1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant. (x)
Filed by a Party other than the Registrant.( )
Check the appropriate box:
( ) Preliminary Proxy Statement
(x ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
( ) Confidential, for use of the Commission only [as permitted by
Rule 14a-6(e)(2)]
Cincinnati Financial Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
[Name of Person(s) Filing Proxy Statement if other than Registrant]
Payment of Filing Fee (Check the appropriate box):
(x ) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2)
or Item 22(a)(2) of Schedule 14A.
( ) $500 per each party to the controversy pursuant to Exchange Act
Rule 14-a-6(i)(3).
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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( ) 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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2
March 2, 1996
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Cincinnati Financial Corporation:
You are hereby notified that the Annual Meeting of Shareholders of Cincinnati
Financial Corporation will be held at 9:30 a.m. on Saturday, April 6, 1996, at
the Cincinnati Art Museum, located in Eden Park, Cincinnati, Ohio, for the
purpose of:
1. Electing six directors for terms of three years;
2. Considering a Proposal to adopt the Cincinnati Financial Corporation Stock
Option Plan No. V;
3. Considering a Proposal to approve the Cincinnati Financial Corporation
Incentive Compensation Plan; and
4. 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, 1996, will be
entitled to vote at the meeting and at any adjournment thereof.
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/Vincent H. Beckman
VINCENT H. BECKMAN
SECRETARY
3
CINCINNATI FINANCIAL CORPORATION
P.O. Box 145496, Cincinnati, Ohio 45250-5496
PROXY STATEMENT
---------------
Annual Meeting of Shareholders
to be held April 6, 1996
March 2, 1996
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 6, 1996, at the
Cincinnati Art Museum, located in Eden Park, Cincinnati, Ohio. The proxy and
this statement are being distributed to shareholders on March 2, 1996. 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.
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.
The Annual Report for the fiscal year ended December 31, 1995, is enclosed.
OUTSTANDING SECURITIES
Only the holders of common stock of the Corporation of record at the close of
business on February 9, 1996, are entitled to vote at the meeting. Each share
of common stock entitles the holder thereof to one vote. As of February 1,
1996, there were 53,075,642 shares outstanding. A majority of such holders
present in person or by proxy is necessary for a quorum. As stated in the
notice of meeting, an election will be held to fill the six vacancies which
occur on the Board of Directors of the Corporation and two proposals approving
compensation plans will be considered. A simple majority of votes cast is
required to elect directors and approve the other items being voted on at this
time. An abstention or broker non-vote will not be the equivalent of a negative
vote, although 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.
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
February 1, 1996.
Name and Address Of Shares Bene- Percent of
Beneficial Owner ficially Owned Common Stock
--------------------------------- -------------- ------------
The Capital Group Companies, Inc.
333 South Hope Street
Los Angeles, California 90071 3,540,852 6.67
Robert C. Schiff
Central Trust Building
Cincinnati, Ohio 45202 2,974,801 5.59
The Capital Group Companies, Inc. is the parent company of six investment
management companies. Certain of these companies exercised investment
discretion over various institutional accounts which, as of December 29, 1995,
held 3,540,852 shares of the Corporation. None of these investment accounts
individually held 5% of the Corporation's shares. The Capital Group Companies,
Inc. has stated in filings with the SEC that these shares are held for
investment purposes in the ordinary course of business and not with the purpose
or effect of changing or influencing control.
(1)
4
NOMINEES FOR ELECTION OF DIRECTORS
The Board of Directors of the Corporation is divided into three classes and
consists of 17 persons. Each year, the directors in one class are elected to
serve terms of three years. The term of office for six of the directors expires
as of the time of the Annual Meeting. In order to fill the resulting vacancies,
it is intended that votes will be cast to elect as directors the following
nominees: Richard M. Burridge, James G. Miller, Robert B. Morgan, Thomas R.
Schiff, Frank J. Schultheis and Larry R. Webb (to serve for terms of three
years or until their respective successors shall be elected). Each of these
nominees, except for James G. Miller, 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 1999
- ------------------------------------------
Office, Principal Shares Percent
Occupation During Past Beneficially Of
Five Years & Other Owned As Of Common Director
Name and Age Directorships February 1, 1996 Stock Since
- ------------------------ --------------------------------------- ------------------------ ------- --------
Richard M. Burridge (66) Pres., 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 8,870 0.02 1987
James G. Miller (58) Senior Vice President, Cincinnati
Financial Corp.; Senior Vice President--
Investments, Cincinnati Ins.
