1
Schedule 14A
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (amendment no. )
Filed by the Registrant. ( x )[x]
Filed by a Party other than the Registrant. ( )[ ]
Check the appropriate box:
( )[ ] Preliminary Proxy Statement
( x )[x] Definitive Proxy Statement
( )[ ] Definitive Additional Materials
( )[ ] Soliciting Material Pursuant to '240.14a-11(c) or '240.14a-12
( ) Confidential, for use of the Commission only
[as permitted by Rule 14a-6(e)(2)]
CINCINNATI FINANCIAL CORPORATIONCincinnati Financial Corporation
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
[Name(Name of Person(s) Filing Proxy Statement if other than Registrant]
- --------------------------------------------------------------------------------Registrant)
Payment of Filing Fee (Check the appropriate box):
( x )[ X ] No fee required.
( )[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
5) Total fee paid:
---------------------------------------------------------------------
( )[ ] Fee paid previously with preliminary materials.
( )[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
---------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------
3) Filing Party:
---------------------------------------------------------------------
4) Date ---------------------------------------------------------------------
5) Filed:
---------------------------------------------------------------------
2
March 2, 19981, 1999
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Cincinnati Financial Corporation:
You are hereby notified thatcordially invited to attend the Annual Meeting of Shareholders of
Cincinnati Financial Corporation, which will be held at 9:30 a.m. on Saturday,
April 4, 1998,3, 1999, at the Cincinnati Art Museum, located in Eden Park, Cincinnati,
Ohio, for the purposepurposes of:
1. Electing fivefour directors for terms of three years and one director for a
term of two years;
2. Acting upon a proposal to amendapprove the Corporation's Articles of Incorporation
to increase the authorized shares of common stock to 200,000,000 shares;Cincinnati Financial Corporation
Stock Option Plan No. VI; and
3. Transacting such other business as may properly come before the meeting or
any adjournment thereof.
Shareholders of record at the close of business on February 9, 1998, will be8, 1999, are
entitled to vote at the meeting and at any adjournment thereof.meeting.
Whether or not you plan to attend the meeting, you can ensure that your shares
will be voted as you want by completing, signing and mailing the enclosed form
of proxy. Your interest and participation in the affairs of the Corporation are
appreciated.
/s/ THEODORETheodore F. ELCHYNSKIElchynski
Theodore F. Elchynski
Secretary
3
PROXY STATEMENT
CINCINNATI FINANCIAL CORPORATION
P.O. Box 145496, Cincinnati, Ohio 45250-5496
PROXY STATEMENTGENERAL
The enclosed proxy is solicited by the Board of Directors of Cincinnati
Financial Corporation (the "Corporation") for use at the Annual Meeting of
Shareholders to be held at 9:30 a.m., Saturday, April 4, 1998,3, 1999, at the Cincinnati
Art Museum, located in Eden Park, Cincinnati, Ohio. The proxy and this statement
are being distributed to shareholders on March 2, 1998.1, 1999. The Annual Report for
the fiscal year ended December 31, 1997,1998, is also enclosed. Any shareholder
giving a proxy may revoke it at any time before it is voted by a later proxy
received by the Corporation or by giving notice of revocation to the Corporation
in writing or in open meeting or by voting the shares personally.
Only the holders of common stock of the Corporation of record at the close of
business on February 9, 1998,8, 1999, are entitled to vote at the meeting. Each share of
common stock entitles the holder thereof to one vote. As of February 1, 1998,1999,
there were 55,539,685166,450,790 shares outstanding. A majority of such holders present in
person or by proxy is necessary for a quorum. The failure by a broker to return
a proxy card will result in the shares covered by the proxy not being counted
towards a quorum. As stated in the notice of meeting, an election will be held
to fill the sixfour vacancies which occur on the Board of Directors of the
Corporation and a vote will be taken on a proposal to amendapprove the Articles of
Incorporation to increase the Corporation's authorized shares of common stock to
200,000,000. If this proposal is approved by the shareholders, the Board of
Directors has announced its intention to declare a 3-for-1 split of the
Corporation's outstanding shares (see Proposal to Increase Authorized Shares of
CommonCincinnati
Financial Corporation Stock on page 13)Option Plan No. VI (the "Stock Option Plan"). A
simple majority of votes cast is required to elect directors and approve the
Stock Option Plan and an abstention or broker non-vote will not be the equivalent of a
negative vote. The affirmative vote of two-thirds of all shares outstanding is
required to approve the proposal to increase the authorized shares and an
abstention or broker non-vote will be the
equivalent of a negative vote.
Votes cast by proxy will be tabulated prior to the meeting by the holders of the
proxies. Inspectors of election, duly appointed by the presiding officer of the
meeting in accordance with the provisions of Ohio law, will definitively count
and tabulate the votes and determine and
announce the results at the meeting. The Proxy Committee reserves the right not
to vote any proxies which are altered in a manner not intended by the
instructions contained in the proxy.
PRINCIPAL SHAREHOLDERS
The following table lists the persons who, to the best of the Corporation's
knowledge, are "beneficial owners" (as defined in Regulations of the SEC) of
more than 5% of the outstanding shares of the Corporation's common stock at
December 31, 1997.
Name and Address Of Shares Bene- Percent of
Beneficial Owner ficially Owned Common Stock
------------------- -------------- ------------
Robert C. Schiff 3,123,112 5.631998.
Name and Address Of Shares Bene- Percent of
Beneficial Owner ficially Owned Common Stock
---------------- -------------- ------------
John J. Schiff, Jr. 11,117,260 6.67
Cincinnati Financial Corporation
P.O. Box 145496
Cincinnati, Ohio 45250-5496
Fifth Third Bancorp 9,772,924(1) 5.85
Fifth Third Center
Cincinnati, Ohio 45263
Thomas R. Schiff 9,636,395 5.78
John J. & Thomas R. Schiff & Co., Inc.
P.O. Box 145496
Cincinnati, Ohio 45250-5496
Robert C. Schiff 9,362,680 5.61
Central Trust Building
Cincinnati, Ohio 45202
Fifth Third Bancorp 3,503,834(1) 6.32%
38 Fountain Square Plaza
Cincinnati, Ohio 45263
3
4
(1) On February 18, 1998,1999, the Corporation received a copy of a Schedule 13G
filed by Fifth Third Bancorp with the Securities and Exchange Commission,
disclosing that on December 31, 1997,1998, Fifth Third Bancorp and its 10nine
wholly-owned banking subsidiaries were the beneficial owners of 1,003,500 and
2,500,3349,772,924 shares
of the Corporation, respectively.Corporation. Of those shares, it was reported that Fifth Third Bancorp
and its subsidiary banks had sole voting power over 2,338,4019,311,855 shares, shared
voting power over 161,933461,069 shares, sole investment power over 1,582,6067,138,751 shares
and shared investment power over 265,146676,155 shares. The banking subsidiaries hold
an additional 1,657,3593,784,263 shares in fiduciary accounts with regard to which they
have neither voting nor investment control and beneficial ownership of which was disclaimed.
1
4are not deemed beneficially
owned.
NOMINEES FOR ELECTION OF DIRECTORS
The Board of Directors of the Corporation is divided into three classes, and
each year the directors in one class are elected to serve terms of three years.
Last
year, the Board of Directors reduced the number of directors to sixteen by
electing only four directors for three-year terms. As of the date of the Annual Meeting, the term of office of six of the remaining directors
will expire. Two of those directors, Richard M. Burridge and Robert B. Morgan,
have announced that they will retire and not stand for re-election. The Board of
Directors has voted to reduce the number of directors from sixteen to fourteen,
effective as of the date of the Annual Meeting. In order to fill the four
resulting vacancies, and balance the number of directors in
each class to the extent possible, it is intended that votes will be cast to elect as
directors the following nominees: Michael Brown, John E. Field, William
R. Johnson, Robert C. Schiff, Alan R. Weiler (toto serve for terms of three years, or until their respective
successors shall be elected)elected, the following nominees: James G. Miller, Thomas R.
Schiff, Frank J. Schultheis and John J. Schiff (to
serve for a term of two years or until his successor shall be elected).Larry R. Webb. Each of these nominees is
presently serving as a director of the Corporation. The Board of Directors has
no reason to believe that any of the above-mentioned nominees will refuse or be
unable to accept the nomination. In the event, however, that any of the above
nominees should refuse or for any reason be unable to accept the nomination, it
is intended that the persons acting under the proxies will vote for the election
of such person or persons as the Board of Directors may recommend.
