof. So long as the Debentures remain outstanding the Company will be required to furnish annually to the Trustee an Officers' Certificate stating whether, to the best of the knowledge of the signers, the Company is in default under any of the provisions of the Indenture, and specifying all such defaults, and the nature thereof, of which they have knowledge. The Company will also be required to furnish to the Trustee copies of certain reports filed by the Company with the Commission. The Holders of a majority in principal amount of the Debentures outstanding will have the right to direct the time, method and place for conducting any proceeding for any remedy available to the Trustee, or exercising any power or trust conferred on the Trustee, provided that such direction shall be in accordance with law and the provisions of the Indenture, provided that the Trustee may decline to follow any such direction if the Trustee shall determine on the advice of counsel that the proceeding may not be lawfully taken or would be materially or unjustly prejudicial to Holders not joining in such direction. The Trustee will be under no obligation to act in accordance with such direction unless such Holders shall have offered the Trustee reasonable security or indemnity against costs, expenses and liabilities which may be incurred thereby. INFORMATION CONCERNING THE TRUSTEE The Company may from time to time borrow from the Trustee or an affiliate thereof or otherwise maintain other banking transactions with the Trustee or an affiliate thereof in the ordinary course of business. Under the Indenture, the Trustee is required to transmit annual reports to all Holders regarding its eligibility as Trustee under the Indenture and certain related matters. UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement dated as of , 1998, the Company has agreed to sell to each of the underwriters named below (the "Underwriters"), and each of the Underwriters has severally agreed to purchase, the principal amount of Debentures set forth opposite its name below:
PRINCIPAL UNDERWRITER AMOUNT ----------- ------------ Salomon Brothers Inc........................................ $ Credit Suisse First Boston Corporation...................... A.G. Edwards & Sons, Inc.................................... McDonald & Company Securities, Inc.......................... ------------ Total................................................... $350,000,000 ============
The Company has been advised by the Underwriters that they propose initially to offer the Debentures to the public at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at 22 such price less a concession not in excess of . % of the principal amount of the Debentures. The Underwriters may allow, and such dealers may reallow, a concession not in excess of . % of the principal amount of the Debentures to certain other dealers. After the initial public offering, the public offering price and such concessions may be changed. In connection with this Offering, certain Underwriters and their affiliates may engage in transactions that stabilize, maintain or otherwise affect the market price of the Debentures. Such transactions may include stabilization transactions effected in accordance with Rule 104 of Regulation M, pursuant to which such persons may bid for or purchase Debentures for the purpose of stabilizing their market price. The Underwriters also may create a short position for the account of the Underwriters by selling more Debentures in connection with the Offering than they are committed to purchase from the Company, and in such case may purchase Debentures in the open market following completion of the Offering to cover such short position. Any of the transactions described in this paragraph may result in the maintenance of the price of the Debentures at a level above that which might otherwise prevail in the open market. None of the transactions described in this paragraph is required, and, if they are undertaken, they may be discontinued at any time. The Company does not presently intend to list the Debentures on any exchange. The Company has been advised by the Underwriters that they intend to make a market in the Debentures but that they are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Debentures. The Underwriting Agreement provides that the Company will indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended, or contribute to payments the Underwriters may be required to make in respect thereof. LEGAL OPINIONS The validity of the Debentures will be passed upon for the Company by Beckman, Weil, Shepardson and Faller, LLC, Cincinnati, Ohio, and for the Underwriters by Mayer, Brown & Platt, Chicago, Illinois. The attorneys at Beckman, Weil, Shepardson and Faller, LLC representing the Company in this Offering beneficially own approximately 20,100 shares of the Company's common stock. EXPERTS The consolidated financial statements and the related financial statement schedules incorporated in this Prospectus by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1997 have been audited by Deloitte & Touche llp, independent auditors, as stated in their reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 23 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR- MATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN OR INCOR- PORATED BY REFERENCE IN THIS PROSPECTUS, IN CONNECTION WITH THE OFFER CON- TAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REP- RESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OF- FERED HEREBY BY ANYONE 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. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. ------------ TABLE OF CONTENTS
PAGE ---- Available Information..................................................... 2 Incorporation of Certain Documents by Reference........................... 2 The Company............................................................... 4 Use of Proceeds........................................................... 7 Capitalization............................................................ 8 Selected Consolidated Financial and Other Information..................... 9 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 10 Description of The Debentures............................................. 17 Underwriting.............................................................. 22 Legal Opinions............................................................ 23 Experts................................................................... 23
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- $350,000,000 CINCINNATI FINANCIAL CORPORATION % DEBENTURES DUE 2028 -------- PROSPECTUS , 1998 -------- SALOMON SMITH BARNEY CREDIT SUISSE FIRST BOSTON A.G. EDWARDS & SONS, INC. MCDONALD & COMPANY SECURITIES, INC. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated expenses in connection with the issuance and distribution of the securities registered hereby, other than underwriting discounts and commissions: Securities and Exchange Commission registration fee............. $103,250 Trustee's fees and expenses..................................... 5,000 Printing expenses............................................... 10,000 Rating agency fees.............................................. 200,000 Accounting fees and expenses.................................... 5,000 Legal fees and expenses......................................... 30,000 Blue Sky fees and expenses...................................... 1,000 Miscellaneous................................................... 20,750 -------- Total....................................................... $375,000 ========
- -------- (1) Other than the SEC registration fee, all fees and expenses are estimates. ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Section 1701.13(E) of the Ohio Revised Code provides that a corporation may indemnify or agree to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding whether civil, criminal, administrative, or investigative, other than an action by or in the right of the corporation, by reason of the fact that the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at its request as a director, trustee, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit, or proceeding if the person is determined under the procedure described in the Section to have (a) acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and (b) had no reasonable cause to believe the conduct was unlawful in the case of any criminal action or proceeding. However, with respect to expenses actually and reasonably incurred in connection with the defense or settlement of any action or suit by or in the right of the corporation to procure a judgment in its favor, no indemnification is to be made (i) in respect of any claim, issue, or matter as to which such person was adjudged liable for negligence or misconduct in the performance of such person's duty to the corporation unless, and only to the extent that, it is determined by the court upon application that, despite the adjudication of liability, such person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper, or (ii) in respect of any action or suit in which the only liability asserted against a director is in connection with the alleged making of an unlawful loan, dividend or distribution of corporate assets. The Section also provides that such person shall be indemnified against expenses actually and reasonably incurred by the person to the extent successful in defense of the actions referred to above, or in defense of any claim, issue, or matter therein. The Company's Amended Articles of Incorporation provide for the indemnification of officers and directors of the Company to the fullest extent permitted by law. The above is a general summary of certain provisions of the Ohio Revised Code and is subject in all cases to the specific provisions thereof. The Company maintains an insurance policy covering its directors and officers against certain civil liabilities, including liabilities under the Securities Act of 1933. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. See Exhibit Index included herewith which is incorporated herein by reference. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act or 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy and expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby further undertakes that: For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. For purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CINCINNATI FINANCIAL CORPORATION CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN CINCINNATI, OHIO, ON THE 1ST DAY OF MAY, 1998. Cincinnati Financial Corporation Robert B. Morgan By: _________________________________ Robert B. Morgan Chief Executive Officer SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON THE 1ST DAY OF MAY, 1998.
