EX-10.31



 





Exhibit 10.31




PURCHASE AGREEMENT (TRANCHE 2 OF 4)




     PURCHASE AGREEMENT, dated as of October 24, 2007 (the “Agreement”), by and
between Cincinnati Financial Corporation (the “Issuer”), and UBS AG, London Branch
(“UBS”) acting through UBS Securities LLC (“Agent”) as agent.



W
I T N E S S E T H




     WHEREAS, the Issuer has publicly announced its intention to repurchase shares of
its common stock, par value $2.00 per share (the “Common Stock”), from time to time
(the “Repurchase Program”); and



     WHEREAS, the Issuer desires to enter into the Agreement with UBS in order to
effect the Repurchase Program;



     NOW, THEREFORE, in consideration of the premises, the covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as follows:



     Section 1. Definitions.



     As used herein the following terms shall have the meanings set forth below:



     “Announcement Date” means in respect of a Merger Event, the date of the first
public announcement of a firm intention to merge or to make an offer that leads to the
Merger Event, as determined by the Calculation Agent.



     “Bankruptcy” means the Issuer is dissolved (other than pursuant to a
consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its
debts or fails or admits in writing its inability generally to pay its debts as they
become due; (3) makes a general assignment, arrangement or composition with or for the
benefit of its creditors; (4) institutes or has instituted against it a proceeding
seeking a judgment of insolvency or bankruptcy or any other relief under any
bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a
petition is presented for its winding-up or liquidation, and, in the case of any such
proceeding or petition instituted or presented against it, such proceeding or petition
(A) results in a judgment of insolvency or bankruptcy or the entry of an order for
relief or the making of an order for its winding-up or liquidation or (B) is not
dismissed, discharged, stayed or restrained in each case within 30 days of the
institution or presentation thereof; (5) has a resolution passed for its winding-up,
official management or liquidation (other than pursuant to a consolidation,
amalgamation or merger); (6) seeks or becomes subject to the appointment of an
administrator, provisional liquidator, conservator, receiver, trustee, custodian or
other similar official for it or for all or substantially all its assets; (7) has a
secured



 









 







party take possession of all or substantially all its assets or has a
distress, execution, attachment, sequestration or other legal process levied, enforced
or sued on or against all or substantially all its assets and such secured party
maintains possession, or any such process is not dismissed, discharged, stayed or
restrained, in each case within 30 days thereafter; (8) causes or is subject to any
event with respect to it which, under the applicable laws of any jurisdiction, has an
analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or
(9) takes any action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the foregoing acts.



     “Bloomberg Screen Volume at Price Page” shall mean the display designated as page
“CINF Equity AQR” on the Bloomberg Financial Service or such page as may replace the
Volume at Price page on that service for the purpose of displaying daily volume and
volume-weighted trading prices of equity securities during the normal trading hours of
9:30 a.m. to 4:00 p.m., New York Time or, if such service does not then publish daily
volume and volume-weighted trading prices of the Common Stock, such other page and
services selected by the Calculation Agent that reports daily volume and weighted
trading prices of the Common Stock.



     “Borrowed Shares” means, as of any date, the number of Shares borrowed by UBS in
connection with this Transaction, as determined by the Calculation Agent.



     “Calculation Agent” shall mean UBS Securities LLC.



     “Calculation Date” means the first Trading Day after the Last Averaging Date.



     “Closing Price” of the Common Stock on any day shall mean the last reported sales
price regular way on such day or, in case no such sales price is reported on such day,
the average of the reported closing bid and asked prices regular way of the Common
Stock, in each case on the Exchange, or, if not then traded on the Exchange, the
principal securities exchange or quotation system on which the Common Stock is then
listed or admitted to trading, or, if not then listed or admitted to trading on a
securities exchange or quotation system, the average of the closing bid and asked
prices of the Common Stock in the over-the-counter market on the day in question as
reported by the National Quotations Bureau Incorporated, or a similarly generally
accepted reporting service, or, if not so available in such manner, as furnished by
any New York Stock Exchange member firm selected by the Calculation Agent.



     “Combined Consideration” means New Shares in combination with Other
Consideration.



     “Cross Default” means the occurrence or existence of (1) a default, event of
default or other similar condition or event (however described) in respect of the
Issuer under one or more agreements or instruments relating to the payment of money in
an aggregate amount of not less than $10 million which has resulted in such agreement
or instrument becoming, or becoming capable at such time of being declared, due and
payable before it would otherwise have been due and payable or (2) a default by the
Issuer in making one or more payments on the due date thereof in an aggregate amount of not less than $10
million



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under such agreements or instruments (after giving effect to any applicable
notice requirement or grace period).



     “Determined Amount” has the meaning ascribed to it in Section 3(d).



     “Discount” means the product of (a) 1.30%, and (b) the arithmetic average of
daily volume-weighted average prices of Shares on each Trading Day from the First
Averaging Date up to and including the Last Averaging Date, as listed on Bloomberg
Screen Volume at Price Page.



     “Dividend Amount” shall mean, as of each of the dates set out below (each a
“Dividend Adjustment Date”), the amount set forth opposite such Dividend Adjustment
Date:



	 	 	 	 	 
	Dividend Adjustment Date	 	Dividend Amount
	The date immediately preceding the ex-dividend
date for the Issuer’s regularly scheduled
fourth quarter 2007 dividend, (such ex-dividend date
currently anticipated to be December 20, 2007)

	 	$	0.355	 






     “Dividend Event” means the payment of an ordinary or extraordinary dividend of
distribution by the Issuer in any of the time periods specified above with a value, as
determined by the Calculation Agent in good faith, that exceeds the amount specified
above for such period by $0.01 or more.



     “Early Closure” means the closure on any Trading Day of the Exchange or any
Related Exchange(s) prior to its regularly scheduled closing time.



