<PAGE>
PROSPECTUS SUPPLEMENT Rule No. 424(b)(2)
(TO PROSPECTUS DATED JUNE 27, 1996) Registration No. 333-4133
4,000,000 PREFERRED SECURITIES
LINCOLN NATIONAL CAPITAL II
8.35% TRUST ORIGINATED PREFERRED SECURITIESSM
SERIES B ("TOPRSSM")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY
LINCOLN NATIONAL CORPORATION
---------------
The 8.35% Trust Originated Preferred Securities, Series B (the "Series B
TOPrS"), offered hereby represent beneficial interests in Lincoln National
Capital II, a trust formed under the laws of the State of Delaware (the
"Series B Issuer"). Lincoln National Corporation, an Indiana corporation
("Lincoln"), will be the owner of all of the beneficial interests represented
by common securities of the Series B Issuer ("Series B Common Securities" and,
collectively with the Series B TOPrS, the "Series B Securities"). The First
National Bank of Chicago is the Property Trustee of the Series B Issuer. The
Series B Issuer
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE S-4 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE SERIES B TOPRS, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE SERIES B
TOPRS MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF SUCH DEFERRAL.
---------------
The Series B TOPrS have been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange, Inc. (the "New York Stock
Exchange"). Trading of the Series B TOPrS on the New York Stock Exchange is
expected to commence within a 30-day period after the initial delivery of the
Series B TOPrS. See "Underwriting."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING THE SERIES B
OFFERING PRICE(1) COMMISSION(2) ISSUER(3)(4)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Preferred Security.. $25.00 (3) $25.00
- ---------------------------------------------------------------------------------
Total................... $100,000,000 (3) $100,000,000
</TABLE>
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(1) Plus accrued distributions, if any, from August 21, 1996.
(2) The Series B Issuer and Lincoln have each agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Series B TOPrS
will be invested in the Series B Subordinated Debentures, Lincoln has
agreed to pay to the Underwriters as compensation ("Underwriters'
Compensation") for their arranging the investment therein of such proceeds
$.7875 per Series B TOPrS (or $3,150,000 in the aggregate). See
"Underwriting."
(4) Expenses of the offering which are payable by Lincoln, are estimated to be
$185,000.
---------------
The Series B TOPrS offered hereby are offered severally by the Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that the
Series B TOPrS will be ready for delivery in book-entry form only through the
facilities of The Depository Trust Company in New York, New York, on or about
August 21, 1996, against payment therefor in immediately available funds.
---------------
MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
---------------
The date of this Prospectus Supplement is August 16, 1996.
SM"Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES B
TOPRS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
(Continued from previous page)
exists for the sole purpose of issuing the Series B TOPrS and the Series B
Common Securities and investing the proceeds thereof in 8.35% Junior
Subordinated Deferrable Interest Debentures, Series B (the "Series B
Subordinated Debentures"), to be issued by Lincoln. The Series B Subordinated
Debentures will mature on September 30, 2026, which date may be extended to a
date not later than September 30, 2045 if certain conditions are met. The
Series B TOPrS will have a preference under certain circumstances with respect
to cash distributions and amounts payable on liquidation, redemption or
otherwise over the Series B Common Securities. See "Description of Preferred
Securities--Subordination of Common Securities" in the accompanying
Prospectus.
Holders of the Series B TOPrS will be entitled to receive preferential
cumulative cash distributions accruing from the date of original issuance and
payable quarterly in arrears on the last day of March, June, September and
December of each year, commencing September 30, 1996, at the annual rate of
8.35% of the Liquidation Amount of $25 per Series B TOPrS ("Distributions").
Lincoln has the right to defer payment of interest on the Series B
Subordinated Debentures at any time or from time to time for a period not
exceeding 20 consecutive quarters with respect to each deferral period (each,
an "Extension Period"), provided that no Extension Period may extend beyond
the Stated Maturity (as defined herein) of the Series B Subordinated
Debentures. Upon the termination of any such Extension Period and the payment
of all amounts then due, Lincoln may elect to begin a new Extension Period
subject to the requirements set forth herein. If interest payments on the
Series B Subordinated Debentures are so deferred, Distributions on the Series
B TOPrS will also be deferred and Lincoln will not be permitted, subject to
certain exceptions described herein, to declare or pay any cash distributions
with respect to Lincoln's capital stock or debt securities of Lincoln that
rank pari passu with or junior to the Series B Subordinated Debentures. During
an Extension Period, interest on the Series B Subordinated Debentures will
continue to accrue (and the amount of Distributions to which holders of the
Series B TOPrS are entitled will accumulate) at the rate of 8.35% per annum,
compounded quarterly, and holders of Series B TOPrS will be required to accrue
interest income for United States federal income tax purposes. See "Certain
Terms of Series B Subordinated Debentures--Option to Extend Interest Payment
Period" and "Certain Federal Income Tax Consequences--Original Issue
Discount."
Lincoln has, through the Series B Guarantee, the Trust Agreement, the Series
B Subordinated Debentures, the Indenture and the Expense Agreement (each as
defined herein), taken together, fully, irrevocably and unconditionally
guaranteed all of the Series B Issuer's obligations under the Series B TOPrS.
See "Relationship Among the Preferred Securities, the Corresponding Junior
Subordinated Debentures and the Guarantees--Full and Unconditional Guarantee"
in the accompanying Prospectus. The Series B Guarantee of Lincoln guarantees
the payment of Distributions and payments on liquidation or redemption of the
Series B TOPrS, but only in each case to the extent of funds held by the
Series B Issuer, as described herein (the "Series B Guarantee"). See
"Description of Guarantees" in the accompanying Prospectus. If Lincoln does
not make interest payments on the Series B Subordinated Debentures held by the
Series B Issuer, the Series B Issuer will have insufficient funds to pay
Distributions on the Series B TOPrS. The Series B Guarantee does not cover
payment of Distributions when the Series B Issuer does not have sufficient
funds to pay such Distributions. In such event, a holder of Series B TOPrS may
institute a legal proceeding directly against Lincoln to enforce payment of
such Distributions to such holder. See "Description of Junior Subordinated
Debentures--Enforcement of Certain Rights By Holders of Preferred Securities".
The obligations of Lincoln under the Series B Guarantee and the Series B TOPrS
are subordinate and junior in right of payment to all Senior Debt (as defined
in "Description of Junior Subordinated Debentures--Subordination" in the
accompanying Prospectus) of Lincoln.
The Series B TOPrS are subject to mandatory redemption, in whole or in part,
upon repayment of the Series B Subordinated Debentures at maturity or their
earlier redemption. The Series B Subordinated Debentures are
S-2
<PAGE>
redeemable prior to maturity at the option of Lincoln (i) on or after August
21, 2001, in whole at any time or in part from time to time, at a redemption
price equal to the accrued and unpaid interest on the Series B Subordinated
Debentures so redeemed to the date fixed for redemption, plus 100% of the
principal amount thereof or (ii) at any time, in whole (but not in part), upon
the occurrence and continuation of a Special Event (as defined herein), at a
redemption price equal to the accrued and unpaid interest on the Series B
Subordinated Debentures so redeemed to the date fixed for redemption, plus
100% of the principal amount thereof, in each case subject to the further
conditions described under "Description of Junior Subordinated Debentures--
Redemption" in the accompanying Prospectus.
At any time, Lincoln will have the right to terminate the Series B Issuer
and cause the Series B Subordinated Debentures to be distributed to the
holders of the Series B TOPrS in liquidation of the Series B Issuer. If
Lincoln elects to liquidate the Series B Issuer and thereby causes the Series
B Subordinated Debentures to be distributed to holders of the Series B TOPrS
in liquidation of the Series B Issuer, Lincoln shall have the right to shorten
or extend the maturity of such Series B Subordinated Debentures, provided that
it can extend the maturity only if at the time such election is made and at
the time of extension (i) Lincoln is not in bankruptcy, otherwise insolvent or
in liquidation, (ii) Lincoln is not in default in the payment of any interest
or principal on the Series B Subordinated Debentures, (iii) the Series B
Issuer is not in arrears on payments of Distributions on the Series B TOPrS
and no deferred Distributions are accumulated, (iv) the Series B Subordinated
Debentures are rated not less than BBB- by Standard & Poor's Ratings Services
or Baa3 by Moody's Investors Service, Inc. or the equivalent by any other
nationally recognized statistical rating organization and (v) the extended
Stated Maturity is no later than the 49th anniversary of the initial issuance
of the Series B TOPrS. See "Certain Terms of Series B Subordinated
Debentures--General."
The Series B Subordinated Debentures are subordinate and junior in right of
payment to all Senior Debt of Lincoln. As of July 31, 1996, Lincoln had
approximately $992 million aggregate principal amount of Senior Debt
outstanding. The terms of the Series B Subordinated Debentures place no
limitation on the amount of Senior Debt that may be incurred by Lincoln.
Lincoln is a non-operating holding company and almost all of the operating
assets of Lincoln and its consolidated subsidiaries are owned by such
subsidiaries. Lincoln relies primarily on interest and dividends from such
subsidiaries to meet its obligations for payment of principal and interest on
its outstanding debt obligations and corporate expenses. See "Lincoln National
Corporation." Accordingly, the Series B Subordinated Debentures will be
subordinated to all Senior Debt of Lincoln and effectively subordinated to all
existing and future liabilities of Lincoln's subsidiaries, and holders of
Series B Subordinated Debentures should look only to the assets of Lincoln for
payments on Series B Subordinated Debentures. The payment of dividends by
Lincoln's insurance company subsidiaries is limited under the insurance
holding company laws of the states in which such subsidiaries are domiciled.
See "Description of Junior Subordinated Debentures--Subordination" in the
accompanying Prospectus.
In the event of the termination of the Series B Issuer, after satisfaction
of liabilities to creditors of the Series B Issuer as required by applicable
law, the holders of the Series B TOPrS will be entitled to receive a
Liquidation Amount of $25 per Series B TOPrS plus accumulated and unpaid
Distributions thereon to the date of payment, which may be in the form of a
distribution of such amount in Series B Subordinated Debentures, subject to
certain exceptions. See "Description of Preferred Securities--Liquidation
Distribution Upon Termination" in the accompanying Prospectus.
The Series B TOPrS have been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange under the symbol "LNC PrY."
If the Series B Subordinated Debentures are distributed to the holders of
Series B TOPrS upon the liquidation of the Series B Issuer, Lincoln will use
its best efforts to list the Series B Subordinated Debentures on the New York
Stock Exchange or such other stock exchanges or other self-regulatory
organizations, if any, on which the Series B TOPrS are then listed or traded.
The Series B TOPrS will be represented by global certificates registered in
the name of The Depository Trust Company ("DTC") or its nominee. Beneficial
interests in the Series B TOPrS will be shown on, and transfers thereof will
be effected only through, records maintained by participants in DTC. Except as
described
S-3
<PAGE>
in the accompanying Prospectus, Series B TOPrS in certificated form will not
be issued in exchange for the global certificates. See "Book-Entry Issuance"
in the accompanying Prospectus.
FOR NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY
OF THIS DOCUMENT.
The following information supplements and should be read in conjunction with
the information contained in the accompanying Prospectus. As used herein, (i)
the "Indenture" means the Junior Subordinated Indenture, as amended and
supplemented from time to time, between Lincoln and The First National Bank of
Chicago, as trustee (the "Debenture Trustee"), and (ii) the "Trust Agreement"
means the Amended and Restated Trust Agreement relating to the Series B Issuer
among Lincoln, as Depositor, The First National Bank of Chicago, as Property
Trustee (the "Property Trustee"), First Chicago Delaware Inc., as Delaware
Trustee (the "Delaware Trustee"), and the Administrative Trustees named
therein (collectively, with the Property Trustee and Delaware Trustee, the
"Issuer Trustees"). Each of the other capitalized terms used in this
Prospectus Supplement and not otherwise defined in this Prospectus Supplement
has the meaning set forth in this Prospectus Supplement or in the accompanying
Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Lincoln with the Commission are
incorporated into this Prospectus by reference:
1. Lincoln's Annual Report on Form 10-K for the year ended December 31,
1995, and
2. Lincoln's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996 and June 30, 1996.
RISK FACTORS
Prospective purchasers of the Series B TOPrS should carefully review the
information contained elsewhere in this Prospectus Supplement and in the
accompanying Prospectus and should particularly consider the following
matters.
RANKING OF SUBORDINATED OBLIGATIONS UNDER THE SERIES B GUARANTEE AND THE
SERIES B SUBORDINATED DEBENTURES
The obligations of Lincoln under the Series B Guarantee issued by Lincoln
for the benefit of the holders of Series B TOPrS are unsecured and rank
subordinate and junior in right of payment to all Senior Debt of Lincoln. The
obligations of Lincoln under the Series B Subordinated Debentures are
subordinate and junior in right of payment to all such Senior Debt. At July
31, 1996, the Senior Debt of Lincoln was approximately $992 million. Lincoln
is a non-operating holding company and almost all of the operating assets of
Lincoln and its consolidated subsidiaries are owned by such subsidiaries.
Lincoln relies primarily on interest and dividends from such subsidiaries to
meet its obligations for payment of principal and interest on its outstanding
debt obligations and corporate expenses. Accordingly, the Series B
Subordinated Debentures will be effectively subordinated to all existing and
future liabilities of Lincoln's subsidiaries, and holders of Series B
Subordinated Debentures should look only to the assets of Lincoln for payments
on the Series B Subordinated Debentures. The payment of dividends by Lincoln's
insurance company subsidiaries is limited under the insurance holding company
laws of the states in which such subsidiaries are domiciled. See "Lincoln
National Corporation." Neither of the Indenture, the Series B Guarantee nor
the Trust Agreement places any limitation on the amount of secured or
unsecured debt, including Senior Debt, that may be incurred by Lincoln. See
"Description of Guarantees--Status of the Guarantees" and "Description of
Junior Subordinated Debentures--Subordination" in the accompanying Prospectus.
S-4
<PAGE>
The ability of the Series B Issuer to pay amounts due on the Series B TOPrS
is solely dependent upon Lincoln making payments on the Series B Subordinated
Debentures as and when required.
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
Lincoln has the right under the Indenture to defer the payment of interest
on the Series B Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarters with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Series B Subordinated Debentures. As a consequence of any such
deferral, quarterly Distributions on the Series B TOPrS by the Series B Issuer
will be deferred (and the amount of Distributions to which holders of the
Series B TOPrS are entitled will accumulate additional Distributions thereon
at the rate of 8.35% per annum, compounded quarterly from the relevant payment
date for such Distributions) during any such Extension Period. During any such
Extension Period, Lincoln may not, and may not permit any subsidiary of
Lincoln to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of
Lincoln's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of
Lincoln (including other Junior Subordinated Debentures) that rank pari passu
with or junior in interest to the Series B Subordinated Debentures or make any
guarantee payments with respect to any guarantee by Lincoln of the debt
securities of any subsidiary of Lincoln if such guarantee ranks pari passu or
junior in interest to the Series B Subordinated Debentures (other than (a)
dividends or distributions in common stock of Lincoln, (b) redemptions or
purchases of any rights pursuant to Lincoln's Rights Plan, or any successor to
such Rights Plan, and the declaration of a dividend of such rights or the
issuance of stock under such plans in the future, (c) payments under any
Guarantee, and (d) purchases of common stock related to the issuance of common
stock or rights under any of Lincoln's benefit plans for its directors,
officers or employees). Prior to the termination of any such Extension Period,
Lincoln may further extend the interest payment period, provided that no
Extension Period may exceed 20 consecutive quarters or extend beyond the
Stated Maturity of the Series B Subordinated Debentures. Upon the termination
of any Extension Period and the payment of all amounts then due, Lincoln may
elect to begin a new Extension Period subject to the above requirements. There
is no limitation on the number of times that Lincoln may elect to begin an
Extension Period. See "Certain Terms of Series B TOPrS--Distributions" and
"Certain Terms of Series B Subordinated Debentures--Option to Extend Interest
Payment Period."
Should an Extension Period occur, a holder of Series B TOPrS will continue
to accrue income (in the form of original issue discount) in respect of its
pro rata share of the Series B Subordinated Debentures held by the Series B
Issuer for United States federal income tax purposes. As a result, a holder of
Series B TOPrS will include such income in gross income for United States
federal income tax purposes in advance of the receipt of cash, and will not
receive the cash related to such income from the Series B Issuer if the holder
disposes of the Series B TOPrS prior to the record date for the payment of
Distributions. See "Certain Federal Income Tax Consequences--Original Issue
Discount" and "--Sale or Redemption of Series B TOPrS."
Lincoln has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Series B
Subordinated Debentures. However, should Lincoln elect to exercise such right
in the future, the market price of the Series B TOPrS is likely to be
affected. A holder that disposes of its Series B TOPrS during an Extension
Period, therefore, might not receive the same return on its investment as a
holder that continues to hold its Series B TOPrS. In addition, as a result of
the existence of Lincoln's right to defer interest payments, the market price
of the Series B TOPrS (which represent preferred beneficial interests in the
Series B Issuer) may be more volatile than the market prices of other
securities on which original issue discount accrues that are not subject to
such deferrals.
SPECIAL EVENT REDEMPTION OR EXCHANGE
Upon the occurrence and continuation of a Special Event, Lincoln has the
right to redeem the Series B Subordinated Debentures in whole (but not in
part) within 90 days following the occurrence of such Special Event and
therefore cause a mandatory redemption of the Series B Securities at the
redemption price. "Special
S-5
<PAGE>
Event" means an Investment Company Event or a Tax Event. An Investment Company
Event means the receipt by the Series B Issuer of an opinion of counsel
experienced in such matters to the effect that, as a result of the occurrence
of a change in law or regulation or change in interpretation or application of
law or regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), the Series B Issuer is or
will be considered an investment company that is required to be registered
under the Investment Company Act of 1940, as amended, which Change in 1940 Act
Law becomes effective on or after the date of original issuance of the Series
B TOPrS. A Tax Event means the receipt by the Series B Issuer of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement or decision is announced on or after the date of issuance
of the Series B TOPrS under the Trust Agreement, there is more than an
insubstantial risk that (i) the Series B Issuer is, or will be within 90 days
of the date of such opinion, subject to United States Federal income tax with
respect to income received or accrued on the Series B Subordinated Debentures,
(ii) interest payable by Lincoln on the Series B Subordinated Debentures is
not, or within 90 days of such opinion, will not be, deductible by Lincoln, in
whole or in part, for United States Federal income tax purposes, or (iii) the
Series B Issuer is, or will be within 90 days of the date of the opinion,
subject to more than a de minimus amount of other taxes, duties or other
governmental charges.