INFORMATION REGARDING NOMINEES, DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information with respect to each nominee for
election to the office of director, each of the current directors whose term
does not expire at this time and each of the executive officers of the
Corporation.
Nominees For Director For Term Ending 2001
Office, Principal Shares Percent
Occupation During Past Beneficially Of
Five Years & Other Owned As Of Common Director
Name and Age Directorships February 1, 19981999 Stock Since
------------ ------------------------------------- ---------------- ------- --------------
Nominees For Director For Term Ending 2002
- ------------------------------------------
James G. Miller (61) Chief Investment Officer, Senior Vice
President, Cincinnati Financial Corp.; Chief
Investment Officer, Senior Vice President-
Investments, Cincinnati Ins. Co., a subsidiary
of the Corporation 483,262(6) 0.29 1996
Thomas R. Schiff (51) Chairman of the Board, Chief Exec.
Officer & Agent (President until
December 1996), John J. & Thomas R.
Schiff & Co., Inc. (insurance agency) 9,599,709(2)(3)(6)(11) 5.75 1975
Frank J. Schultheis (59) President, Director & Agent,
Schultheis Insurance Agency, Inc. 12,367(1)(6) 0.01 1995
Larry R. Webb (43) President, Director & Agent, Webb
Insurance Agency, Inc. 112,388 0.07 1979
Continuing Directors Whose Terms Expire in 2001
- -----------------------------------------------
Michael Brown (62)(63) President & Gen'l Mgr., Cincinnati
Bengals, Inc. (professional football
team) 63,670 0.11197,158(1) 0.12 1980
John E. Field (64)(65) Vice Chairman & Agent, Wallace &
Turner, Inc. (insurance agency); Director,
Western Ohio Financial Corp. 60,720 (1)(10)(11)184,876(1)(7)(8) 0.11 1995
William R. Johnson (49)(50) President & Chief OperatingExec. Officer
and Director, H. J. Heinz Company 1,2246,253 -- 1996
Robert C. Schiff (74)(75) Chairman & Chief Exec. Officer, Schiff,
Kreidler-Shell, Inc. (insurance agency) 3,123,112 (6)(7)(8)9,362,680(4)(5) 5.61 1968
4
5
Alan R. Weiler (64)(65) President, Chief Exec. Officer & Agent,
Archer-Meek-Weiler Agency, Inc. (insurance
agency); Director, Glimcher Realty Trust 13,237 (1)(13)Trust;
Director, Commerce National Bank of Columbus 39,713(1)(10) 0.02 1992
Nominees For Director For Term Ending 2000
- ------------------------------------------
John J. Schiff (81) Chairman of the Exec. Committee,
Cincinnati Financial Corp.; Chairman of
the Exec. Committee, Cincinnati Ins.
Co., a subsidiary of the Corporation (1) 1,712,775 (1)(9) 3.08 1968
Continuing Directors Whose Terms Expire in 2000
- -----------------------------------------------
William F. Bahl (46)(47) President, Bahl & Gaynor, Inc.
(investment advisors) 59,665 (12)182,371(9) 0.11 1995
Kenneth C. Lichtendahl (49)(50) President, Chief Exec. Officer & Director,
Hudepohl-Schoenling Brewing Company, Inc.;
and Director, Glenway Financial Corp. 3,30710,271 0.01 1988
2
5
Continuing Directors Whose Terms Expire in 2000 (Continued)
- -----------------------------------------------------------
Jackson H. Randolph (67)(68) Chairman of the Board and Director
(former Chief Executive(Chief Exec. Officer until 1995), CINergy
Corp.; Director, The Union Light, Heat,
Power Co., and PNC Financial Corp. 11,02536,451 0.02 1986
John J. Schiff, Jr. (54)(55) Chairman of the Board, Cincinnati
Financial Corp.; Chairman of the Board,
Cincinnati Insurance Co., and; Director (agent
until December 1996), John J. & Thomas R.
Schiff & Co., Inc. (insurance agency);
Director, Fifth Third Bancorp, Standard
Register Co., and CINergy Corp. (1) 2,018,235 (1)11,134,379(1)(2)(3)(4)(5)(9) 3.62(6)(11) 6.67 1968
Continuing Directors Whose Terms Expire in 1999
- -----------------------------------------------
Richard M. Burridge (68) Chairman of the Board, The Burridge Group,
Inc. (investment advisors); Director,
Lincoln National Income Fund, Advisory
and Convertible Securities Funds,
St. Joseph Light & Power Co., and
Ft. Dearborn Income Fund 9,313 0.02 1987
James G. Miller (60) Chief Investment Officer & Senior Vice
President, Cincinnati Financial Corp.; Chief
Investment Officer & Senior Vice President-
Investments, Cincinnati Ins. Co., a subsidiary
of the Corporation 152,668 (9) 0.27 1996
Robert B. Morgan (63)E. Anthony Woods (58) President & Chief Exec. Officer,
Cincinnati Financial Corp.; Pres. &
Chief Exec. Officer, Cincinnati Ins.
Co., a subsidiary of the Corporation;
Director, Fifth Third Bancorp (1) 552,517 (1)(9) 0.99 1978
Thomas R. Schiff (50) Chairman of the Board, Chief Executive
Officer & Agent (President until
December 1996), John J. & Thomas R.
Schiff & Co., Inc. (insurance agency) 1,530,611 (2)(3)(4)(5)(9) 2.75 1975
Frank J. Schultheis (58) President, Director & Agent,
Schultheis Insurance Agency, Inc. 2,997 (1)(9) 0.01 1995
Larry R. Webb (42) President, Director & Agent, Webb
Insurance Agency, Inc. 36,140 0.06 1979Deaconess Associates, Inc.. (health care) 6,000 -- 1998
All Directors and Executive Officers As A Group
(17(16 Persons), Including Shares Listed Above 8,875,344 15.9426,871,110(6) 16.09
- ---------------
1) Also a member of the Executive Committee of the Corporation.
2) Includes 380,181404,601 shares owned of record by a trust, the trustees of which
are John J. Schiff, Jr., Thomas R. Schiff and Suzanne S. Reid, who share
voting and investment power equally.
3) Includes 134,8671,154,814 shares owned of record by a trust, the beneficiaries of
which include John J. Schiff, Jr. and Thomas R. Schiff.
4) Includes 34,903Schiff; 97,221 shares
owned of record by the John J. & Thomas R. Schiff & Co., Inc. pension
plan, the trustees of which are John J. Schiff, Jr. and Thomas R. Schiff,
who share voting and investment power.
5) Includes 33,476power; and 99,882 shares owned by John J.
& Thomas R. Schiff & Co., Inc., of which John J. Schiff, Jr. and Thomas R.
Schiff are principal owners.
3
6
6)4) Includes 34,467103,401 shares owned of record by the Schiff, Kreidler-Shell,
Inc. pension plan, of which Robert C. Schiff is a trustee.
7) Includes 84,108trustee; and 252,324
shares owned of record by Schiff, Kreidler-Shell, Inc., which is owned by
Robert C. Schiff.
8)5) Includes 251,387754,161 shares owned of record by a trust, the trustees of which
are Robert C. Schiff and Adele R. Schiff, who share voting and investment
power.
9)6) Includes shares available within 60 days from exercise of stock options or
conversion of debentures in the amount of 12,32560,652 shares for Mr. Miller;
147,053 shares for Mr. Morgan; 132,667452,441 shares for Mr. J. Schiff, Jr.; 14,56443,693 shares for Mr. T. Schiff;
4481,344 shares for Mr. Schultheis; and 20,04079,892 shares for other executive
officers.
10)7) Includes 1,4094,291 shares owned of record by Wallace & Turner, Inc., of which
John E. Field is Vice Chairman.
11)8) Includes 41,25934,935 shares owned of record by a trust, the trustee of which is
John E. Field, and 17,73114,147 shares owned of record by a trust, the trustee
of which is Alice A. Field, wife of John E. Field.
12)Field; and 130,938 shares
owned of record by a limited partnership of which John E. Field is a
general partner.