     “Excess Shares” means the number of Shares (if any) equal to (a)(i) the
Settlement Amount divided by (ii) the Reference Price minus (b) the Determined Amount.



     “Exchange” means the NASDAQ Global Select Market or any successor thereto or any
substitute exchange or quotation system to which trading in the Shares has temporarily
relocated (provided that the Calculation Agent has determined that there is comparable
liquidity relative to the Shares on such temporary substitute exchange or quotation
system as on the original Exchange).



     “Exchange Disruption” means any event (other than an Early Closure) that disrupts
or impairs (as determined by the Calculation Agent) the ability of market participants
in general (i) to effect transactions in, or obtain market values for, the Shares on
the Exchange, or (ii) to effect transactions in, or obtain market values for, futures
or options contracts relating to the Shares on the Related Exchange(s).



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     “Execution Period” shall mean the period commencing on the First Averaging Date
and ending on the earliest of (i) the Last Averaging Date, (ii) the Termination Date
or (iii) the Termination Event Termination Date.



     “Failure to Pay or Deliver” means failure by the Issuer to make, when due, any
payment under this Agreement or any delivery of Shares under this Agreement required
to be made by it if such failure is not remedied on or before the third Trading Day
after notice of such failure is given to the Issuer by UBS or the Agent.



     “Final VWAP-Minus Price” means (i) the arithmetic average of daily
volume-weighted average prices of Shares on each Trading Day from the First Averaging
Date up to and including the Last Averaging Date, as listed on Bloomberg Screen Volume
at Price Page, minus (ii) the Discount.



     “First Averaging Date” means October 25, 2007; provided, however, that the First
Averaging Date may be extended by the Calculation Agent in its discretion by one
Trading Day for each Scheduled Trading Day following the date hereof and prior to the
First Averaging Date that ceases to be a Scheduled Trading Day or is not a Trading Day
due to the occurrence of a Market Disruption Event.



     “Hedge Account Shares” means, as of any date, the Number of Shares minus the
Borrowed Shares.



     “Last Averaging Date” means a trading day between and including November 21, 2007
and January 30, 2008, as determined by UBS; provided, however, that each of such
dates may be extended by the Calculation Agent in its discretion by one Trading Day
for each Scheduled Trading Day during the Execution Period that ceases to be a
Scheduled Trading Day or is not a Trading Day due to the occurrence of a Market
Disruption Event. Notice of the Last Averaging Date shall be given by UBS not later
than 8:00 pm New York time on the Trading Day following the Last Averaging Date.
Notice shall be irrevocable once provided to Issuer. If no notice is provided, then
the Last Averaging Date shall be January 30, 2008.



     “Market Disruption Event” means the occurrence or existence of (i) a Trading
Disruption, (ii) an Exchange Disruption or (iii) an Early Closure, which in each case
the Calculation Agent determines is material.



     “Merger Event” means, in respect of any relevant Shares, any (i) reclassification
or change of such Shares that results in a transfer of or an irrevocable commitment to
transfer all of such Shares outstanding, (ii) consolidation, amalgamation or merger of
the Issuer with or into another entity (other than a consolidation, amalgamation or
merger in which such Issuer is the continuing entity and which does not result in any
such reclassification or change of all of such Shares outstanding) or (iii) other
takeover offer for such Shares that results in a transfer or an irrevocable commitment
to transfer all such Shares (other than such Shares owned or controlled by the
offeror), in each case if the Merger Date is on or before the Last Averaging Date.



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     “Net Share Settlement” shall mean settlement by the Issuer of its obligations
hereunder in accordance with Section 3(c).



     “New Shares” means shares (whether of the offeror or a third party).



     “Number of Shares” has the meaning ascribed to it in Section 2.



     “Other Consideration” means cash and/or any securities (other than New Shares) or
assets (whether of the offeror or a third party).



     “Payment Date” has the meaning ascribed to it in Section 3(b).



     “Principal Account” means the notional principal account referred to in Section
3(a).



     “Purchase Price” means the product of (a) the Number of Shares and (b) the
Closing Price of the Common Stock on October 24, 2007.



     “Purchasing Date” means any Trading Day during the Execution Period.



     “Reference Price” means the Closing Price of the Common Stock on the last Trading
Day of the Execution Period.



     “Related Exchange(s)” means each exchange or quotation system where trading has a
material effect (as determined by the Calculation Agent) on the overall market for
futures or options contracts relating to the Shares.



     “Scheduled Trading Day” means any day on which the Exchange and each Related
Exchange are scheduled to be open for trading for their respective regular trading
sessions.



     “Settlement Amount” shall mean (i) in the case of the Issuer, the amount of any
negative balance in the Principal Account as of the Calculation Date, and (ii) in the
case of UBS, the amount of any positive balance in the Principal Account as of the
Calculation Date, in each case as determined by the Calculation Agent, and as adjusted
by the Calculation Agent to reflect the accrual of interest thereon at the rate set
forth for that day opposite the caption “Open” under the caption “Federal Funds” as
displayed on Bloomberg Page BTMM, from and excluding the third Trading Day following
the Calculation Date hereunder to and including the actual Payment Date, if the
Payment Date occurs following the third Trading Day following the Calculation Date
hereunder.



     “Share-for-Combined” means, in respect of a Merger Event, that the consideration
for the relevant Shares consists of Combined Consideration.



     “Share-for-Other” means, in respect of a Merger Event, that the consideration for
the relevant Shares consists solely of Other Consideration.



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     “Share-for-Share” means, in respect of a Merger Event, that the consideration for
the relevant Shares consists (or, at the option of the holder of such Shares, may
consist) solely of New Shares.