See "Risk Factors--Possible Tax Law Changes Affecting the Series B TOPrS"
for a discussion of certain legislative proposals that, if adopted, could give
rise to a Tax Event, which may permit Lincoln to cause a redemption of the
Series B TOPrS.
There can be no assurance as to the market prices for Series B TOPrS or
Series B Subordinated Debentures that may be distributed in exchange for
Series B TOPrS if a liquidation of the Series B Issuer occurs. Accordingly,
the Series B TOPrS that an investor may purchase, whether pursuant to the
offer made hereby or in the secondary market, or the Series B Subordinated
Debentures that a holder of Series B TOPrS may receive on liquidation of the
Series B Issuer, may trade at a discount to the price that the investor paid
to purchase the Series B TOPrS offered hereby. In addition, because Lincoln
has the right to shorten or extend the maturity of the Series B Subordinated
Debentures upon a termination of the Series B Issuer and the distribution of
the Series B Subordinated Debentures to holders of Series B TOPrS, there can
be no assurance that Lincoln will not exercise its option to change the
maturity of the Series B Subordinated Debentures upon an exchange. Because
holders of Series B TOPrS may receive Series B Subordinated Debentures on
termination of the Series B Issuer, prospective purchasers of Series B TOPrS
are also making an investment decision with regard to the Series B
Subordinated Debentures and should carefully review all the information
regarding the Series B Subordinated Debentures contained herein. See
"Description of Preferred Securities--Redemption or Exchange--Special Event
Redemption or Distribution of Corresponding Junior Subordinated Debentures"
and "Description of Junior Subordinated Debentures--Corresponding Junior
Subordinated Debentures" in the accompanying Prospectus.
RIGHTS UNDER THE SERIES B GUARANTEE
The Series B Guarantee will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The First
National Bank of Chicago will act as the indenture trustee under the Series B
Guarantee (the "Guarantee Trustee") for the purposes of compliance with the
Trust Indenture Act and will hold the Series B Guarantee for the benefit of
the holders of the Series B TOPrS. The First National Bank of Chicago will
also act as Debenture Trustee for the Series B Subordinated Debentures and as
Property Trustee and First Chicago Delaware, Inc. will act as Delaware Trustee
under the Trust Agreement. The Series B Guarantee guarantees to the holders of
the Series B TOPrS the following payments, to the extent not paid by the
Series B Issuer: (i) any accumulated and unpaid Distributions required to be
paid on the Series B TOPrS, to the extent that the Series B Issuer has funds
on hand available therefor at such time, (ii) the redemption price with
respect to any Series B TOPrS called for redemption, to the extent that the
Series B Issuer has funds on hand available therefor at such time, and (iii)
upon a voluntary or involuntary dissolution, winding-up or liquidation
S-6
<PAGE>
of the Series B Issuer (unless the Series B Subordinated Debentures are
distributed to holders of the Series B TOPrS), the lesser of (a) the aggregate
of the Liquidation Amount and all accumulated and unpaid Distributions to the
date of payment to the extent that the Series B Issuer has funds on hand
available therefor at such time and (b) the amount of assets of the Series B
Issuer remaining available for distribution to holders of the Series B TOPrS.
The holders of not less than a majority in aggregate liquidation amount of the
Series B TOPrS have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee in
respect of the Series B Guarantee or to direct the exercise of any trust power
conferred upon the Guarantee Trustee under the Series B Guarantee. Any holder
of the Series B TOPrS may institute a legal proceeding directly against
Lincoln to enforce its rights under the Series B Guarantee without first
instituting a legal proceeding against the Series B Issuer, the Guarantee
Trustee or any other person or entity. If Lincoln were to default on its
obligation to pay amounts payable under the Series B Subordinated Debentures,
the Series B Issuer would lack funds for the payment of Distributions or
amounts payable on redemption of the Series B TOPrS or otherwise, and, in such
event, holders of the Series B TOPrS would not be able to rely upon the
Series B Guarantee for payment of such amounts. Instead, in the event a
Debenture Event of Default shall have occurred and be continuing and such
event is attributable to the failure of Lincoln to pay interest on or
principal of the Series B Subordinated Debentures on the payment date on which
such payment is due and payable, then a holder of Series B TOPrS may institute
a legal proceeding directly against Lincoln for enforcement of payment to such
holder of the principal of or interest on such Series B Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Series B TOPrS of such holder (a "Direct Action"). In connection with
such Direct Action, Lincoln will have a right of set-off under the Indenture
to the extent of any payment made by Lincoln to such holder of Series B TOPrS
in the Direct Action. Except as described herein, holders of Series B TOPrS
will not be able to exercise directly any other remedy available to the
holders of the Series B Subordinated Debentures assert directly any other
rights in respect of the Series B Subordinated Debentures. See "Description of
Junior Subordinated Debentures--Enforcement of Certain Rights of Holders of
Preferred Securities," "Description of Junior Subordinated Debentures--
Debenture Events of Default" and "Description of Guarantees" in the
accompanying Prospectus. The Trust Agreement provides that each holder of
Series B TOPrS by acceptance thereof agrees to the provisions of the Series B
Guarantee and the Indenture.
LIMITED VOTING RIGHTS
Holders of Series B TOPrS will generally have limited voting rights relating
only to the modification of the Series B TOPrS, the dissolution, winding-up or
liquidation of the Series B Issuer, and the exercise of the Series B Issuer's
rights as holder of Series B Subordinated Debentures. Holders of Series B
TOPrS will not be entitled to vote to appoint, remove or replace the Property
Trustee or the Delaware Trustee, and such voting rights are vested exclusively
in the holder of the Series B Common Securities except upon the occurrence of
certain events described herein. The Property Trustee, the Administrative
Trustees and Lincoln may amend the Trust Agreement without the consent of
holders of Series B TOPrS to ensure that the Series B Issuer will be
classified for United States federal income tax purposes as a grantor trust
even if such action adversely affects the interests of such holders. See
"Description of Preferred Securities--Voting Rights; Amendment of Each Trust
Agreement" and "--Removal of Issuer Trustees" in the accompanying Prospectus.
TRADING CHARACTERISTICS OF SERIES B TOPRS
The Series B TOPrS have been authorized for trading, upon official notice of
issuance, on the New York Stock Exchange. The Series B TOPrS may trade at
prices that do not fully reflect the value of accrued but unpaid interest with
respect to the underlying Series B Subordinated Debentures. A holder of Series
B TOPrS that disposes of its Series B TOPrS between record dates for payments
of Distributions (and consequently does not receive a Distribution from the
Series B Issuer for the period prior to such disposition) will nevertheless be
required to include accrued but unpaid interest on the Series B Subordinated
Debentures through the date of disposition in income as ordinary income and to
add such amount to its adjusted tax basis in the Series B TOPrS disposed of.
Such holder will recognize a capital loss to the extent the selling price
(which may not fully reflect the value of accrued but unpaid interest) is less
than its adjusted tax basis (which will include accrued but unpaid
S-7
<PAGE>
interest). Subject to certain limited exceptions, capital losses cannot be
applied to offset ordinary income for United States federal income tax
purposes. See "Certain Federal Income Tax Consequences--Sale or Redemption of
Series B TOPrS."
As indicated above, the Series B TOPrS have been approved for listing on the
New York Stock Exchange. If the Series B TOPrS are not listed on a national
securities exchange or the NASDAQ National Market and the underwriters do make
a market for the securities, the liquidity of the Series B TOPrS could be
adversely affected.
POSSIBLE TAX LAW CHANGES AFFECTING THE SERIES B TOPRS
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill") was
released which would, among other things, generally deny interest deductions
for interest on an instrument issued by a corporation that has a maximum
weighted average maturity of more than 40 years. The Bill would also generally
deny interest deductions for interest on an instrument, issued by a
corporation, that has a maximum term of more than 20 years and that is not
shown as indebtedness on the separate balance sheet of the issuer or, where
the instrument is issued to a related party (other than a corporation), where
the holder or some other related party issues a related instrument that is not
shown as indebtedness on the issuer's consolidated balance sheet. If either
provision were to apply to the Series B Subordinated Debentures, Lincoln would
be unable to deduct interest on the Series B Subordinated Debentures. However,
on March 29, 1996, the Chairmen of the Senate Finance and House Ways and Means
Committees issued a joint statement to the effect that it was their intention
that the effective date of the President's legislative proposals, if adopted,
will be no earlier than the date of appropriate Congressional action. Under
current law, Lincoln will be able to deduct interest on the Series B
Subordinated Debentures. There can be no assurance, however, that current or
future legislative proposals or final legislation will not affect the ability
of Lincoln to deduct interest on the Series B Subordinated Debentures. Such a
change could give rise to a Tax Event, which may permit Lincoln to cause a
redemption of the Series B TOPrS, as described more fully in the accompanying
Prospectus under "Description of Preferred Securities--Redemption or
Exchange--Special Event Redemption or Distribution of Corresponding Junior
Subordinated Debentures." See also "Certain Federal Income Tax Consequences--
Possible Tax Law Changes."
S-8
<PAGE>
LINCOLN NATIONAL CAPITAL II
Lincoln National Capital II is a statutory business trust formed under
Delaware law pursuant to (i) the Trust Agreement executed by Lincoln, as
Depositor, The First National Bank of Chicago, as Property Trustee, First
Chicago Delaware Inc., Delaware Trustee, and the Administrative Trustees named
therein, and (ii) the filing of a certificate of trust with the Delaware
Secretary of State on May 20, 1996. The Series B Issuer's business and affairs
are conducted by the Issuer Trustees: The First National Bank of Chicago, as
Property Trustee, and First Chicago Delaware Inc., Delaware Trustee, and two
individual Administrative Trustees who are employees or officers of or
affiliated with Lincoln. The Series B Issuer exists for the exclusive purposes
of (i) issuing and selling the Series B TOPrS and Series B Common Securities,
(ii) using the proceeds from the sale of Series B TOPrS and Series B Common
Securities to acquire Series B Subordinated Debentures issued by Lincoln and
(iii) engaging in only those other activities necessary, advisable or
incidental thereto (such as registering the transfer of the Series B
Securities). Accordingly, the Series B Subordinated Debentures will be the
sole assets of the Series B Issuer, and payments under the Series B
Subordinated Debentures will be the sole revenue of the Series B Issuer. All
of the Series B Common Securities will be owned by Lincoln. The Series B
Common Securities will rank pari passu, and payments will be made thereon pro
rata, with the Series B TOPrS, except that upon the occurrence and continuance
of an event of default under the Trust Agreement resulting from an Event of
Default under the Indenture, the rights of Lincoln as holder of the Series B
Common Securities to payment in respect of Distributions and payments upon
liquidation, redemption or otherwise will be subordinated to the rights of the
holders of the Series B TOPrS. See "Description of Preferred Securities--
Subordination of Common Securities" in the accompanying Prospectus. Lincoln
will acquire Series B Common Securities in an aggregate liquidation amount
equal to 3% of the total capital of the Series B Issuer. The Series B Issuer
has a term of 55 years, but may terminate earlier as provided in the Trust
Agreement. The principal executive office of the Series B Issuer is 200 East
Berry Street, Fort Wayne, Indiana 46802, Attention: Secretary, and its
telephone number is (219) 455-3271. See "The Issuers" in the accompanying
Prospectus.
LINCOLN NATIONAL CORPORATION
Lincoln National Corporation is a holding company with consolidated assets
on June 30, 1996 of approximately $66.1 billion and capital and surplus
(shareholders' equity) of approximately $4.2 billion. Lincoln's income from
operations for the year ended December 31, 1995 was $306.5 million, and income
from operations excluding special charges was $441.8 million, an increase of
13% over the same figure for 1994. Income from operations is net income less
realized gain (loss) on investments, gain (loss) on sale of
affiliates/operating property and cumulative effect of accounting change, all
net of taxes. Lincoln, through its subsidiaries, operates the following four
business segments: life insurance and annuities; life-health reinsurance;
property-casualty insurance; and investment management.
As a holding company with no significant business operations of its own,
Lincoln relies on dividends from its insurance company subsidiaries, which are
primarily domiciled in Indiana, as the principal source of cash to meet its
obligations, including the payment of principal of (and premium, if any) and
any interest on debt obligations of Lincoln (including the Series B
Subordinated Debentures), and to pay dividends to holders of its capital
stock. An Indiana-domiciled insurer may not pay a dividend without notifying
the state insurance department and providing certain information. In addition,
the payment of dividends by Indiana-domiciled insurers is limited under the
insurance holding company laws which require notice to and approval by the
state insurance commissioner for the declaration or payment of any dividend,
which together with other dividends or distributions made within the preceding
twelve months, exceeds the greater of (i) 10% of the insurer's statutory
surplus as of December 31 of the preceding year or (ii) net income if the
insurer is a property-casualty insurance company or net gain from operations
if the insurer is a life insurance company, for the twelve-month period ending
on the thirty-first day of December last preceding. The insurance holding
company laws of the other jurisdictions in which Lincoln's insurance
subsidiaries are incorporated generally contain similar (although in certain
instances somewhat more restrictive) limitations on the payment of dividends.
Based upon these
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<PAGE>
regulations, Lincoln's insurance subsidiaries could pay dividends to Lincoln
in 1996 of $518 million, without obtaining specific approval from the
insurance commissioners. In connection with the recent sale of stock by
American States Financial Corporation, that entity has adopted a dividend
policy consistent with those of other similar publicly-held companies. Giving
effect to this dividend policy, the dividends payable to Lincoln by its
insurance subsidiaries in 1996 is reduced to approximately $353 million.
Dividends payable by non-insurance subsidiaries are not subject to regulatory
limitations.
Lincoln National Corporation is an Indiana corporation with its principal
office at 200 East Berry Street, Fort Wayne, Indiana 46802-2706. Its telephone
number is (219) 455-2000.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth Lincoln's ratios of earnings to fixed charges
for the years and periods indicated:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------- -------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding interest on annuities and
financial products(1).................. 8.43 8.25 7.51 6.43 10.35 6.69 3.20
Including interest on annuities and
financial products(2).................. 1.48 1.44 1.41 1.25 1.43 1.32 1.15
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends(3)............................. 1.48 1.42 1.40 1.23 1.40 1.30 1.14
</TABLE>
- --------
(1) For purposes of determining this ratio, earnings consist of income before
federal income taxes and cumulative effect of accounting change adjusted
for the difference between income or losses from unconsolidated equity
investments and cash distributions from such investments, plus fixed
charges. Fixed charges consist of interest expense on debt and the portion
of operating leases that are representative of the interest factor.
(2) Same as the ratio of earnings to fixed charges, excluding interest on
annuities and financial products, except fixed charges and earnings
include interest on annuities and financial products.
(3) Same as the ratio of earnings to fixed charges, including interest on
annuities and financial products, except that fixed charges include the
pre-tax earnings required to cover preferred stock dividend requirements.
USE OF PROCEEDS
All of the proceeds from the sale of Series B TOPrS will be invested by the
Series B Issuer in Series B Subordinated Debentures. Lincoln intends that the
proceeds from the sale of such Series B Subordinated Debentures will be added
to its general corporate funds and will be used for general corporate
purposes, including the repayment of short-term indebtedness, including
commercial paper. As of July 31, 1996, Lincoln had $174.5 million of
commercial paper outstanding that had a weighted average maturity of 13.0 days
and had an average interest rate of 5.51%. Until so utilized, the net proceeds
will be invested in income producing securities.
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<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Lincoln
and its subsidiaries as of June 30, 1996 and as adjusted to give effect to the
consummation of the offering of the Series B TOPrS. The following data should
be read in conjunction with the consolidated financial statements and notes
thereto of Lincoln and its subsidiaries incorporated herein by reference.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN MILLIONS)
<S> <C> <C>
Short-term debt (including current maturities of long-term
debt).................................................... $ 460.1 $ 155.0
Long-term debt less current portion:
7 1/8% Notes due 1999................................... 99.4 99.4
7 5/8% Notes due 2002................................... 99.3 99.3
7 1/4% Debentures due 2005.............................. 199.1 199.1
9 1/8% Debentures due 2024.............................. 199.1 199.1
Mortgages and other notes............................... 54.6 54.6
-------- --------
Total long-term debt (less current portion)........... 651.5 651.5
Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely Junior
Subordinated Deferrable Interest Debentures of the
Company, Series A (1).................................... -- 215.0
Company Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust Holding Solely Junior
Subordinated Deferrable Interest Debentures of the
Company, Series B (2).................................... -- 100.0
Shareholders' Equity:
Preferred Stock, without par value:
Authorized: 10,000,000 shares
Issued and outstanding:
$3.00 Convertible Cumulative Preferred Stock, Series A
(38,768 shares)...................................... 1.3 1.3
Common Stock, without par value: Authorized: 800,000,000
shares Issued and outstanding (104,301,275 shares)..... 829.5 829.5
Earned surplus............................................ 2,965.9 2,965.9
Foreign currency translation adjustment................... 13.2 13.2
Net unrealized gain on securities available-for-sale...... 310.1 310.1
-------- --------
Total shareholders' equity............................ 4,183.0 4,183.0
-------- --------
Total capitalization.................................. $5,294.6 $5,304.5
======== ========
</TABLE>
- --------
(1) On July 2, 1996, Lincoln National Capital I issued 9,200,000 8 3/4%
Cumulative Quarterly Income Preferred Securities, Series A. The sole
assets of Lincoln National Capital I are $221,649,500 of 8 3/4% Junior
Subordinated Deferrable Interest Debentures, Series A, issued by Lincoln
to the Series A Issuer. These Series A Debentures will mature on September
30, 2026, which date may be extended to a date not later than September
30, 2045 if certain conditions are met. Lincoln owns all of the common
securities of Lincoln National Capital I. The obligations of Lincoln,
under certain documents, including without limitation a guarantee
agreement, constitute a full and unconditional guarantee by Lincoln of the
obligations of Lincoln National Capital I under the preferred securities.