9) Includes 4151,245 shares owned of record by Bahl & Gaynor, Inc. of which
William F. Bahl is a principal owner.
13)10) Includes 2,2406,722 shares available within 60 days from conversion of
debentures owned of record by Archer-Meek-Weiler Agency, Inc., of which
Alan R. Weiler is President and a principal owner.
11) Includes 5,000,350 shares owned of record or which may be acquired through
conversion of debentures by the estate of John J. Schiff, the co-executors
of which are John J. Schiff, Jr. and Thomas R. Schiff, who share voting
and investment power equally.
5
6
Theodore F. Elchynski, age 61,62, Chief Financial Officer and Senior Vice President
of the Corporation, has been designated by the Board of Directors as an
executive officer of the Corporation for successive terms of one year since
1995. Executive officersAt February 1, 1999, he beneficially owned 349,706 shares which equalled
0.21% of the shares outstanding.
Urban G. Neville, age 60, Senior Vice President--Information Systems of The
Cincinnati Insurance Company, is deemed to be an executive officer of the
Corporation by virtue of his position with the Corporation's subsidiary
companies. Mr. Neville was first elected to his office in 1991. At February 1,
1999, Mr. Neville beneficially owned 114,396 shares which equals 0.07% of the
shares outstanding.
Officers are elected at the annual meetingmeetings of the BoardBoards of Directors of the
Corporation and its subsidiaries for terms of one year.
Each of the executive officers, and each of the nominees and each of the directors
whose term does not expire has served as an officer or director continuously
since first elected to that position. John J. Schiff, is the brother
of Robert C. Schiff and the father of John J.
Schiff, Jr. and Thomas R. Schiff
are brothers and nephews of Robert C. Schiff.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Corporation met fourfive times and the Executive
Committee of the Board met fivesix times during the previous fiscal year. In
addition, the Board of Directors has standing Audit, Compensation and Nominating
Committees.
The Nominating Committee is composed of John J. Schiff, Jr., Michael Brown and
Jackson H. Randolph, and the members of that committee met one timetwo times during the
last year. The Nominating Committee recommends qualified candidates for election
as officers and directors of the Corporation, including the slate of directors
which the Board proposes for election by the shareholders at the Annual Meeting.
Shareholders wishing to suggest candidates for director for consideration by the
Nominating Committee should write to the Secretary of the Corporation, giving
the candidate's name, biographical data and qualifications. Such information
must be received by November 30 of each year to be considered for the Annual
Meeting held in the following year.
The Audit Committee is composed of Richard M. Burridge, Kenneth C. Lichtendahl
and Jackson H. Randolph, and the members of that committee met two times during
the last year. The functions of the committee include but are not limited to the
following: recommendation to the full Board as to engagement or discharge of
independent auditors,auditors; reviewing with independent auditors the plan and results
of the audit engagement,engagement; reviewing the scope and results of the Corporation's
internal auditing proceduresprocedures; and reviewing the adequacy of the Corporation's
system of internal accounting controls.
The Compensation Committee is composed of Michael Brown, Kenneth C. Lichtendahl
and William F. Bahl, and the members of that committee met fourthree times during
the last fiscal year. The function of the committee is to set compensation for
the members of senior management and the internal auditor of the Corporation and
to administer the Corporation's stock option and performance-based compensation
plans.
All directors attended at least 75% of the Board and committee meetings they
were required to attend.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Directors, officers and 10% shareholders of the Corporation are required to
report their beneficial ownership of the Corporation's stock according to
Section 16 of the Exchange Act of 1934.
In January of 1997, it was discovered
that Alan R. Weiler had failed to include certain shares in his Form 3 filed in
1992 and in his subsequently filed Form 4 filings. The shares in
4
7
question are 2,440 shares deemed to be owned through conversion rights contained
in $100,000 of the Corporation's convertible subordinated debentures owned of
record by Archer-Meek-Weiler Agency, Inc., of which Mr. Weiler is President and
principal owner. Amended filings were made in March of 1997.
In February of 1998, William F. Bahl1999, Frank J. Schultheis filed a Form 5 which disclosed the
distributionpurchase of 8,8803,376 shares by a trust ofhis self-directed IRA on November 9, 1998, which Mr. Bahl is trustee. Indirect
beneficial ownership of those shares is imputed to Mr. Bahl because his sister
is a beneficiary of the trust, and therefore the distribution
should have been reported on a Form 4.4 filed in December of 1998.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Nonemployee directors of the Corporation were paid a fee of $4,500 per meeting
for attendance at director'sdirectors' meetings and $1,500 per meeting for attendance at
committee meetings of the Board and the Corporation's subsidiaries, with fees
for all meetings in any one day not to exceed $6,000. They were also reimbursed
for actual travel expenses incurred in attending meetings.
6
7
EXECUTIVE COMPENSATION SUMMARY
The following table summarizes the compensation of the Corporation's Chief
Executive Officer and the four most highly compensated executive officers for
each of the Corporation's last three years.
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Summary Compensation Table (1)
- ----------------------------------------------------------------------------------------------------
Annual Long-Term
Compensation Compensation
-------------------------------------------------
Name and Options
Principal Year Salary Bonus (# Awarded
Position ($) ($) Shares)
- ----------------------------------------------------------------------------------------------------(2)
Robert B. Morgan 1998 831,009 527,351 10,000
President & Chief 105,000
Executive Officer 1997 728,713 527,933 30,000
President & Chief90,000
1996 659,947 458,834 25,000
Executive Officer 21,000(2)
1995 576,056 399,105 20,000(2)
- ----------------------------------------------------------------------------------------------------75,000
63,000
John J. Schiff, Jr. 1998 469,494 199,606 10,000
Chairman, 105,000
Board of Directors & 1997 411,700 230,074 30,000
Chairman,90,000
Chief Operating Officer 1996 373,786 199,814 25,000
Board of Directors 21,000(2)
1995 338,954 172,817 20,000(2)
- ----------------------------------------------------------------------------------------------------
John J. Schiff 1997 276,048 87,575
Chairman, Executive Committee 1996 276,048 87,213
Board of Directors 1995 276,048 87,255
- ----------------------------------------------------------------------------------------------------75,000
63,000
Theodore F. Elchynski 1998 221,924 88,516 10,000
Chief Financial Officer, 15,000
Senior Vice President, 15,000
Secretary & Treasurer 1997 196,382 97,913 2,5007,500
7,500
1996 152,166 88,736 15,000
11,025
James G. Miller 1998 221,925 164,818 10,000
Chief FinancialInvestment Officer, 2,50015,000
Senior Vice President, 1996 152,166 88,736 5,00015,000
Assistant Secretary & Treasurer 3,675
1995 119,378 77,280 1,103
- ----------------------------------------------------------------------------------------------------
James G. Miller 1997 193,909 181,845 2,500
Chief Investment Officer 2,5007,500
Assistant Treasurer 7,500
1996 148,247 165,038 15,000
11,025
Urban G. Neville 1998 231,966 96,368 3,000
Senior Vice President 6,000
The Cincinnati Insurance Company 1997 198,158 105,600 3,000
1996 148,247 165,038 5,000
Assistant Secretary & 3,675(2)
Assistant Treasurer 1995 133,357 143,630 3,500(2)
1,575186,734 96,000 13,500
3,150
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1) Pursuant to SEC rules, the column "Other Annual Compensation" was omitted
because, in all cases, the amounts were less than the minimum required to
be reported.
2) Options granted December 12, 1995, were revoked and replaced with options
granted December 10, 1996, which included additional shares dueprior to April 24, 1998 have been adjusted to reflect the
5%three-for-one stock dividendsplit paid in April, 1996.
5on May 15, 1998.
7
8
STOCK OPTION PLANS
The following table contains information concerning grants of options to
purchase the Corporation's common stock which were made to each of the named
executive officers in 1997.1998.