SIGNATURE TITLE --------- ----- Robert B. Morgan Chief Executive Officer (Principal ___________________________________________ Executive Officer); Director Robert B. Morgan Theodore F. Elchynski Senior Vice President (Principal Financial ___________________________________________ and Accounting Officer) Theodore F. Elchynski * Director ___________________________________________ William F. Bahl * Director ___________________________________________ Michael Brown Director ___________________________________________ Richard M. Burridge * Director ___________________________________________ John E. Field * Director ___________________________________________ William R. Johnson * Director ___________________________________________
Kenneth C. Lichtendahl II-3
SIGNATURE TITLE --------- ----- * Director ___________________________________________ James G. Miller Director ___________________________________________ Jackson H. Randolph Director ___________________________________________ John J. Schiff * Director ___________________________________________ John J. Schiff, Jr. Director ___________________________________________ Robert C. Schiff * Director ___________________________________________ Thomas R. Schiff * Director ___________________________________________ Frank J. Schultheis Director ___________________________________________ Larry R. Webb Director ___________________________________________
Alan R. Weiler /s/ Theodore F. Elchynski *By: _________________________________ Attorney-in-Fact II-4 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 1.1 Form of Underwriting Agreement Form of Indenture between the Company and The First National Bank of 4.1 Chicago* 5.1 Opinion of Beckman, Weil, Shepardson and Faller, LLC 12.1 Statement Re: Computation of Ratio of Earnings to Fixed Charges Consent of Beckman, Weil, Shepardson and Faller, LLC (included in 23.1 Exhibit 5.1) 23.2 Consent of Deloitte & Touche LLP 24.1 Powers of Attorney Statement of Eligibility of The First National Bank of Chicago, as 25.1 Trustee, on Form T-1
- -------- *To be filed by amendment. EX-1.1 2 UNDERWRITING AGREEMENT Exhibit 1.1 $350,000,000 Cincinnati Financial Corporation % Debentures Due 2028 Underwriting Agreement New York, New York , 1998 Salomon Brothers Inc Credit Suisse First Boston Corporation A.G. Edwards & Sons, Inc. McDonald & Company Securities, Inc. c/o Salomon Brothers Inc 388 Greenwich Street New York, New York 10013 Ladies and Gentlemen: Cincinnati Financial Corporation, an Ohio corporation (the "Company"), proposes to sell to the several underwriters named in Schedule I hereto (the "Underwriters"), for whom you (the "Representatives") are acting as representatives, $350,000,000 principal amount of its % Debentures Due 2028 (the "Securities"), to be issued under an indenture (the "Indenture") to be dated as of , 1998, between the Company and The First National Bank of Chicago, as trustee (the "Trustee"). To the extent there are no additional Underwriters listed on Schedule I other than you, the term Representatives as used herein shall mean you, as Underwriters, and the terms Representatives and Underwriters shall mean either the singular or plural as the context requires. Any reference herein to the Registration Statement, a Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents incorporated by reference therein pursuant to Item 12 of Form S-3 which were filed under the Exchange Act on or before the Effective Date of the Registration Statement or the issue date of such Preliminary Prospectus or the Prospectus, as the case may be; and any reference herein to the terms "amend", "amendment" or "supplement" with respect to the Registration Statement, any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the filing of any document under the Exchange Act after the Effective Date of the Registration Statement, or the issue date of any Preliminary Prospectus or the Prospectus, as the case may be, deemed to be incorporated therein by reference. Certain terms used herein are defined in Section 17 hereof. 1. Representations and Warranties., The Company represents and warrants to, and agrees with, each Underwriter as set forth below in this Section 1. (a) The Company meets the requirements for use of Form S-3 under the Act and has prepared and filed with the Commission a registration statement (file number 333- ) on Form S-3, including a related preliminary prospectus, for the registration under the Act of the offering and sale of the Securities. The Company may have filed one or more amendments thereto, including a related preliminary prospectus, each of which has previously been furnished to you. The Company will next file with the Commission one of the following: (1) prior to the Effective Date of such registration statement, a further amendment to such registration statement, including the form of final prospectus, (2) after the Effective Date of such registration statement, a final prospectus in accordance with Rules 430A and 424(b) or (3) a final prospectus in accordance with Rules 415 and 424(b). In the case of clause (2), the Company has included in such registration statement, as amended at the Effective Date, all information (other than Rule 430A Information) required by the Act and the rules thereunder to be included in such registration statement and the Prospectus. As filed, such amendment and form of final prospectus, or such final prospectus, shall contain all Rule 430A Information, together with all other such required information, and, except to the extent the Representatives shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Execution Time or, to the extent not completed at the Execution Time, shall contain only such specific additional information and other changes (beyond that contained in the latest Preliminary Prospectus) as the Company has advised you, prior to the Execution Time, will be included or made therein. (b) On the Effective Date, the Registration Statement did or will, and when the Prospectus is first filed (if required) in accordance with Rule 424(b) and on the Closing Date, the Prospectus (and any supplements thereto) will, comply in all material respects with the applicable requirements of the Act, the Exchange Act and the Trust Indenture Act and the respective rules thereunder; on the Effective Date and at the Execution Time, the Registration Statement did not or will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein not misleading; on the Effective Date and on the Closing Date the Indenture did or will comply in all material respects with the requirements of the Trust Indenture Act and the rules thereunder; and, on the Effective Date, the Prospectus, if not filed pursuant to Rule 424(b), will not, and on the date of any filing pursuant to Rule 424(b) and on the Closing Date and any settlement date, the Prospectus (together with any supplement thereto) will not, include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to (i) that part of the Registration Statement which shall constitute the Statement of Eligibility (Form T-1) under the Trust Indenture Act of the Trustee or (ii) the information contained in or omitted from the Registration Statement or the Prospectus (or any supplement thereto) in reliance upon and in conformity with information furnished herein or in writing to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion in the Registration Statement or the Prospectus (or any supplement thereto). 2 (c) The documents incorporated by reference in the Prospectus, at the time they were or hereafter are filed with the Commission, complied or when so filed will comply, as the case may be, in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder, and, when read together and with the other information in the Prospectus, did not and will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were or are made, not misleading. (d) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Ohio, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction. (e) Each subsidiary of the Company has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction. (f) All the outstanding shares of capital stock of the Company and each subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of the subsidiaries are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest or any other security interests, claims, liens or encumbrances. (g) The financial statements and schedules of the Company and its consolidated subsidiaries included or incorporated by reference in the Prospectus and the Registration Statement present fairly in all material respects the consolidated financial condition, results of operations and cash flows of the Company and its consolidated subsidiaries as of the dates and for the periods indicated, comply as to form with the applicable accounting requirements of the Act or the Exchange Act, as applicable, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved (except as otherwise noted therein). (h) Deloitte & Touche LLP, who have certified the financial statements included or incorporated by reference in the Prospectus, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder. 3 (i) No action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries or its or their property is pending or, to the best knowledge of the Company, threatened that (i) could reasonably be expected to have a material adverse effect on the performance of this Agreement or the consummation of any of the transactions contemplated hereby or (ii) could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto). (j) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as may otherwise be stated therein or contemplated thereby, there has been no material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising in the ordinary course of business. (k) Each insurance company