It is anticipated that Lincoln National Capital I will not be subject to
the reporting requirements under the Securities Exchange Act of 1934.
Lincoln used the proceeds of the sale of the above-referenced 8 3/4% Junior
Subordinated Deferrable Interest Debentures, Series A, to repay short-term
indebtedness.
(2) As described herein, the sole assets of the Series B Issuer will be
$103,092,800 of 8.35% Junior Subordinated Deferrable Interest Debentures,
Series B, issued by Lincoln to the Series B Issuer. The Series B
Subordinated Debentures will mature on September 30, 2026, which date may
be extended to a date not later than September 30, 2045 if certain
conditions are met. Lincoln owns all of the Series B Common Securities of
the Series B Issuer. It is anticipated that the Series B Issuer will not
be subject to the reporting requirements under the Securities Exchange Act
of 1934.
S-11
<PAGE>
ACCOUNTING TREATMENT
For financial reporting purposes, the Series B Issuer will be treated as a
subsidiary of Lincoln and, accordingly, the accounts of the Series B Issuer
will be included in the consolidated financial statements of Lincoln. The
Series B TOPrS will be presented as a separate line item in the consolidated
balance sheets of Lincoln, entitled "Company Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trust Holding Solely Junior Subordinated
Deferrable Interest Debentures of the Company" and appropriate disclosures
about the Series B TOPrS, the Series B Guarantee and the Series B Subordinated
Debentures will be included in the notes to the consolidated financial
statements. For financial reporting purposes, Lincoln will record
Distributions payable on the Series B TOPrS as an expense in the consolidated
statements of income.
Lincoln has agreed that future financial reports of Lincoln will: (i)
present the securities issued by the trusts on the balance sheet as a separate
line item entitled "Company-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts Holding Solely Junior Subordinated Deferrable
Interest Debentures of the Company"; (ii) include in a footnote the financial
statements disclosure that the sole assets of the Trusts are the Junior
Subordinated Deferrable Interest Debentures (specifying as to each Trust the
principal amount, interest rate and maturity date of Junior Subordinated
Deferrable Interest Debentures held) and whether Staff Accounting Bulletin 53
treatment is sought; (iii) include, in an audited footnote to the financial
statements, disclosure that (a) the Trusts are wholly-owned; (b) the sole
assets of the Trusts are the Junior Subordinated Deferrable Interest
Debentures (specifying as to each Trust the principal amount, interest rate
and maturity date of the Junior Subordinated Deferrable Interest Debentures
held); and (c) the obligations of Lincoln under the documents, in the
aggregate, constitute a full and unconditional guarantee by Lincoln of the
Trusts' obligations under the Preferred Securities issued by each Trust.
S-12
<PAGE>
CERTAIN TERMS OF SERIES B TOPRS
GENERAL
The following summary of certain terms and provisions of the Series B TOPrS
supplements the description of the terms and provisions of the Preferred
Securities set forth in the accompanying Prospectus under the heading
"Description of Preferred Securities," to which description reference is
hereby made. This summary of certain terms and provisions of the Series B
TOPrS does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the Trust Agreement. The form of the Trust Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus Supplement and accompanying Prospectus is a part.
DISTRIBUTIONS
The Series B TOPrS represent beneficial interests in the Series B Issuer,
and Distributions on each Series B TOPrS will be payable at the annual rate of
8.35% of the stated Liquidation Amount of $25, payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year. Distributions
will accumulate from the date of original issuance. The first Distribution
payment date for the Series B TOPrS will be September 30, 1996. The amount of
Distributions payable for any period will be computed on the basis of a 360-
day year of twelve 30-day months. In the event that any date on which
Distributions are payable on the Series B TOPrS is not a Business Day, then
payment of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (and without any additional
Distributions or other payment in respect of any such delay), except that, if
such Business Day is in the next succeeding calendar year, such payment shall
be made on the immediately preceding Business Day, in each case with the same
force and effect as if made on the date such payment was originally payable.
See "Description of Preferred Securities--Distributions" in the accompanying
Prospectus.
So long as no Event of Default under the Indenture has occurred and is
continuing, Lincoln has the right under the Indenture to defer the payment of
interest on the Series B Subordinated Debentures at any time or from time to
time for a period not exceeding 20 consecutive quarters with respect to each
Extension Period, provided that no Extension Period may extend beyond the
Stated Maturity of the Series B Subordinated Debentures. As a consequence of
any such election, quarterly Distributions on the Series B TOPrS will be
deferred by the Series B Issuer during any such Extension Period.
Distributions to which holders of the Series B TOPrS are entitled will
accumulate additional Distributions thereon at the rate per annum of 8.35%
thereof, compounded quarterly from the relevant payment date for such
Distributions. The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, Lincoln may not,
and may not permit any subsidiary of Lincoln to, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire, or make a
liquidation payment with respect to, any of Lincoln's capital stock or (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of Lincoln (including other Junior
Subordinated Debentures) that rank pari passu with or junior in interest to
the Series B Subordinated Debentures or make any guarantee payments with
respect to any guarantee by Lincoln of the debt securities of any subsidiary
of Lincoln if such guarantee ranks pari passu or junior in interest to the
Series B Subordinated Debentures (other than (a) dividends or distributions in
common stock of Lincoln, (b) redemptions or purchases of any rights pursuant
to Lincoln's Rights Plan, or any successor to such Rights Plan, and the
declaration of a dividend of such rights or the issuance of stock under such
plans in the future, (c) payments under any Guarantee, and (d) purchases of
common stock related to the issuance of common stock or rights under any of
Lincoln's benefit plans for its directors, officers or employees). Prior to
the termination of any such Extension Period, Lincoln may further extend the
interest payment period, provided that no Extension Period may exceed 20
consecutive quarters or extend beyond the Stated Maturity of the Series B
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, Lincoln may elect to begin a new
Extension Period. There is no limitation on the number of times that Lincoln
may elect to begin an Extension Period. See "Certain Terms of Series B
Subordinated Debentures--Option to Extend Interest Payment Period" and
"Certain Federal Income Tax Consequences--Original Issue Discount."
S-13
<PAGE>
Lincoln has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Series B
Subordinated Debentures.
REDEMPTION
Upon the repayment or redemption, in whole or in part, of the Series B
Subordinated Debentures, whether at Stated Maturity or upon earlier redemption
as provided in the Indenture, the proceeds from such repayment or redemption
shall be applied by the Property Trustee to redeem a Like Amount (as defined
in the accompanying Prospectus) of the Series B Securities, upon not less than
30 nor more than 60 days notice prior to the date fixed for repayment or
redemption, at a redemption price, with respect to the Series B TOPrS (the
"Redemption Price"), equal to the aggregate Liquidation Amount of such Series
B TOPrS plus accumulated and unpaid Distributions thereon to the date of
redemption (the "Redemption Date"). See "Description of Preferred Securities--
Redemption or Exchange" in the accompanying Prospectus and "Certain Terms of
Series B Subordinated Debentures--Redemption."
Lincoln will have the right to redeem the Series B Subordinated Debentures
(i) on or after August 21, 2001, in whole at any time or in part from time to
time, at a redemption price equal to the accrued and unpaid interest on the
Series B Subordinated Debentures so redeemed to the date fixed for redemption,
plus 100% of the principal amount thereof or (ii) at any time, in whole (but
not in part), upon the occurrence and continuation of a Tax Event or an
Investment Company Event (each as defined in the accompanying Prospectus, and
as so collectively defined, a "Special Event"), at a redemption price equal to
the accrued and unpaid interest on the Series B Subordinated Debentures so
redeemed to the date fixed for redemption, plus 100% of the principal amount
thereof, in each case subject to conditions described under "Description of
Junior Subordinated Debentures--Redemption" in the accompanying Prospectus.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION OF SERIES B SUBORDINATED DEBENTURES
If a Special Event shall occur and be continuing, Lincoln will have the
right to redeem the Series B Subordinated Debentures in whole (but not in
part) and thereby cause a mandatory redemption of the Series B TOPrS in whole
(but not in part) at the Redemption Price within 90 days following the
occurrence of such Special Event. At any time, Lincoln will have the right to
terminate the Series B Issuer and after satisfaction of the liabilities of
creditors of the Series B Issuer as provided by applicable law, cause the
Series B Subordinated Debentures to be distributed to the holders of the
Series B TOPrS in liquidation of the Series B Issuer. Under current United
States Federal income tax law and interpretations and assuming, as expected,
the Series B Issuer is treated as a grantor trust, a distribution of the
Series B Subordinated Debentures should not be a taxable event to holders of
the Series B TOPrS. Should there be a change in law, a change in legal
interpretation, a Special Event or other circumstances, however, the
distribution could be a taxable event to holders of the Series B TOPrS. See
"Certain Federal Income Tax Consequences--Distribution of Series B
Subordinated Debentures to Holders of Series B TOPrS." If Lincoln does not
elect either option described above, the Series B TOPrS will remain
outstanding until the repayment of the Series B Subordinated Debentures.
If Lincoln elects to liquidate the Series B Issuer and thereby causes the
Series B Subordinated Debentures to be distributed to holders of the Series B
TOPrS in liquidation of the Series B Issuer, Lincoln shall have the right to
shorten or extend the maturity of such Series B Subordinated Debentures,
provided that it can extend the maturity only if certain conditions are met.
See "Description of Preferred Securities--Redemption or Exchange--Extension of
Maturity of Corresponding Junior Subordinated Debentures" in the accompanying
Prospectus and "Certain Terms of Series B Subordinated Debentures--General."
LIQUIDATION VALUE
The amount payable on the Series B TOPrS in the event of any liquidation of
the Series B Issuer is $25 per Series B TOPrS plus accumulated and unpaid
Distributions, which may be in the form of a distribution of such amount in
Series B Subordinated Debentures, subject to certain exceptions. See
"Description of Preferred Securities--Liquidation Distribution Upon
Termination" in the accompanying Prospectus.
S-14
<PAGE>
CERTAIN TERMS OF SERIES B SUBORDINATED DEBENTURES
GENERAL
The following summary of certain terms and provisions of the Series B
Subordinated Debentures supplements the description of the terms and
provisions of the Corresponding Junior Subordinated Debentures set forth in
the accompanying Prospectus under the headings "Description of Junior
Subordinated Debentures" and "Description of Junior Subordinated Debentures--
Corresponding Junior Subordinated Debentures", to which description reference
is hereby made. The summary of certain terms and provisions of the Series B
Subordinated Debentures set forth below does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Indenture. The
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement and accompanying Prospectus is a part.
Concurrently with the issuance of the Series B TOPrS, the Series B Issuer
will invest the proceeds thereof, together with the consideration paid by
Lincoln for the Series B Common Securities, in the Series B Subordinated
Debentures issued by Lincoln. The Series B Subordinated Debentures will bear
interest at the annual rate of 8.35% of the principal amount thereof, payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year (each, an "Interest Payment Date"), commencing September 30, 1996,
to the person in whose name each Series B Subordinated Debentures is
registered, subject to certain exceptions, at the close of business on the
Business Day next preceding such Interest Payment Date. It is anticipated
that, until the liquidation, if any, of the Series B Issuer, each Series B
Subordinated Debentures will be held in the name of the Property Trustee in
trust for the benefit of the holders of the Series B TOPrS. The amount of
interest payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months. In the event that any date on which interest is
payable on the Series B Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on the date such payment was originally payable. Accrued
interest that is not paid on the applicable Interest Payment Date will bear
additional interest on the amount thereof (to the extent permitted by law) at
the rate per annum of 8.35% thereof, compounded quarterly. The term "interest"
as used herein shall include quarterly interest payments, interest on
quarterly interest payments not paid on the applicable Interest Payment Date
and Additional Sums (as defined below), as applicable.
The Series B Subordinated Debentures will be issued as a series of junior
subordinated debentures under the Indenture. The Series B Subordinated
Debentures will mature on September 30, 2026, which date may be extended at
any time at the election of Lincoln for one or more periods, but in no event
to a date later than September 30, 2045 (such date, as it may be extended, the
"Stated Maturity"), provided that at the time such election is made and at the
time of extension (i) Lincoln is not in bankruptcy, otherwise insolvent or in
liquidation, (ii) Lincoln is not in default in the payment of any interest or
principal on the Series B Subordinated Debentures, (iii) the Series B Issuer
is not in arrears on payments of Distributions on the Series B TOPrS and no
deferred Distributions are accumulated, (iv) the Series B Subordinated
Debentures are rated not less than BBB- by Standard & Poor's Ratings Services
or Baa3 by Moody's Investors Service, Inc. or the equivalent by any other
nationally recognized statistical rating organization and (v) the extended
Stated Maturity is no later than the 49th anniversary of the initial issuance
of the Series B TOPrS; provided, however, that, if Lincoln exercises its right
to liquidate the Series B Issuer and distribute the Series B Subordinated
Debentures, effective upon such exercise the Stated Maturity of the Series B
Subordinated Debentures may be changed to any date elected by Lincoln that is
(i) no earlier than the date five years after the initial issuance of the
Series B TOPrS and (ii) no later than the date 30 years (plus an extended term
of up to an additional 19 years if the above-referenced conditions are
satisfied) after the date of the initial issuance of the Series B TOPrS.
The Series B Subordinated Debentures will be unsecured and will rank junior
and be subordinate in right of payment to all Senior Debt of Lincoln. See
"Description of Junior Subordinated Debentures--Subordination" in the
accompanying Prospectus. Lincoln is a non-operating holding company and almost
all of the operating assets of Lincoln and its consolidated subsidiaries are
owned by such subsidiaries. Lincoln relies primarily on interest and dividends
from such subsidiaries to meet its obligations for payment of principal and
interest on its outstanding debt obligations and corporate expenses.
Accordingly, the Series B Subordinated Debentures will be subordinated to all
Senior Debt of Lincoln and effectively subordinated to all existing and future
liabilities of Lincoln's subsidiaries, and holders of Series B Subordinated
Debentures should look only to the assets of Lincoln for payments on the
Series B Subordinated Debentures. The Series B Subordinated Debentures will
rank pari passu with the 8 3/4% Junior Subordinated Deferred Interest
Debentures, Series A issued on July 2, 1996. The
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<PAGE>
Indenture does not limit the incurrence or issuance of other secured or
unsecured debt of Lincoln, whether under the Indenture or any existing or
other indenture that Lincoln may enter into in the future or otherwise,
including Lincoln's Senior and Subordinated Indentures entered into with The
Bank of New York and The First National Bank of Chicago, respectively. See
"Description of Junior Subordinated Debentures--Subordination" in the
accompanying Prospectus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Event of Default under the Indenture has occurred or is
continuing, Lincoln has the right under the Indenture at any time during the
term of the Series B Subordinated Debentures to defer the payment of interest
at any time or from time to time for a period not exceeding 20 consecutive
quarters with respect to each Extension Period, provided that no Extension
Period may extend beyond the Stated Maturity of the Series B TOPrS. At the end
of such Extension Period, Lincoln must pay all interest then accrued and
unpaid (together with interest thereon at the annual rate of 8.35%, compounded
quarterly, to the extent permitted by applicable law). During an Extension
Period, interest will continue to accrue and holders of Series B Subordinated
Debentures (or holders of Series B TOPrS while such series is outstanding)
will be required to accrue interest income for United States federal income
tax purposes. See "Certain Federal Income Tax Consequences--Original Issue
Discount."
During any such Extension Period, Lincoln may not, and may not permit any
subsidiary of Lincoln to, (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect
to, any of Lincoln's capital stock or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of Lincoln (including other Junior Subordinated Debentures) that
rank pari passu with or junior in interest to the Series B Subordinated
Debentures or make any guarantee payments with respect to any guarantee by
Lincoln of the debt securities of any subsidiary of Lincoln if such guarantee
ranks pari passu or junior in interest to the Series B Subordinated Debentures
(other than (a) dividends or distributions in common stock of Lincoln, (b)
redemptions or purchases of any rights pursuant to Lincoln's Rights Plan, or
any successor to such Rights Plan, and the declaration of a dividend of such
rights or the issuance of preferred stock under such plans in the future, (c)
payments under any Guarantee, and (d) purchases of Common Stock related to the
issuance of Common Stock under any of Lincoln's benefit plans for its
directors, officers or employees). Prior to the termination of any such
Extension Period, Lincoln may further extend the interest payment period,
provided that no Extension Period may exceed 20 consecutive quarters or extend
beyond the Stated Maturity of the Series B Subordinated Debentures. Upon the
termination of any such Extension Period and the payment of all amounts then
due on any Interest Payment Date, Lincoln may elect to begin a new Extension
Period subject to the above requirements. No interest shall be due and payable
during an Extension Period, except at the end thereof. Lincoln must give the
Property Trustee, the Administrative Trustees and the Debenture Trustee notice
of its election of such Extension Period at least one Business Day prior to
the earlier of (i) the date the Distributions on the Series B TOPrS would have
been payable except for the election to begin such Extension Period or (ii)
the date the Administrative Trustees are required to give notice to the New
York Stock Exchange, the Nasdaq National Market or other applicable self-
regulatory organization or to holders of such Series B TOPrS of the record
date or the date such Distributions are payable, but in any event not less
than one Business Day prior to such record date. The Debenture Trustee shall
give notice of Lincoln's election to begin a new Extension Period to the
holders of the Series B TOPrS. There is no limitation on the number of times
that Lincoln may elect to begin an Extension Period. See "Description of
Junior Subordinated Debentures--Option to Extend Interest Payment Date" in the
accompanying Prospectus.