     “Shelf Registration” means a registration statement in form and substance
reasonably acceptable to UBS for an offering to be made on a continuous basis pursuant
to Rule 415 under the Securities Act, registering UBS’s resale, in any manner or
manners designated by UBS, of all the Stock Settlement Shares, any Make-Whole Shares,
and any other Shares held by UBS in connection with this transaction which, in the
opinion of counsel to UBS, are required to be included in the Shelf Registration to be
resold by UBS to the public.



     “Short Squeeze” shall mean a situation where (i) UBS has determined, in its
judgment, that it is unable to hedge its exposure to the transaction contemplated
hereby because of the lack of sufficient shares of Common Stock being made available
for borrowing from lenders, including without limitation UBS’s being required to
redeliver shares of Common Stock to any lender at the demand of such lender and not
being able to meet such obligation in full in a timely manner by reasonable efforts to
borrow shares of Common Stock from another lender or lenders, or (ii) UBS would incur
a cost to borrow shares of Common Stock to hedge its exposure to the transaction
contemplated hereby that is greater than a rate equal to 50 basis points per annum.



     “Stock Settlement Amount” shall mean (i) in the case that the Issuer is required
to pay the Settlement Amount to UBS and has elected to pay the Settlement Amount by
delivery of shares of Common Stock to UBS pursuant to Section 3(c), an amount,
determined by the Calculation Agent, equal to the Settlement Amount to be paid by the
Issuer pursuant to Section 3(b), divided by the Reference Price, and (ii) in the case
that UBS is required to pay the Settlement Amount to the Issuer and the Issuer has
elected to require UBS to satisfy the obligation by delivery of shares of Common Stock
to the Issuer pursuant to Section 3(h), an amount, determined by the Calculation
Agent, equal to the Settlement Amount to be paid by UBS pursuant to Section 3(b),
divided by the weighted average price per share actually paid by UBS to purchase such
Stock Settlement Shares.



     “Stock Settlement Shares” shall mean such whole number of shares included in the
Stock Settlement Amount.



     “Termination Date” has the meaning ascribed to it in Section 4(b).



     “Termination Event” shall mean the occurrence of a (i) Bankruptcy, (ii) Cross
Default, (iii) Failure to Pay or Deliver, (iv) Short Squeeze or (v) Dividend Event.



     “Termination Event Termination Date” has the meaning ascribed to it in Section 8
below.



     “Trading Day” shall mean any day on which the Common Stock is traded on the
Exchange or, if not then traded on the Exchange, the principal securities exchange or
quotation



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system on which such securities are then traded or, if not then traded on a
securities exchange or quotation system, in the over-the-counter market, and on which
no Market Disruption Event occurs.



     “Trading Disruption” means any suspension of or limitation imposed on trading by
the Exchange or Related Exchange or otherwise and whether by reason of movements in
price exceeding limits permitted by the Exchange or Related Exchange or otherwise (i)
relating to the Shares on the Exchange or (ii) in futures or options contracts
relating to the Shares on any Related Exchange.



     Section 2. Purchase and Sale.



     Subject to the terms and conditions set forth herein, UBS agrees to sell to the
Issuer, and the Issuer agrees to purchase from UBS, 1,000,000 shares (the “Number of
Shares”) of Common Stock (the “Shares”) at a purchase price per Share equal to the
Closing Price of the Common Stock on October 24, 2007 or on such other date and at
such other time as the parties may mutually agree (the “Execution Date”). At 4:00
P.M. on the third Trading Day after the Execution Date (the “Settlement Date”), UBS
shall deliver or cause to be delivered the Shares through the facilities of The
Depository Trust Company to the Issuer against payment by the Issuer of the Purchase
Price by wire transfer of immediately available funds. The parties understand and
agree that the delivery of the Shares by or on behalf of UBS upon the payment of the
aggregate Purchase Price by the Issuer is irrevocable and that as of the Settlement
Date the Issuer will be the sole beneficial owner of the Shares for all purposes.



     As compensation to UBS for its commitment and services hereunder, the Issuer on
the Settlement Date will pay to UBS by wire transfer of immediately available funds an
additional amount equal to $143,642.36. This amount payable to UBS shall not be
subject to refund.



     Section 3. Settlement.



     (a) On the Settlement Date, the Calculation Agent shall establish a notional
Principal Account in an amount equal to the Purchase Price. The Calculation Agent
shall adjust the Principal Account daily as follows:


The Principal Account shall be reduced on the third day following the Last Averaging
Date in an amount equal to the product of (x) the Number of Shares and (y) the Final
VWAP-Minus Price.



On the first Trading Day immediately following the last day of the Execution Period,
the Calculation Agent will calculate the Settlement Amount and, if applicable, the
Stock Settlement Amount, notify (the “Settlement Amount Notification”) the Issuer of
the Settlement Amount and, if applicable, the Stock Settlement Amount and provide a
schedule of its calculations thereof. The Calculation Agent shall respond promptly to
all questions raised by the Issuer
relating to such calculations. If the Issuer objects to the calculation of the
Settlement


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 Amount, the Issuer shall promptly notify the Calculation Agent, and the
Issuer and UBS agree to use their good faith best efforts to reach an agreement as to
the Settlement Amount. In the further event that the Issuer and UBS are not able to
reach an agreement, the Issuer and UBS shall appoint a third party with sufficient
expertise to determine the calculation of the Settlement Amount, and such calculations
shall be binding on both parties.




     (b) On the third Trading Day immediately following the Calculation Date (the
“Payment Date”), if the Settlement Amount is positive, UBS shall pay the Settlement
Amount to the Issuer and, if the Settlement Amount is negative, the Issuer shall pay
the absolute value of such Settlement Amount to UBS. Except as provided in paragraphs
(c) and (d) of this Section, all payments to be made under this Section 3 shall be
made on the Payment Date by wire transfer of immediately available funds.