subsidiary of the Company (collectively, the "Insurance Subsidiaries") is duly licensed as an insurance company in its jurisdiction of organization and is duly licensed or authorized as an insurer in each jurisdiction outside its jurisdiction of organization where it is required to be so licensed or authorized to conduct its business as described in the Registration Statement and the Prospectuses, except where the failure to be so licensed or authorized would not result in a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole. (l) Each of the Company and each Insurance Subsidiary is in compliance with the requirements of the insurance laws of the jurisdiction of its incorporation or domicile and any applicable regulations thereunder and has filed all reports, registrations, documents or other information required to be filed thereunder, except where the failure to comply or file would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole; and each of the Insurance Subsidiaries is in compliance with the insurance laws and regulations of each other jurisdiction that is applicable to such Insurance Subsidiary, except where the failure to comply would not have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole. (m) All ceded reinsurance treaties, contracts, agreements and arrangements to which the Company or any of its Insurance Subsidiaries is a party are in full force and effect and neither the Company nor any of its Insurance Subsidiaries is in violation of, or in default in the performance, observance or fulfillment of, any obligation, agreement, covenant or condition contained therein, except for such violations or defaults which could not reasonably be expected, singly or in the aggregate, to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole; neither the Company nor any of its Insurance Subsidiaries has received any notice from any of the other parties 4 to such treaties, contracts, agreements or arrangements that such other party intends not to perform in any material respect its obligations thereunder and none of them has any reason to believe that any of the other parties to such treaties, contracts, agreements or arrangements will be unable to perform its obligations thereunder, except to the extent that (i) the Company or such Insurance Subsidiary has established appropriate reserves on its financial statements or (ii) such nonperformance could not reasonably be expected, singly or in the aggregate, to have a material adverse effect on the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole. (n) This Agreement has been duly authorized, executed and delivered by the Company. (o) The Indenture has been duly authorized, executed and delivered by the Company and (assuming the due authorization, execution and delivery thereof by the Trustee) is a valid and legally binding obligation of the Company enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting enforcement of creditors' rights generally or by general equity principles; the Indenture has been duly qualified under the Trust Indenture Act. (p) The Securities have been duly and validly authorized for issuance, offer and sale pursuant to this Agreement and, when issued, authenticated and delivered pursuant to the provisions of this Agreement and the Indenture against payment of the consideration therefor specified in the Prospectus, the Securities will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting enforcement of creditors' rights generally or by general equity principles; and the Securities and the Indenture conform to the descriptions thereof in the Prospectus. (q) The issue and sale of the Securities and the compliance by the Company with all of the provisions of the Securities, the Indenture and this Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Certificate of Incorporation or By- laws of the Company or any statute or any order, rule or regulation of any court or governmental agency having jurisdiction over the Company or any of its subsidiaries or any of their respective properties; and no consent, approval, authorization, order or decree of any court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Agreement or in connection with the sale of Securities hereunder, except such as have been obtained or rendered, as the case may be, or as may be required under state securities laws. 5 (r) The Company is not required to be registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"). (s) The Company has complied and will comply with the provisions of Florida H.B. 1771, codified as Section 517.075 of the Florida Statutes, 1987, as amended, and all regulations promulgated thereunder relating to issuers doing business in Cuba. Any certificate signed by any officer of the Company and delivered to the Representatives or counsel for the Underwriters in connection with the offering of the Securities shall be deemed a representation and warranty by the Company, as to matters covered thereby, to each Underwriter. 2. Purchase and Sale. Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Company agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of % of the principal amount thereof, plus accrued interest, if any, on the Securities from , 1998, to the Closing Date, the principal amount of the Securities set forth opposite such Underwriter's name in Schedule I hereto. 3. Delivery and Payment. Delivery of and payment for the Securities shall be made at 10:00 AM, New York City time, on , 1998, or at such time on such later date not more than three Business Days after the foregoing date as the Representatives shall designate, which date and time may be postponed by agreement between the Representatives and the Company or as provided in Section 9 hereof (such date and time of delivery and payment for the Securities being herein called the "Closing Date"). Delivery of the Securities shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Company by wire transfer payable in same-day funds to an account specified by the Company. Delivery of the Securities shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct. 4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Securities for sale to the public as set forth in the Prospectus. 5. Agreements. The Company agrees with the several Underwriters that: (a) The Company will use its best efforts to cause the Registration Statement, if not effective at the Execution Time, and any amendment thereof, to become effective. Prior to the termination of the offering of the Securities, the Company will not file any amendment of the Registration Statement or supplement to the Prospectus or any Rule 462(b) Registration Statement unless the Company has furnished you a copy for your review prior to filing and will not file any such proposed amendment or supplement to which you reasonably object. Subject to the foregoing sentence, if the Registration Statement has become or becomes effective pursuant to Rule 430A, or 6 filing of the Prospectus is otherwise required under Rule 424(b), the Company will cause the Prospectus, properly completed, and any supplement thereto to be filed with the Commission pursuant to the applicable paragraph of Rule 424(b) within the time period prescribed and will provide evidence satisfactory to the Representatives of such timely filing. The Company will promptly advise the Representatives (1) when the Registration Statement, if not effective at the Execution Time, shall have become effective, (2) when the Prospectus, and any supplement thereto, shall have been filed (if required) with the Commission pursuant to Rule 424(b) or when any Rule 462(b) Registration Statement shall have been filed with the Commission, (3) when, prior to termination of the offering of the Securities, any amendment to the Registration Statement shall have been filed or become effective, (4) of any request by the Commission or its staff for any amendment of the Registration Statement, or any Rule 462(b) Registration Statement, or for any supplement to the Prospectus or for any additional information, (5) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the institution or threatening of any proceeding for that purpose and (6) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Securities for sale in any jurisdiction or the institution or threatening of any proceeding for such purpose. The Company will use its best efforts to prevent the issuance of any such stop order or the suspension of any such qualification and, if issued, to obtain as soon as possible the withdrawal thereof. (b) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus as then supplemented would include any 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 under which they were made not misleading, or if it shall be necessary to amend the Registration Statement or supplement the Prospectus to comply with the Act or the Exchange Act or the respective rules thereunder, the Company promptly will (1) notify the Representatives of such event; (2) prepare and file with the Commission, subject to the second sentence of paragraph (a) of this Section 5, an amendment or supplement which will correct such statement or omission or effect such compliance; and (3) supply any supplemented Prospectus to you in such quantities as you may reasonably request. (c) As soon as practicable, the Company will make generally available to its security holders and to the Representatives an earnings statement or statements of the Company and its subsidiaries which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act. (d) The Company will furnish to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement (including exhibits thereto) and to each other Underwriter a copy of the Registration Statement (without exhibits thereto) and, so long as delivery of a prospectus by an Underwriter or dealer may