ADDITIONAL SUMS
If the Series B Issuer is required to pay any additional taxes, duties or
other governmental charges ("Additional Sums") as a result of a Tax Event,
Lincoln will pay as additional amounts on the Series B Subordinated Debentures
such amounts as shall be required so that the Distributions payable by the
Series B Issuer shall not be reduced as a result of any such additional taxes,
duties or other governmental charges, subject to the conditions described
under "Description of Preferred Securities--Redemption or Exchange--Special
Event Redemption or Distribution of Corresponding Junior Subordinated
Debentures" in the accompanying Prospectus.
S-16
<PAGE>
REDEMPTION
The Series B Subordinated Debentures are redeemable prior to maturity at the
option of Lincoln (i) on or after August 21, 2001, in whole at any time or in
part from time to time, at a redemption price equal to the accrued and unpaid
interest on the Series B Subordinated Debentures so redeemed to the date fixed
for redemption, plus 100% of the principal amount thereof or (ii) at any time
in whole (but not in part), upon the occurrence and continuation of a Special
Event, at a redemption price equal to the accrued and unpaid interest on the
Series B Subordinated Debentures so redeemed to the date fixed for redemption,
plus 100% of the principal amount thereof, in each case subject to the further
conditions described under "Description of Junior Subordinated Debentures--
Redemption" in the accompanying Prospectus.
DISTRIBUTION OF SERIES B SUBORDINATED DEBENTURES
Under certain circumstances involving the termination of the Series B
Issuer, Series B Subordinated Debentures may be distributed to the holders of
the Series B TOPrS in liquidation of the Series B Issuer after satisfaction of
liabilities to creditors of the Series B Issuer as provided by applicable law.
If distributed to holders of Series B TOPrS in liquidation, the Series B
Subordinated Debentures will initially be issued in the form of one or more
global securities and DTC, or any successor depositary for the Series B TOPrS,
will act as depositary for the Series B Subordinated Debentures. It is
anticipated that the depositary arrangements for the Series B Subordinated
Debentures would be substantially identical to those in effect for the Series
B TOPrS. If the Series B Subordinated Debentures are distributed to the
holders of Series B TOPrS upon the liquidation of the Series B Issuer, Lincoln
will use its best efforts to list the Series B Subordinated Debentures on the
New York Stock Exchange or such other stock exchanges, if any, on which the
Series B TOPrS are then listed. There can be no assurance as to the market
price of any Series B Subordinated Debentures that may be distributed to the
holders of Series B TOPrS. For a description of DTC and the terms of the
depositary matters, see "Book-Entry Issuance" in the accompanying Prospectus.
REGISTRATION OF SERIES B SUBORDINATED DEBENTURES
A global security shall be exchangeable for Series B Subordinated Debentures
registered in the names of persons other than DTC or its nominee only if (i)
DTC notifies Lincoln that it is unwilling or unable to continue as a
depository for such global security and no successor depository shall have
been appointed, or if at any time DTC ceases to be a clearing agency
registered under the Securities Exchange Act of 1934, as amended, at a time
when DTC is required to be so registered to act as such depository, (ii)
Lincoln in its sole discretion determines that such global security shall be
so exchangeable, or (iii) there shall have occurred and be continuing an Event
of Default under the Indenture with respect to such global security. Any
global security that is exchangeable pursuant to the preceding sentence shall
be exchangeable for definitive certificates registered in such names as DTC
shall direct. It is expected that such instructions will be based upon
directions received by DTC from its Participants (as defined in the
accompanying Prospectus) with respect to ownership of beneficial interests in
such global security. In the event that Series B Subordinated Debentures are
issued in definitive form, such Series B Subordinated Debentures will be in
denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below.
Payments on Series B Subordinated Debentures represented by a global
security will be made to DTC, as the depositary for the Series B Subordinated
Debentures. In the event Series B Subordinated Debentures are issued in
definitive form, principal and interest will be payable, the transfer of the
Series B Subordinated Debentures will be registrable, and Series B
Subordinated Debentures will be exchangeable for Series B Subordinated
Debentures of other denominations of a like aggregate principal amount, at the
corporate office of the Debenture Trustee in Chicago, Illinois, or at the
offices of any paying agent or transfer agent appointed by Lincoln, provided
that payment of interest may be made at the option of Lincoln by check mailed
to the address of the persons entitled thereto or by wire transfer. In
addition, if the Series B Subordinated Debentures are issued in certificated
form, the record dates for payment of interest will be the 15th day of the
last month of each calendar quarter. For a description of DTC and the terms of
the depositary arrangements relating to payments, transfers, voting rights,
redemptions and other notices and other matters, see "Book-Entry Issuance" in
the accompanying Prospectus.
S-17
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal United States federal income tax
consequences of the purchase, ownership and disposition of Series B TOPrS.
This summary only addresses the tax consequences to a person that acquires
Series B TOPrS on their original issue at their original offering price and
that is (i) an individual citizen or resident of the United States, (ii) a
corporation or partnership organized in or under the laws of the United States
or any state thereof or the District of Columbia or (iii) an estate or trust
the income of which is subject to United States federal income tax regardless
of source (a "United States Person"). This summary does not address all tax
consequences that may be applicable to a United States Person that is a
beneficial owner of Series B TOPrS, nor does it address the tax consequences
to (i) persons that are not United States Persons, (ii) persons that may be
subject to special treatment under United States federal income tax law, such
as banks, insurance companies, thrift institutions, regulated investment
companies, real estate investment trusts, tax-exempt organizations and dealers
in securities or currencies, (iii) persons that will hold Series B TOPrS as
part of a position in a "straddle" or as part of a "hedging," "conversion" or
other integrated investment transaction for federal income tax purposes, (iv)
persons whose functional currency is not the United States dollar or (v)
persons that do not hold Series B TOPrS as capital assets.
The statements of law or legal conclusion set forth in this summary
constitute the opinion of Sonnenschein Nath & Rosenthal, counsel to Lincoln
and the Series B Issuer. This summary is based upon the Internal Revenue Code
of 1986, as amended (the "Code"), Treasury Regulations, Internal Revenue
Service rulings and pronouncements and judicial decisions now in effect, all
of which are subject to change at any time. Such changes may be applied
retroactively in a manner that could cause the tax consequences to vary
substantially from the consequences described below, possibly adversely
affecting a beneficial owner of Series B TOPrS. In particular, legislation has
been proposed that could adversely affect Lincoln's ability to deduct interest
on the Series B Subordinated Debentures, which may in turn permit Lincoln to
cause a redemption of the Series B TOPrS. See "--Possible Tax Law Changes."
The authorities on which this summary is based are subject to various
interpretations, and it is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of Series B TOPrS may
differ from the treatment described below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SERIES B TOPRS, AS WELL AS THE
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
CLASSIFICATION OF THE SERIES B ISSUER
In connection with the issuance of the Series B TOPrS, Sonnenschein Nath &
Rosenthal will render its opinion to the effect that, under then current law
and assuming compliance with the terms of the Trust Agreement, and based on
certain facts and assumptions contained in such opinion, the Series B Issuer
will be classified as a grantor trust and not as an association taxable as a
corporation for United States federal income tax purposes. As a result, each
beneficial owner of Series B TOPrS (a "Securityholder") will be treated as
owning an undivided beneficial interest in the Series B Subordinated
Debentures. Accordingly, each Securityholder will be required to include in
its gross income its pro rata share of the original issue discount accrued
with respect to the Series B Subordinated Debentures whether or not cash is
actually distributed to the Securityholders. See "--Original Issue Discount."
No amount included in income with respect to the Series B TOPrS will be
eligible for the dividends-received deduction.
ORIGINAL ISSUE DISCOUNT
Under the Indenture, Lincoln has the right to defer the payment of interest
on the Series B Subordinated Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarters with respect to each Extension
Period, provided that no Extension Period may extend beyond the Stated
Maturity of the Series B Subordinated Debentures. Because of this option, all
interest payable on the Series B Subordinated Debentures
S-18
<PAGE>
will be treated as "original issue discount" ("OID") for federal income tax
purposes. Accordingly, a Securityholder will recognize income (in the form of
OID) on a daily basis under a constant yield method over the term of the
Series B Subordinated Debentures (including during any Extension Period),
regardless of the receipt of cash with respect to the period to which such
income is attributable. (Subsequent uses of the term "interest" in this
summary shall include income in the form of OID.)
As a result, Securityholders during an Extension Period will include
interest in gross income in advance of the receipt of cash, and any
Securityholders who dispose of Series B TOPrS prior to the record date for the
payment of Distributions following such Extension Period will include interest
in gross income but will not receive any cash related thereto from the Series
B Issuer. Any amount of OID included in a Securityholder's gross income
(whether or not during an Extension Period) will increase such
Securityholder's tax basis in its Series B TOPrS, and the amount of
Distributions received by a Securityholder will reduce such Securityholder's
tax basis in its Series B TOPrS.
DISTRIBUTION OF SERIES B SUBORDINATED DEBENTURES TO HOLDERS OF SERIES B TOPRS
Under current law, a distribution by the Series B Issuer of the Series B
Subordinated Debentures as described under the caption "Certain Terms of
Series B TOPrS--Special Event Redemption or Distribution of Series B
Subordinated Debentures" will be non-taxable and will result in the
Securityholder receiving directly his pro rata share of the Series B
Subordinated Debentures previously held indirectly through the Series B
Issuer, with a holding period and aggregate tax basis equal to the holding
period and aggregate tax basis such Securityholder had in its Series B TOPrS
before such distribution. A Securityholder will accrue interest in respect of
Series B Subordinated Debentures received from the Series B Issuer in the
manner described above under""--Original Issue Discount."
SALES OR REDEMPTION OF SERIES B TOPRS
Gain or loss will be recognized by a Securityholder on a sale of Series B
TOPrS (including a redemption for cash) in an amount equal to the difference
between the amount realized and the Securityholder's adjusted tax basis in the
Series B TOPrS sold or so redeemed. Gain or loss recognized by a
Securityholder on Series B TOPrS held for more than one year will generally be
taxable as long-term capital gain or loss.
The Series B TOPrS may trade at a price that does not fully reflect the
value of accrued but unpaid interest with respect to the underlying Series B
Subordinated Debentures. A Securityholder that disposes of its Series B TOPrS
between record dates for payments of Distributions (and consequently does not
receive a Distribution from the Series B Issuer for the period prior to such
disposition) will nevertheless be required to include in income as ordinary
income accrued but unpaid interest on the Series B Subordinated Debentures
through the date of disposition and to add such amount to its adjusted tax
basis in its Series B TOPrS disposed of. Such Securityholder will recognize a
capital loss on the disposition of its Series B TOPrS to the extent the
selling price (which may not fully reflect the value of accrued but unpaid
interest) is less than the Securityholder's adjusted tax basis in the Series B
TOPrS (which will include accrued but unpaid interest). Subject to certain
limited exceptions, capital losses cannot be applied to offset ordinary income
for federal income tax purposes.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
The amount of OID accrued on the Series B TOPrS held of record by United
States Persons (other than corporations and other exempt Securityholders) will
be reported to the Internal Revenue Service. "Backup" withholding at a rate of
31% will apply to payments of interest to non-exempt United States Persons
unless the Securityholder furnishes its taxpayer identification number in the
manner prescribed in applicable Treasury Regulations, certifies that such
number is correct, certifies as to no loss of exemption from backup
withholding and meets certain other conditions.
Payment of the proceeds from the disposition of Series B TOPrS to or through
the United States office of a broker is subject to information reporting and
backup withholding unless the holder or beneficial owner establishes an
exemption from information reporting and backup withholding.
S-19
<PAGE>
Any amounts withheld from a Securityholder under the backup withholding
rules will be allowed as a refund or a credit against such Securityholder's
United States federal income tax liability, provided the required information
is furnished to the Internal Revenue Service.
It is anticipated that income on the Series B TOPrS will be reported to
holders on Form 1099 and mailed to holders of the Series B TOPrS by January 31
following each calendar year.
POSSIBLE TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"), the
revenue portion of President Clinton's budget proposal, was released. The Bill
would, among other things, generally deny interest deductions for interest on
an instrument issued by a corporation that has a maximum weighted average
maturity of more than 40 years. The Bill would also generally deny interest
deductions for interest on an instrument issued by a corporation that has a
maximum term of more than 20 years and that is not shown as indebtedness on
the separate balance sheet of the issuer or, where the instrument is issued to
a related party (other than a corporation), where the holder or some other
related party issues a related instrument that is not shown as indebtedness on
the issuer's consolidated balance sheet. For purposes of determining the
weighted average maturity or the term of an instrument, any right to extend
would be treated as exercised. The above-described provisions of the Bill were
proposed to be effective generally for instruments issued on or after December
7, 1995. If either provision were to apply to the Series B Subordinated
Debentures, Lincoln would be unable to deduct interest on the Series B
Subordinated Debentures. However, on March 29, 1996, the Chairmen of the
Senate Finance and House Ways and Means Committees issued a joint statement to
the effect that it was their intention that the effective date of the
President's legislative proposals, if adopted, will be no earlier than the
date of appropriate Congressional action. Under current law, Lincoln will be
able to deduct interest on the Series B Subordinated Debentures. There can be
no assurance, however, that current or future legislative proposals or final
legislation will not affect the ability of Lincoln to deduct interest on the
Series B Subordinated Debentures. Such a change could give rise to a Tax
Event, which may permit Lincoln to cause a redemption of the Series B TOPrS,
as described more fully in the accompanying Prospectus under "Description of
Preferred Securities--Redemption or Exchange--Special Event Redemption or
Distribution of Corresponding Junior Subordinated Debentures." Such a tax law
change would not alter the United States Federal income tax consequences of
the purchase, ownership and disposition of Series B TOPrS.
S-20
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement,
Lincoln and the Series B Issuer have agreed that the Series B Issuer will sell
to Merrill Lynch, Pierce, Fenner & Smith Incorporated, A.G. Edwards & Sons,
Inc., PaineWebber Incorporated and Prudential Securities Incorporated (the
"Underwriters"), and the Underwriters have agreed to purchase from the Series
B Issuer, the respective number of Series B TOPrS set forth opposite their
names below. In the Underwriting Agreement, the several Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
the Series B TOPrS offered hereby if any of the Series B TOPrS are purchased.
In the event of default by an Underwriter, the Underwriting Agreement provides
that, in certain circumstances, the purchase commitments of the nondefaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
SERIES B
UNDERWRITER TOPRS
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................. 3,000,000
A.G. Edwards & Sons, Inc........................................... 400,000
PaineWebber Incorporated........................................... 400,000
Prudential Securities Incorporated................................. 200,000
---------
Total......................................................... 4,000,000
=========
</TABLE>
The Underwriters propose initially to offer the Series B TOPrS to the public
at the public offering price set forth on the cover page of this Prospectus
Supplement and to certain dealers at such price less a concession not in
excess of $.50 per Series B TOPrS. The Underwriters may allow, and such
dealers may reallow, a discount not in excess of $.30 per Series B TOPrS to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
In view of the fact that the proceeds from the sale of the Series B TOPrS
will be used to purchase the Series B Subordinated Debentures issued by
Lincoln, the Underwriting Agreement provides that Lincoln will pay as
Underwriters' Compensation for the Underwriters' arranging the investment
therein of such proceeds an amount of $.7875 per Series B TOPrS for the
accounts of the several Underwriters.
Lincoln and the Series B Issuer have agreed that, during the period
beginning from the date of the Underwriting Agreement and continuing to and
including the earlier of (i) the termination of trading restrictions on the
Series B TOPrS, as determined by the Underwriters, and (ii) 30 days after the
closing date, they will not offer, sell, contract to sell or otherwise dispose
of any Preferred Securities, any other beneficial interests in the assets of
the Series B Issuer, or any preferred securities or any other securities of
the Series B Issuer or Lincoln which are substantially similar to the Series B
TOPrS, including any guarantee of such securities, or any securities
convertible into or exchangeable for or representing the right to receive
securities, preferred securities or any such substantially similar securities
of either the Series B Issuer or Lincoln, without the prior written consent of
the Underwriters, except for the Series B TOPrS offered in connection with the
offering.
Prior to this offering, there has been no public market for the Series B
TOPrS. The Series B TOPrS have been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange. Trading of the Series B
TOPrS on the New York Stock Exchange is expected to commence within a 30-day
period after the initial delivery of the Series B TOPrS. The Underwriters have
advised Lincoln that they intend to make a market in the Series B TOPrS prior
to commencement of trading on the New York Stock Exchange, but are not
obligated to do so and may discontinue market making at any time without
notice. No assurance can be given as to the liquidity of the trading market
for the Series B TOPrS.
In order to meet one of the requirements for listing the Series B TOPrS on
the New York Stock Exchange, the Underwriters will undertake to sell lots of
100 or more Series B TOPrS to a minimum of 400 beneficial holders.
S-21
<PAGE>
Lincoln and the Series B Issuer have agreed to indemnify the several
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
Certain of the Underwriters or their affiliates have provided from time to
time, and expect to provide in the future, investment or commercial banking
services to Lincoln and its affiliates, for which such Underwriters or their
affiliates have received or will receive customary fees and commissions.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Series B
TOPrS, the enforceability of the Trust Agreement and the formation of the
Series B Issuer will be passed upon by Richards, Layton & Finger, special
Delaware Counsel to Lincoln and the Series B Issuer. The validity of the
Series B Guarantee and the Series B Subordinated Debentures will be passed
upon for Lincoln by Sonnenschein Nath & Rosenthal, and for the Underwriters by
Sullivan & Cromwell, New York, New York. Sonnenschein Nath & Rosenthal and
Sullivan & Cromwell will rely on the opinion of Richards, Layton & Finger as
to matters of Delaware law and upon the opinion of Jack D. Hunter, Esq.,
Executive Vice President and General Counsel of Lincoln, as to matters of
Indiana law. Sullivan & Cromwell from time to time performs legal services for
Lincoln. Certain matters relating to United States federal income tax
considerations will be passed upon for Lincoln by Sonnenschein Nath &
Rosenthal.