Co., a subsidiary of the Corporation 141,525 0.27 --
Robert B. Morgan (61) Pres. & Chief Exec. Officer,
Cincinnati Financial Corp.; Pres. &
Chief Exec. Officer, Cincinnati Ins.
Co., a subsidiary of the Corporation;
Director, Fifth Third Bancorp (1) 479,144(10) 0.90 1978
Thomas R. Schiff (48) Pres., John J. & Thomas R. Schiff &
Co., Inc. (ins. agency) 1,458,111(2)(3)(4)(5)(10) 2.74 1975
Frank J. Schultheis (56) President, Schultheis Ins. Agency, Inc. 2,092(10) 0.00 1995
Larry R. Webb (40) President, Director & Agent, Webb
Ins. Agency, Inc. 32,412 0.06 1979
Continuing Directors Whose Terms Expire in 1998
- -----------------------------------------------
Vincent H. Beckman (80) Sec'y, Cincinnati Financial Corp.;
Retired, Partner, Beckman, Weil,
Shepardson & Faller, Attorneys until
1996 (1) 186,444(10) 0.35 1968
Michael Brown (60) President & Gen'l Mgr., Cincinnati
Bengals, Inc. (professional football
team) 49,636 0.09 1980
John E. Field (62) President, Wallace & Turner, Inc.,
Director, Western Ohio Financial
Corp. 48,257(11)(12) 0.09 1995
(2)
5
Continuing Directors Whose Terms Expire in 1998 (Continued)
- -----------------------------------------------------------
John J. Schiff (79) Chmn. of the Exec. Committee,
Cincinnati Financial Corp.; Chmn. of
the Exec. Committee, Cincinnati Ins.
Co., a subsidiary of the Corporation;
Chief Exec. Officer, Cincinnati
Financial Corp. (until 1991) (1) 1,670,766(10) 3.14 1968
Robert C. Schiff (72) Chmn. & Chief Exec. Officer, Schiff,
Kreidler-Shell, Inc. (ins. agency) 2,974,801(6)(7)(8) 5.59 1968
Alan R. Weiler (62) Pres., Chief Exec. Officer, Archer-
Meek-Weiler Agency, Inc. (ins. agency);
Director, Glimcher Realty Trust 7,569 0.01 1992
Continuing Directors Whose Terms Expire in 1997
- -----------------------------------------------
William F. Bahl (44) Chairman of the Board, Bahl & Gaynor, Inc. 73,707(13)(14) 0.14 1995
Robert J. Driehaus(67) Financial Vice Pres. & Treas.,
Cincinnati Financial Corp.; Sr. Vice
Pres. & Sec'y of Cincinnati Ins. Co., a
subsidiary of the Corporation 329,294(9)(10) 0.62 1982
Kenneth C. Lichtendahl(47) Pres., Chief Exec. Officer & Director,
Hudepohl-Schoenling Brewing Co., Inc. 3,150 0.01 1988
Jackson H. Randolph (65) Chairman & Chief Exec. Officer
CINergy Corp.; Director, The Union
Light, Heat & Power Co. and PNC
Financial Corp. 10,500 0.02 1986
John J. Schiff, Jr. (52) Chmn. of the Board, Cincinnati
Financial Corp.; Chairman of the Board,
Cincinnati Insurance Co., and agent of
John J. & Thomas R. Schiff & Co., Inc.
(ins. agency); Director, Fifth Third Bancorp,
Standard Register Co., CINergy Corp. (1) 1,888,283(2)(3)(4)(5)(10) 3.55 1968
All Nominees, Directors and Executive Officers As A Group
(18 Persons), Including Shares Listed Above 8,891,745 16.71
- --------------------
(1) Also a member of the Executive Committee of the Corporation.
(2) Includes 373,982 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 128,445 shares owned of record by a trust, the beneficiaries
of which include John J. Schiff, Jr. and Thomas R. Schiff.
(4) Includes 33,241 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 31,698 shares owned by John J. & Thomas R. Schiff & Co.,
Inc., of which John J. Schiff, Jr. and Thomas R. Schiff are principal
owners.
(6) Includes 32,826 shares owned of record by the Schiff, Kreidler-Shell,
Inc. pension plan, of which Robert C. Schiff is a trustee.
