<PAGE>
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
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<TABLE>
<CAPTION>
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
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<S> <C> <C> <C> <C>
Debentures due 2028..... $350,000,000 100% $350,000,000 $103,250
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</TABLE>
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(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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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.
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<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT THE COMPANY(1)(2)
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<S> <C> <C> <C>
Per Debenture.........................
- --------------------------------------------------------------------------------
Total.................................
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</TABLE>
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(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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1997
----------------------
AS
ACTUAL ADJUSTED
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
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
========== ==========
</TABLE>
- --------
(1) Restated to account for 3-for-1 stock split payable May 15, 1998 to
shareholders of record at April 24, 1998.
8
<PAGE>
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.
<TABLE>
<CAPTION>
AT OR FOR YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993(1)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- --------
(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
<PAGE>
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 $1.621 billion in 1997. At the same time, the
Company seeks to generate an underwriting profit and maximize annual growth in
investment income.
The following discusses and analyzes results for the three-year period
ending December 31, 1997 and provides insight into Management's strategic
direction for the Company.
<TABLE>
<CAPTION>
CHANGE CHANGE CHANGE CHANGE
1997 ($) (%) 1996 ($) (%) 1995
-------- ------ ------ -------- ------ ------ --------
(IN MILLIONS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $1,942.4 $133.7 7% $1,808.7 $153.0 9% $1,655.7
Net Operating Income.... 254.4 61.8 32 192.6 (14.7) (7) 207.3
Net Capital Gains (after
tax)................... 45.0 13.8 44 31.2 11.2 56 20.0
Net Income.............. 299.4 75.6 34 223.8 (3.5) (2) 227.3
Catastrophe Losses...... 25.5 (39.2) (60) 64.7 37.6 138 27.1
</TABLE>
10
<PAGE>
The Company's financial results for the three years ending December 31, 1997
reflect steady growth in new insurance business and high retention of renewal
business quoted on behalf of the Company's independent insurance agents,
offset by competitive property and casualty pricing. In addition, 1997 marked
a return to a more normal level of catastrophe losses from the unusually high
1996 level. Results for 1997 also reflect the Company's consistent
underwriting philosophy and strategy--maintaining high underwriting standards
by carefully evaluating individual risks, reviewing agency performance and
controlling overall expenses.
Net operating income for 1997 rose substantially over the prior year. The
Company generated 6.5% growth in pre-tax investment income and an underwriting
profit versus an underwriting loss in 1996, primarily due to lower catastrophe
losses. In 1996, net operating income declined 7% because of the catastrophe
losses, while pre-tax investment income rose 9.1%. The contribution from net
realized capital gains after-tax rose in both years primarily due to the sale
of equity securities.
PROPERTY AND CASUALTY INSURANCE OPERATIONS
<TABLE>
<CAPTION>
CHANGE CHANGE CHANGE CHANGE
1997 ($) (%) 1996 ($) (%) 1995
-------- ------ ------ -------- ------ ------ --------
(IN MILLIONS, EXCEPT PERCENTAGES AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
CASH FLOW AND LIQUIDITY
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN MILLIONS)
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
15
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
----------- ------------
<S> <C>
Salomon Brothers Inc........................................ $
Credit Suisse First Boston Corporation......................
A.G. Edwards & Sons, Inc....................................
McDonald & Company Securities, Inc..........................
------------
Total................................................... $350,000,000
============
</TABLE>
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
<PAGE>
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
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
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:
<TABLE>
<S> <C>
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
========
</TABLE>
- --------
(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
<PAGE>
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
<PAGE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
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
___________________________________________
</TABLE> Kenneth C. Lichtendahl
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* 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
___________________________________________
</TABLE> Alan R. Weiler
/s/ Theodore F. Elchynski
*By: _________________________________
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
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.
<PAGE>
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).
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(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.
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(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
<PAGE>
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
<PAGE>
(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
<PAGE>
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
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<PAGE>
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
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(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)
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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,
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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
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
"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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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)
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
EXHIBIT 7
<TABLE>
<S> <C> <C> <C>
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
---------
</TABLE>
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
<TABLE>
<CAPTION>
C400
Dollar Amounts in ------------
Thousands RCFD BIL MIL THOU
----------------- ---- ------------
<S> <C> <C> <C>
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.
</TABLE>
- ------------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
5
<PAGE>
<TABLE>
<S> <C> <C> <C>
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
---------
</TABLE>
Schedule RC-Continued
<TABLE>
<CAPTION>
Dollar Amounts in
Thousands Bil Mil Thou
-------------------- ------------
<S> <C> <C>
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
</TABLE>
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