be required by the Act, as many copies of each Preliminary Prospectus and the Prospectus and any supplement thereto as the Representatives may reasonably request. The Company will pay the expenses of printing or other production of all documents relating to the offering. (e) The Company will arrange, if necessary, for the qualification of the Securities for sale under the laws of such jurisdictions as the Representatives may designate, will maintain such 7 qualifications in effect so long as required for the distribution of the Securities and will pay any fee of the National Association of Securities Dealers, Inc., in connection with its review of the offering; provided that in no event shall the Company be obligated to do business in any jurisdiction where it is not now so qualified or to take any action that would subject it to service of process in suits, other than those arising out of the offering or sale of the Securities in any jurisdiction where it is not now so subject. (f) The Company will not, without the prior written consent of Salomon Brothers Inc, from the date hereof to and including the business day following the Closing Date, offer, sell or contract to sell, or otherwise dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Company or any affiliate of the Company or any person in privity with the Company or any affiliate of the Company) directly or indirectly, or announce the offering of any debt securities issued or guaranteed by the Company (other than the Securities). (g) The Company will not take, directly or indirectly, any action designed to or which has constituted or which might reasonably be expected to cause or result, under the Exchange Act or otherwise, in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. 6. Conditions to the Obligations of the Underwriters. The obligations of the Underwriters to purchase the Securities shall be subject to the accuracy of the representations and warranties on the part of the Company contained herein as of the Execution Time and the Closing Date, to the accuracy of the statements of the Company made in any certificates pursuant to the provisions hereof, to the performance by the Company of its obligations hereunder and to the following additional conditions: (a) If the Registration Statement has not become effective prior to the Execution Time, unless the Representatives agree in writing to a later time, the Registration Statement will become effective not later than (i) 6:00 PM New York City time, on the date of determination of the public offering price, if such determination occurred at or prior to 3:00 PM New York City time on such date or (ii) 9:30 AM on the Business Day following the day on which the public offering price was determined, if such determination occurred after 3:00 PM New York City time on such date; if filing of the Prospectus, or any supplement thereto, is required pursuant to Rule 424(b), the Prospectus, and any such supplement, will be filed in the manner and within the time period required by Rule 424(b); and no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or threatened. (b) The Company shall have furnished to the Representatives the opinion of Beckman, Weil, Shepardson and Faller, LLC, counsel for the Company, dated the Closing Date and addressed to the Representatives, to the effect that: 8 (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Ohio, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction. (ii) Each subsidiary of the Company which would constitute a "significant subsidiary" (as such term is defined in Rule 1-02 of Regulation S-X) as of the date of this Agreement (each a "Subsidiary" and collectively, the "Subsidiaries") has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction. (iii) All the outstanding shares of capital stock of each Subsidiary have been duly and validly authorized and issued and are fully paid and nonassessable, and, except as otherwise set forth in the Prospectus, all outstanding shares of capital stock of the Subsidiaries are owned by the Company either directly or through wholly owned subsidiaries free and clear of any perfected security interest and, to the knowledge of such counsel, after due inquiry, any other security interest, claim, lien or encumbrance. (iv) The Company's authorized equity capitalization is as set forth in the Prospectus; and the Securities conform in all material respects to the description thereof contained in the Prospectus. (v) To the knowledge of such counsel, there is no pending or threatened action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries or its or their property of a character required to be disclosed in the Registration Statement which is not adequately disclosed in the Prospectus, and there is no franchise, contract or other document of a character required to be described in the Registration Statement or Prospectus, or to be filed as an exhibit thereto, which is not described or filed as required. (vi) This Agreement has been duly authorized, executed and delivered by the Company. (vii) The Indenture has been duly authorized, executed and delivered by the Company and (assuming the due authorization, execution and delivery thereof by the Trustee) 9 is a valid and legally binding obligation of the Company enforceable in accordance with its terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting enforcement of creditors' rights generally or by general equity principles; and the Indenture has been duly qualified under the Trust Indenture Act. (viii) The Securities have been duly and validly authorized for issuance, offer and sale pursuant to this Agreement and, when issued, authenticated and delivered pursuant to the provisions of this Agreement and the Indenture against payment of the consideration therefor specified in the Prospectus, the Securities will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting enforcement of creditors' rights generally or by general equity principles; and the Securities and the Indenture conform to the descriptions thereof in the Prospectus. (ix) The issue and sale of the Securities and the compliance by the Company with all of the provisions of the Securities, the Indenture and this Agreement and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, nor will such action result in any violation of the provisions of the Articles of Incorporation or Code of Regulations of the Company or any statute or any order, rule or regulation of any court or governmental agency having jurisdiction over the Company or any of its subsidiaries or any of their respective properties. (x) No consent, approval, authorization, order or decree of any court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Agreement or in connection with the sale of Securities hereunder, except such as have been obtained or rendered, as the case may be, or as may be required under state securities laws. (xi) The Company is not and, after giving effect to the offering and sale of the Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940, as amended. (xii) The documents incorporated by reference in the Prospectus as amended or supplemented (other than the financial statements and related schedules therein, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; and they have no reason to believe that any of such documents, 10 when they became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or, in the case of other documents which were filed under the Act or the Exchange Act with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading. (xiii) The Registration Statement has become effective under the Act; any required filing of the Prospectus, and any supplements thereto, pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued, no proceedings for that purpose have been instituted or threatened and the Registration Statement and the Prospectus (other than the financial statements and other financial information contained therein, as to which such counsel need express no opinion) comply as to form in all material respects with the applicable requirements of the Act, the Exchange Act and the Trust Indenture Act and the respective rules thereunder; and such counsel has no reason to believe that on the Effective Date or at the Execution Time the Registration Statement contains or contained any untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus as of its date and on the Closing Date includes any untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (in each case, other than the financial statements and other financial information contained therein, as to which such counsel need express no opinion); In rendering such opinion, such counsel may rely (A) as to matters involving the application of laws of any jurisdiction other than the State of Ohio or the Federal laws of the United States, to the extent they deem proper and specified in such opinion, upon the opinion of other counsel of good standing whom they believe to be reliable and who are satisfactory to counsel for the Underwriters and (B) as to matters of fact, to the extent they deem proper, on certificates of responsible officers of the Company and public officials. References to the Prospectus in this paragraph (b) include any supplements thereto at the Closing Date. The opinion or opinions of such counsel shall be rendered to the Underwriters at the request of the Company and shall so state therein. (c) The Representatives shall have received from Mayer, Brown & Platt, counsel for the Underwriters, such opinion or opinions, dated the Closing Date and addressed to the Representatives, with respect to the issuance and sale of the Securities, the Indenture, the Registration Statement, the Prospectus (together with any supplement thereto) and other related matters as the Representatives may reasonably