     (c) If the Issuer is required to pay the Settlement Amount to UBS pursuant to
paragraph (b) of this Section, the Issuer may, at its option, satisfy the obligation
by the delivery to UBS of a number of whole shares of Common Stock (and a payment of
cash in lieu of fractional shares, if any) equal to the Stock Settlement Amount. In
order to exercise this option, the Issuer must (each, a “Condition on Net Share
Settlement”) (i) notify UBS of its election to have any Settlement Amount payable in
shares of Common Stock no later than 10 days prior to November 21, 2007 (the “Stock
Election Notice”), (ii) enter into a registration rights agreement with UBS in form
and substance acceptable to UBS (the “Registration Rights Agreement”) not later than 7
days prior to November 21, 2007, which agreement will contain, among other things,
customary representations and warranties and indemnification and other rights,
including rights to customary opinions of counsel and accountant’s “comfort letters,”
relating to the registration of the Stock Settlement Shares, the Make-whole Shares and
any additional shares of Common Stock as to which UBS is named as a selling
securityholder in the Shelf Registration (the “Registered Shares”); (iii) the Shelf
Registration shall have been filed with the Securities and Exchange Commission not
less than five Trading Days prior to November 21, 2007; and (iv) maintain the
effectiveness of the Shelf Registration until all Registered Shares have been sold by
UBS. Subject to paragraph 3(g) below, if any of the conditions in the preceding
sentence are not met, the provisions of this paragraph (c) shall be inoperative and
the Issuer shall be obligated to pay any applicable Settlement Amount by wire transfer
of immediately available funds. If the Issuer complies with all of its obligations
under this paragraph (c), then at 9:30 A.M. on the Payment Date, the Issuer shall
deliver to UBS (i) a certificate or certificates representing the fully paid and
nonassessable Stock Settlement Shares, in such denominations and in such names as UBS
may specify and (ii) the cash payment, if any, in lieu of fractional shares by wire
transfer of immediately available funds. The parties understand and agree that the
deliveries made pursuant to the preceding sentence and the following paragraph shall
be irrevocable and shall satisfy in full the Issuer’s obligations under this Section
3.


If the Issuer delivers Stock Settlement Shares to UBS pursuant to this paragraph (c)
and within ten Trading Days after the Payment Date, UBS resells all or any portion of
the Stock Settlement Shares and the net proceeds received by UBS upon resale of such
shares exceeds the Settlement
Amount (or if less than all of the Stock Settlement Shares are resold, the applicable
pro rata portion of the Settlement Amount), UBS shall promptly refund in cash such


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 difference to the Issuer; provided that UBS may, at its option, satisfy its obligation
under this sentence by returning to the Issuer any portion of the Stock Settlement
Shares that would, if sold, have resulted in net proceeds in excess of the Settlement
Amount. In the event that such net proceeds are less than the Settlement Amount (or
if less than all of the Stock Settlement Shares are resold, the applicable pro rata
portion of the Settlement Amount), the Issuer shall pay in cash or additional shares
of Common Stock (the “Make-whole Shares”) such difference (the “Make-whole Amount”) to
UBS promptly after receipt of notice thereof. In the event that Issuer elects to pay
the Make-whole Amount in additional shares of Common Stock, the requirements set forth
in this paragraph (c) with respect to payment of the Settlement Amount in Shares,
including Make-whole requirements, shall apply, such that UBS shall pay to the Issuer
any such excess and the Issuer shall pay to UBS in cash or Make-Whole Shares any
additional Make-Whole Amount. In calculating the net proceeds from the resale of any
Stock Settlement Shares there shall be deducted from such proceeds any amount equal to
the customary underwriting discount or commission for underwritten offerings of common
stock by companies comparable to the Issuer multiplied by the total number of Shares
sold for the account of UBS pursuant to a Shelf Registration.




     (d) Notwithstanding any other provision in this Agreement, if Issuer exercises
its right pursuant to Section 3(c) above, Issuer shall not be obliged to
deliver, in connection with this Agreement, in excess of 3,000,000 shares of Common
Stock, as recalculated from time to time (the “Determined Amount”). In the event
that, but for this Section 3, Issuer would be obliged to deliver a number of
shares of Common Stock equal to the Determined Amount plus the Excess Shares, Issuer
agrees to (x) satisfy its remaining obligation by cash payment or; (y) (i) use its
best efforts to increase its number of authorized shares, thereby increasing the
Determined Amount, to the extent necessary so that, but for this Section 3,
the number of shares of Common Stock Issuer would be obliged to deliver does not
exceed the (recalculated) Determined Amount and (ii) allocate such newly authorized
shares of Common Stock in satisfaction of Issuer’s delivery obligations under this
Agreement in priority to any other use of such Common Stock. For the avoidance of
doubt, the obligation of Issuer to so use its best efforts is an ongoing obligation.



     (e) Issuer hereby represents and warrants that it will:




(i) calculate the Determined Amount based on the maximum
amount able to be calculated in accordance with EITF 00-19 or
any successor financial statement guidance; and




(ii) in respect of all equity derivative transactions in
respect of which Issuer’s equity securities constitute (all or
part of) the instruments underlying such transactions (the
“Derivative Trades”), use the same methodology to derive the
Determined Amount (howsoever described) applicable to each
Derivative Trade as is used to derive the Determined Amount
for this Agreement.



     (f) UBS agrees that, in respect of any obligations Issuer has duly elected be
satisfied pursuant to Section 3(c) above, in the event of Issuer’s bankruptcy, UBS



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shall not have rights in bankruptcy that rank senior to the rights in bankruptcy of
common shareholders of Issuer.