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Option Grants in Last Fiscal Year
- --------------------------------------------------------------------------------------------------------------------------------
Potential Realizable
Value at Assumed
Annual Rates of
% of Total Stock Price
Options Appreciation for
Options Granted to Exercise Option Term(3)Term (3)(4)
Granted Employees Price Expiration
--------------------------------
Name (# Shares)(1) in 19971998 $/Sh.(2) Date 5%($) 10%($)
- --------------------------------------------------------------------------------------------------------------------------------
Robert B. Morgan 30,000 13.76% 69.00 04/15/07 $1,301,800 $3,299,000
- --------------------------------------------------------------------------------------------------------------------------------10,000 0.60% 33.88 08/24/08 213,106 540,047
105,000 6.31% 45.37 01/05/08 2,996,462 7,593,577
John J. Schiff, Jr. 30,000 13.76% 69.00 04/15/07 1,301,800 3,299,000
- --------------------------------------------------------------------------------------------------------------------------------
John J. Schiff -0- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------10,000 0.60% 33.88 08/24/08 213,106 540,047
105,000 6.31% 45.37 01/05/08 2,996,462 7,593,577
Theodore F. Elchynski 2,500 1.15% 67.38 04/10,000 0.60% 33.88 08/24/08 213,106 540,047
15,000 0.90% 42.87 02/07/08 404,478 1,025,022
15,000 0.90% 45.37 01/05/07 105,900 268,500
2,500 1.15% 69.00 04/15/07 108,500 274,900
- --------------------------------------------------------------------------------------------------------------------------------08 428,066 1,084,797
James G. Miller 2,500 1.15% 67.38 04/10,000 0.60% 33.88 08/24/08 213,106 540,047
15,000 0.90% 42.87 02/07/08 404,478 1,025,022
15,000 0.90% 45.37 01/05/07 105,900 268,500
2,500 1.15% 69.00 04/15/07 108,500 274,90008 428,066 1,084.797
Urban G. Neville 3,000 0.18% 33.88 08/24/08 63,932 162,014
6,000 0.36% 42.87 02/07/08 161,791 410,009
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1) Options were granted AprilJanuary 5, 1997,1998, February 7, 1998 and April 15, 1997.August 24, 1998.
One third of each option becomes exercisable on the first anniversary of
grant in 1998,1999, an additional one third on the second anniversary in 1999,2000
and the remainder on the third anniversary in 2000,2001, so long as employment
continues with the Corporation or its subsidiaries. There are no stock
appreciation rights, performance units or other instruments granted in
tandem with these options, nor are there any re-load provisions, tax
reimbursement features or performance-based conditions to exercisability.
2) The option exercise price is 100% of the NASDAQNasdaq National market'sMarket's closing
price for CINF on the day prior to date of grant.
3) The number of shares subject to options and the exercise price of options
outstanding on April 24, 1998 have been adjusted to reflect the
three-for-one stock split which was issued May 15, 1998.
4) The assumed annual rates of stock price appreciation are prescribed in the
proxy rules of the SEC and should not be construed as a forecast of future
appreciation in the market price for the Corporation's common stock.
68
9
The following table contains information for each of the named executive
officers concerning the exercise of options during 19971998 and the value of
unexercised options at year-end for the Corporation's common stock.
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
- --------------------------------------------------------------------------------------------------------------------------------
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares 12/31/9798 12/31/9798
Acquired on Value Exercisable (E)/ Exercisable (E)/
Exercise Realized Unexercisable (U) Unexercisable (U)
Name (# Shares) ($) (# Shares) ($)
- --------------------------------------------------------------------------------------------------------------------------------
Robert B. Morgan 41,784 3,733,29734,056 3,830,518 E 162,776462,158 E 5,806,4356,968,359
U 60,666220,000 U 3,954,979
- --------------------------------------------------------------------------------------------------------------------------------7,404,520
John J. Schiff, Jr. 10,600 273,90427,624 2,268,545 E 78,288227,990 E 3,763,5624,199,818
U 60,666198,200 U 3,954,979
- --------------------------------------------------------------------------------------------------------------------------------
John J. Schiff6,958,250
Theodore F. Elchynski 1,656 25,552 E 24,555 E 499,438
U 58,675 U 2,065,186
James G. Miller -0- -0- E -0-33,930 E -0-662,508
U -0-58,675 U -0-2,067,427
Urban G. Neville 6,357 126,916 E 9,500 E 196,710
U 17,050 U 527,133
- --------------------------------------------------------------------------------------------------------------------------------
Theodore F. Elchynski 184 10,470 E 3,812 E 224,117
U 11,150 U 712,625
- --------------------------------------------------------------------------------------------------------------------------------
James G. Miller 2,482 168,056 E 6,200 E 345,061
U 11,335 U 722,592
- -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
PENSION PLAN
The following table sets forth the estimated annual benefits payable from the
Corporation's qualified noncontributory pension plan under various assumptions
as to the employee's compensation level and years of service.
Qualified Pension Plan Table
----------------------------
Years of Service on December 31, 19971998
-------------------------------------
Average
Annual Earnings 15 20 25 30 35 40
--------------- -- -- -- -- -- --
$200,000 $21,600 $31,200 $40,800 $50,400 $60,000 $69,600$ 69,600
150,000 20,250 29,250 38,250 47,250 56,250 65,250
100,000 13,500 19,500 25,500 31,500 37,500 43,500
75,000 10,125 14,625 19,125 23,625 28,125 32,625
50,000 6,750 9,750 12,750 15,750 18,750 21,750
79
10
All of the persons listed in the Summary Compensation Table except John J. Schiff
(whose accrued retirement benefit has already been paid) are participants in
the plan. For purposes of computing retirement benefits under the Corporation's
pension plan, for the remaining individuals listed in the Summary Compensation Table,
earnings for any given year as defined by the plan is the base rate of salary in
effect on the last day of the plan year, subject to maximum recognizable
compensation under Sec. 401(a)(17) of the Internal Revenue Code. This differs
from Salary as shown in the Summary Compensation Table. The annual earnings for
19971998 qualifying under the plan and thefor each individual is $160,000. The years of
service as of December 31, 1997,1998, under the plan for those individuals are as
follows: Theodore F. Elchynski, $160,000 and 3637 years; James G. Miller, $160,000 and 3132 years; Robert B.
Morgan, $160,000 and 3233 years; andUrban G. Neville, 30 years; John J.
Schiff, Jr., $160,000 and
1112 years.
The normal retirement pension is computed as a single life annuity and is the
sum of .009 per year of the employee's highest five-year average earnings for
the first 15 years of service plus .012 per year of the employee's highest
five-year average earnings for years 16 through 40. Vesting is 100% after five
years of service and there are no deductions for Social Security or other offset
amounts.
SUPPLEMENTAL RETIREMENT PLAN
Effective January 1, 1989, the Corporation adopted a nonqualified,
noncontributory Supplemental Retirement Plan for the benefit of thirty-seven
higher paid employees whose projected retirement pension was reduced as a result
of the amendment to the Corporation's qualified pension plan. The Supplemental
Retirement Plan was designed to replace the pension benefit lost by those
employees.
The following table illustrates the retirement income payable under the
Supplemental Retirement Plan computed as a single life annuity on retirement at
age 65 under various assumptions as to the employee's highest five-year average
annual earnings and years of service.
Supplemental Retirement Plan
----------------------------
Years of Service on December 31, 19971998
-------------------------------------
Average
Annual Earnings 15 25 35 45
--------------- -- -- -- --
$850,000 $133,977 $220,182 $306,931 $403,282$900,000 $138,056 $236,575 $330,745 $433,705
850,000 134,624 220,950 308,870 405,580
750,000 115,227 188,932 263,181 347,032115,874 189,700 265,120 349,330
650,000 96,477 157,682 219,432 290,78297,124 158,450 221,370 293,080
550,000 77,727 126,432 175,682 234,53278,374 127,200 177,620 236,830
450,000 58,977 95,182 131,932 178,28259,624 95,950 133,870 180,580
350,000 40,227 63,932 88,182 122,03240,874 64,700 90,120 124,330
250,000 21,477 32,682 44,432 65,78222,124 33,450 46,370 68,080
150,000 4,077 3,982 4,432 13,8823,914 3,670 4,120 13,570
100,000 1,452 1,107 1,307 7,5071,289 795 995 7,195
8
11
This Planplan is integrated with Social Security and a normal retirement pension is
the sum of .0075 of the employee's highest five-year average annual earnings
below the integration level plus .0125 of the employee's highest five-year
average annual earnings in excess of the integration level, multiplied by the
number of years of service. The integration level is equal to the average of the
integration levels for the period of the employee's employment, using wages
paid, with a maximum of $6,000 for years beginning prior to 1976 and wages
subject to Social Security tax for all years after 1975. The retirement benefit
paid pursuant to the Supplemental Plan is the difference between the amount
computed by the above formula and the amount payable from the Qualified Plan.