(7) Includes 72,484 shares owned of record by Schiff, Kreidler-Shell,
Inc., which is owned by Robert C. Schiff.
(8) Includes 239,417 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) Includes 8,677 shares owned of record by a trust, the trustees of
which are Robert J. Driehaus and Rita E. Driehaus who share voting and
investment power.
(10) Includes shares available within 60 days from exercise of stock
options or conversion of debentures in the amount of 2,739 shares for
Mr. Beckman; 10,662 shares for Mr. Driehaus; 6,772 shares for Mr.
Miller; 160,961 shares for Mr. Morgan; 77,316 shares for Mr. J. Schiff;
108,483 shares for Mr. J. Schiff, Jr.; 13,870 shares for Mr. T. Schiff;
426 shares for Mr. Schultheis; and 5,143 shares for other executive
officers.
(3)
6
(11) Includes 1,260 shares owned of record by Wallace & Turner, Inc., of which
John E. Field is President.
(12) Includes 33,385 shares owned of record by a trust, the trustee of which is
John E. Field, and 12,463 shares owned of record by a trust, the trustee
of which is Alice A. Field, wife of John E. Field.
(13) Includes 32,119 shares owned of record by a trust, the trustee of which is
William F. Bahl, but of which Mr. Bahl disclaims beneficial ownership of
6,746 shares.
(14) Includes 300 shares owned of record by Bahl & Gaynor, Inc. of which
William F. Bahl is a principal owner.
Theodore F. Elchynski, age 59, 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 officers are elected at the annual meeting of the Board of Directors
for terms of one year.
Each of the executive officers, and each of the nominees other than James G.
Miller, 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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Corporation met five times and the Executive
Committee of the Board met five 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 two 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 David R. Huhn, 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, reviewing with independent auditors the plan and results
of the audit engagement, reviewing the scope and results of the Corporation's
internal auditing procedures and reviewing the adequacy of the Corporation's
system of internal accounting controls.
The Compensation Committee is composed of Michael Brown, David R. Huhn and
William F. Bahl and the members of that committee met three times during the
last fiscal year. The function of the committee is to recommend remuneration
arrangements to the Board for the members of senior management and the internal
auditor of the Corporation and to administer the Corporation's stock option
plans.
All directors attended at least 75% of the Board and committee meetings they
were required to attend. During 1995, there were no late filings of a Form 3 or
Form 4 by a director, executive officer or principal shareholder.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Nonemployee directors of the Corporation were paid a fee of $4,500 per meeting
for attendance at directors meetings and $1,500 per meeting for attendance at
committee meetings of the Board, fees for all meetings in any one day not to
exceed $6,000. They were also reimbursed for actual travel expenses incurred in
attending meetings.
EXECUTIVE COMPENSATION SUMMARY
The following table summarizes the compensation of the Corporation's Chief
Executive Officer, the four most highly compensated executive officers, and the
former Vice Chairman of the Board of Directors for each of the Corporation's
last three years.
(4)
7
Summary Compensation Table (1)
Annual Long-Term
Compensation Compensation
----------------------- -----------------------
Name and Options Long-Term
Principal Year Salary Bonus (# Awarded Incentive
Position ($) ($) Shares) Payout ($)
Robert B. Morgan 1995 576,056 399,105 20,000
President & Chief 1994 549,266 346,984 20,000
Executive Officer 1993 524,633 347,030 20,000
John J. Schiff, Jr. 1995 338,954 172,817 20,000
Chairman, 1994 324,425 157,887 20,000
Board of Directors 1993 309,391 157,871 20,000
William H. Zimmer(2) 1995 182,458 42,856 511,723
Vice Chairman, 1994 305,031 168,484
Board of Directors 1993 289,267 168,530
John J. Schiff 1995 276,048 87,255
Chairman, Executive Committee 1994 266,248 87,108
Board of Directors 1993 253,698 87,155
Robert J. Driehaus 1995 284,744 77,630
Financial Vice President 1994 272,538 70,484
1993 259,017 70,530 2,000
James G. Miller 1995 133,357 143,630 1,575
Senior Vice President 3,500
1994 126,765 130,484 -0-
1993 112,457 121,530 2,100
(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) William H. Zimmer retired in June of 1995 and the information for that
year reflects the result of his retirement. A split dollar life insurance
policy was distributed to him as a bonus. Mr. Zimmer took a lump sum
distribution of his interest under the Corporation's Qualified Pension Plan
($303,478) and its Supplemental Retirement Plan ($208,245).