     (g) If the Issuer has used its best efforts to satisfy the Conditions on Net
Share Settlement but has been unable to because the Shelf Registration is not declared
effective by the SEC within the time set out in paragraph 3(c) (or, where UBS
has previously agreed to extend such period based on a request by the Issuer pursuant
to paragraph 3(g)(ii), within such period as extended pursuant to
paragraph 3(g)(ii)), then the Issuer may elect to:



          (i) deliver the relevant
number of Shares to UBS in which case:




               (A) the day on which the Issuer makes such an election to deliver such Shares is
the “Issuer Election Date”, and



               (B) Issuer shall withdraw any Registration Statement filed with the SEC in
connection with the Shares, and



               (C) Issuer will enter into a private placement purchase agreement with UBS in
form and substance acceptable to UBS no later than the next Trading Day following the
Issuer Election Date, and



               (D) Issuer shall deliver to UBS such Shares on the Settlement Date which, for the
purposes of this paragraph 3(g)(i)(D), shall be the third Trading Day following the
Issuer Election Date, and



               (E) in addition to any Make-whole Amount payable by Issuer pursuant to paragraph
3(c) herein, Issuer shall deliver to UBS such additional Shares until UBS has realized
actual net proceeds upon resale of such Shares equal to the Settlement Amount. At its
election, UBS may by a written notice to Issuer retain a number of Shares delivered by
Issuer pursuant to this paragraph 3(g)(i). If UBS so elects, UBS shall be deemed to
have sold each such retained Share for an amount equal to the price per Share obtained
by UBS for the last Share sold by UBS prior to sending written notice of its intention
to retain Shares to Issuer. In no event will UBS be obligated to exercise its right
to retain Shares; or



          (ii) request UBS to extend the period within which the Registration Statement is
to be declared effective by the SEC for a further period specified in writing by UBS
at the time of such extension.




     (h) If UBS is required to pay the Settlement Amount to the Issuer pursuant to
paragraph (b) of this Section, the Issuer may, at its option, elect that UBS satisfy
the obligation by the delivery to the Issuer of a number of whole shares of Common
Stock (and a payment of cash in lieu of fractional shares, if any) equal to the Stock
Settlement Amount. In order to exercise this option, the Issuer must notify UBS of
its election to have any Settlement Amount payable in shares of Common Stock no later
than 15 days prior to the Payment Date (the “Stock Election Notice”). If the
condition in the preceding sentence is not met, the provisions of this paragraph (h)
shall be inoperative and UBS shall be obligated to pay any
applicable Settlement Amount by wire transfer of immediately available funds. If the
Issuer complies with all of its obligations under this paragraph (h), then at 9:30
A.M. on the Payment Date, UBS shall deliver to the Issuer (i) a certificate or
certificates representing the fully paid and nonassessable Stock Settlement Shares,
and (ii) the cash payment, if any, in lieu of



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fractional shares by wire transfer of
immediately available funds. The parties understand and agree that the deliveries
made pursuant to the preceding sentence shall be irrevocable and shall satisfy in full
UBS’ obligations under this Section 3.



     Section 4. Anti-dilution Adjustments.



     (a) Subdivisions and Combinations of Common Stock. In the event that the
outstanding shares of the Common Stock shall be subdivided or split into a greater
number of shares of Common Stock where the effective date of such subdivision or the
record date for such split occurs during the Execution Period, the number of shares of
Common Stock referred to herein shall be deemed to be proportionately increased and
the Final VWAP-Minus Price and Discount shall be deemed to be proportionately
decreased; conversely, in case outstanding shares of Common Stock shall each be
combined into a smaller number of shares of Common Stock through a combination of
shares of Common Stock or a reverse stock split where the effective date of such
combination or the record date for such reverse stock split occurs during the
Execution Period, the number of shares of Common Stock referred to herein shall be
deemed to be proportionately decreased and the Final VWAP-Minus Price and Discount
shall be deemed to be proportionately increased. Any adjustment pursuant to this
paragraph (a) shall become effective (i) in the case of a subdivision or combination
of the Common Stock, at the close of business on the record date for such subdivision
or combination or (ii) in the case of a stock split or reverse stock split, at the
split, at the close of business on the record date for such stock split or reverse
stock split.



     (b) Merger Events. In respect of each Merger Event, UBS and the Issuer
or the person formed by such consolidation or resulting from such merger or which
acquired such assets or which acquires the Issuer’s Common Stock, as the case may be,
shall negotiate in good faith to amend this Agreement to give appropriate effect to
such transaction. In the event that the parties are unable to reach an agreement ten
(10) Trading Days prior to the effective date of such transaction (the “Termination
Date”), (i) the Execution Period shall terminate on the Termination Date, (ii) the
Principal Account shall be reduced on such date by an amount equal to the product of
(x) an amount equal to the cash and fair market value (as determined by the Issuer’s
Board of Directors whose good faith determination shall be conclusive and binding) of
the securities and/or property payable or distributable upon such transaction in
respect of one share of Common Stock and (y) the number of Borrowed Shares as of such
date, and (iii) the Settlement Amount shall be further adjusted by the Calculation
Agent by the amount that the Calculation Agent reasonably determines in good faith to
be UBS’s total losses and costs in connection with the early termination of this
Agreement, including any loss of bargain, cost of funding, or loss or cost incurred as
a result of its terminating, liquidating, obtaining or reestablishing any hedge or
related trading position.



If payment is required of Issuer in connection with a Merger Event, the Issuer shall
have the right, in its sole discretion, to elect (the “Extraordinary Transaction
Election”) to satisfy any such payment obligation by Net Share Settlement of this
Transaction PROVIDED THAT, in connection with a “Share-for-Combined” Merger Event or
“Share-for-Other” Merger Event, the Extraordinary Transaction Election is available to
satisfy only the percentage of such payment obligation equal to the percentage of the
non-cash consideration over the total



11









 







Combined Consideration (in the case of a
“Share-for-Combined” Merger Event) or total Other Consideration (in the case of a
“Share-for-Other” Merger Event). The remaining percentage of such payment obligation
must be satisfied in cash. The Issuer shall make any election to settle the
Transaction by way of Net Share Settlement within two Trading Days of the Announcement
Date but in any event not less than twenty Trading Days prior to the effective date of
such merger.