require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such 11 matters. The opinion of such counsel shall be rendered to the Underwriters at the request of the Company and shall so state therein. (d) The Company shall have furnished to the Representatives a certificate of the Company, signed by the Chairman of the Board or the President and the principal financial or accounting officer of the Company, dated the Closing Date, to the effect that the signers of such certificate have carefully examined the Registration Statement, the Prospectus, any supplements to the Prospectus and this Agreement and that: (i) the representations and warranties of the Company in this Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date and the Company has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Date; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the Company's knowledge, threatened; and (iii) since the date of the most recent financial statements included in the Prospectus (exclusive of any supplement thereto), there has been no material adverse change, or any development involving a prospective material adverse change, in the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto). (e) At the date hereof and at the Closing Date, Deloitte & Touche LLP shall have furnished to the Representatives letters, dated respectively as of the date hereof and as of the Closing Date, in form and substance satisfactory to the Representatives, confirming that they are independent accountants within the meaning of the Act and the Exchange Act and the respective applicable published rules and regulations thereunder and stating, as of such date hereof or the Closing Date, as the case may be, (or with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Prospectus, as of a date not more than five days prior to either such date), the conclusions and findings of such firm with respect to the financial information and other matters as provided in SAS No. 72. References to the Prospectus in this paragraph (e) include any supplement thereto at the date of the letter. (f) Subsequent to the Execution Time or, if earlier, the dates as of which information is given in the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto), there shall not have been (i) any change or decrease specified in the letter or letters referred to in paragraph (e) of this Section 6 or (ii) any change, or any 12 development involving a prospective change, in or affecting the condition (financial or otherwise), prospects, earnings, business or properties of the Company and its subsidiaries, taken as a whole, whether or not arising from transactions in the ordinary course of business, except as set forth in or contemplated in the Prospectus (exclusive of any supplement thereto) the effect of which, in any case referred to in clause (i) or (ii) above, is, in the sole judgment of the Representatives, so material and adverse as to make it impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Registration Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of any supplement thereto). (g) Subsequent to the Execution Time, there shall not have been any decrease in the rating of any of the Company's debt securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Act) or any notice given of any intended or potential decrease in any such rating or of a possible change in any such rating that does not indicate the direction of the possible change. (h) Prior to the Closing Date, the Company shall have furnished to the Representatives such further information, certificates and documents as the Representatives may reasonably request. If any of the conditions specified in this Section 6 shall not have been fulfilled in all material respects when and as provided in this Agreement, or if any of the opinions and certificates mentioned above or elsewhere in this Agreement shall not be in all material respects reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters, this Agreement and all obligations of the Underwriters hereunder may be canceled at, or at any time prior to, the Closing Date by the Representatives. Notice of such cancellation shall be given to the Company in writing or by telephone or facsimile confirmed in writing. The documents required to be delivered by this Section 6 shall be delivered at the office of Mayer, Brown & Platt, counsel for the Underwriters, at 190 South LaSalle Street, Chicago, Illinois 60603, on the Closing Date. 7. Reimbursement of Underwriters' Expenses. If the sale of the Securities provided for herein is not consummated because any condition to the obligations of the Underwriters set forth in Section 6 hereof is not satisfied, because of any termination pursuant to Section 10 hereof or because of any refusal, inability or failure on the part of the Company to perform any agreement herein or comply with any provision hereof other than by reason of a default by any of the Underwriters, the Company will reimburse the Underwriters severally through Salomon Brothers Inc on demand for all out-of-pocket expenses (including reasonable fees and disbursements of counsel) that shall have been incurred by them in connection with the proposed purchase and sale of the Securities. 8. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each Underwriter, the directors, officers, employees and agents of each Underwriter and each person who controls any Underwriter within the meaning of either the Act or the Exchange Act against any and all losses, claims, damages or liabilities, joint or several, to which they or any of 13 them may become subject under the Act, the Exchange Act or other Federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement for the registration of the Securities as originally filed or in any amendment thereof, or in any Preliminary Prospectus or the Prospectus, or in any amendment thereof 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 not misleading, and agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any Underwriter through the Representatives specifically for inclusion therein. This indemnity agreement will be in addition to any liability which the Company may otherwise have. (b) Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who signs the Registration Statement, and each person who controls the Company within the meaning of either the Act or the Exchange Act, to the same extent as the foregoing indemnity to each Underwriter, but only with reference to written information relating to such Underwriter furnished to the Company by or on behalf of such Underwriter through the Representatives specifically for inclusion in the documents referred to in the foregoing indemnity. This indemnity agreement will be in addition to any liability which any Underwriter may otherwise have. The Company acknowledges that the statements set forth (i) in the last paragraph of the cover page regarding delivery of the Securities, (ii) the legend in block capital letters on page 2 related to stabilization, syndicate covering transactions and penalty bids and (iii) under the heading "Underwriting," (A) the sentences related to concessions and reallowances and (B) the paragraph related to stabilization, syndicate covering transactions and penalty bids in any Preliminary Prospectus and the Prospectus constitute the only information furnished in writing by or on behalf of the several Underwriters for inclusion in any Preliminary Prospectus or the Prospectus. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the commencement thereof; but the failure so to notify the indemnifying party (i) will not relieve it from liability under paragraph (a) or (b) above unless and to the extent it did not otherwise learn of such action and such failure results in the forfeiture by the indemnifying party of substantial rights and defenses and (ii) will not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided in paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint counsel of the indemnifying party's choice at the indemnifying party's expense to represent the indemnified party in any action for which indemnification is sought (in which case the indemnifying party shall not thereafter be 14 responsible for the fees and expenses of any separate counsel retained by the indemnified party or parties except as set forth below); provided, however, that such counsel shall be satisfactory to the indemnified party. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding. (d) In the event that the indemnity provided in paragraph (a) or (b) of this Section 8 is unavailable to or insufficient to hold harmless an indemnified party for any reason, the Company and the Underwriters severally agree to contribute to the aggregate losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending same) (collectively "Losses") to which the Company and one or more of the Underwriters may be subject in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and by the Underwriters on the other from the offering of the Securities; provided, however, that in no case shall any Underwriter (except as may be provided in any agreement among underwriters relating to the offering of the Securities) be responsible for any amount in excess of the underwriting discount or commission applicable to the Securities purchased by such Underwriter hereunder. If the allocation provided by the immediately preceding sentence is unavailable for any reason, the Company and the Underwriters severally shall contribute in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and of the Underwriters in connection with the statements or omissions which resulted in such Losses as well as any other relevant equitable considerations. Benefits received by the Company shall be deemed to be equal to the total net proceeds from the offering (before deducting expenses) received by it, and benefits received by the Underwriters shall be deemed to be equal to the total underwriting discounts and commissions, in each case as set forth on the cover page of the Prospectus. Relative fault shall be determined by reference to, among other things, whether any untrue or any alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information provided by the Company on the one hand or the Underwriters on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The 15 Company and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations referred to above. Notwithstanding the provisions of this paragraph (d), no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person who controls an Underwriter within the meaning of either the Act or the Exchange Act and each director, officer, employee and agent of an Underwriter shall have the same rights to contribution as such Underwriter, and each person who controls the Company within the meaning of either the Act or the Exchange Act, each officer of the Company who shall have signed the Registration Statement and each director of the Company shall have the same rights to contribution as the Company, subject in each case to the applicable terms and conditions of this paragraph (d). 