10
11
All of the persons listed in the Summary Compensation Table except John J.
Schiff, are participants in
the plan. For purposes of determining benefits under the Supplemental Retirement
Plan, annual earnings is defined as the base rate of salary in effect on the
last day of the plan year. This differs from salary under the Summary
Compensation Table. The annual earnings for 19971998 as defined in the plan and the
years of service as of December 31, 1997,1998, for those individuals are as follows:
Theodore F. Elchynski, $220,000$245,000.60 and 3637 years; James G. Miller, $220,001$245,001.64
and 3132 years; Robert B. Morgan, $828,460$861,597.36 and 3233 years; Urban G. Neville,
$256,004.32 and 30 years; and John J. Schiff, Jr., $468,053$486,775.64 and 1112 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Corporation's Compensation Committee for 19971998 were Michael
Brown, Kenneth C. Lichtendahl and William F. Bahl. Lawrence H. Rogers, II, a
former director, served as an advisor to the Committee.
During 1997,1998, Michael Brown was the President and General Manager of Cincinnati
Bengals, Inc., and John J. Schiff, Jr., Chairman of the Corporation's Board of
Directors, was a director of Cincinnati Bengals, Inc. Mr. Schiff also served on
the Compensation Committee of the Board of Directors of CINergy Corp., and
Jackson H. Randolph, Chairman of CINergy Corp., served on the Corporation's
Board of Directors.
John J. Schiff, Jr. was also a director and one of the principal owners of John
J. & Thomas R. Schiff & Co., Inc., an insurance agency which represents a number
of insurance companies, including the Corporation's insurance affiliates. Thomas
R. Schiff, also a director of the Corporation, was the Chairman of the Board and
one of the principal owners of John J. & Thomas R. Schiff & Co., Inc. During the
year ended December 31, 1997,1998, the Corporation's insurance affiliates paid John
J. & Thomas R. Schiff & Co., Inc. commissions of $2,851,987.$2,499,800. Those commissions
were paid at the same commission rates pursuant to the same agent's contract
with the Corporation's insurance affiliates as other agents of those companies.
John J. Schiff, Jr. and Thomas R. Schiff are brothers and their fatheruncle is John
J.Robert
C. Schiff.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Corporation's Compensation Committee is charged with the duty of determining
the compensation of the Corporation's internal auditor and members of senior
management. It also administers and grants options under the Corporation's stock
option plans and administers the Corporation's Incentive Compensation Plan,
including options andgranting performance bonuses to senior management.
It is the opinion of the Committee that senior management of the Corporation
should receive compensation which will accomplish the following:
- --* Attract and retain quality personnel.
- --* Reinforce the attainment of the Corporation's performance objectives.
- --* Align the interests of senior management with those of the Corporation's
shareholders.
- --* Encourage the members of senior management to acquire and retain the
Corporation's stock.
- --* Retain its status for such compensation as aan expense deductible expenseby the
Corporation for tax purposes.
9
12
A portion of total compensation is paid in the form of a fixed annual salary in
an amount which the Committee feels sufficient to retain top quality executives.
In determining the levels of compensation necessary to be competitive, the
Committee reviews compensation paid by other property casualty and multiline
insurance companies which constitute the Corporation's most direct competitors
for executive talent. Senior management salaries are reviewed on an annual
basis. In determining salary levels, the Committee considers changes in general
economic conditions, including inflation and changes in compensation paid by the
Corporation's competitors.peers. The Committee also seeks input from the Corporation's chief
executive officer in setting salaries for senior management other than the CEO.
In December of 1997, the Corporation was added to the Standard & Poor's 500
Index and was assigned to the Property-Casualty Industry Group and has been
added to that group index. Of the eight property-casualty and multiline
companies which the Committee includes in the Corporation's competitor group for
comparison purposes, five are also members of the Standard & Poor's
Property-Casualty Index and one current and one former member of the competitor
group are members of the Standard & Poor's Multiline Index. In view of the
Corporation's recent addition to the Property-Casualty Index, this index has
been added to the performance graph found below for comparison purposes and will
replace the Multiline Index in future years.
A second component of compensation is paid in the form of a bonus, determined in
light of the Corporation's performance during the year. Performance is measured
not only by profit, which is directly affected by the impact of weather on the
profits of the Corporation's property and casualty insurance subsidiaries, but
by a review of such factors as stock price, premium volume, total expenses,
combined ratios of the insurance subsidiaries and ratings issued by national
rating agencies, including A. M. Best Company. Bonuses are established at the
end of each year but do not reflect the application of any precise formula to
the performance indicators listed. Because of the impact that uncontrollable
factors such as weather have on the financial indicators reviewed, the committeeCommittee
does not feel that the application of a mechanical system of determining bonuses
is appropriate; therefore, the setting of bonuses is a subjective process, not
totally dependent on the objective criteria listed.
11
12
The third component of compensation is awarded through the grant of stock
options. The Compensation Committee considers the value attributable to the
grant of options to be an integral part of total compensation. In addition,
options are the primary mechanism for encouraging the ownership of the
Corporation's shares, aligning the interests of senior management with those of
shareholders and for providing long-term rewards to employees for overall
corporate performance. In granting options to senior management, it is the
Committee's intent not only to reward senior management for services to the
Corporation but to provide incentive for individual option holders to remain in
the employ of the Corporation. Members of senior management are reviewed for
stock option grants each year. In determining the appropriate value of options
to be granted to senior management, the Committee reviews grants by the
Corporation's competitorspeers with the objective of providing the opportunity for
competitive long-term compensation.
The Internal Revenue Service has limited the deductibility of compensation paid
to the five most highly compensated members of senior management to one million
dollars each, unless that compensation is paid pursuant to a performance-based
compensation plan meeting IRS requirements. Income resulting from the exercise
of options under the Corporation's Stock Option Plan No. VPlans qualifies as
performance-based compensation. A bonus plan was adopted by the Corporation in
1996 pursuant to which participants will beare eligible to receive deductible bonuses
if the Corporation meets certain performance goals. By granting a portion of an
affected individual's bonus under that plan, the committee believes that all
compensation paid to senior management should remain deductible by the
Corporation.
The 19971998 salaries contained in the Summary Compensation Table were established
in October of 1996.1997. Available information at that time regarding compensation
paid by the Corporation's competitorspeers was for the calendar year 1995. For that
year, the1996. The 1997 salary and bonus
of Mr. Morgan, President and Chief Executive Officer, was approximately 37%12%
below the mean for 1996 CEO salaries and bonuses of the Corporation's competitors.peers. Mr. Morgan's
19961997 salary was increased by 10%15% which the Committee felt would fix his 19971998
base salary at approximately 100%102% of the mean for 19951996 base CEO salaries paid by
the Corporation's competitors.peers.
In determining the 1998 year-end bonus for senior management, including Mr.
Morgan, the Committee reviewed an analysis of the total salary and bonus payable
to senior management from 1991 through 1996.1997. The Committee also reviewed
available information regarding corporate performance for the first three
quarters of 1997. At that time, profit from operations was projected to exceed the results
for 1996 by over 40%.1998. The efforts of management and the leadership of Mr. Morgan
resulted in the continued growth in gross premium volume for the first nine
months of 6.7%5.3%. Total expenses other than claims were steady, with employee
efficiency remaining constant. TheIn spite of those efforts, losses due to
catastrophic storms resulted in the combined loss and expense ratio of the
property and casualty insurance 10
13
subsidiaries for the first three quarters had been held to
98.2%, far better
than the industry average,increase to 103.5% and thenet income to fall by approximately 14%. The ratings from
A.M. Best Company for all insurance subsidiaries were renewed at their then
current levels. The market price of the Corporation's stock had climbed 33%declined 34.5%
during the first three quarters. In light of all of these indicators, Mr.
Morgan's cash bonus for 19971998 was not increased by 15% over that givendeclared in 1996.
On April 15, 1997,1997.