     (c) Tender Offers. In the event an offer is made to the holders of
Common Stock to tender shares of Common Stock for cash, UBS may, in its discretion (i)
accelerate the Last Averaging Date or (ii) adjust the Number of Shares. UBS shall
notify the Issuer in writing as to the terms of any adjustment made pursuant to this
Section 4(c) no later than 5 days after the tender offer is made.



     (d) Other Events. In the event of any corporate event involving the
Issuer or the Common Stock not specifically addressed in subsections (a), (b) or (c)
of this Section 4 or in the event that the Calculation Agent, in its good faith
judgment, determines that the adjustments described in subsections (a), (b) or (c) of
this Section 4 will not result in an equitable adjustment of the terms of the
transaction described herein, and provided that, in each case, such corporate event
impacts the rights or obligations of a holder of Common Stock, the terms of the
transaction described herein shall be subject to adjustment by the Calculation Agent
(including, without limitation, the First Averaging Date, the Last Averaging Date and
the Number of Shares) as in the exercise of its good faith judgment it deems
appropriate under the circumstances in order to result in an equitable adjustment to
this transaction. In the event that the Issuer objects to the adjustments, the Issuer
shall promptly so notify the Calculation Agent and UBS, and the Issuer and UBS agree
to use their good faith best efforts to reach an agreement as to the adjustment. In
the further event that the Issuer and UBS are not able to reach an agreement, the
Issuer and UBS shall appoint a third party with sufficient expertise to determine the
adjustment and such adjustment shall be binding on both parties.



     Section 5. Acknowledgement.



     The Issuer acknowledges and agrees that it is not relying, and has not relied,
upon UBS or Agent with respect to the legal, accounting, tax or other implications of
this Agreement and that it has conducted its own analysis of the legal, accounting,
tax and other implications of this Agreement. The Issuer further acknowledges and
agrees that neither UBS nor Agent have acted as its advisor in any capacity in
connection with this Agreement or the transactions contemplated by this Agreement.
The Issuer acknowledges that neither UBS nor Agent is acting as the agent for the
Issuer in effecting any purchase of Common Stock pursuant to this Agreement. The
Issuer understands and acknowledges that UBS and its affiliates may from time
to time effect transactions, for their own account or the account of customers, and
hold positions, in securities or options on securities of the Issuer and that UBS and
its affiliates may continue to conduct such transactions during the Execution Period.
The Issuer understands and acknowledges that UBS and its affiliates intend to engage
in hedging activity that could affect the market for such securities and/or the Common
Stock that is the subject of this transaction, and consequently the cost or proceeds
to the Issuer hereunder.



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     Section 6. Representations and Warranties.



     (a) The Issuer hereby represents and warrants to UBS that:



          (i) it has (or, in the case of the Registration Rights Agreement, will have when
and if executed) all power and authority to enter into this Agreement and the
Registration Rights Agreement and the transactions contemplated hereby and thereby;




          (ii) this Agreement has been duly authorized, validly executed and delivered by
the Issuer and constitutes a valid and legally binding obligation of the Issuer
enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights and to general equity
principles;




          (iii) the Registration Rights Agreement, when and if executed and delivered
pursuant to Section 3(c) hereof, shall have been duly authorized, validly executed and
delivered by the Issuer and shall constitute a valid and legally binding obligation of
the Issuer enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors’ rights and to
general equity principles;




          (iv) if Stock Settlement Shares are delivered pursuant to Section 3(c) or Section
3(g), as the case may be, the Stock Settlement Shares, when delivered to UBS or to the
Issuer, as the case may be, will have been duly authorized and will be duly and
validly issued, fully paid and nonassessable and free of preemptive and other rights;




          (v) the transactions contemplated by this Agreement, including the delivery of
the Stock Settlement Shares pursuant to Section 3(c) or Section 3(g), as the case may
be, are consistent with the authorization of the Repurchase Program;




          (vi) the Issuer is not entering into this Agreement to facilitate a distribution
of the Common Stock (or any security convertible into or exchangeable for Common
Stock) or in connection with a future issuance of securities;




          (vii) the Issuer is not entering into this Agreement to create actual or apparent
trading activity in the Common Stock (or any security convertible into or exchangeable
for Common Stock) or to raise or depress the price of the Common Stock (or any
security convertible into or exchangeable for Common Stock);




          (viii) as of the date hereof and as of the date of any Stock Election Notice
hereunder, (i) none of the Issuer and its executive officers and directors is, or
will be, as the case may be, aware of any material nonpublic information regarding
the Issuer or the Common Stock and (ii) all reports and other documents filed by the
Issuer with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934, as amended, when considered as a whole (with the more recent
such reports and documents deemed to


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amend inconsistent statements contained in any
earlier such reports and documents), do not or will not, as the case may be, contain
any untrue statement of a material fact or any omission of a material fact required
to be stated therein or necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;




          (ix) the repurchase of the Shares by the Issuer, the compliance by the Issuer
with all of the provisions of this Agreement and the consummation of the transactions
herein contemplated will not conflict with or result in a breach (each, a “Breach”) of
any of the terms or provisions of, or constitute a default (each a “Default”) under,
any indenture, mortgage, deed of trust, loan agreement or any other agreement or
instrument to which the Issuer or any of its subsidiaries is a party (collectively,
“Contracts”) or by which the Issuer or any of its subsidiaries is bound or to which
any of the property or assets of the Issuer or any of its subsidiaries is subject
(except such Breach or Default as would not reasonably be expected to materially
adversely affect the ability of the Issuer to perform its obligations under any
Contract), nor will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Issuer or any of its subsidiaries is
subject, nor will such action result in any violation of the Certificate of
Incorporation or By-laws of the Issuer or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the Issuer or any
of its properties; and




          (x) no consent, approval, authorization, order, registration or qualification of
or with any court or governmental agency or body having jurisdiction over the Issuer
or any of its properties is required for the repurchase of the Shares by the Issuer,
the compliance by the Issuer with all the terms of this Agreement, or the consummation
by the Issuer of the transactions contemplated by this Agreement, other than the
registration of the Stock Settlement Shares and any Make-whole Shares under the
Securities Act in accordance with the provisions of Section 3(c), which registration
shall be completed not less than five Trading Days prior to November 21, 2007, and
such authorizations, orders, registrations and qualifications as may be required under
state securities or blue sky laws in connection with the resale by UBS of the
Registered Shares.