9. Default by an Underwriter. If any one or more Underwriters shall fail to purchase and pay for any of the Securities agreed to be purchased by such Underwriter or Underwriters hereunder and such failure to purchase shall constitute a default in the performance of its or their obligations under this Agreement, the remaining Underwriters shall be obligated severally to take up and pay for (in the respective proportions which the principal amount of Securities set forth opposite their names in Schedule I hereto bears to the aggregate principal amount of Securities set forth opposite the names of all the remaining Underwriters) the Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase; provided, however, that in the event that the aggregate principal amount of Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase shall exceed 10% of the aggregate principal amount of Securities set forth in Schedule I hereto, the remaining Underwriters shall have the right to purchase all, but shall not be under any obligation to purchase any, of the Securities, and if such nondefaulting Underwriters do not purchase all the Securities, this Agreement will terminate without liability to any nondefaulting Underwriter or the Company. In the event of a default by any Underwriter as set forth in this Section 9, the Closing Date shall be postponed for such period, not exceeding five Business Days, as the Representatives shall determine in order that the required changes in the Registration Statement and the Prospectus or in any other documents or arrangements may be effected. Nothing contained in this Agreement shall relieve any defaulting Underwriter of its liability, if any, to the Company and any nondefaulting Underwriter for damages occasioned by its default hereunder. 10. Termination. This Agreement shall be subject to termination in the absolute discretion of the Representatives, by notice given to the Company prior to delivery of and payment for the Securities, if at any time prior to such time (i) trading in the Company's Common Stock shall have been suspended by the Commission or trading in securities generally on the New York Stock Exchange shall have been suspended or limited or minimum prices shall have been established on such Exchange, (ii) a banking moratorium shall have been declared either by Federal or New York State authorities or (iii) there shall have occurred any outbreak or escalation of hostilities, declaration by the United States of a national emergency or war or other calamity or crisis the effect of which on financial markets is such as to make it, in the sole judgment of the Representatives, 16 impractical or inadvisable to proceed with the offering or delivery of the Securities as contemplated by the Prospectus (exclusive of any supplement thereto). 11. Representations and Indemnities to Survive. The respective agreements, representations, warranties, indemnities and other statements of the Company or its officers and of the Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or the Company or any of the officers, directors or controlling persons referred to in Section 8 hereof, and will survive delivery of and payment for the Securities. The provisions of Sections 7 and 8 hereof shall survive the termination or cancellation of this Agreement. 12. Notices, All communications hereunder will be in writing and effective only on receipt, and, if sent to the Representatives, will be mailed, delivered or telefaxed to the Salomon Brothers Inc General Counsel (fax no.: (212) ) and confirmed to the General Counsel, Salomon Brothers Inc, at Seven World Trade Center, New York, New York, 10048, Attention: General Counsel; or, if sent to the Company, will be mailed, delivered or telefaxed to [facsimile number] and confirmed to it at , attention of the Legal Department. 13. Successors, This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 8 hereof, and no other person will have any right or obligation hereunder. 14. Applicable Law. This Agreement will be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York. 15. Counterparts. This Agreement may be signed in one or more counterparts, each of which shall constitute an original and all of which together shall constitute one and the same agreement. 16. Headings. The section headings used herein are for convenience only and shall not affect the construction hereof. 17. Definitions. The terms which follow, when used in this Agreement, shall have the meanings indicated. "Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Business Day" shall mean any day other than a Saturday, a Sunday or a legal holiday or a day on which banking institutions or trust companies are authorized or obligated by law to close in New York City. "Commission" shall mean the Securities and Exchange Commission. 17 "Effective Date" shall mean each date and time that the Registration Statement, any post-effective amendment or amendments thereto and any Rule 462(b) Registration Statement became or become effective. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Execution Time" shall mean the date and time that this Agreement is executed and delivered by the parties hereto. "Preliminary Prospectus" shall mean any preliminary prospectus referred to in paragraph 1(a) above and any preliminary prospectus included in the Registration Statement at the Effective Date that omits Rule 430A Information. "Prospectus" shall mean the prospectus relating to the Securities that is first filed pursuant to Rule 424(b) after the Execution Time or, if no filing pursuant to Rule 424(b) is required, shall mean the form of final prospectus relating to the Securities included in the Registration Statement at the Effective Date. "Registration Statement" shall mean the registration statement referred to in paragraph l(a) above, including exhibits and financial statements, as amended at the Execution Time (or, if not effective at the Execution Time, in the form in which it shall become effective) and, in the event any post-effective amendment thereto or any Rule 462(b) Registration Statement becomes effective prior to the Closing Date, shall also mean such registration statement as so amended or such Rule 462(b) Registration Statement, as the case may be. Such term shall include any Rule 430A Information deemed to be included therein at the Effective Date as provided by Rule 430A. "Rule 424", "Rule 430A" and "Rule 462" refer to such rules under the Act. "Rule 430A Information" shall mean information with respect to the Securities and the offering thereof permitted to be omitted from the Registration Statement when it becomes effective pursuant to Rule 430A. "Rule 462(b) Registration Statement" shall mean a registration statement and any amendments thereto filed pursuant to Rule 462(b) relating to the offering covered by the initial registration statement. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission promulgated thereunder. 18 If the foregoing is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicate hereof, whereupon this letter and your acceptance shall represent a binding agreement among the Company and the several Underwriters. Very truly yours, CINCINNATI FINANCIAL CORPORATION By: ------------------------------ Name: Title: The foregoing Agreement is hereby confirmed and accepted as of the date first above written. SALOMON BROTHERS INC CREDIT SUISSE FIRST BOSTON CORPORATION A.G. EDWARDS & SONS, INC. MCDONALD & COMPANY SECURITIES, INC. BY: SALOMON BROTHERS INC By: ------------------------- Name: Title: For itself and the other several Underwriters named in Schedule I to the foregoing Agreement. 19 SCHEDULE I Principal Amount of Securities to Underwriters Be Purchased ------------ ---------------- Salomon Brothers Inc $ Credit Suisse First Boston Corporation A.G. Edwards & Sons, Inc. McDonald & Company Securities, Inc. ------------ Total $350,000,000 ============ 20 EX-5.1 3 OPINION OF BECKMAN, WEIL LETTERHEAD OF BECKMAN, WEIL, SHEPARDSON AND FALLER, LLC May 1, 1998 Cincinnati Financial Corporation 6200 South Gilmore Road Fairfield, OH 45014 Gentlemen: With respect to the Registration Statement on Form S-3, filed by Cincinnati Financial Corporation (the "Company") with the Securities and Exchange Commission (the "Registration Statement") for the purpose of registering under the Securities Act of 1933, as amended, $350,000,000 of its debentures (the "Debentures"), we have examined the Registration Statement and the form of indenture to be entered into by the Company and The First National Bank of Chicago (the "Indenture") and such documents and questions of law as we have considered necessary and appropriate for the purpose of this opinion, and we advise you that, in our opinion, when the Debentures have been issued and delivered as contemplated by the Registration Statement and the Indenture, they will constitute valid and legally binding obligations of the Company. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Opinions" in the prospectus forming a part of the Registration Statement. Very sincerely yours, BECKMAN, WEIL, SHEPARDSON AND FALLER By: /s/ S. Philip Shepardson, Jr. ------------------------------------ S. Philip Shepardson, Jr. WPS/kg EX-12.1 4 COMPUTATION OF RATIO EXHIBIT 12.1 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