During 1998, Mr. Morgan received an optionoptions for 30,000115,000 shares (after adjustment
for the three-for-one stock split which occurred during the year) of the
Corporation's stock. The value of the grant,those grants, employing SEC evaluation
procedures, was approximately 84%175% of the mean value of grants made by the
Corporation's competitors to their chief executive officers during 1996.1997.
Submitted by the Compensation Committee
Michael Brown, Kenneth C. Lichtendahl and William F. Bahl
12
13
FINANCIAL PERFORMANCE
The graph below summarizes the cumulative total shareholder return on the
Corporation's common stock compared to the Standard & Poor's 500 Index, the
Standard & Poor's Multiline Insurance Index and the
Standard & Poor's Property-Casualty Index.
Total Return Analysis
CFC vs. Market Indices
December 31 Totals
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
CFC Index 100 89 88 119 128 280
S&P Index 100 110 111 153 187 249
S&P ML Index 100 112 118 172 208 326
S&P P&C Index 100 98 103 139 169 241
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
CFC Index 100 98 134 143 313 249
S&P Index 100 101 139 170 227 291
S&P P&C Index 100 105 141 172 245 223
OTHER TRANSACTIONS
John E. Field is a director of the Corporation, The Cincinnati Insurance
Company, The Cincinnati Indemnity Company and a principal owner and Vice
Chairman of Wallace & Turner, Inc., an insurance agency which represents a
number of insurance companies, including the Corporation's insurance affiliates.
During the year ending December 31, 1997,1998, the Corporation's insurance affiliates
paid Wallace & Turner, Inc., commissions of $925,138.$934,792.
Robert C. Schiff is a director of the Corporation, The Cincinnati Insurance
Company, The Cincinnati Life Insurance Company, The Cincinnati Indemnity Company
and The Cincinnati Casualty Company. Mr. Schiff is Chairman, Chief Executive
Officer and principal owner of Schiff, Kreidler-Shell, Inc., an insurance agency
which represents a number of insurance companies, including the Corporation's
insurance affiliates. During the year ending December 31, 1997,1998, the
Corporation's insurance affiliates paid Schiff, Kreidler-Shell, Inc.,
commissions of $2,477,040.
11
14$2,746,682.
John J. Schiff, Jr. is Chairman of the Board and a director of the Corporation,
The Cincinnati Insurance Company, The Cincinnati Casualty Company and The
Cincinnati Indemnity Company; Chief Operating Officer of the Corporation; and a
director of The Cincinnati Life Insurance Company and CFC Investment Company.
Thomas R. Schiff is a director of the Corporation, The Cincinnati Insurance
Company, The Cincinnati Casualty Company, The Cincinnati Indemnity Company and
The Cincinnati Life Insurance Company. John J. Schiff, Jr. and Thomas R. Schiff
were principal owners and Thomas R. Schiff was Chairman of the Board and a
director of John J. & Thomas R. Schiff & Co., Inc., an insurance agency which
represents a number of insurance companies, including the Corporation's
insurance affiliates. During the year ended December 31, 1997,1998, the Corporation's
insurance affiliates paid John J. & Thomas R. Schiff & Co., Inc., commissions of
$2,851,987.$2,499,800.
Larry R. Webb is a director of the Corporation, The Cincinnati Insurance Company
and The Cincinnati Indemnity Company; and President and a principal owner of
Webb Insurance Agency, Inc., an insurance agency which represents a number of
insurance companies including the Corporation's insurance affiliates. During the
year ended December 31, 1997,1998, the Corporation's insurance affiliates paid Webb
Insurance Agency, Inc., commissions of $700,015.$888,041.
13
14
Alan R. Weiler is a director of the Corporation, The Cincinnati Insurance
Company and The Cincinnati Indemnity Company; and President and a principal
owner of Archer-Meek-Weiler Agency, Inc., an insurance agency which represents a
number of insurance companies, including the Corporation's insurance affiliates.
During the year ended December 31, 1997,1998, the Corporation's insurance affiliates
paid Archer-Meek-Weiler Agency, Inc., commissions of $1,506,428.$1,925,392.
Frank J. Schultheis is a director of the Corporation, The Cincinnati Insurance
Company and The Cincinnati Indemnity Company,Company; and a principal owner and
President of Schultheis Insurance Agency, Inc.; and a principal owner and
Secretary of Hoosierland Insurance Agency, Inc. and Salem Insurance Agency,
Inc., all of which are insurance agencies which represent a number of insurance
companies including the Corporation's insurance affiliates. During the year
ended December 31, 1997,1998, the Corporation's insurance affiliates paid those
agencies $2,388,424, $227,256$2,228,448, $2,240,211 and $644,094,$651,085, respectively.
In addition, on January 25, 1995, Salem Insurance Agency, Inc. purchased the
assets of an insurance agency owned by CFC Investment Company, one of the
Corporation's affiliated companies, for consideration totalling $2,290,730. On
December 20, 1995, a partnership in which Mr. Schultheis is a 25 percent25% partner,
purchased the real estate occupied by the agency for the amount of $300,000. The
selling price for the agency assets was determined by management of the
Corporation, based upon an appraisal of the asset by a professional appraiser.
The price for the real estate was determined through an appraisal obtained from
an independent source. As part of the payment of the purchase price for the
assets of the insurance agency, Salem Insurance Agency, Inc. executed two
promissory notes totalling $1,850,000 and which bear interest at the prime rate
of interest. By December 31, 1997,1998, the principal balance of those notes had been
reduced to $1,333,254.$829,520.
The foregoing agencies are paid at the same commission rates and have the same
agent's contract with the Corporation's insurance affiliates as other agents of
those companies in similar geographic areas. Each of the aforementioned agencies
has employees and solicitors who are not directors or executive officers of the
Corporation's insurance affiliates.
PROPOSAL TO INCREASE AUTHORIZED SHARES OF COMMONAPPROVE THE CINCINNATI FINANCIAL CORPORATION
STOCK At a meeting held on November 21, 1997, the Board of Directors of the
Corporation voted to recommend to the shareholders that the number of authorized
shares of common stock of the Corporation be increased by amending Article
FOURTH of the Articles of Incorporation to read as follows (the "Amendment"):
"FOURTH: The total number of shares of stock which the Corporation shall have
authority to issue is Two Hundred Million (200,000,000) and the par value of
each share shall be Two ($2.00) Dollars."
The proposed Amendment will increase the authorized number of shares of stock of
the Corporation with the par value of $2.00 from 80,000,000 to 200,000,000. If
the proposed Amendment is adopted, it is anticipated that it will be filed with
the Secretary of State of Ohio and become effective shortly after the Annual
Meeting of Shareholders.
At a meeting held on February 7, 1998, the Board of Directors announced its
intention to declare, subject to approval by shareholders of the Amendment, a
3-for-1 stock split, to be accomplished through a share dividend equal to 2
shares of common stock for each share of common stock outstanding, to common
shareholders of record at the close of business on April 24, 1998
12
15
(the "stock split record date"). Shareholder approval of the increase in the
number of authorized shares of common stock is required before the proposed
3-for-1 stock split will be declared, and if the Amendment is not approved by
the Corporation's shareholders, the stock split cannot be effected. If the
proposed Amendment is adopted, the proposed stock split would provide that each
holder of shares of record as of the close of business on the stock split record
date will receive two shares of common stock for each share owned.
Shares issued pursuant to the stock split will have the same rights as the
shares of common stock currently outstanding. Upon the declaration of the stock
split, appropriate adjustments will be made to stock options and stock
conversion rights under the Corporation's subordinated convertible debentures.
Shareholders' equity would be adjusted by transferring $2.00 for each share
issued as a dividend from retained earnings to common stock outstanding.
Based on figures as of February 1, there were 23,448,978 shares of common stock
that were authorized but unissued. If the Amendment is approved by shareholders,
113,102,044 of the 120,000,000 additional shares would be required to effectuate
the 3-for-1 split of the common shares outstanding, leaving 30,346,934 shares
authorized but unissued. 7,957,731 of these shares would be reserved for
issuance pursuant to conversion rights under the Corporation's subordinated
convertible debentures and for issuance upon exercise of the Corporation's
outstanding stock options.