S-22
<PAGE>
$500,000,000
PROSPECTUS
LINCOLN NATIONAL CORPORATION
JUNIOR SUBORDINATED DEFERRABLE
INTEREST DEBENTURES
LINCOLN NATIONAL CAPITAL I
LINCOLN NATIONAL CAPITAL II
LINCOLN NATIONAL CAPITAL III
PREFERRED SECURITIES FULLY AND UNCONDITIONALLY
GUARANTEED, AS DESCRIBED HEREIN, BY
LINCOLN NATIONAL CORPORATION
Lincoln National Corporation, an Indiana corporation ("Lincoln"), may from
time to time offer in one or more series or issuances its junior subordinated
deferrable interest debentures (the "Junior Subordinated Debentures"). The
Junior Subordinated Debentures will be unsecured and subordinate and junior in
right of payment to Senior Debt (as defined in "Description of Junior
Subordinated Debentures--Subordination") of Lincoln. If provided in an
accompanying Prospectus Supplement, Lincoln will have the right to defer
payments of interest on any series of Junior Subordinated Debentures by
extending the interest payment period thereon at any time or from time to time
for such number of consecutive interest payment periods (which shall not
extend beyond the Stated Maturity (as defined herein) of the Junior
Subordinated Debentures) with respect to each deferral period as may be
specified in such Prospectus Supplement (each, an "Extension Period"). See
"Description of Junior Subordinated Debentures--Option to Extend Interest
Payment Date".
Lincoln National Capital I, Lincoln National Capital II and Lincoln National
Capital III, each a trust formed under the laws of the State of Delaware
(each, an "Issuer," and collectively, the "Issuers"), may severally offer,
from time to time, preferred securities (the "Preferred Securities")
representing preferred beneficial interests in such Issuer. Lincoln will be
the owner of the common securities (the "Common Securities" and, together with
the Preferred Securities, the "Trust Securities") of each Issuer. The payment
of periodic cash distributions ("Distributions") with respect to the Preferred
Securities of each Issuer and payments on liquidation or redemption with
respect to such Preferred Securities, in each case out of funds held by such
Issuer, are each irrevocably guaranteed by Lincoln to the extent described
herein (each, a "Guarantee"). See "Description of Guarantees". The obligations
of Lincoln under each Guarantee will be subordinate and junior in right of
payment to all Senior Debt of Lincoln. Concurrently with the issuance by an
Issuer of its Preferred Securities, such Issuer will invest the proceeds
thereof and any contributions made in respect of the Common Securities in a
corresponding series of Lincoln's Junior Subordinated Debentures (the
"Corresponding Junior Subordinated Debentures") with terms corresponding to
the terms of that Issuer's Preferred Securities (the "Related Preferred
Securities"). The Corresponding Junior Subordinated Debentures will be the
sole assets of each Issuer, and payments under the Corresponding Junior
Subordinated Debentures and the related Expense Agreement (as defined herein)
will be the only revenue of each Issuer. Lincoln may redeem the Corresponding
Junior Subordinated Debentures (and cause the redemption of the Trust
Securities) or may terminate each Issuer and cause the Corresponding Junior
Subordinated Debentures to be distributed to the holders of Preferred
Securities in liquidation of their interests in such Issuer. See "Description
of Preferred Securities--Liquidation Distribution Upon Termination".
Holders of the Preferred Securities will be entitled to receive preferential
cumulative cash Distributions accumulating from the date of original issuance
and payable periodically as specified in an accompanying Prospectus
Supplement. If provided in an accompanying Prospectus Supplement, Lincoln will
have the right to defer payments of interest on any series of Corresponding
Junior Subordinated Debentures by extending the interest payment period
thereon at any time or from time to time for one or more Extension Periods
(which shall not extend beyond the Stated Maturity of the Corresponding Junior
Subordinated Debentures). If interest payments are so deferred, Distributions
on the Related Preferred Securities will also be deferred and Lincoln will not
be permitted, subject to
<PAGE>
certain exceptions set forth herein, to declare or pay any cash distributions
with respect to Lincoln's capital stock or debt securities that rank pari
passu with or junior to the Corresponding Junior Subordinated Debentures.
During an Extension Period, Distributions will continue to accumulate (and the
Preferred Securities will accumulate additional Distributions thereon at the
rate per annum set forth in the related Prospectus Supplement). See
"Description of Preferred Securities--Distributions".
Taken together, Lincoln's obligations under each series of Junior
Subordinated Debentures, the Indenture, the related Trust Agreement, the
related Expense Agreement and the related Guarantee (each, as defined herein),
in the aggregate, provide a full, irrevocable and unconditional guarantee of
payments of distributions and other amounts due on the related series of
Preferred Securities. See "Relationship Among the Preferred Securities, the
Corresponding Junior Subordinated Debentures and the Guarantees--Full and
Unconditional Guarantee".
The Junior Subordinated Debentures and Preferred Securities may be offered
in amounts, at prices and on terms to be determined at the time of offering;
provided, however, the aggregate initial public offering price of all Junior
Subordinated Debentures (other than Corresponding Junior Subordinated
Debentures) and Preferred Securities (including the Corresponding Junior
Subordinated Debentures) issued pursuant to the Registration Statement of
which this Prospectus forms a part shall not exceed $500,000,000. Certain
specific terms of the Junior Subordinated Debentures or Preferred Securities
in respect of which this Prospectus is being delivered will be described in an
accompanying Prospectus Supplement, including without limitation and where
applicable and to the extent not set forth herein, (a) in the case of Junior
Subordinated Debentures, the specific designation, aggregate principal amount,
denominations, Stated Maturity (including any extension thereof), interest
payment dates, interest rate (which may be fixed or variable) or method of
calculating interest, if any, applicable Extension Period or interest deferral
terms, if any, place or places where principal, premium, if any, and interest,
if any, will be payable, any terms of redemption, any sinking fund provisions,
terms for any conversion or exchange into other securities, initial offering
or purchase price, methods of distribution and any other special terms, and
(b) in the case of Preferred Securities, the identity of the Issuer, specific
title, aggregate amount, stated liquidation preference, number of securities,
Distribution rate or method of calculating such rate, applicable Extension
Period or Distribution deferral terms, if any, place or places where
Distributions will be payable, any terms of redemption, exchange, initial
offering or purchase price, methods of distribution and any other special
terms.
The Prospectus Supplement also will contain information, as applicable,
about certain United States Federal income tax consequences relating to the
Junior Subordinated Debentures or Preferred Securities.
The Junior Subordinated Debentures and Preferred Securities may be sold to
or through underwriters, through dealers, remarketing firms or agents or
directly to purchasers. See "Plan of Distribution". The names of any
underwriters, dealers, remarketing firms or agents involved in the sale of
Junior Subordinated Debentures or Preferred Securities in respect of which
this Prospectus is being delivered and any applicable fee, commission or
discount arrangements with them will be set forth in a Prospectus Supplement.
The Prospectus Supplement will state whether the Junior Subordinated
Debentures or Preferred Securities will be listed on any national securities
exchange or the Nasdaq National Market. If the Junior Subordinated Debentures
or Preferred Securities are not listed on any national securities exchange or
the Nasdaq National Market, there can be no assurance that there will be a
secondary market for the Junior Subordinated Debentures or Preferred
Securities.
This Prospectus may not be used to consummate sales of Junior Subordinated
Debentures or Preferred Securities unless accompanied by a Prospectus
Supplement.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is June 27, 1996.
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No dealer, salesperson or other person has been authorized to give any
information or make any representations, other than those contained in this
Prospectus and the applicable Prospectus Supplement, and if given or made such
information or representations must not be relied upon as having been
authorized by Lincoln or any agent, underwriter or dealer. This Prospectus and
the applicable Prospectus Supplement do not constitute an offer of any
securities other than those to which they relate, or an offer to sell or a
solicitation of an offer to buy those to which they relate, in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. The delivery of this Prospectus and/or the
applicable Prospectus Supplement at any time does not imply that the
information herein or therein is correct as of any time subsequent to its
date.
FOR NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY
OF THIS DOCUMENT.
AVAILABLE INFORMATION
Lincoln is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, Suite 1300, New York,
New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can also be obtained
at prescribed rates by writing to the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
In addition, such reports, proxy statements and other information concerning
Lincoln can be inspected at the offices of the New York Stock Exchange, Inc.,
20 Broad Street, New York, New York 10005, at the offices of the Chicago Stock
Exchange, Inc. at 440 South LaSalle Street, Chicago, Illinois 60603 and at the
offices of the Pacific Stock Exchange, Inc. at 301 Pine Street, San Francisco,
California 94104.
Lincoln and the Issuers have filed with the Commission a Registration
Statement on Form S-3 (together with all amendments and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act") with respect to the securities offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. For further information with respect
to Lincoln and the securities offered hereby, reference is made to the
Registration Statement and the exhibits and the financial statements, notes
and schedules filed as a part thereof or incorporated by reference therein,
which may be inspected at the public reference facilities of the Commission,
at the addresses set forth above. Statements made in this Prospectus
concerning the contents of any documents referred to herein are not
necessarily complete, and in each instance are qualified in all respects by
reference to the copy of such document filed as an exhibit to the Registration
Statement.
No separate financial statements of any Issuer have been included herein.
Lincoln and the Issuers do not consider that such financial statements would
be material to holders of the Preferred Securities because each Issuer is a
newly formed special purpose entity, has no operating history or independent
operations and is not engaged in and does not propose to engage in any
activity other than holding as trust assets the Corresponding Junior
Subordinated Debentures of Lincoln and issuing the Trust Securities. See "The
Issuers," "Description of Preferred Securities," "Description of Junior
Subordinated Debentures--Corresponding Junior Subordinated Debentures" and
"Description of Guarantees".
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Lincoln with the Commission are
incorporated into this Prospectus by reference:
1. Lincoln's Annual Report on Form 10-K for the year ended December 31,
1995; and
2. Lincoln's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996.
Each document or report filed by Lincoln pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date hereof and prior to the
termination of any offering of securities made by this Prospectus shall be
deemed to be incorporated by reference into this Prospectus and to be a part
of this Prospectus from the date of filing of such document. Any statement
contained herein, or in a document all or a portion of which is incorporated
or deemed to be incorporated by reference herein, shall be deemed to be
modified or superseded for purposes of the Registration Statement and this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of the Registration Statement or this
Prospectus.
Lincoln will provide without charge to any person to whom this Prospectus is
delivered, on the written or oral request of such person, a copy of any or all
of the foregoing documents incorporated by reference herein (other than
exhibits not specifically incorporated by reference into the texts of such
documents). Requests for such documents should be directed to: C. Suzanne
Womack, Secretary, Lincoln National Corporation, 200 East Berry Street, Fort
Wayne, Indiana, 46802-2706, telephone number (219) 455-3271.
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LINCOLN NATIONAL CORPORATION
The Company is a holding company with consolidated assets at March 31, 1996
of approximately $64.3 billion and shareholders' equity of approximately $4.1
billion. The Company, through its subsidiaries, provides life insurance and
annuities, life-health reinsurance, property-casualty insurance, and
investment management services to its customers.
Lincoln National Corporation is an Indiana corporation with its principal
office at 200 East Berry Street, Fort Wayne, Indiana 46802-2706. Its telephone
number is (219) 455-2000.
THE ISSUERS
Each Issuer is a statutory business trust formed under Delaware law pursuant
to (i) a trust agreement executed by Lincoln, as sponsor of the Issuer, and
the Delaware Trustee (as defined herein) of such Issuer and (ii) the filing of
a certificate of trust with the Delaware Secretary of State. Each trust
agreement will be amended and restated in its entirety (each, as so amended
and restated, a "Trust Agreement") substantially in the form filed as an
exhibit to the Registration Statement of which this Prospectus forms a part.
Each Trust Agreement will be qualified as an indenture under the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). Each Issuer
exists for the exclusive purposes of (i) issuing and selling its Trust
Securities, (ii) using the proceeds from the sale of such Trust Securities to
acquire a corresponding series of Corresponding Junior Subordinated Debentures
issued by Lincoln, and (iii) engaging in only those other activities
necessary, convenient or incidental thereto. Accordingly, the Corresponding
Junior Subordinated Debentures and the right to reimbursement of expenses
under the related Expense Agreement will be the sole assets of each Issuer,
and payments under the Corresponding Junior Subordinated Debentures and the
related Expense Agreement will be the sole revenue of each Issuer.
All of the Common Securities of each Issuer will be owned by Lincoln. The
Common Securities of an Issuer will rank pari passu, and payments will be made
thereon pro rata, with the Preferred Securities of such Issuer, except that
upon the occurrence and continuance of an event of default under a Trust
Agreement resulting from a Debenture Event of Default (as defined herein), the
rights of Lincoln as holder of the Common Securities to payment in respect of
Distributions and payments upon liquidation, redemption or otherwise will be
subordinated to the rights of the holders of the Preferred Securities of such
Issuer. See "Description of Preferred Securities--Subordination of Common
Securities". Lincoln will acquire Common Securities in an aggregate
liquidation amount equal to not less than 3% of the total capital of each
Issuer.
Unless otherwise specified in the applicable Prospectus Supplement, each
Issuer has a term of approximately 55 years, but may terminate earlier as
provided in the applicable Trust Agreement. Each Issuer's business and affairs
are conducted by its trustees, each appointed by Lincoln as holder of the
Common Securities. The trustees for each Issuer will be The First National
Bank of Chicago, as the Property Trustee (the "Property Trustee"), First
Chicago Delaware, Inc., as the Delaware Trustee (the "Delaware Trustee"), and
two individual trustees (the "Administrative Trustees") who are employees or
officers of or affiliated with Lincoln (collectively, the "Issuer Trustees").
The First National Bank of Chicago, as Property Trustee, will act as sole
indenture trustee under each Trust Agreement for purposes of compliance with
the Trust Indenture Act. The First National Bank of Chicago will also act as
trustee under the Guarantees and the Indenture (each as defined herein). See
"Description of Guarantees" and "Description of Junior Subordinated
Debentures". The holder of the Common Securities of an Issuer, or the holders
of a majority in liquidation preference of the Related Preferred Securities if
a Debenture Event of Default under the Trust Agreement for such Issuer has
occurred and is continuing, will be entitled to appoint, remove or replace the
Property Trustee and/or the Delaware Trustee for such Issuer. In no event will
the holders of the Preferred Securities have the right to vote to appoint,
remove or replace the Administrative Trustees; such voting rights are vested
exclusively in
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the holder of the Common Securities. The duties and obligations of each Issuer
Trustee are governed by the applicable Trust Agreement. Lincoln will pay all
fees and expenses related to each Issuer and the offering of the Preferred
Securities and will pay, directly or indirectly, all ongoing costs, expenses
and liabilities of each Issuer.
The principal executive office of each issuer is 200 East Berry Street, Fort
Wayne, Indiana 46802-2706 and its telephone number is (219) 455-2000.
USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement,
Lincoln intends to use the proceeds from the sale of its Junior Subordinated
Debentures (including Corresponding Junior Subordinated Debentures issued to
the Issuers in connection with the investment by the Issuers of all of the
proceeds from the sale of Preferred Securities) for general corporate
purposes, including working capital, capital expenditures, investments in or
loans to subsidiaries, refinancing of debt, including outstanding commercial
paper and other short-term bank indebtedness, the satisfaction of other
obligations or for such other purposes as may be specified in the applicable
Prospectus Supplement. A more detailed description of the use of proceeds of
any specific offering shall be set forth in the Prospectus Supplement
pertaining to such offering.
DESCRIPTION OF JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures are to be issued in one or more series
under a Junior Subordinated Indenture, as supplemented from time to time (as
so supplemented, the "Indenture"), between Lincoln and The First National Bank
of Chicago, as trustee (the "Debenture Trustee"). This summary of certain
terms and provisions of the Junior Subordinated Debentures, Corresponding
Junior Subordinated Debentures and the Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the Indenture, the form of which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, and to the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The Indenture is
qualified under the Trust Indenture Act. Whenever particular defined terms of
the Indenture (as supplemented or amended from time to time) are referred to
herein or in a Prospectus Supplement, such defined terms are incorporated
herein or therein by reference.
GENERAL
Each series of Junior Subordinated Debentures will rank pari passu with all
other series of Junior Subordinated Debentures and will be unsecured and
subordinate and junior in right of payment to the extent and in the manner set
forth in the Indenture to all Senior Debt (as defined below) of Lincoln. See
"--Subordination". Lincoln is a non-operating holding company and almost all
of the operating assets of Lincoln and its consolidated subsidiaries are owned
by such subsidiaries. Lincoln relies primarily on dividends from such
subsidiaries to meet its obligations. The payment of dividends by Lincoln's
insurance company subsidiaries is limited under the insurance company holding
company laws of the states in which such subsidiaries are domiciled.
Accordingly, the Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of Lincoln's subsidiaries,
and holders of Junior Subordinated Debentures should look only to the assets
of Lincoln for payments on the Junior Subordinated Debentures. The payment of
dividends by Lincoln's insurance company subsidiaries is limited under the
insurance holding company laws of the states in which such subsidiaries are
domiciled. Except as otherwise provided in the applicable Prospectus
Supplement, the Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of Lincoln, whether under the Indenture, any other
indenture that Lincoln may enter into in the future or otherwise. See "--
Subordination" and the Prospectus Supplement relating to any offering of
Securities.
The Junior Subordinated Debentures will be issuable in one or more series
pursuant to an indenture supplemental to the Indenture or a resolution of
Lincoln's Board of Directors or a committee thereof.