- ------------------------------------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Earnings Before Income Taxes 394,559 282,421 295,188 249,328 266,995 - ------------------------------------------------------------------------------------------------- FIXED CHARGES Interest Expense 20,821 20,102 17,231 9,961 7,389 One third rent expense 635 246 307 108 68 Total Fixed Charges 21,456 20,348 17,538 10,069 7,457 Earnings Available for Fixed Charges 416,015 302,769 312,726 259,397 274,452 Ratio 19.39 14.88 17.83 25.76 36.80
EX-23.2 5 CONSENT OF DELOITTE & TOUCHE Exhibit 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of Cincinnati Financial Corporation on Form S-3 of our reports dated February 4, 1998, appearing in and incorporated by reference in the Annual Report on Form 10-K of Cincinnati Financial Corporation for the year ended December 31, 1997 and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP Cincinnati, Ohio April 30, 1998 EX-24 6 POWERS OF ATTORNEY EXHIBIT 24.1 POWER OF ATTORNEY The undersigned, a director of Cincinnati Financial Corporation, an Ohio corporation (the "Company") hereby constitutes and appoints Robert B. Morgan and Theodore F. Elchynski, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign a Form S-3 Registration Statement (the "Registration Statement") to effect the registration under the Securities Act of 1933, as amended (the "Act"), of securities of the Company, and to sign any and all amendments (including post-effective amendments and amendments pursuant to Rule 462 under the Act) to said Registration Statement, and to file the same, with all exhibits thereto (including this Power of Attorney) and other documents in connection therewith, with the Securities and Exchange Commission, 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 requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: May 1, 1998 William F. Bahl --------------------------------------- Director EXHIBIT 24.1 POWER OF ATTORNEY The undersigned, a director of Cincinnati Financial Corporation, an Ohio corporation (the "Company") hereby constitutes and appoints Robert B. Morgan and Theodore F. Elchynski, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign a Form S-3 Registration Statement (the "Registration Statement") to effect the registration under the Securities Act of 1933, as amended (the "Act"), of securities of the Company, and to sign any and all amendments (including post-effective amendments and amendments pursuant to Rule 462 under the Act) to said Registration Statement, and to file the same, with all exhibits thereto (including this Power of Attorney) and other documents in connection therewith, with the Securities and Exchange Commission, 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 requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: May 1, 1998 Michael Brown --------------------------------------- Director EXHIBIT 24.1 POWER OF ATTORNEY The undersigned, a director of Cincinnati Financial Corporation, an Ohio corporation (the "Company") hereby constitutes and appoints Robert B. Morgan and Theodore F. Elchynski, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign a Form S-3 Registration Statement (the "Registration Statement") to effect the registration under the Securities Act of 1933, as amended (the "Act"), of securities of the Company, and to sign any and all amendments (including post-effective amendments and amendments pursuant to Rule 462 under the Act) to said Registration Statement, and to file the same, with all exhibits thereto (including this Power of Attorney) and other documents in connection therewith, with the Securities and Exchange Commission, 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 requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: May 1, 1998 John E. Field --------------------------------------- Director EXHIBIT 24.1 POWER OF ATTORNEY The undersigned, a director of Cincinnati Financial Corporation, an Ohio corporation (the "Company") hereby constitutes and appoints Robert B. Morgan and Theodore F. Elchynski, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign a Form S-3 Registration Statement (the "Registration Statement") to effect the registration under the Securities Act of 1933, as amended (the "Act"), of securities of the Company, and to sign any and all amendments (including post-effective amendments and amendments pursuant to Rule 462 under the Act) to said Registration Statement, and to file the same, with all exhibits thereto (including this Power of Attorney) and other documents in connection therewith, with the Securities and Exchange Commission, 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 requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: May 1, 1998 William R. Johnson --------------------------------------- Director EXHIBIT 24.1 POWER OF ATTORNEY The undersigned, a director of Cincinnati Financial Corporation, an Ohio corporation (the "Company") hereby constitutes and appoints Robert B. Morgan and Theodore F. Elchynski, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign a Form S-3 Registration Statement (the "Registration Statement") to effect the registration under the Securities Act of 1933, as amended (the "Act"), of securities of the Company, and to sign any and all amendments (including post-effective amendments and amendments pursuant to Rule 462 under the Act) to said Registration Statement, and to file the same, with all exhibits thereto (including this Power of Attorney) and other documents in connection therewith, with the Securities and Exchange Commission, 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 requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: May 1, 1998 Kenneth C. Lichtendahl --------------------------------------- Director EXHIBIT 24.1 POWER OF ATTORNEY The undersigned, a director of Cincinnati Financial Corporation, an Ohio corporation (the "Company") hereby constitutes and appoints Robert B. Morgan and Theodore F. Elchynski, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign a Form S-3 Registration Statement (the "Registration Statement") to effect the registration under the Securities Act of 1933, as amended (the "Act"), of securities of the Company, and to sign any and all amendments (including post-effective amendments and amendments pursuant to Rule 462 under the Act) to said Registration Statement, and to file the same, with all exhibits thereto (including this Power of Attorney) and other documents in connection therewith, with the Securities and Exchange Commission, 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 requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: May 1, 1998 James G. Miller --------------------------------------- Director EXHIBIT 24.1 POWER OF ATTORNEY The undersigned, a director of Cincinnati Financial Corporation, an Ohio corporation (the "Company") hereby constitutes and appoints Robert B. Morgan and Theodore F. Elchynski, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign a Form S-3 Registration Statement (the "Registration Statement") to effect the registration under the Securities Act of 1933, as amended (the "Act"), of securities of the Company, and to sign any and all amendments (including post-effective amendments and amendments pursuant to Rule 462 under the Act) to said Registration Statement, and to file the same, with all exhibits thereto (including this Power of Attorney) and other documents in connection therewith, with the Securities and Exchange Commission, 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 requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: May 1, 1998 John J. Schiff, Jr. --------------------------------------- Director EXHIBIT 24.1 POWER OF ATTORNEY The undersigned, a director of Cincinnati Financial Corporation, an Ohio corporation (the "Company") hereby constitutes and appoints Robert B. Morgan and Theodore F. Elchynski, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign a Form S-3 Registration Statement (the "Registration Statement") to effect the registration under the Securities Act of 1933, as amended (the "Act"), of securities of the Company, and to sign any and all amendments (including post-effective amendments and amendments pursuant to Rule 462 under the Act) to said Registration Statement, and to file the same, with all exhibits thereto (including this Power of Attorney) and other documents in connection therewith, with the Securities and Exchange Commission, 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 requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: May 1, 1998 Thomas R. Schiff --------------------------------------- Director EXHIBIT 24.1 POWER OF ATTORNEY The undersigned, a director of Cincinnati Financial Corporation, an Ohio corporation (the "Company") hereby constitutes and appoints Robert B. Morgan and Theodore F. Elchynski, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign a Form S-3 Registration Statement (the "Registration Statement") to effect the registration under the Securities Act of 1933, as amended (the "Act"), of securities