     (b) UBS hereby represents and warrants to the Issuer:



          (i) it has all power and authority to enter into this Agreement and the
Registration Rights Agreement and the transactions contemplated hereby and thereby;




          (ii) this Agreement has been duly authorized, validly executed and delivered by
UBS and constitutes a valid and legally binding obligation of UBS enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights and to general equity
principles; and




          (iii) the Registration Rights Agreement, when and if executed and delivered
pursuant to Section 3(c) hereof, shall have been duly authorized, validly executed and
delivered by UBS and shall constitute a valid and legally binding obligation of UBS
enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency,


14









 







fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights and to general equity
principles.




     (c) The Issuer and UBS hereto acknowledge that this transaction is not secured by
any collateral that would otherwise secure the obligations of the Issuer.



     Section 7. Indemnification.



     In the event that UBS becomes involved in any capacity in any action, proceeding
or investigation brought by or against any person in connection with any matter
referred to in this Agreement, the Issuer periodically will reimburse UBS for its
legal and other expenses (including the cost of any investigation and preparation)
incurred in connection therewith. The Issuer also will indemnify and hold UBS
harmless against any losses, claims, damages or liabilities to which UBS may become
subject in connection with any matter referred to in this Agreement, except to the
extent that any such loss, claim, damage or liability results from the gross
negligence or bad faith of UBS in effecting the transactions which are the subject of
this Agreement. If for any reason the foregoing indemnification is unavailable to UBS
or insufficient to hold it harmless, then the Issuer shall contribute to the amount
paid or payable by UBS as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative benefits received by the Issuer
on the one hand and UBS on the other hand in the matters contemplated by this
Agreement as well as the relative fault of the Issuer and UBS with respect to such
loss, claim, damage or liability and any other relevant equitable considerations. The
relative benefits to the Issuer, on the one hand, and UBS, on the other hand, shall be
in the same proportion as the aggregate Purchase Price bears to the commissions
received by UBS pursuant to the last paragraph of Section 2. The reimbursement,
indemnity and contribution obligations of the Issuer under this Section 7 shall be in
addition to any liability which the Issuer may otherwise have, shall extend upon the
same terms and conditions to any affiliate of UBS and the partners, directors,
officers, agents, employees and controlling persons (if any), as the case may be, of
UBS and any such affiliate and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Issuer, UBS, any such
affiliate and any such person. The Issuer also agrees that neither UBS nor any of
such affiliates, partners, directors, officers, agents, employees or controlling
persons shall have any liability to the Issuer for or, in connection with any matter
referred to in this Agreement except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Issuer result from
the gross negligence or bad faith of UBS in effecting the transactions that are the
subject of this Agreement. The foregoing provisions shall survive any termination or
completion of this Agreement.



     Section 8. Termination Event.



     Upon the occurrence of a Termination Event and so long as such Termination Event
shall be continuing, UBS may, in its discretion, by notice to the Issuer (the date of
such notice and the notice referred to in the succeeding clause being referred to
herein as the “Notice Date”), direct that the Execution Period shall forthwith
terminate on the date specified in such notice (the “Termination Event Termination
Date”). In such an event, (i) the Execution Period



15









 







shall terminate on the Termination
Event Termination Date, (ii) the Principal Account shall be reduced on such date by an
amount equal to the sum of (A) the product of (x) the number of Hedge Account Shares
and (y) the arithmetic average of daily volume-weighted average prices of Shares in
each Trading Day from the First Averaging Date up to and excluding the Notice Date, as
listed on Bloomberg Screen Volume at Price Page and (B) the total purchase price paid
by UBS for the Shares of Common Stock that are purchased by UBS during the period
commencing on and including the Notice Date to and including the Termination Event
Termination Date in order to cover the remaining number of Borrowed Shares, (iii) the
Principal Account shall be increased to reflect an appropriate accrual of interest at
the Federal Funds Open Rate, as determined by the Calculation Agent, to reflect
interest earned by UBS in respect of the aggregate Purchase Price received from the
Issuer, (iv) the Principal Account shall be decreased to reflect UBS’s actual cost of
borrowing shares of Common Stock to hedge its obligations hereunder, and (v) the
Settlement Amount shall be further adjusted by the amount that UBS reasonably
determines in good faith to be its total losses and costs in connection with the early
termination of this Agreement, including any loss of bargain, cost of funding, or loss
or cost incurred as a result of its terminating, liquidating, obtaining or
reestablishing any hedge or related trading position.



     Section 9. Miscellaneous.



     (a) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and obligations set
forth herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.



     (b) Assignment. Neither the rights under this Agreement nor the
obligations created by this Agreement shall be assignable or delegable, in whole or in
part, by either party hereto without the prior written consent of the other (which
consent shall not be unreasonably withheld), and any attempt to assign or delegate any
rights or obligations arising under this Agreement without such consent shall be void.



     (c) Waivers, etc. No failure or delay on the part of either party in
exercising any power or right hereunder shall operate as a waiver thereof, nor shall
any single or
partial exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise thereof
or the exercise of any other right or power. No amendment, modification or waiver of
any provision of this Agreement nor consent to any departure by either party therefrom
shall in any event be effective unless the same shall be in writing and, in the case
of a waiver or consent, shall be effective only in the specific instance and for the
purpose for which given.