The Board of Directors believes that the proposed 3-for-1 split in the issued
common stock would result in a market price that should be more attractive to a
broader spectrum of investors, particularly individual investors. The Board of
Directors also believes that it is desirable and in the best interests of the
Corporation and its shareholders that there be a substantial number of
authorized but unissued shares of common stock. Authorized but unissued stock is
available for issuance from time to time for such purposes and consideration as
the Board of Directors may determine, without necessarily requiring further
action by the shareholders. Such common stock may also be used for various
corporate purposes, including stock splits and dividends, acquisitions, public
offerings and stock options and other employee benefit plans. Other than the
shares that would be required to effectuate the stock split and for exercise of
options and conversion of debentures, the Corporation's management has no
present plans to issue any of the additional shares of common stock and there
are no pending negotiations, discussions, agreements or understandings which
would involve the issuance of the additional shares proposed to be authorized by
the Amendment. There are no pre-emptive rights with regard to the Corporation's
common shares.
The shares of common stock to be issued in connection with the split will be
traded in the over-the-counter market. It is anticipated that the certificates
for the new shares of common stock will be mailed to shareholders on or about
May 15, 1998. EACH CERTIFICATE OUTSTANDING IMMEDIATELY PRIOR TO THE SPLIT WILL
CONTINUE TO REPRESENT THE NUMBER OF SHARES SHOWN ON THE CERTIFICATE AND SHOULD
BE RETAINED BY THE SHAREHOLDER.
The Corporation has been advised by its tax counsel that, under U.S. Federal
Income Tax Laws, the receipt of additional shares of common stock as a result of
the stock split will not constitute taxable income to the shareholders. In
addition, the cost or other tax basis to a shareholder of each old share held
immediately prior to the split will be divided equally among the three shares
held immediately after the split, and the holding period for each of the three
shares will include the period for which the corresponding old share was held.
Charges for brokerage commissions and any stock transfer taxes after the 3-for-1
split will probably be higher than in the case of the present common stock,
assuming transactions of equivalent dollar amounts.
Adoption of the proposal to amend Article FOURTH of the Articles of
Incorporation requires the affirmative vote of two-thirds (2/3) of the shares of
the Corporation entitled to vote.OPTION PLAN NO. VI
The Board of Directors of the Corporation recommends adoptionhas adopted Cincinnati Financial
Corporation Stock Option Plan No. VI (the "Plan"), as an employee incentive to
attract and retain quality employees and to encourage a sense of proprietorship
in such persons. The Board now asks that you approve that Plan also. The Plan
provides for the issuance of nontransferable options to purchase a total of
5,000,000 shares of the proposed Amendment.Corporation's $2.00 par value common stock to those
employees of the Corporation and its subsidiaries selected by the Compensation
Committee of the Board of Directors (the "Committee"). Each option shall have an
option price equal to the fair market value of the stock on the date of issuance
of the option. All employees (including directors who are employees) of the
Corporation and its subsidiaries (approximately 2,800 persons) would be eligible
to receive options.
If the shareholders approve the Plan, options under the Plan may be either
incentive options or nonqualified options. An incentive option is one which
meets the provisions of Section 422 of the Internal Revenue Code of 1986, as
amended. Any option granted which does not meet such provisions shall be deemed
a nonqualified option. The only limits on the number of shares for which options
may be granted to any single employee under the Plan are that incentive options
first exercisable by an employee in any one year under the Plan (and all other
plans of the Corporation) may not exceed $100,000 in value (determined at the
time of grant), and that no employee shall receive options on more than 300,000
shares over any three-year period. If the shareholders do not approve the Plan,
all options granted under the Plan will be nonqualified options.
Except in cases of retirement or death of the option holder, the options may be
exercised by the option holder only while in the employ of the Corporation or
its subsidiaries and would become exercisable, in equal portions, on the first,
second and third anniversaries of the date of grant. Early exercise of the
options would be allowable, at the discretion of the Committee, in cases of
regular retirement or retirement because of disability, and automatically in the
case of death of the option holder (by the fiduciary of the deceased option
holder's estate).
No options may be granted after August 20, 2008. All options granted shall
expire no later than ten years from the date granted. Payment for exercised
options shall be in cash, or in the case of nonqualified options only, may be
through the transfer by the employee to the Corporation of free and clear shares
of the common stock of the Corporation which shall be valued at the current
market value of such shares on the date of such transfer, or by a combination of
cash and such shares.
14
15
No taxable income for federal income tax purposes results from the exercise of
an incentive stock option at the time of exercise. Any gain realized on the sale
of incentive option stock is considered as long-term capital gain for federal
income tax purposes if the stock has been held at least one year after it was
acquired on exercise of the option and at least two years after the grant of the
option. The Corporation is not entitled to any deduction with respect to the
grant or exercise of any incentive option.
Gain taxable as ordinary income to the optionee is generally deemed to be
realized at the date of exercise of a nonqualified stock option, the gain on
each share being the difference between the market price on the date of exercise
and the option price. The amount is generally treated as a tax-deductible
expense to the Corporation at the time of exercise.
The Board of Directors may amend the Plan to meet changes in law or for any
other purpose which may be permitted by law, except that the total number of
shares to be issued pursuant to the Plan may be changed only to reflect
adjustments for stock splits, stock dividends or other relevant changes in
capitalization.
On February 22, 1999, the last sale price of the Corporation's common stock as
reported by Nasdaq was $35.875 per share.
In order to approve the Plan, a copy of which is attached as Exhibit A, a
majority of the shares present or represented by proxy at the meeting and
entitled to vote must be voted "FOR" the proposal.
INDEPENDENT PUBLIC ACCOUNTANTS
As has been the Corporation's practice, independent auditors for the current
year will not be selected by the Board of Directors prior to the Annual Meeting
of Shareholders.
Representatives from Deloitte & Touche LLP, which served as the Corporation's
independent auditors for the last calendar year, will be present at the meeting
and will be afforded the opportunity to make any statements they wish and to
answer appropriate questions.
13
16
SOLICITATION OF PROXIES
The cost of soliciting proxies will be borne by the Corporation. The Corporation
has requested banks, brokerage houses, other custodians, nominees and
fiduciaries to forward copies of the proxy material to beneficial owners of
shares or to request authority for the execution of proxies; and the Corporation
has agreed to reimburse the reasonable out-of-pocket expenses incurred in
connection therewith. In addition to solicitations by mail, regular employees of
the Corporation may, without extra remuneration, solicit proxies personally or
by telephone.
SHAREHOLDER PROPOSALS
The Corporation has not received any shareholder proposals to be presented at
the 19981999 Annual Meeting of Shareholders. Any shareholder who wishes a proposal
to be considered for presentation at the 19992000 Annual Meeting of Shareholders
must submit the proposal to Cincinnati Financial Corporation, P.O. Box 145496,
Cincinnati, Ohio, 45250-5496, on or before November 1, 1998.1999.
OTHER BUSINESS
The managementManagement does not know of any other matter or business which may be brought
before the meeting; but if any other matter or business comes before the
meeting, it is intended that a vote will be cast pursuant to the accompanying
proxy in accordance with the judgment of the person or persons voting the same.
/s/ THEODORETheodore F. ELCHYNSKIElchynski
Theodore F. Elchynski
Secretary
March 2,1, 1999
15
16
EXHIBIT A
CINCINNATI FINANCIAL CORPORATION
STOCK OPTION PLAN NO. VI
1. PURPOSE. Stock Option Plan No. VI (the "Plan") and the options
authorized hereunder are intended as an employment incentive, to retain in the
employ of Cincinnati Financial Corporation (hereinafter sometimes referred to as
"CFC") and its subsidiaries (as defined in subsection 425(f) of the Internal
Revenue Code of 1986, as amended), persons of training, experience, and ability,
to attract new employees whose services are considered unusually valuable, to
encourage a sense of proprietorship of such persons, and to stimulate the active
interest of such persons in the development and financial success of CFC and its
subsidiaries.
2. SHARES SUBJECT TO THE PLAN. The aggregate number of shares of the
common stock of CFC which may be issued under all options to be granted pursuant
to this Plan shall not exceed 5,000,000 shares of common stock with the par
value of $2.00 per share. Conditioned on approval by the shareholders of CFC,
the options granted under this Plan may be Incentive Stock Options (as defined
in Section 422A of the Internal Revenue Code of 1986, as amended) or
non-qualified options (any option which is not an Incentive Stock Option).