(5)
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 1995.
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)
Granted Employees Price Expiration ----------------------
Name (# Shares) (1) in 1995 $/Sh. (2) Date 5% ($) 10% ($)
- ----------------------------------------------------------------------------------------------
Robert B. Morgan 20,000 13.71% 64.50 12/12/05 811,410 2,056,260
John J. Schiff, Jr. 20,000 13.71% 64.50 12/12/05 811,410 2,056,260
William H. Zimmer -0- 0% -- -- -- --
John J. Schiff -0- 0% -- -- -- --
Robert J. Driehaus -0- 0% -- -- -- --
James G. Miller 1,575 1.08% 49.76 02/04/05 49,296 124,925
3,500 2.40% 64.50 12/12/05 141,997 359,846
(1) Options were granted February 4, 1995 and December 12, 1995. One third
of each option becomes exercisable on the first anniversary of grant in
1996, an additional one third on the second anniversary in 1997, and the
remainder on the third anniversary in 1998, so long as employment with the
Corporation or its subsidiaries continues. There are no stock appreciation
rights, performance units or other instruments granted in tandem with these
options, nor are there any re-load provisions, tax reimbursement features
or performance-based conditions to exercisability.
(2) The option exercise price is 100% of the NASDAQ National Market's
closing price on the day prior to date of grant.
(3) The assumed annual rates of stock price appreciation are prescribed in
the proxy rules of the SEC and should not be construed as a forecast of
future appreciation in the market price for the Corporation's common
stock.
The following table contains information for each of the named executive
officers concerning the exercise of options during 1995 and the value of
unexercised options at year-end for the Corporation's common stock.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
--------------------------------------------------------------------------
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares 12/31/95 12/31/95
Acquired on Value Exercisable (E)/ Exercisable (E)/
Exercise Realized Unexercisable (U) Unexercisable (U)
Name (# Shares) ($) (# Shares) ($)
- --------------------------------------------------------------------------------------------
Robert B. Morgan 6,159 165,246 E 159,275 E 6,062,863
U 40,936 U 337,371
John J. Schiff, Jr. -0- -0- E 64,114 E 1,430,404
U 40,936 U 337,371
William H. Zimmer 15,600 249,125 E -0- E -0-
U -0- U -0-
John J. Schiff 4,053 108,742 E 18,734 E 539,752
U -0- U -0-
Robert J. Driehaus 1,500 40,245 E 4,550 E 97,713
U 700 U 7,340
James G. Miller 1,500 41,370 E 3,763 E 76,968
U 5,775 U 34,361
(6)
9
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, 1995
-------------------------------------
Average
Annual Earnings 15 20 25 30 35 40
--------------- ------- ------- ------- ------- ------- -------
$200,000 $20,250 $29,250 $38,250 $47,250 $56,250 $65,250
$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
All the persons listed in the Summary Compensation Table other than John J.
Schiff and William H. Zimmer (whose accrued retirement benefits have 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 1995 qualifying under the plan and
the years of service as of December 31, 1995 under the plan for those
individuals are as follows: Robert J. Driehaus, $150,000 and 40 years; James G.
Miller, $146,000 and 29 years; Robert B. Morgan, $150,000 and 30 years; and
John J. Schiff, Jr., $150,000 and 9 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.
(7)
10
Supplemental Retirement Plan
----------------------------
Years of Service on December 31, 1995
Average
Annual Earnings 15 25 35 45
$650,000 $98,157 $160,766 $223,716 $295,655
$550,000 $84,280 $129,516 $179,966 $239,415
$450,000 $60,547 $98,266 $136,216 $183,165
$350,000 $41,907 $67,016 $92,465 $126,915
$250,000 $23,157 $35,766 $48,716 $70,665
$150,000 $4,407 $4,516 $4,966 $14,415
$100,000 $1,782 $1,641 $1,841 $8,041
This Plan 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.
All of the persons listed in the Summary Compensation Table, except John J.
Schiff and William H. Zimmer, 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 1995 as defined in the plan and the years of service as of
December 31, 1995, for those individuals are as follows: Robert J. Driehaus,
$310,829 and 42 years; James G. Miller, $146,000 and 29 years; Robert B.