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The applicable Prospectus Supplement or Prospectus Supplements will describe
the following terms of the Junior Subordinated Debentures: (1) the title of
the Junior Subordinated Debentures; (2) any limit upon the aggregate principal
amount of the Junior Subordinated Debentures; (3) the date or dates on which
the principal of the Junior Subordinated Debentures is payable (the "Stated
Maturity") or the method of determination thereof; (4) the rate or rates, if
any, at which the Junior Subordinated Debentures shall bear interest, the
Interest Payment Dates on which any such interest shall be payable, the right,
if any, of Lincoln to defer or extend an Interest Payment Date, and the
Regular Record Date for any interest payable on any Interest Payment Date or
the method by which any of the foregoing shall be determined; (5) the place or
places where, subject to the terms of the Indenture as described below under
"Payment and Paying Agents", the principal of and premium, if any, and
interest on the Junior Subordinated Debentures will be payable and where,
subject to the terms of the Indenture as described below under "--
Denominations, Registration and Transfer," the Junior Subordinated Debentures
may be presented for registration of transfer or exchange and the place or
places where notices and demands to or upon Lincoln in respect of the Junior
Subordinated Debentures and the Indentures may be made ("Place of Payment");
(6) any period or periods within or date or dates on which, the price or
prices at which and the terms and conditions upon which Junior Subordinated
Debentures may be redeemed, in whole or in part, at the option of Lincoln or a
holder thereof; (7) the obligation or the right, if any, of Lincoln or a
holder thereof to redeem, purchase or repay the Junior Subordinated Debentures
and the period or periods within which, the price or prices at which, the
currency or currencies (including currency unit or units) in which and the
other terms and conditions upon which the Junior Subordinated Debentures shall
be redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation; (8) the denominations in which any Junior Subordinated Debentures
shall be issuable if other than denominations of $25 and any integral multiple
thereof; (9) if other than in U.S. Dollars, the currency or currencies
(including currency unit or units) in which the principal of (and premium, if
any) and interest, if any, on the Junior Subordinated Debentures shall be
payable, or in which the Junior Subordinated Debentures shall be denominated;
(10) any additions, modifications or deletions in the Events of Default or
covenants of Lincoln specified in the Indenture with respect to the Junior
Subordinated Debentures; (11) if other than the principal amount thereof, the
portion of the principal amount of Junior Subordinated Debentures that shall
be payable upon declaration of acceleration of the maturity thereof; (12) any
additions or changes to the Indenture with respect to a series of Junior
Subordinated Debentures as shall be necessary to permit or facilitate the
issuance of such series in bearer form, registrable or not registrable as to
principal, and with or without interest coupons; (13) any index or indices
used to determine the amount of payments of principal of and premium, if any,
on the Junior Subordinated Debentures and the manner in which such amounts
will be determined; (14) the terms and conditions relating to the issuance of
a temporary Global Security representing all of the Junior Subordinated
Debentures of such series and the exchange of such temporary Global Security
for definitive Junior Subordinated Debentures of such series; (15) subject to
the terms described under "--Global Junior Subordinated Debentures", whether
the Junior Subordinated Debentures of the series shall be issued in whole or
in part in the form of one or more Global Securities and, in such case, the
Depositary for such Global Securities, which Depositary shall be a clearing
agency registered under the Exchange Act; (16) the appointment of any Paying
Agent or Agents; (17) the terms and conditions of any obligation or right of
Lincoln or a holder to convert or exchange the Junior Subordinated Debentures
into Preferred Securities; (18) the form of Trust Agreement and Guarantee
Agreement, if applicable; (19) the relative degree, if any, to which such
Junior Subordinated Debentures of the series shall be senior to or be
subordinated to other series of such Junior Subordinated Debentures or other
indebtedness of Lincoln in right of payment, whether such other series of
Junior Subordinated Debentures or other indebtedness are outstanding or not;
and (20) any other terms of the Junior Subordinated Debentures not
inconsistent with the provisions of the Indenture.
Junior Subordinated Debentures may be sold at a substantial discount below
their stated principal amount, bearing no interest or interest at a rate which
at the time of issuance is below market rates.
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Certain United States Federal income tax consequences and special
considerations applicable to any such Junior Subordinated Debentures will be
described in the applicable Prospectus Supplement.
If the purchase price of any of the Junior Subordinated Debentures is
payable in one or more foreign currencies or currency units or if any Junior
Subordinated Debentures are denominated in one or more foreign currencies or
currency units or if the principal of, premium, if any, or interest, if any,
on any Junior Subordinated Debentures is payable in one or more foreign
currencies or currency units, the restrictions, elections, certain United
States Federal income tax consequences, specific terms and other information
with respect to such issue of Junior Subordinated Debentures and such foreign
currency or currency units will be set forth in the applicable Prospectus
Supplement.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest on any series of Junior Subordinated Debentures,
special United States Federal income tax, accounting and other considerations
applicable thereto will be described in the applicable Prospectus Supplement.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the
Junior Subordinated Debentures will be issuable only in registered form
without coupons in denominations of $25 and any integral multiple thereof.
Junior Subordinated Debentures of any series will be exchangeable for other
Junior Subordinated Debentures of the same issue and series, of any authorized
denominations, of a like aggregate principal amount, of the same Original
Issue Date and Stated Maturity and bearing the same interest rate.
Junior Subordinated Debentures may be presented for exchange as provided
above, and may be presented for registration of transfer (with the form of
transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the appropriate Securities Registrar or at
the office of any transfer agent designated by Lincoln for such purpose with
respect to any series of Junior Subordinated Debentures and referred to in the
applicable Prospectus Supplement, without service charge and upon payment of
any taxes and other governmental charges as described in the Indenture.
Lincoln will appoint the Trustee as Securities Registrar under the Indenture.
If the applicable Prospectus Supplement refers to any transfer agents (in
addition to the Securities Registrar) initially designated by Lincoln with
respect to any series of Junior Subordinated Debentures, Lincoln may at any
time rescind the designation of any such transfer agent or approve a change in
the location through which any such transfer agent acts, provided that Lincoln
maintains a transfer agent in each Place of Payment for such series. Lincoln
may at any time designate additional transfer agents with respect to any
series of Junior Subordinated Debentures.
In the event of any redemption, neither Lincoln nor the Debenture Trustee
shall be required to (i) issue, register the transfer of or exchange Junior
Subordinated Debentures of any series during a period beginning at the opening
of business 15 days before the day of selection for redemption of Junior
Subordinated Debentures of that series and ending at the close of business on
the day of mailing of the relevant notice of redemption or (ii) transfer or
exchange any Junior Subordinated Debentures so selected for redemption,
except, in the case of any Junior Subordinated Debentures being redeemed in
part, any portion thereof not to be redeemed.
GLOBAL JUNIOR SUBORDINATED DEBENTURES
The Junior Subordinated Debentures of a series may be issued in whole or in
part in the form of one or more Global Junior Subordinated Debentures that
will be deposited with, or on behalf of, a depositary (the "Depositary")
identified in the Prospectus Supplement relating to such series. Global Junior
Subordinated Debentures may be issued only in fully registered form and in
either temporary or permanent form. Unless and until it is exchanged in whole
or in part for the individual Junior Subordinated Debentures represented
thereby, a Global Junior Subordinated Debenture may not be transferred except
as a whole by the Depositary for such Global Junior Subordinated Debenture to
a
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nominee of such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary or by the Depositary or any
nominee to a successor Depositary or any nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Junior Subordinated Debentures will be described in the Prospectus Supplement
relating to such series. Lincoln anticipates that the following provisions
will generally apply to depositary arrangements.
Upon the issuance of a Global Junior Subordinated Debenture, and the deposit
of such Global Junior Subordinated Debenture with or on behalf of the
Depositary, the Depositary for such Global Junior Subordinated Debenture or
its nominee will credit, on its book-entry registration and transfer system,
the respective principal amounts of the individual Junior Subordinated
Debentures represented by such Global Junior Subordinated Debenture to the
accounts of persons that have accounts with such Depositary ("Participants").
Such accounts shall be designated by the dealers, underwriters or agents with
respect to such Junior Subordinated Debentures or by Lincoln if such Junior
Subordinated Debentures are offered and sold directly by Lincoln. Ownership of
beneficial interests in a Global Junior Subordinated Debenture will be limited
to Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such Global Junior Subordinated Debenture
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the applicable Depositary or its nominee (with
respect to interests of Participants) and the records of Participants (with
respect to interests of persons who hold through Participants). The laws of
some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Junior
Subordinated Debenture.
So long as the Depositary for a Global Junior Subordinated Debenture, or its
nominee, is the registered owner of such Global Junior Subordinated Debenture,
such Depositary or such nominee, as the case may be, will be considered the
sole owner or holder of the Junior Subordinated Debentures represented by such
Global Junior Subordinated Debenture for all purposes under the Indenture
governing such Junior Subordinated Debentures. Except as provided below,
owners of beneficial interests in a Global Junior Subordinated Debenture will
not be entitled to have any of the individual Junior Subordinated Debentures
of the series represented by such Global Junior Subordinated Debenture
registered in their names, will not receive or be entitled to receive physical
delivery of any such Junior Subordinated Debentures of such series in
definitive form and will not be considered the owners or holders thereof under
the Indenture.
Payments of principal of (and premium, if any) and interest on individual
Junior Subordinated Debentures represented by a Global Junior Subordinated
Debenture registered in the name of a Depositary or its nominee will be made
to the Depositary or its nominee, as the case may be, as the registered owner
of the Global Junior Subordinated Debenture representing such Junior
Subordinated Debentures. None of Lincoln, the Debenture Trustee, any Paying
Agent, or the Securities Registrar for such Junior Subordinated Debentures
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of
the Global Junior Subordinated Debenture representing such Junior Subordinated
Debentures or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
Lincoln expects that the Depositary for a series of Junior Subordinated
Debentures or its nominee, upon receipt of any payment of principal, premium
or interest in respect of a permanent Global Junior Subordinated Debenture
representing any of such Junior Subordinated Debentures, immediately will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the principal amount of such Global Junior
Subordinated Debenture for such Junior Subordinated Debentures as shown on the
records of such Depositary or its nominee. Lincoln also expects that payments
by Participants to owners of beneficial interests in such Global Junior
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Subordinated Debenture held through such Participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers in bearer form or registered in
"street name." Such payments will be the responsibility of such Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for a series of Junior Subordinated Debentures is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by Lincoln within 90 days, Lincoln will issue
individual Junior Subordinated Debentures of such series in exchange for the
Global Junior Subordinated Debenture representing such series of Junior
Subordinated Debentures. In addition, Lincoln may at any time and in its sole
discretion, subject to any limitations described in the Prospectus Supplement
relating to such Junior Subordinated Debentures, determine not to have any
Junior Subordinated Debentures of such series represented by one or more
Global Junior Subordinated Debentures and, in such event, will issue
individual Junior Subordinated Debentures of such series in exchange for the
Global Junior Subordinated Debenture or Securities representing such series of
Junior Subordinated Debentures. Further, if Lincoln so specifies with respect
to the Junior Subordinated Debentures of a series, an owner of a beneficial
interest in a Global Junior Subordinated Debenture representing Junior
Subordinated Debentures of such series may, on terms acceptable to Lincoln,
the Debenture Trustee and the Depositary for such Global Junior Subordinated
Debenture, receive individual Junior Subordinated Debentures of such series in
exchange for such beneficial interests, subject to any limitations described
in the Prospectus Supplement relating to such Junior Subordinated Debentures.
In any such instance, an owner of a beneficial interest in a Global Junior
Subordinated Debenture will be entitled to physical delivery of individual
Junior Subordinated Debentures of the series represented by such Global Junior
Subordinated Debenture equal in principal amount to such beneficial interest
and to have such Junior Subordinated Debentures registered in its name.
Individual Junior Subordinated Debentures of such series so issued will be
issued in denominations, unless otherwise specified by Lincoln, of $25 and
integral multiples thereof.
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Junior Subordinated
Debentures will be made at the office of the Debenture Trustee in the City of
New York or at the office of such Paying Agent or Paying Agents as Lincoln may
designate from time to time in the applicable Prospectus Supplement, except
that at the option of Lincoln payment of any interest may be made (i), except
in the case of Global Junior Subordinated Debentures, by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Securities Register or (ii) by transfer to an account maintained by the Person
entitled thereto as specified in the Securities Register, provided that proper
transfer instructions have been received by the Regular Record Date. Unless
otherwise indicated in the applicable Prospectus Supplement, payment of any
interest on Junior Subordinated Debentures will be made to the Person in whose
name such Junior Subordinated Debenture is registered at the close of business
on the Regular Record Date for such interest, except in the case of Defaulted
Interest. Lincoln may at any time designate additional Paying Agents or
rescind the designation of any Paying Agent; however Lincoln will at all times
be required to maintain a Paying Agent in each Place of Payment for each
series of Junior Subordinated Debentures.
Any moneys deposited with the Debenture Trustee or any Paying Agent, or then
held by Lincoln in trust, for the payment of the principal of (and premium, if
any) or interest on any Junior Subordinated Debenture and remaining unclaimed
for two years after such principal (and premium, if any) or interest has
become due and payable shall, at the request of Lincoln, be repaid to Lincoln
and the holder of such Junior Subordinated Debenture shall thereafter look, as
a general unsecured creditor, only to Lincoln for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
If provided in the applicable Prospectus Supplement, Lincoln shall have the
right at any time and from time to time during the term of any series of
Junior Subordinated Debentures to defer payment of
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interest for such number of consecutive interest payment periods as may be
specified in the applicable Prospectus Supplement (each, an "Extension
Period"), subject to the terms, conditions and covenants, if any, specified in
such Prospectus Supplement, provided that such Extension Period may not extend
beyond the Stated Maturity of such series of Junior Subordinated Debentures.
Certain United States Federal income tax consequences and special
considerations applicable to any such Junior Subordinated Debentures will be
described in the applicable Prospectus Supplement.
REDEMPTION
Unless otherwise indicated in the applicable Prospectus Supplement, Junior
Subordinated Debentures will not be subject to any sinking fund.
Unless otherwise indicated in the applicable Prospectus Supplement, Lincoln
may, at its option, redeem the Junior Subordinated Debentures of any series in
whole at any time or in part from time to time. Junior Subordinated Debentures
in denominations larger than $25 may be redeemed in part but only in integral
multiples of $25. Except as otherwise specified in the applicable Prospectus
Supplement, the redemption price for any Junior Subordinated Debenture so
redeemed shall equal any accrued and unpaid interest thereon to the redemption
date, plus the principal amount thereof.
Except as otherwise specified in the applicable Prospectus Supplement, if a
Debenture Tax Event (as defined below) in respect of a series of Junior
Subordinated Debentures shall occur and be continuing, Lincoln may, at its
option, redeem such series of Junior Subordinated Debentures in whole (but not
in part) at any time within 90 days of the occurrence of such Debenture Tax
Event, at a redemption price equal to 100% of the principal amount of such
Junior Subordinated Debentures then outstanding plus accrued and unpaid
interest to the date fixed for redemption.
"Debenture Tax Event" means the receipt by Lincoln of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment
to, or change (including any announced prospective change) in, the laws (or
any regulations thereunder) of the United States or any political subdivision
or taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying
such laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
applicable series of Junior Subordinated Debentures under the Indenture, there
is more than an insubstantial risk that interest payable by Lincoln on such
series of Junior Subordinated Debentures is not, or within 90 days of the date
of such opinion will not be, deductible by Lincoln, in whole or in part, for
United States Federal income tax purposes.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Junior Subordinated
Debentures to be redeemed at its registered address. Unless Lincoln defaults
in payment of the redemption price, on and after the redemption date interest
ceases to accrue on such Junior Subordinated Debentures or portions thereof
called for redemption.
RESTRICTIONS ON CERTAIN PAYMENTS
Lincoln will also covenant, as to each series of Junior Subordinated
Debentures, that it will not, and will not permit any subsidiary of Lincoln
to, (i) declare or pay any dividends or distributions on, or redeem, purchase,
acquire, or make a liquidation payment with respect to, any of Lincoln's
capital stock or (ii) make any payment of principal, interest or premium, if
any, on or repay or repurchase or redeem any debt securities of Lincoln
(including other Junior Subordinated Debentures) that rank pari passu with or
junior in interest to the Junior Subordinated Debentures or make any guarantee
payments with respect to any guarantee by Lincoln of the debt securities of
any subsidiary of Lincoln if such guarantee ranks pari passu or junior in
interest to the Junior Subordinated Debentures (other than (a) dividends or
distributions in common stock of Lincoln, (b) redemptions or purchases of any
rights pursuant to Lincoln's Rights Plan, or any successor to such Rights
Plan, and the declaration of a dividend of such rights or the issuance of
stock under such plans in the future, (c) payments under any Guarantee and (d)
purchases of common stock related to the issuance of common stock under
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any of Lincoln's benefit plans for its directors, officers or employees) if at
such time (i) there shall have occurred any event of which Lincoln has actual
knowledge that (a) with the giving of notice or the lapse of time, or both,
would constitute an "Event of Default" under the Indenture with respect to the
Junior Subordinated Debentures of such series and (b) in respect of which
Lincoln shall not have taken reasonable steps to cure, (ii) if such Junior
Subordinated Debentures are held by an Issuer of a series of Related Preferred
Securities, Lincoln shall be in default with respect to its payment of any
obligations under the Guarantee relating to such Related Preferred Securities
or (iii) Lincoln shall have given notice of its selection of an Extension
Period as provided in the Indenture with respect to the Junior Subordinated
Debentures of such series and shall not have rescinded such notice, or such
Extension Period, or any extension thereof, shall be continuing.
MODIFICATION OF INDENTURE
From time to time Lincoln and the Debenture Trustee may, without the consent
of the holders of any series of Junior Subordinated Debentures, amend, waive
or supplement the Indenture for specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies (provided that any such
action does not materially adversely affect the interest of the holders of any
series of Junior Subordinated Debentures or, in the case of Corresponding
Junior Subordinated Debentures, the holders of the Related Preferred
Securities so long as they remain outstanding) and qualifying, or maintaining
the qualification of, the Indenture under the Trust Indenture Act. The
Indenture contains provisions permitting Lincoln and the Debenture Trustee,
with the consent of the holders of not less than a majority in principal
amount of each outstanding series of Junior Subordinated Debentures affected,
to modify the Indenture in a manner affecting the rights of the holders of
such series of the Junior Subordinated Debentures; provided, that no such
modification may, without the consent of the holder of each outstanding Junior
Subordinated Debenture so affected, (i) change the Stated Maturity of any
series of Junior Subordinated Debentures, or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest thereon
(except such extension as is contemplated hereby) or (ii) reduce the
percentage of principal amount of Junior Subordinated Debentures of any
series, the holders of which are required to consent to any such modification
of the Indenture, provided that, in the case of Corresponding Junior
Subordinated Debentures, so long as any of the Related Preferred Securities
remain outstanding, no such modification may be made that adversely affects
the holders of such Preferred Securities in any material respect, and no
termination of the Indenture may occur, and no waiver of any Debenture Event
of Default or compliance with any covenant under the Indenture may be
effective, without the prior consent of the holders of at least a majority of
the aggregate liquidation preference of such Related Preferred Securities
unless and until the principal of the Corresponding Junior Subordinated
Debentures and all accrued and unpaid interest thereon have been paid in full
and certain other conditions are satisfied.