3. ADMINISTRATION OF PLAN. A Committee (or Subcommittee) of at least
two disinterested, outside (as hereinafter defined) members of the Board of
Directors of CFC, appointed by and serving at the pleasure of the Board of
Directors (hereinafter called the "Committee") shall supervise the
administration of the Plan. Any questions of interpretation of the Plan or of
any options issued under it shall be determined by the Committee and such
determinations shall be final and binding upon all persons. The Committee shall
have the authority to grant Incentive Stock Options or nonqualified options to
those employees it deems appropriate. Those options shall contain such terms as
the Committee determines, subject to the limitations and requirements provided
herein. For purposes of determining who may serve as a member of the Committee,
"disinterested" shall mean a person who is not authorized to receive and who has
not, during the one year prior to service on the Committee, been granted an
option under the Plan or under any other stock option plan of CFC, and "outside"
shall mean a director who is not a current or former employee or officer of the
Company and who does not receive any "remuneration" as that term is defined in
the regulations under Internal Revenue Code Section 162(m), in any capacity,
other than as a director.
4. ELIGIBILITY FOR OPTIONS. All full-time employees of CFC and its
subsidiaries shall be eligible to receive options and the fact that an employee
may be a director of CFC or of a subsidiary of CFC shall not disqualify an
employee from participating in this Plan. No employee shall receive options on
more than 300,000 shares over any three-year period.
5. AMENDMENTS TO PLAN. For the purpose of meeting any changes in
pertinent law or governmental regulations, or for any other purpose which at the
time may be permitted by law, the Board of Directors, from time-to-time, may
amend or revise the terms of this Plan and the Committee may amend or revise the
terms of any outstanding option, retroactive to the date of granting of the
Option, except that the number of shares to be issued shall not increase, other
than to make appropriate adjustments in the number of shares that may be issued
pursuant to the Plan, and appropriate adjustments in the number and price of
shares covered by outstanding options hereunder, to give effect to any stock
splits, or stock dividends, or other relevant changes in capitalization.
6. TERMS OF OPTIONS. The option price per share for options granted
hereunder shall be not less than 100% of the fair market value of the shares on
the date said option was granted. The aggregate fair market value (at date of
grant of the option) of the stock with respect to which Incentive Stock Options
are first exercisable by any employee in any calendar year under this Plan and
any other plans of CFC and its subsidiaries shall not exceed $100,000. All
options granted hereunder shall expire not more than ten years from the date
granted.
Except in cases of retirement or death of the option holder, options may not be
exercisable earlier than as provided in the following schedule:
(1) After the expiration of one year of continuous employment
immediately following the date of grant, the Option shall be exercisable to the
extent of one-third of the number of shares originally subject to the Option;
17
EXHIBIT A
(continued)
(2) After the expiration of two years of continuous employment
immediately following the date of the grant, the Option shall be exercisable to
the extent of two-thirds of the number of shares originally subject to the
Option, less the number of shares previously purchased pursuant to such Option;
and
(3) After the expiration of three years of continuous employment
following the date of grant, the Option shall be exercisable in full.
7. EXERCISE OF OPTIONS. In order for all or any portion of an option to
be exercised, CFC must receive at its principal place of business written notice
of such exercise properly executed by the employee, setting forth the number of
shares in respect of which the option is being exercised. Said notice shall be
accompanied by payment of the full option price of such shares, which payment
shall be in cash, or in the case of non-qualified options only, may be through
the transfer by the employee to CFC of free and clear shares of the common stock
of CFC which shall be valued at the current market value of such shares on the
date of such transfer, or by a combination of cash and such shares. The
effective date of the exercise of the option ("effective date of exercise")
shall be the day the written notice of exercise is received by CFC for
non-qualified options and 30 days after the date of receipt for Incentive Stock
Options.
Upon termination of employment of the employee prior to the effective
date of exercise of an outstanding option, the unexercised portion of the option
shall terminate unless such termination of employment is due to (i) retirement
with the approval of CFC for disability or (ii) retirement due to attainment of
retirement age (in either of which events the Committee shall have discretion to
permit any unmatured installments of the options to be accelerated and the
options shall thereupon be exercisable in full. The time within which the
Company must receive the notice of exercise and payment shall be 90 days from
the date of termination of employment unless the Committee, in its discretion,
elects to grant a written extension of the time for receipt of notice and
payment) or (iii) death of the employee (in which event the unmatured
installments of the options shall be accelerated and the time within which the
Company must receive the notice of exercise and payment shall be six months from
the date of death). In any event, the effective date of the exercise of the
option must be prior to the expiration thereof.
In all other cases of termination of employment, when the employee
ceases to be employed by CFC or a subsidiary of CFC, the option shall not be
exercisable after the date upon which employment was terminated.
Subject to the foregoing, each installment of an option shall be
exercisable for the full amount or for any part thereof, including partial
exercise from time to time. Options shall be exercisable only by the employee to
whom granted, and shall not be assignable, except as provided in case of death.
All shares purchased upon exercise of options shall be fully paid for
at the time of purchase.
8. SHARES ISSUED UPON EXERCISE OF OPTIONS. Either treasury shares or
authorized but unissued shares may be issued upon exercise of options. CFC may
(as permitted by law) acquire by purchase the shares which it will need to
satisfy options, either at the time the options are exercised, or from time to
time in advance, whenever the Board of Directors may deem such purchase
advisable.
9. IMPLIED AGREEMENT OF OPTIONEE. Every optionee shall be bound by the
terms and restrictions of this Plan and the acceptance of an option shall
constitute an agreement between the option holder hereunder and CFC and any
successors in interest thereto. The grant of an option under the Plan shall not
limit or otherwise qualify the right of the employer of the option holder to
terminate the employment of the option holder at any time.
10. SECURITIES LAWS. The Board of Directors and the Committee shall
take all necessary and appropriate action to ensure that all options granted and
all shares of stock issued pursuant to exercise of those options are granted and
issued in compliance with all federal and state securities laws.
11. EFFECTIVE DATE AND TERM OF PLAN. This Plan shall be effective as of
August 21, 1998, and no options may be granted under the plan subsequent to
August 20, 2008.
1718
Account #
Number of SharesShares*
PROXY
CINCINNATI FINANCIAL CORPORATION
P.O. BOX 145496, CINCINNATI, OHIO 45250-5496
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORSDIRECTORS.
The undersigned hereby appoints John J. Schiff, Jr., Theodore F. Elchynski, and
James G. Miller, or any one of them, with power of substitution, as Proxies,
and hereby authorizes them to represent and to vote, as designeddesignated below, all
the shares of Cincinnati Financial Corporation held of record on February 9, 1998,8,
1999, at the Annual Meeting of Shareholders to be held on April 4, 1998,3, 1999, or any
adjournment thereof.
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as specified to vote for all
specified to the nominees listed
contrary below) nominees listed below
Michael Brown, John E. Field, WilliamJames G. Miller, Thomas R. Johnson, Robert C. Schiff, Frank J. Schultheis and AlanLarry R. Weiler (for terms of three years) and John J. Schiff (for a term of two year).Webb.
Instructions: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.
- ----------------------------------------------------------------------------------------------------------------------------------------------------
2. Regarding the Proposal to amendapprove the Articles of Incorporation to increase
the Corporation's authorized shares.Cincinnati Financial Corporation Stock
Option Plan No. VI.
[ ] FOR the proposal [ ] AGAINST the proposal [ ] ABSTAIN
3. In their discretion, the Proxies are authorized to vote upon such other
business as may come before the meeting.
This proxy when properly executed will be voted in the manner directed herein
by the undersigned shareholder. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR THE PROPOSAL TO INCREASEAPPROVE THE CORPORATION'S AUTHORIZED SHARES,STOCK OPTION PLAN NO. VI
AND FOR ALL NOMINEES LISTED.
Please sign exactly as your name appears. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee, or guardian, please give your full title as such. If a corporation,
please sign in full corporate name by President or other authorized officer. If
a partnership, please sign in partnership name by authorized person.
Please, mark, sign, date, and return the proxy promptly using the enclosed
envelope.
1998, 1999
- ----------------------- --------------- ---------------------------------------- -------------------------- ------------------
Signature Signature if held jointly DATED
* Number of shares includes those held in your name directly and those in your
dividend reinvestment account, if applicable.