Morgan, $654,909 and 30 years; and John J. Schiff, Jr., $370,003 and 9 years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Corporation's Compensation Committee for 1995 were Michael
Brown, David R. Huhn and William F. Bahl. Lawrence H. Rogers, II, a former
director, served as an advisor to the Committee.
During 1995, 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 and Chief Executive Officer of CINergy Corp.
served on the Corporation's Board of Directors.
John J. Schiff, Jr. was also Chairman of the Board, a director and one of the
principal owners of John J. & Thomas R. Schiff and 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, is the President and one of the principal owners of John J. &
Thomas R. Schiff and Co., Inc. During the year ended December 31, 1995, the
Corporation's insurance affiliates paid John J. & Thomas R. Schiff and Co.,
Inc. commissions of $2,597,138. 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 father is John J. Schiff, Sr.
(8)
11
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 plan, including options 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 as a deductible expense for tax purposes.
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 multiline
insurance companies which constitute the Corporation's most direct competitors
for executive talent. The nine insurance companies for which data has been
readily available comprise part (but not all) of the companies included in the
Standard & Poor's Multiline Insurance Index which is referred to in the
performance graph below. 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. The Committee also seeks input from the
corporation's chief executive officer in setting salaries for senior management
other than the CEO.
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 Committee 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.
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 competitors with the objective of providing the opportunity for
competitive long-term compensation.
The 1995 salaries contained in the Summary Compensation Table were established
in October of 1994. The information available at that time regarding
compensation paid by the Corporation's competitors was for the calendar year
1993. For that year, the salary and bonus of Mr. Morgan, President and Chief
Executive Officer, was approximately 25% below the mean for CEO salaries and
bonuses of the Corporation's competitors. Mr. Morgan's salary was increased by
4% for the year 1995 which the Committee felt would maintain his base salary at
a level equal to approximately 75% of the mean for base CEO salaries paid by
the Corporation's competitors.
In determining the 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 1989 through 1994 which revealed that, while gross
revenues of the Corporation had increased approximately 11% per year and net
income had increased approximately 15% per year, salary and bonus had increased
4.6% per year. The Committee also reviewed available information regarding
corporate performance for the first three quarters of 1995. At that time,
profit from operations was projected to equal that in 1994 even after the
effect of projected losses from Hurricane Opal. While profits were expected to
equal those for 1994, the efforts of management and the leadership of Mr.
Morgan resulted in an increase in gross premium volume for the first nine
months of 8-1/2%. The combined loss and
(9)
12
expense ratio of the property and casualty insurance subsidiaries for the first
three quarters was 99.2, better than 1994 and far better than the industry
average, and 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 increased almost 12% during the first three quarters. In
light of all of these indicators, Mr. Morgan's cash bonus for 1995 was
increased by 15% over that given in 1994.
On December 12, 1995, Mr. Morgan received options for 20,000 shares of the
corporation's stock. The value of the grant, employing SEC evaluation
procedures, was approximately 60% of the mean value of grants made by the
Corporation's competitors to their chief executive officers during 1994.
Submitted By The Compensation Committee
Michael Brown, David R. Huhn and William F. Bahl
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 and the
Standard & Poor's Multiline Insurance Index.
Total Return Analysis
CFC vs. Market Indices
December 31 Totals
1990 1991 1992 1993 1994 1995
----------------------------------
CFC Index 100 131 206 195 193 223
S&P Index 100 126 131 138 136 170
S&P ML Index 100 130 142 152 155 200
OTHER TRANSACTIONS
John E. Field is a director of the Corporation and a principal owner and
President 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, 1995, the Corporation's
insurance affiliates paid Wallace & Turner, Inc., commissions of $828,258.
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 President 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, 1995, the
Corporation's insurance affiliates paid Schiff, Kreidler-Shell, Inc.,
commissions of $2,355,843.
John J. Schiff, Jr. is Chairman of the Board and a director of the Corporation,
The Cincinnati Insurance Company and The Cincinnati Indemnity Company; and a
director of The Cincinnati Casualty Company, The Cincinnati Life Insurance
Company and
(10)
13
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 are Chairman of the Board and President, respectively,
and 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. During the year ended December 31, 1995,
the Corporation's insurance affiliates paid John J. & Thomas R. Schiff & Co.,
Inc., commissions of $2,597,138.
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, 1995, the Corporation's insurance affiliates
paid Webb Insurance Agency, Inc., commissions of $541,711.