In addition, Lincoln and the Debenture Trustee may execute, without the
consent of any holder of Junior Subordinated Debentures, any supplemental
Indenture for the purpose of creating any new series of Junior Subordinated
Debentures.
DEBENTURE EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events with respect to a series of Junior Subordinated Debentures that has
occurred and is continuing constitutes a "Debenture Event of Default" with
respect to such series of Junior Subordinated Debentures:
(i) failure for 30 days to pay any interest on such series of the Junior
Subordinated Debentures, when due (subject to the deferral of any due date
in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on such series of
Junior Subordinated Debentures when due whether at maturity, upon
redemption by declaration or otherwise; or
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(iii) failure to observe or perform in any material respect certain other
covenants contained in the Indenture for 90 days after written notice to
Lincoln from the Debenture Trustee or the holders of at least 25% in
aggregate outstanding principal amount of such series of outstanding Junior
Subordinated Debentures; or
(iv) certain events in bankruptcy, insolvency or reorganization of
Lincoln.
The holders of a majority in aggregate outstanding principal amount of such
series of Junior Subordinated Debentures have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debenture Trustee. The Debenture Trustee or the holders of not less than 25%
in aggregate outstanding principal amount of such series of Junior
Subordinated Debentures may declare the principal due and payable immediately
upon a Debenture Event of Default, and, in the case of Corresponding Junior
Subordinated Debentures, should the Debenture Trustee or such holders of such
Corresponding Junior Subordinated Debentures fail to make such declaration,
the holders of at least 25% in aggregate liquidation preference of the Related
Preferred Securities shall have such right. The holders of a majority in
aggregate outstanding principal amount of such series of Junior Subordinated
Debentures may annul such declaration and waive the default if the default
(other than the non-payment of the principal of such series of Junior
Subordinated Debentures which has become due solely by such acceleration) has
been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Debenture Trustee. In the case of Corresponding Junior Subordinated
Debentures, should the holders of such Corresponding Junior Subordinated
Debentures fail to annul such declaration and waive such default, the holders
of a majority in aggregate liquidation preference of the Related Preferred
Securities shall have such right.
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures affected thereby may, on behalf of the holders
of all the Junior Subordinated Debentures, waive any past default, except a
default in the payment of principal or interest (unless such default has been
cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration has been deposited with the
Debenture Trustee) or a default in respect of a covenant or provision which
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Junior Subordinated Debenture. In the case of
Corresponding Junior Subordinated Debentures, should the holders of such
Corresponding Junior Subordinated Debentures fail to annul such declaration
and waive such default, the holders of a majority in aggregate liquidation
preference of the Related Preferred Securities shall have such right. Lincoln
is required to file annually with the Debenture Trustee a certificate as to
whether or not Lincoln is in compliance with all the conditions and covenants
applicable to it under the Indenture.
In case a Debenture Event of Default shall occur and be continuing as to a
series of Corresponding Junior Subordinated Debentures, the Property Trustee
will have the right to declare the principal of and the interest on such
Corresponding Junior Subordinated Debentures, and any other amounts payable
under the Indenture, to be forthwith due and payable and to enforce its other
rights as a creditor with respect to such Corresponding Junior Subordinated
Debentures.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Debenture Event of Default has occurred and is continuing and such
event is attributable to the failure of Lincoln to pay interest or principal
on the related Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, a holder of Preferred Securities may institute
a legal proceeding directly against Lincoln for enforcement of payment to such
holder of the principal of or interest on such related Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the related Preferred Securities of such holder (a "Direct Action").
Lincoln may not amend the Indenture to remove the foregoing right to bring a
Direct Action without the prior written consent of the holders of all of the
Preferred Securities. If the right to bring a Direct Action is removed, the
applicable Issue may become subject to the reporting obligations under the
Securities
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Exchange Act of 1934, as amended. Lincoln shall have the right under the
Indenture to set-off any payment made to such holder of Preferred Securities
by Lincoln in connection with a Direct Action. The holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the related Junior Subordinated Debentures.
The holders of the Preferred Securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debentures unless there
shall have been an Event of Default under the Trust Agreement. See
"Description of Preferred Securities--Events of Default; Notice".
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Indenture provides that Lincoln shall not consolidate with or merge into
any other Person or convey, transfer or lease its properties and assets
substantially as an entirety to any Person, and no Person shall consolidate
with or merge into Lincoln or convey, transfer or lease its properties and
assets substantially as an entirety to Lincoln, unless (i) in case Lincoln
consolidates with or merges into another Person or conveys or transfers its
properties and assets substantially as an entirety to any Person, the
successor Person is organized under the laws of the United States or any state
or the District of Columbia, and such successor Person expressly assumes
Lincoln's obligations on the Junior Subordinated Debentures issued under the
Indenture; (ii) immediately after giving effect thereto, no Debenture Event of
Default, and no event which, after notice or lapse of time or both, would
become a Debenture Event of Default, shall have happened and be continuing;
(iii) in the case of Corresponding Junior Subordinated Debentures, such
transaction is permitted under the related Trust Agreement or Guarantee and
does not give rise to any breach or violation of the related Trust Agreement
and Guarantee, and (iv) certain other conditions as prescribed in the
Indenture are met.
The general provisions of the Indenture do not afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged or other
transaction involving Lincoln that may adversely affect holders of the Junior
Subordinated Debentures.
SATISFACTION AND DISCHARGE
The Indenture provides that when, among other things, all Junior
Subordinated Debentures not previously delivered to the Debenture Trustee for
cancellation (i) have become due and payable or (ii) will become due and
payable at their Stated Maturity within one year, and Lincoln deposits or
causes to be deposited with the Debenture Trustee trust funds, in trust, for
the purpose and in an amount in the currency or currencies in which the Junior
Subordinated Debentures are payable sufficient to pay and discharge the entire
indebtedness on the Junior Subordinated Debentures not previously delivered to
the Debenture Trustee for cancellation, for the principal (and premium, if
any) and interest to the date of the deposit or to the Stated Maturity, as the
case may be, then the Indenture will cease to be of further effect (except as
to Lincoln's obligations to pay all other sums due pursuant to the Indenture
and to provide the officers' certificates and opinions of counsel described
therein), and Lincoln will be deemed to have satisfied and discharged the
Indenture.
CONVERSION OR EXCHANGE
If and to the extent indicated in the applicable Prospectus Supplement, the
Junior Subordinated Debentures of any series may be convertible or
exchangeable into Preferred Securities or other securities. The specific terms
on which Junior Subordinated Debentures of any series may be so converted or
exchanged will be set forth in the applicable Prospectus Supplement. Such
terms may include provisions for conversion or exchange, either mandatory, at
the option of the holder, or at the option of Lincoln, in which case the
number of shares of Preferred Securities or other securities to be received by
the Holders of Junior Subordinated Debentures would be calculated as of a time
and in the manner stated in the applicable Prospectus Supplement.
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SUBORDINATION
In the Indenture, Lincoln has covenanted and agreed that any Junior
Subordinated Debentures issued thereunder will be subordinate and junior in
right of payment to all Senior Debt to the extent provided in the Indenture.
Upon any payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of Lincoln, the holders of Senior Debt will first be
entitled to receive payment in full of principal of (and premium, if any) and
interest, if any, on such Senior Debt before the holders of Junior
Subordinated Debentures or, in the case of Corresponding Junior Subordinated
Debentures, the Property Trustee on behalf of the holders, will be entitled to
receive or retain any payment in respect of the principal of (and premium, if
any) or interest, if any, on the Junior Subordinated Debentures.
In the event of the acceleration of the maturity of any Junior Subordinated
Debentures, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon (including any amounts due upon acceleration) before the holders
of Junior Subordinated Debentures will be entitled to receive or retain any
payment in respect of the principal of (or premium, if any) or interest, if
any, on the Junior Subordinated Debentures.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Junior Subordinated Debentures may be made if there
shall have occurred and be continuing a default in any payment with respect to
Senior Debt, or an event of default with respect to any Senior Debt resulting
in the acceleration of the maturity thereof, or if any judicial proceeding
shall be pending with respect to any such default.
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person; (iv) every obligation of such Person
issued or assumed as the deferred purchase price of property or services (but
excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business); (v) every capital lease obligation of such
Person; and (vi) every obligation of the type referred to in clauses
(i) through (v) of another Person and all dividends of another Person the
payment of which, in either case, such Person has guaranteed or is responsible
or liable, directly or indirectly, as obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Lincoln whether or not such claim
for post-petition interest is allowed in such proceeding), on Debt, whether
incurred on or prior to the date of the Indenture or thereafter incurred,
unless, in the instrument creating or evidencing the same or pursuant to which
the same is outstanding, it is provided that such obligations are not superior
in right of payment to the Junior Subordinated Debentures or to other Debt
which is pari passu with, or subordinated to, the Junior Subordinated
Debentures; provided, however, that Senior Debt shall not be deemed to include
(i) any Debt of Lincoln which when incurred and without respect to any
election under Section 1111(b) of the Bankruptcy Code, was without recourse to
Lincoln, (ii) any Debt of Lincoln to any of its subsidiaries, (iii) Debt to
any employee of Lincoln, (iv) any liability for taxes, (v) indebtedness or
monetary obligations to trade creditors or assumed by Lincoln or any of its
subsidiaries in the ordinary course of business in connection with the
obtaining of materials or services, and (vi) any other debt securities issued
pursuant to the Indenture.
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Lincoln is a non-operating holding company and almost all of the operating
assets of Lincoln are owned by such subsidiaries. Lincoln relies primarily on
dividends from such subsidiaries to meet its obligations for payment of
principal and interest on its outstanding debt obligations and corporate
expenses. Accordingly, the Junior Subordinated Debentures will be effectively
subordinated to all existing and future liabilities of Lincoln's subsidiaries,
including liabilities under contracts of insurance and annuities written by
Lincoln's insurance subsidiaries. Holders of Junior Subordinated Debentures
should look only to the assets of Lincoln for payments of interest and
principal and premium, if any.
The Indenture places no limitation on the amount of additional Senior Debt
that may be incurred by Lincoln. Lincoln expects from time to time to incur
additional indebtedness constituting Senior Debt.
The Indenture provides that the foregoing subordination provisions, insofar
as they relate to any particular issue of Junior Subordinated Debentures, may
be changed prior to such issuance. Any such change would be described in the
applicable Prospectus Supplement.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by and
construed in accordance with the laws of the State of New York.
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee under the
Trust Indenture Act. Subject to such provisions, the Debenture Trustee is
under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Junior Subordinated Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Debenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Debenture Trustee reasonably
believes that repayment or adequate indemnity is not reasonably assured to it.
CORRESPONDING JUNIOR SUBORDINATED DEBENTURES
The Corresponding Junior Subordinated Debentures may be issued in one or
more series of Junior Subordinated Debentures under the Indenture with terms
corresponding to the terms of a series of Related Preferred Securities. In
that event, concurrently with the issuance of each Issuer's Preferred
Securities, such Issuer will invest the proceeds thereof and the consideration
paid by Lincoln for the Common Securities in a series of Corresponding Junior
Subordinated Debentures issued by Lincoln to such Issuer. Each series of
Corresponding Junior Subordinated Debentures will be in the principal amount
equal to the aggregate stated Liquidation Amount of the Related Preferred
Securities and the Common Securities of such Issuer and will rank pari passu
with all other series of Junior Subordinated Debentures. Holders of the
Related Preferred Securities for a series of Corresponding Junior Subordinated
Debentures will have the rights in connection with modifications to the
Indenture or upon occurrence of Debenture Events of Default described under
"--Modification of Indenture" and "--Debenture Events of Default", unless
provided otherwise in the Prospectus Supplement for such Related Preferred
Securities.
If a Special Event in respect of an Issuer of Related Preferred Securities
shall occur and be continuing, Lincoln may, at its option, redeem the
Corresponding Junior Subordinated Debentures at any time within 90 days of the
occurrence of such Special Event, in whole but not in part, subject to the
provisions of the Indenture. The redemption price for any Corresponding Junior
Subordinated Debentures shall be equal to 100% of the principal amount of such
Corresponding Junior Subordinated
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Debentures then outstanding plus accrued and unpaid interest to the date fixed
for redemption. For so long as the applicable Issuer is the holder of all the
outstanding series of Corresponding Junior Subordinated Debentures, the
proceeds of any such redemption will be used by the Issuer to redeem the
corresponding Trust Securities in accordance with their terms. Lincoln may not
redeem a series of Corresponding Junior Subordinated Debentures in part unless
all accrued and unpaid interest has been paid in full on all outstanding
Corresponding Junior Subordinated Debentures of such series for all interest
periods terminating on or prior to the Redemption Date.
Lincoln will covenant in the Indenture as to each series of Corresponding
Junior Subordinated Debentures, that if and so long as (i) the Issuer of the
related series of Trust Securities is the holder of all such Corresponding
Junior Subordinated Debentures, (ii) a Tax Event in respect of such Issuer has
occurred and is continuing and (iii) Lincoln has elected, and has not revoked
such election, to pay Additional Sums (as defined under "Description of
Preferred Securities--Redemption or Exchange") in respect of such Trust
Securities, Lincoln will pay to such Issuer such Additional Sums. Lincoln will
also covenant, as to each series of Corresponding Junior Subordinated
Debentures, (i) to maintain directly or indirectly 100% ownership of the
Common Securities of the Issuer to which Corresponding Junior Subordinated
Debentures have been issued, provided that certain successors which are
permitted pursuant to the Indenture may succeed to Lincoln's ownership of the
Common Securities, (ii) not to voluntarily terminate, wind-up or liquidate any
Issuer, except (a) in connection with a distribution of Corresponding Junior
Subordinated Debentures to the holders of the Preferred Securities in
liquidation of such Issuer, or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the related Trust Agreement and
(iii) to use its reasonable efforts, consistent with the terms and provisions
of the related Trust Agreement, to cause such Issuer to remain classified as a
grantor trust and not as an association taxable as a corporation for United
States Federal income tax purposes.
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for each Issuer, the Issuer
Trustees on behalf of such Issuer will issue the Preferred Securities and the
Common Securities. The Preferred Securities of a particular issue will
represent preferred beneficial interests in the Issuer and the holders thereof
will be entitled to a preference in certain circumstances with respect to
Distributions and amounts payable on redemption or liquidation over the Common
Securities of such Issuer, as well as other benefits as described in the
corresponding Trust Agreement. This summary of certain provisions of the
Preferred Securities and each Trust Agreement does not purport to be complete
and is subject to, and is qualified in its entirety by reference to, all the
provisions of each Trust Agreement, including the definitions therein of
certain terms, and the Trust Indenture Act. Wherever particular defined terms
of a Trust Agreement (as amended or supplemented from time to time) are
referred to herein or in a Prospectus Supplement, such defined terms are
incorporated herein or therein by reference. The form of the Trust Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Each of the Issuers is a legally separate entity and
the assets of one are not available to satisfy the obligations of any of the
others.
GENERAL
The Preferred Securities of an Issuer will rank pari passu, and payments
will be made thereon pro rata, with the Common Securities of that Issuer
except as described under "--Subordination of Common Securities". Legal title
to the Corresponding Junior Subordinated Debentures will be held by the
Property Trustee in trust for the benefit of the holders of the related
Preferred Securities and Common Securities. Each Guarantee Agreement executed
by Lincoln for the benefit of the holders of an Issuer's Preferred Securities
(the "Guarantee" for such Preferred Securities) will be a guarantee on
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a subordinated basis with respect to the related Preferred Securities but will
not guarantee payment of Distributions or amounts payable on redemption or
liquidation of such Preferred Securities when the related Issuer does not have
funds on hand available to make such payments. See "Description of
Guarantees."
DISTRIBUTIONS
Distributions on the Preferred Securities will be cumulative, will
accumulate from the date of original issuance and will be payable on such
dates as specified in the applicable Prospectus Supplement. In the event that
any date on which Distributions are payable on the Preferred Securities is not
a Business Day (as defined below), payment of the Distribution payable on such
date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect to any such delay) except
that, if such Business Day is in the next succeeding calendar year, payment of
such Distribution shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date (each date on
which Distributions are payable in accordance with the foregoing, a
"Distribution Date"). A "Business Day" shall mean any day other than a
Saturday or a Sunday, or a day on which banking institutions in The City of
New York are authorized or required by law or executive order to remain closed
or a day on which the corporate trust office of the Property Trustee or the
Debenture Trustee (as defined herein) is closed for business.
Each Issuer's Preferred Securities represent preferred beneficial interests
in the applicable Issuer, and the Distributions on each Preferred Security
will be payable at a rate specified in the Prospectus Supplement for such
Preferred Securities. The amount of Distributions payable for any period will
be computed on the basis of a 360-day year of twelve 30-day months unless
otherwise specified in the applicable Prospectus Supplement. Distributions to
which holders of Preferred Securities are entitled will accumulate additional
Distributions at the rate per annum if and as specified in the applicable
Prospectus Supplement. The term "Distributions" as used herein includes any
such additional Distributions unless otherwise stated.