     (d) Beneficiaries. This Agreement shall be binding upon, and inure
solely to the benefit of, the Issuer, UBS and, to the extent provided in Section 7
hereof, the affiliates, partners, directors, officers, agents, employees and
controlling persons, if any, of UBS, and their respective successors, assigns, heirs
and personal representatives, and no other person shall acquire any rights hereunder.



16









 





     (e) Rights of Set-Off. In addition to any rights of set-off a party may
have as a matter of law or otherwise, upon occurrence of an Event of Default with
respect to the Issuer, UBS shall have the right, without prior notice to the Issuer or
any other person, to (i) set off any obligation of the Issuer owing to UBS or any
affiliate of UBS against any obligations of UBS or any affiliate of UBS owing to the
Issuer, or (ii) for the purpose of cross-currency set-off, convert any obligation to
another currency at the market rate determined by UBS, or (iii) if an obligation is
unascertained, in good faith estimate that obligation and set off in respect of the
estimate, subject to the relevant party accounting to the other when the obligation is
ascertained. Nothing in this Section 9(e) will have the effect of creating a charge
or other security interest.



     (f) Changes of Law. If, due to any change in applicable law or
regulations or the interpretation thereof by any court of law or other body having
jurisdiction subsequent to the date of this Agreement, performance of any provision of
this Agreement or any transaction contemplated thereby shall become impracticable or
impossible, the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as contemplated
by such provision.



     (g) Confidentiality. Subject to Section 5(a), to any contrary
requirement of law and to the right of each party to enforce its rights hereunder in
any legal action, each party shall keep strictly confidential and shall cause its
employees and agents to keep strictly confidential the terms of this Agreement and any
information of or concerning the other party which it or any of its agents or
employees may acquire pursuant to, or in the course of performing its obligations
under, any provision of this Agreement. In the event disclosure is permitted pursuant
to the preceding sentence, the disclosing party shall (i) provide prior notice of such
disclosure to the other party, (ii) use its best efforts to minimize the extent of
such disclosure and (iii) comply with all reasonable requests of the other party to
minimize the extent of such disclosure. This Section 9(g) shall not prevent either
party from disclosing information as necessary to third-party advisors in connection
with the transactions contemplated hereby provided that such advisors agree in writing
to be bound by this Section 9(g) as if a party hereto.



     (h) Agent. UBS Securities LLC shall act as “agent” for UBS and the
Issuer within the meaning of Rule 15a-6 under the Exchange Act. The Agent is not a
principal
to this Agreement and shall have no responsibility or liability to UBS or the Issuer
in respect of this Agreement, including, without limitation, in respect of the failure
of UBS or the Issuer to pay or perform under this Agreement. Each of UBS and the
Issuer agrees to proceed solely against the other to collect or recover any securities
or money owing to it in connection with or as a result of this Agreement. The Agent
shall otherwise have no liability in respect of this Agreement, except for its gross
negligence or willful misconduct in performing its duties as Agent hereunder. As a
broker-dealer registered with the Securities and Exchange Commission, UBS Securities
LLC, in its capacity as agent, will be responsible for (i) effecting the transaction
contemplated in this Agreement, (ii) issuing all required notices, confirmations and
statements to Buyer and Seller and (iii) maintaining books and records relating to
this Agreement.



17









 






     (i) Headings. Descriptive headings herein are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.



     (j) Counterparts. This Agreement may be executed by the parties hereto
in counterparts, and each such executed counterpart shall be, and shall be deemed to
be, an original instrument and all such counterparts, taken together, shall constitute
one and the same instrument.



     (k) Notices. All notices, consents, requests, instructions, approvals
and other communications provided for herein shall be validly given, made or served if
in writing and delivered personally, by telegram, by telecopy or sent by overnight
courier, postage prepaid, to:


UBS AG, London Branch at:



c/o UBS Securities LLC

299 Park Avenue

New York, NY 10171

Attention of: Paul Stowell and Sanjeet Dewal

Fax Number: 212-821-4610



With a copy to such address to attention of:

Legal and External Affairs



the Issuer at:



Cincinnati Financial Corporation

6200 South Gilmore Road

Fairfield, OH 45014



Attention of: Martin F. Hollenbeck, Investment Department

Fax Number: 513-870-0609



With a copy to such address to attention of:



Legal Department—Corporate Division




or to such other address as any party may, from time to time, designate in a written
notice given in a like manner. Notice given by telegram or telecopy shall be deemed
delivered when evidence of the transmission is received by the sender and shall be
confirmed in writing by overnight courier, postage prepaid. Notice given by overnight
courier as set out above shall be deemed delivered the business day after the date the
same is mailed.




18









 




     (l) Account Details.


UBS:



Cash Payments for Stock Purchase

Citibank, New York

ABA# 021 000 089

A/C# 4065 2556

UBS Securities, LLC



Cash Payments for Settlement

UBS AG Stamford

f/o UBS AG London Branch

ABA# 026-007-993

AC# 101-WA-140007-000



Issuer:

(To be provided)




     (m) Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of New York without reference to
conflict of law principles. Each party hereto irrevocably submits to the extent
permitted under applicable law to the non-exclusive jurisdiction of the federal and
state courts located in the Borough of Manhattan, State of New York. Each party
waives, to the fullest extent permitted by applicable law, any right it may have to a
trial by jury in respect of any suit, action or proceeding relating to this Agreement.



19









 





     IN WITNESS WHEREOF, UBS and the Issuer have caused this Agreement to be duly
authorized, executed and delivered as of the date first written above.



	 	 	 	 	 
	 	UBS AG, LONDON BRANCH

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	UBS SECURITIES LLC

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 
	 	CINCINNATI FINANCIAL CORPORATION

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




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