Alan R. Weiler is a director of the Corporation; 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, 1995, the Corporation's
insurance affiliates paid Archer-Meek-Weiler Agency, Inc., commissions of
$1,195,839.
Frank J. Schultheis is a director of the Corporation 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, 1995, the Corporation's insurance affiliates paid those
agencies $1,586,419, $291,116 and $633,622, 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 $3,204,730. On
December 20, 1995, a partnership in which Mr. Schultheis is a 25 percent
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 assets 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, 1995, the principal balance of
those Notes had been reduced to $1,626,957.
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.
Vincent H. Beckman is a director and Secretary of the Board of the Corporation
and a director of The Cincinnati Insurance Company, The Cincinnati Indemnity
Company and The Cincinnati Life Insurance Company. During 1995, Mr. Beckman was
a partner in the law firm of Beckman, Weil, Shepardson & Faller which serves as
legal counsel to the Corporation and its affiliates.
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 the 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.
PROPOSAL TO ADOPT CINCINNATI FINANCIAL CORPORATION
STOCK OPTION PLAN NO. V
The Board of Directors of the Corporation has approved the proposal to adopt
Cincinnati Financial Corporation Stock Option Plan No. V (the "Plan"), as an
employee incentive to attract and retain quality employees and to encourage a
sense of proprietorship in such persons. The Plan provides for the issuance to
those employees of the Corporation and its subsidiaries selected by the
Compensation Committee of the Board of Directors (the "Committee") of
nontransferable options to purchase a total of 500,000 shares of the
Corporation's $2.00 par value common stock. 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 2,300 persons) would be
eligible to receive options.
(11)
14
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 non-qualified 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 100,000 shares over any three-year
period.
Except in cases of retirement or death of the optionholder, the options may be
exercised by the optionholder only while in the employ of the Corporation or
its subsidiaries and would become exercisable, in equal portions, on the first,
second, and third yearly 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 optionholder (by the fiduciary of the deceased
optionholder's estate).
No options may be granted after April 30, 2005. All options granted shall
expire no later than ten years from the date granted. Payment for exercised
options shall be made to the Corporation either in cash, or in case of
non-qualified options only, through the transfer by the optionholder to the
Corporation of free and clear shares of the common stock of the Corporation,
valued at the current market value of such shares on the date of such transfer.
Payment may also be made by a combination of cash and such shares.
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 have expired
after the grant of the option. Except as hereafter indicated, the Corporation
is not entitled to any deduction with respect to the grant or exercise of any
incentive option. If the stock is sold or otherwise disposed of within one year
after exercise or two years after the grant, any appreciation at the date of
exercise above the option price is treated subject to certain limitations as
"ordinary" income; and any appreciation between the date of exercise and the
date of sale is considered as long or short-term capital gain to the optionee
depending on whether or not the stock was held longer than one year. In such an
event, the amount of ordinary income received by the optionee generally is
treated as a tax deductible expense to the Corporation.
Gain taxable as ordinary income to the optionee is generally deemed to be
realized at the date of exercise of a non-qualified 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. Any appreciation
in the value of the stock between the date of exercise and the date of sale is
considered as long or short-term capital gain to the optionee depending on
whether or not the stock is held longer than one year.
The Board of Directors is authorized to amend the Plan to meet changes in
pertinent law or governmental regulations or for any other purpose which at the
time 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 27, 1996, the last sale price of the Corporation's common stock as
reported by NASDAQ was $65.50 per share.
In order to adopt 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. The Board of Directors
requests that you vote in favor of the adoption of the Plan.
PROPOSAL TO ADOPT CINCINNATI FINANCIAL CORPORATION
INCENTIVE COMPENSATION PLAN
The Board of Directors of the Corporation has approved the proposal to adopt
the Cincinnati Financial Corporation Incentive Compensation Plan. The purpose
of the Plan is to provide the President and Chairman of the Board
("Participants") of the Corporation with bonus compensation based upon the
achievement of pre-established performance goals, as well as to maintain the
Corporation's federal income tax deduction for the entire amount of the annual
bonus paid to the Participants pursuant to Section 162(m) of the Internal
Revenue Code. Only the President and Chairman of the Board are eligible to
participate in the Plan.