of the Company, and to sign any and all amendments (including post-effective amendments and amendments pursuant to Rule 462 under the Act) to said Registration Statement, and to file the same, with all exhibits thereto (including this Power of Attorney) and other documents in connection therewith, with the Securities and Exchange Commission, 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 requisite and necessary to be done, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Dated: May 1, 1998 Frank J. Schultheis --------------------------------------- Director EX-25.1 7 FORM T-1 Exhibit 25.1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) --------------------------------- THE FIRST NATIONAL BANK OF CHICAGO (Exact name of trustee as specified in its charter) A National Banking Association 36-0899825 (I.R.S. employer identification number) One First National Plaza, Chicago, Illinois 60670-0126 (Address of principal executive offices) (Zip Code) The First National Bank of Chicago One First National Plaza, Suite 0286 Chicago, Illinois 60670-0286 Attn: Lynn A. Goldstein, Law Department (312) 732-6919 (Name, address and telephone number of agent for service) ----------------------------------- Cincinnati Financial Corporation (Exact name of obligor as specified in its charter) Ohio 31-0746871 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 6200 South Gilmore Road Fairfield, Ohio 45014 (Address of principal executive offices) (Zip Code) Debt Securities (Title of Indenture Securities) Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency, Washington, D.C.; Federal Deposit Insurance Corporation, Washington, D.C.; and The Board of Governors of the Federal Reserve System, Washington D.C.. (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. Item 2. Affiliations With the Obligor. If the obligor is an affiliate of the trustee, describe each such affiliation. No such affiliation exists with the trustee. Item 16. List of exhibits. List below all exhibits filed as a part of this Statement of Eligibility. 1. A copy of the articles of association of the trustee now in effect.* 2. A copy of the certificates of authority of the trustee to commence business.* 3. A copy of the authorization of the trustee to exercise corporate trust powers.* 4. A copy of the existing by-laws of the trustee.* 5. Not Applicable. 6. The consent of the trustee required by Section 321(b) of the Act. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. 2 8. Not Applicable. 9. Not Applicable. Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, The First National Bank of Chicago, a national banking association organized and existing under the laws of the United States of America, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Chicago and State of Illinois, on the 29th day of April, 1998. The First National Bank of Chicago, Trustee By: /s/ Sandra L. Caruba --------------------- Sandra L. Caruba Vice President * Exhibit 1, 2, 3 and 4 are herein incorporated by reference to Exhibits bearing identical numbers in Item 16 of the Form T-1 of The First National Bank of Chicago, filed as Exhibit 25.1 to the Registration Statement on Form S-3 of SunAmerica Inc., filed with the Securities and Exchange Commission on October 2, 1996 (Registration No. 333-14201). 3 EXHIBIT 6 THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321(b) OF THE ACT April 29, 1998 Securities and Exchange Commission Washington, D.C. 20549 Ladies and Gentlemen: In connection with the qualification of the indenture between Cincinnati Financial Corporation and The First National Bank of Chicago, as Trustee, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act of 1939, as amended, hereby consents that the reports of examinations of the undersigned, made by Federal or State authorities authorized to make such examinations, may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Very truly yours, The First National Bank of Chicago By: /s/ Sandra L. Caruba -------------------- Sandra L. Caruba Vice President 4 EXHIBIT 7 Legal Title of Bank: The First National Bank of Chicago Call Date: 12/31/97 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0303 Page RC-1 City, State Zip: Chicago, IL 60670 FDIC Certificate No.: 0/3/6/1/8 ---------
Consolidated Report of Condition for Insured Commercial and State-Chartered Savings Banks for December 31, 1997 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, report the amount outstanding as of the last business day of the quarter. Schedule RC--Balance Sheet
C400 Dollar Amounts in ------------ Thousands RCFD BIL MIL THOU ----------------- ---- ------------ ASSETS 1. Cash and balances due from depository institutions (from Schedule RC-A): a. Noninterest-bearing balances and currency and coin(1)........................... 0081 4,267,336 1.a. b. Interest-bearing balances(2)................... 0071 6,893,837 1.b. 2. Securities a. Held-to-maturity securities (from Schedule RC-B, column A)....................... 1754 0 2.a. b. Available-for-sale securities (from Schedule RC-B, column D)....................... 1773 5,691,722 2.b. 3. Federal funds sold and securities purchased under agreements to resell.............................. 1350 6,339,940 3. 4. Loans and lease financing receivables: a. Loans and leases, net of unearned income (from Schedule RC-C)........................... RCFD 2122 25,202,984 4.a. b. LESS: Allowance for loan and lease losses...... RCFD 3123 419,121 4.b. c. LESS: Allocated transfer risk reserve.......... RCFD 3128 0 4.c. d. Loans and leases, net of unearned income, allowance, and reserve (item 4.a minus 4.b and 4.c)............................. 2125 24,783,863 4.d. 5. Trading assets (from Schedule RD-D)............... 3545 6,703,332 5. 6. Premises and fixed assets (including capitalized leases)........................................... 2145 743,426 6. 7. Other real estate owned (from Schedule RC-M)...... 2150 7,727 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M)......... 2130 134,959 8. 9. Customers' liability to this bank on acceptances outstanding....................................... 2155 644,340 9. 10. Intangible assets (from Schedule RC-M)............ 2143 268,501 10. 11. Other assets (from Schedule RC-F)................. 2160 2,004,432 11. 12. Total assets (sum of items 1 through 11).......... 2170 58,483,415 12.
- ------------------ (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held for trading. 5 Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/97 ST-BK: 17-1630 FFIEC 031 Address: One First National Plaza, Ste 0303 Page RC-2 City, State Zip: Chicago, IL 60670 FDIC Certificate No.: 0/3/6/1/8 ---------
Schedule RC-Continued
Dollar Amounts in Thousands Bil Mil Thou -------------------- ------------ LIABILITIES 13. Deposits: a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part 1)......................... RCON 2200 21,756,846 13.a (1) Noninterest-bearing(1)............ RCON 6631 9,197,227 13.a.1 (2) Interest-bearing.................. RCON 6636 559,619 13.a.2 b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, part II)......... RCFN 2200 14,811,410 13.b. (1) Noninterest bearing............... RCFN 6631 332,801 13.b.1 (2) Interest-bearing.................. RCFN 6636 14,478,609 13.b.2 14. Federal funds purchased and securities sold under agreements to repurchase: RCFD 2800 4,535,422 14 15. a. Demand notes issued to the U.S. Treasury.............................. RCON 2840 43,763 15.a b. Trading Liabilities (from Schedule RC-D)........................ RCFD 3548 6,523,239 15.b 16. Other borrowed money: a. With a remaining maturity of one year or less.......................... RCFD 2332 1,360,165 16.a b. With a remaining maturity of than one year through three years.......... A547 576,492 16.b c. With a remaining maturity of more than three years...................... A548 703,981 16.c 17. Not applicable 18. Bank's liability on acceptance executed and outstanding................. RCFD 2920 644,341 18 19. Subordinated notes and debentures (2).... RCFD 3200 1,700,000 19 20. Other liabilities (from Schedule RC-G)... RCFD 2930 1,322,077 20 21. Total liabilities (sum of items 13 through 20).............................. RCFD 2948 53,987,736 21 22. Not applicable EQUITY CAPITAL 23. Perpetual preferred stock and related surplus.................................. RCFD 3838 0 23 24. Common stock............................. RCFD 3230 200,858 24 25. Surplus (exclude all surplus related to preferred stock)...................... RCFD 3839 2,999,001 25 26. a. Undivided profits and capital reserves RCFD 3632 1,273,239 26.a. b. Net unrealized holding gains (losses) on available-for-sale securities...... RCFD 8434 24,096 26.b. 27. Cumulative foreign currency translation adjustments.............................. RCFD 3284 (1,515) 27 28. Total equity capital (sum of items 23 through 27).............................. RCFD 3210 4,495,679 28 29. Total liabilities and equity capital (sum of items 21 and 28)................. RCFD 3300 58,483,415 29
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external Number N/A auditors as of any date during 1996......................... RCFD 6724 M.1 1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) 3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) 4 = Directors' examination of the bank performed by other external auditors (may be required by state chartering authority) 5 = Review of the bank's financial statements by external auditors 6 = Compilation of the bank's financial statements by external auditors 7 = Other audit procedures (excluding tax preparation work) 8 = No external audit work - ------------------- (1) Includes total demand deposits and noninterest-bearing time and savings deposits. (2) Includes limited-life preferred stock and related surplus. 6 -----END PRIVACY-ENHANCED MESSAGE-----