Under Internal Revenue Code Section 162(m), the compensation of an employee of
the Corporation, to the extent it exceeds $1 million per year, is not a
deductible expense by the Corporation unless the compensation exceeding $1
million is based upon the achievement of pre-established performance goals.
Adoption of this Plan would allow the Corporation to retain its income tax
deduction if the bonus of either Participant paid under the Plan causes total
compensation to exceed $1 million in any calendar year.
(12)
15
Participants are eligible to receive awards under the Plan upon the achievement
by the Corporation and its subsidiaries (on a consolidated basis) of any two of
the following performance goals:
1. A specified percentage increase (to be established annually by the
Compensation Committee) in gross direct written premiums for the calendar
year over those for the prior year;
2. A specified percentage increase (to be established annually by the
Compensation Committee) in operating income for the calendar year over
that of the prior year, excluding the effects of capital gains and losses,
accounting changes, and certain natural catastrophes;
3. Exceeding the median annual percentage increase in earnings per share
for the Corporation's Peer Group for the calendar year, excluding the
effects of capital gains and losses and accounting changes.
The maximum amount each Participant is eligible to receive is $1 million
annually with the actual amount of any bonus being set by the Compensation
Committee pursuant to the overall compensation policies of the committee. If,
because of death, retirement, termination, or otherwise, more than one person
holds the office of president or chairman of the board in any calendar year,
the Compensation Committee has discretion to divide any award under the Plan
among those who occupy the same office, provided that the total awarded to
persons holding the same office shall not exceed $1 million in any calendar
year.
The Board of Directors of the Corporation may modify or terminate the Plan at
any time for any legal purpose. However, shareholder approval of any
modification is necessary for the Corporation to retain its federal income tax
deduction for compensation paid under this Plan.
In order to adopt the Plan, a copy of which is attached as Exhibit B, a
majority of the shares present or represented by proxy at the meeting and
entitled to vote must be voted "FOR" the proposal. The Board of Directors
requests that you vote in favor of the adoption of the Plan.
SHAREHOLDER PROPOSALS
The Corporation has not received any shareholder proposals which are required
to be presented at the 1996 Annual Meeting of Shareholders. Any shareholder who
wishes a proposal to be considered for presentation at the 1997 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, 1996.
OTHER BUSINESS
The management 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/Vincent H. Beckman
VINCENT H. BECKMAN
SECRETARY
March 2, 1996
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16
EXHIBIT A
CINCINNATI FINANCIAL CORPORATION
STOCK OPTION PLAN NO. V
1. Purpose. Stock Option Plan No. V (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 500,000 shares of common stock with
the par value of $2.00 per share. 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 non-qualified
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 100,000 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 optionholder, 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
(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 optionholder 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 optionholder
to terminate the employment of the optionholder 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, conditioned upon approval
--------------------------------
by a majority vote of the shareholders of CFC, shall be effective as of May
1, 1995, and no options may be granted under the plan subsequent to April
30,2005.
18
EXHIBIT B
CINCINNATI FINANCIAL CORPORATION
INCENTIVE COMPENSATION PLAN
I. Purpose
-------
The purpose of the Cincinnati Financial Corporation Incentive Compensation
Plan ("Plan") is to provide the president and chairman of the board
("Participants") of Cincinnati Financial Corporation ("Company") with
bonus compensation based upon the achievement of pre-established
performance goals, as well as to maintain the Company's income tax
deduction for the entire amount of the annual compensation paid to the
president and chairman of the board pursuant to Section 162(m) of the
Internal Revenue Code.
II. Administration of Plan
----------------------
The Plan shall be administered by the Company's Compensation Committee
("Committee"), which shall at all times consist of two or more outside
directors, as defined in Internal Revenue Service regulations. The
Committee shall have full power and authority to administer and interpret
the Plan and to establish rules for its administration. The Committee, in
making any determination under or referred to in the Plan, shall be
entitled to rely on opinions, reports or statements of officers,
employees, legal counsel and the public accountants of the Company, and
upon the published financial reports of the Company's Peer Group, as that
term is hereinafter defined.
III. Eligibility
-----------
Eligibility for participation in the Plan is limited to the president and
chairman of the board of the Company.
IV. Effective Date of Plan
----------------------
The Plan shall go into effect January 1, 1996, conditioned upon
shareholder approval at the next Annual Meeting of Shareholders.
V. Awards
------
Each Participant is eligible to receive an award of $1 million annually
pursuant to the Performance-Based Formula set forth in Section VI. If,
because of death, retirement, termination, or other reason, more than one
person holds either the office of president or chairman of the board in
any calendar year, the Committee retains discretion to divide, as it deems
appropriate, any award under this Plan among those who occupied the same
office. In no event will the total amount awarded to persons who held the
same office exceed $1 million in any calendar year.
VI. Performance-Based Formula
-------------------------
A. Awards under the Plan shall be earned upon the achievement by the
Company and its subsidiaries on a consolidated basis of any two of
the following performance goals:
1. a specified percentage increase in gross direct written
premiums for the calendar year over those for the prior
year;
2. a specified percentage increase in operating income for the
calendar year over that of the prior year (In calculating the
Company's operating income, the effects of capital gains and
losses and accounting changes shall not be considered nor
will losses attributable to catastrophes which were assigned
catastrophe numbers by the American Insurance Services Group,
Inc.);
3. exceeding the median annual percentage increase in earnings
per share for the Company's Peer Group for the calendar
year, including the effects of catastrophic losses, but
excluding the effects of capital gains and losses and
accounting changes.
As soon as practicable either before or after the beginning of each
calendar year, the Committee shall establish written targets for the
percentage increases described in Paragraphs 1 and 2 above.
19
For purposes of Paragraph 3 above, the Company's Peer Group includes the
following: Chubb, Ohio Casualty, St. Paul Companies, TIG Holdings, and
USF&G.
B. Notwithstanding anything to the contrary in this Plan, the Committee
retains complete discretion to reduce the amount of or eliminate the
award in light of factors deemed appropriate by the Committee, but
in no event may any award be increased beyond $1 million for any
calendar year.
VII. Determination and Payment of Award
----------------------------------
Awards shall be determined and paid in cash by the Committee as soon as
practicable after the Company's financial statements and those for the
members of the Peer Group for the calendar year are available to the
Committee. Before paying any award under the Plan, the Committee shall
certify that the performance goals listed in Section VI were in fact
satisfied.
VIII. Miscellaneous
-------------
A. No Participant shall have any claim or right to be granted an award
under the Plan and there shall be no obligation on behalf of the
Company for uniformity of treatment among Participants. Awards under
the Plan may not be attached, assigned or alienated in any
manner.
B. Neither the Plan nor any action taken hereunder shall be construed as
giving to any Participant any right to be retained in the employ of
the Company.
C. The Company shall have the right to deduct from any award to be paid
under the Plan any federal, state or local taxes required by law to
be withheld with respect to such payment.
D. The Plan shall be governed by the laws of the State of Ohio and by
applicable federal laws.
E. The Board of Directors of the Company may modify or terminate the
Plan at any time, except that no modification shall affect awards
previously granted. Any such modification shall be effective at such
date as the Board may determine.
20
Account #
Number of Shares*
PROXY
CINCINNATI FINANCIAL CORPORATION
P.O. BOX 145496, CINCINNATI, OHIO, 45250-5496
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints John J. Schiff, Vincent H. Beckman, and Robert
J. Driehaus, or any one of them, with power of substitution, as Proxies, and
hereby authorizes them to represent and to vote, as designated below, all the
shares of Cincinnati Financial Corporation held of record on February 9, 1996,
at the Annual Meeting of Shareholders to be held on April 6, 1996, or any
adjournment thereof.
1. ELECTION OF DIRECTORS // FOR all nominees listed // WITHHOLD AUTHORITY
below (except as specified to vote for all nominees
to the contrary below) listed below
Richard M. Burridge, James G. Miller, Robert B. Morgan, Thomas R. Schiff, Frank
J. Schultheis, Larry R. Webb.
Instructions: To withhold authority to vote for any individual nominee, write
nominee's name on the space provided below.
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2. PROPOSAL TO ADOPT CINCINNATI FINANCIAL CORPORATION STOCK OPTION PLAN NO. V
// FOR //AGAINST //ABSTAIN
3. PROPOSAL TO APPROVE THE CINCINNATI FINANCIAL CORPORATION INCENTIVE
COMPENSATION PLAN
// FOR //AGAINST //ABSTAIN
4. 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 ALL NOMINEES LISTED AND FOR PROPOSALS 2 AND 3.
Please sign exactly as name appears. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee, or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by President of 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.
- ---------------------- ------------------------------- ---------------, 1996
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.