If provided in the applicable Prospectus Supplement, Lincoln has the right
under the Indenture, pursuant to which it will issue the Corresponding Junior
Subordinated Debentures, to defer the payment of interest at any time or from
time to time on any series of the Corresponding Junior Subordinated Debentures
for a period which will be specified in such Prospectus Supplement relating to
such series (each, an "Extension Period"), provided that no Extension Period
may extend beyond the Stated Maturity of the Corresponding Junior Subordinated
Debentures. As a consequence of any such extension, Distributions on the
corresponding Preferred Securities would be deferred (but would continue to
accumulate additional Distributions thereon at the rate per annum set forth in
the Prospectus Supplement for such Preferred Securities) by the Issuer of such
Preferred Securities during any such Extension Period. During such Extension
Period Lincoln may not, and may not permit any subsidiary of Lincoln to, (i)
declare or pay any dividends or distributions on, or redeem, purchase, acquire
or make a liquidation payment with respect to, any of Lincoln's capital stock
or (ii) make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities of Lincoln that rank pari
passu with or junior in interest to the Corresponding Junior Subordinated
Debentures or make any guarantee payments with respect to any guarantee by
Lincoln of debt securities of any subsidiary of Lincoln if such guarantee
ranks pari passu or junior in interest to the Corresponding Junior
Subordinated Debentures (other than (a) dividends or distributions in common
stock of Lincoln, (b) redemptions or purchases of any rights pursuant to
Lincoln's Rights Plan, or any successor to such Rights Plan, and the
declaration of a dividend of such rights or the issuance of stock under stock
plans in the future, (c) payments under any Guarantee and (d) purchasers of
common stock related to the issuance of common stock under any of Lincoln's
benefit plans for its directors, officers or employees).
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The revenue of each Issuer available for distribution to holders of its
Preferred Securities will be limited to payments under the Corresponding
Junior Subordinated Debentures in which the Issuer will invest the proceeds
from the issuance and sale of its Trust Securities. See "Description of Junior
Subordinated Debentures--Corresponding Junior Subordinated Debentures." If
Lincoln does not make interest payments on such Corresponding Junior
Subordinated Debentures, the Property Trustee will not have funds available to
pay Distributions on the Related Preferred Securities. The payment of
Distributions (if and to the extent the Issuer has funds legally available for
the payment of such Distributions and cash sufficient to make such payments)
is guaranteed by Lincoln on a limited basis as set forth herein under
"Description of Guarantees".
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the register of such Issuer on the relevant record
dates, which, as long as the Preferred Securities remain in book-entry form,
will be one Business Day prior to the relevant Distribution Date. Subject to
any applicable laws and regulations and the provisions of the applicable Trust
Agreement, each such payment will be made as described under "Book-Entry
Issuance." In the event any Preferred Securities are not in book-entry form,
the relevant record date for such Preferred Securities shall be the date at
least 15 days prior to the relevant Distribution Date, as specified in the
applicable Prospectus Supplement.
REDEMPTION OR EXCHANGE
Mandatory Redemption. Upon the repayment or redemption, in whole or in part,
of any Corresponding Junior Subordinated Debentures, whether at maturity or
upon earlier redemption as provided in the Indenture, the proceeds from such
repayment or redemption shall be applied by the Property Trustee to redeem a
Like Amount (as defined below) of the Trust Securities, upon not less than 30
nor more than 60 days notice, at a redemption price (the "Redemption Price")
equal to the aggregate Liquidation Amount of such Trust Securities plus
accumulated but unpaid Distributions thereon to the date of redemption (the
"Redemption Date") and the related amount of the premium, if any, paid by
Lincoln upon the concurrent redemption of such Corresponding Junior
Subordinated Debentures. See "Description of Junior Subordinated Debentures--
Redemption". If less than all of any series of Corresponding Junior
Subordinated Debentures are to be repaid or redeemed on a Redemption Date,
then the proceeds from such repayment or redemption shall be allocated to the
redemption pro rata of the related Preferred Securities and the Common
Securities. The amount of premium, if any, paid by Lincoln upon the redemption
of all or any part of any series of any Corresponding Junior Subordinated
Debentures to be repaid or redeemed on a Redemption Date shall be allocated to
the redemption pro rata of the related Preferred Securities and the Common
Securities.
Lincoln will have the right to redeem any series of Corresponding Junior
Subordinated Debentures (i) in whole at any time or in part from time to time,
subject to the conditions described under "Description of Junior Subordinated
Debentures--Redemption", (ii) at any time, in whole (but not in part), upon
the occurrence of a Tax Event or an Investment Company Event (each as defined
below, a "Special Event") and subject to the further conditions described
under "Description of Junior Subordinated Debentures--Redemption", or (iii) as
may be otherwise specified in the applicable Prospectus Supplement.
Special Event Redemption or Distribution of Corresponding Junior
Subordinated Debentures. If a Special Event in respect of a series of
Preferred Securities and Common Securities shall occur and be continuing,
Lincoln has the right to redeem the Corresponding Junior Subordinated
Debentures in whole (but not in part) and thereby cause a mandatory redemption
of such Preferred Securities and Common Securities in whole (but not in part)
at the Redemption Price within 90 days following the occurrence of such
Special Event. At any time, Lincoln has the right to terminate the related
Issuer and, after satisfaction of the liabilities of creditors of such Issuer
as provided by applicable law, cause
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such Corresponding Junior Subordinated Debentures to be distributed to the
holders of such Preferred Securities and Common Securities in liquidation of
the Issuer. If Lincoln does not elect either option described above, the
applicable series of Preferred Securities will remain outstanding and, in the
event a Tax Event has occurred and is continuing, Additional Sums (as defined
below) may be payable on the Corresponding Junior Subordinated Debentures.
Recent Possible Tax Law Changes. On March 19, 1996, the Revenue
Reconciliation Bill of 1996 (the "Bill"), the revenue portion of President
Clinton's budget proposal, was released. The Bill would, among other things,
generally deny interest deductions for interest on an instrument issued by a
corporation that has a maximum weighted average maturity of more than 40
years. The Bill would also generally deny interest deductions for interest on
an instrument issued by a corporation that has a maximum term of more than 20
years and that is not shown as indebtedness on the separate balance sheet of
the issuer or, where the instrument is issued to a related party (other than a
corporation), where the holder or some other related party issues a related
instrument that is not shown as indebtedness on the issuer's consolidated
balance sheet. For purposes of determining the weighted average maturity or
the term of an instrument, any right to extend would be treated as exercised.
The above-described provisions of the Bill were proposed to be effective
generally for instruments issued on or after December 7, 1995. If either
provision were to apply to Junior Subordinated Debentures, Lincoln may be
unable to deduct interest on Junior Subordinated Debentures. However, on March
29, 1996, the Chairmen of the Senate Finance and House Ways and Means
Committees issued a joint statement to the effect that it was their intention
that the effective date of the President's legislative proposals, if adopted,
will be no earlier than the date of appropriate Congressional action. There
can be no assurance, however, that current or future legislative proposals or
final legislation will not affect the ability of Lincoln to deduct interest on
the Junior Subordinated Debentures. Such a change could give rise to a Tax
Event, which may permit Lincoln to cause a redemption of the Junior
Subordinated Debentures and Preferred Securities. See "Description of
Preferred Securities--Redemption or Exchange--Special Event Redemption or
Distribution of Corresponding Junior Subordinated Debentures".
Extension of Maturity of Corresponding Junior Subordinated Debentures. If
provided in the applicable Prospectus Supplement, Lincoln shall have the right
to extend or shorten the maturity of any series of Corresponding Junior
Subordinated Debentures at the time that Lincoln exercises its right to elect
to terminate the related Issuer and cause such Corresponding Junior
Subordinated Debentures to be distributed to the holders of such Preferred
Securities and Common Securities in liquidation of the Issuer, provided that
it can extend the maturity only if certain conditions specified in the
applicable Prospectus Supplement are met at the time such election is made and
at the time of such extension.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by an Issuer on the
outstanding Preferred Securities and Common Securities of the Issuer shall not
be reduced as a result of any additional taxes, duties and other governmental
charges to which such Issuer has become subject as a result of a Tax Event.
"Investment Company Event" means the receipt by the applicable Issuer of an
opinion of counsel experienced in such matters to the effect that, as a result
of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act
Law"), the applicable Issuer is or will be considered an "investment company"
that is required to be registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), which Change in 1940 Act Law becomes
effective on or after the date of original issuance of the series of Preferred
Securities issued by the Issuer.
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"Like Amount" means (i) with respect to a redemption of any series of Trust
Securities, Trust Securities of such series having a Liquidation Amount (as
defined below) equal to that portion of the principal amount of Corresponding
Junior Subordinated Debentures to be contemporaneously redeemed in accordance
with the Indenture, allocated to the Common Securities and to the Preferred
Securities based upon the relative Liquidation Amounts of such classes and the
proceeds of which will be used to pay the Redemption Price of such Trust
Securities, and (ii) with respect to a distribution of Corresponding Junior
Subordinated Debentures to holders of any series of Trust Securities in
connection with a dissolution or liquidation of the related Issuer,
Corresponding Junior Subordinated Debentures having a principal amount equal
to the Liquidation Amount of the Trust Securities of the holder to whom such
Corresponding Junior Subordinated Debentures are distributed. "Liquidation
Amount" means the stated amount of $25 per Trust Security.
"Tax Event" means the receipt by the applicable Issuer of an opinion of
counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance
of the Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Issuer is, or will be within 90 days of the
date of such opinion, subject to United States Federal income tax with respect
to income received or accrued on the corresponding series of Corresponding
Junior Subordinated Debentures, (ii) interest payable by Lincoln on such
series of Corresponding Junior Subordinated Debentures is not, or within 90
days of the date of such opinion, will not be, deductible by Lincoln, in whole
or in part, for United States Federal income tax purposes, or (iii) the
applicable Issuer is, or will be within 90 days of the date of such opinion,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
After the liquidation date fixed for any distribution of Corresponding
Junior Subordinated Debentures for any series of Preferred Securities (i) such
series of Preferred Securities will no longer be deemed to be outstanding,
(ii) The Depository Trust Company ("DTC") or its nominee, as the record holder
of such series of Preferred Securities, will receive a registered global
certificate or certificates representing the Corresponding Junior Subordinated
Debentures to be delivered upon such distribution and (iii) any certificates
representing such series of Preferred Securities not held by DTC or its
nominee will be deemed to represent the Corresponding Junior Subordinated
Debentures having a principal amount equal to the stated liquidation
preference of such series of Preferred Securities, and bearing accrued and
unpaid interest in an amount equal to the accrued and unpaid Distributions on
such series of Preferred Securities until such certificates are presented to
the Administrative Trustees or their agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Corresponding Junior Subordinated Debentures that may be
distributed in exchange for Preferred Securities if a dissolution and
liquidation of an Issuer were to occur. Accordingly, the Preferred Securities
that an investor may purchase, or the Corresponding Junior Subordinated
Debentures that the investor may receive on dissolution and liquidation of an
Issuer, may trade at a discount to the price that the investor paid to
purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Corresponding Junior Subordinated Debentures. Redemptions of
the Preferred Securities shall be made and the Redemption Price shall be
payable on each Redemption Date only to the extent that the related Issuer has
funds on hand available for the payment of such Redemption Price. See also "--
Subordination of Common Securities".
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If an Issuer gives a notice of redemption in respect of its Preferred
Securities, then, by 12:00 noon, New York City time, on the Redemption Date,
to the extent funds are available, the Property Trustee will deposit
irrevocably with DTC funds sufficient to pay the applicable Redemption Price
and will give DTC irrevocable instructions and authority to pay the Redemption
Price to the holders of such Preferred Securities. See "Book-Entry Issuance".
If such Preferred Securities are no longer in book-entry form, the Property
Trustee, to the extent funds are available, will irrevocably deposit with the
paying agent for such Preferred Securities funds sufficient to pay the
applicable Redemption Price and will give such paying agent irrevocable
instructions and authority to pay the Redemption Price to the holders thereof
upon surrender of their certificates evidencing such Preferred Securities.
Notwithstanding the foregoing, Distributions payable on or prior to the
Redemption Date for any Preferred Securities called for redemption shall be
payable to the holders of such Preferred Securities on the relevant record
dates for the related Distribution Dates. If notice of redemption shall have
been given and funds deposited as required, then upon the date of such
deposit, all rights of the holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price, and such Preferred Securities will cease to be outstanding.
In the event that any date fixed for redemption of Preferred Securities is not
a Business Day, then payment of the Redemption Price payable on such date will
be made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Preferred Securities called for redemption is
improperly withheld or refused and not paid either by the Issuer or by Lincoln
pursuant to the Guarantee as described under "Description of Guarantees",
Distributions on such Preferred Securities will continue to accrue at the then
applicable rate, from the Redemption Date originally established by the Issuer
for such Preferred Securities to the date such Redemption Price is actually
paid, in which case the actual payment date will be the date fixed for
redemption for purposes of calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
Federal securities law), Lincoln or its subsidiaries may at any time and from
time to time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Corresponding Junior Subordinated Debentures to holders of
Preferred Securities shall be made to the applicable recordholders thereof as
they appear on the register for such Preferred Securities on the relevant
record date, which shall be one Business Day prior to the relevant Redemption
Date or liquidation date, as applicable; provided, however, that in the event
that any Preferred Securities are not in book-entry form, the relevant record
date for such Preferred Securities shall be a date at least 15 days prior to
the Redemption Date or liquidation date, as applicable, as specified in the
applicable Prospectus Supplement.
If less than all of the Preferred Securities and Common Securities issued by
an issuer are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of such Preferred Securities and Common Securities to be
redeemed shall be allocated pro rata to the Preferred Securities and the
Common Securities based upon the relative Liquidation Amounts of such classes.
The particular Preferred Securities to be redeemed shall be selected on a pro
rata basis not more than 60 days prior to the Redemption Date by the Property
Trustee from the outstanding Preferred Securities not previously called for
redemption, by such method as the Property Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to $25 or an integral multiple of $25 in excess thereof) of the
Liquidation Amount of Preferred Securities of a denomination larger than $25.
The Property Trustee shall promptly notify the trust registrar in writing of
the Preferred Securities selected for redemption and, in the case of any
Preferred Securities
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selected for partial redemption, the Liquidation Amount thereof to be
redeemed. For all purposes of each Trust Agreement, unless the context
otherwise requires, all provisions relating to the redemption of Preferred
Securities shall relate, in the case of any Preferred Securities redeemed or
to be redeemed only in part, to the portion of the aggregate Liquidation
Amount of Preferred Securities which has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Trust Securities to be
redeemed at its registered address. Unless Lincoln defaults in payment of the
Redemption Price on the Corresponding Junior Subordinated Debentures, on and
after the Redemption Date interest ceases to accrue on such Junior
Subordinated Debentures or portions thereof (and distributions cease to accrue
on the Related Preferred Securities or portions thereof) called for
redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, each Issuer's
Preferred Securities and Common Securities, as applicable, shall be made pro
rata based on the Liquidation Amount of such Preferred Securities and Common
Securities; provided, however, that if on any Distribution Date or Redemption
Date a Debenture Event of Default shall have occurred and be continuing, no
payment of any Distribution on, or Redemption Price of, any of the Issuer's
Common Securities, and no other payment on account of the redemption,
liquidation or other acquisition of such Common Securities, shall be made
unless payment in full in cash of all accumulated and unpaid Distributions on
all of the Issuer's outstanding Preferred Securities for all Distribution
periods terminating on or prior thereto, or in the case of payment of the
Redemption Price the full amount of such Redemption Price on all of the
Issuer's outstanding Preferred Securities then called for redemption, shall
have been made or provided for, and all funds available to the Property
Trustee shall first be applied to the payment in full in cash of all
Distributions on, or Redemption Price of, the Issuer's Preferred Securities
then due and payable.
In the case of any Event of Default resulting from a Debenture Event of
Default, Lincoln as holder of such Issuer's Common Securities will be deemed
to have waived any right to act with respect to any such Event of Default
under the applicable Trust Agreement until the effect of all such Events of
Default with respect to such Preferred Securities have been cured, waived or
otherwise eliminated. Until any such Events of Default under the applicable
Trust Agreement with respect to the Preferred Securities have been so cured,
waived or otherwise eliminated, the Property Trustee shall act solely on
behalf of the holders of such Preferred Securities and not on behalf of
Lincoln as holder of the Issuer's Common Securities, and only the holders of
such Preferred Securities will have the right to direct the Property Trustee
to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to each Trust Agreement, each Issuer shall automatically terminate
upon expiration of its term and shall terminate on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of Lincoln; (ii) the
distribution of a Like Amount of the Corresponding Junior Subordinated
Debentures to the holders of its Trust Securities, if Lincoln, as Depositor,
has given written direction to the Property Trustee to terminate such Issuer
(which direction is optional and wholly within the discretion of Lincoln, as
Depositor); (iii) the redemption of all of the Issuer's Trust Securities
following a Special Event; (iv) redemption of all of the Issuer's Preferred
Securities as described under "Description of Preferred Securities--Redemption
or Exchange--Mandatory Redemption"; and (v) the entry of an order for the
dissolution of the Issuer by a court of competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (v)
above, the Issuer shall be liquidated by the Issuer Trustees as expeditiously
as the Issuer Trustees determine to be possible by
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distributing, after satisfaction of liabilities to creditors of such Issuer as
provided by applicable law, to the holders of such Trust Securities a Like
Amount of the Corresponding Junior Subordinated Debentures, unless such
distribution is determined by the Property Trustee not to be practical, in
which event such holders will be entitled to receive out of the assets of the
Issuer available for distribution to holders, after satisfaction of
liabilities to creditors of such Issuer as provided by applicable law, an
amount equal to, in the case of holders of Preferred Securities, the aggregate
of the Liquidation Amount plus accrued and unpaid Distributions thereon to the
date of payment (such amount being the "Liquidation Distribution"). If such
Liquidation Distribution can be paid only in part because such Issuer has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by such Issuer on its
Preferred Securities shall be paid on a pro rata basis. The holder(s) of such
Issuer's Common Securities will be entitled to receive distributions upon any
such liquidation pro rata with the holders of its Preferred Securities, except
that if a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a priority over the Common Securities. A
supplemental Indenture may provide that if an early termination occurs as
described in clause (v) above, the Corresponding Junior Subordinated
Debentures may be subject to optional redemption in whole (but not in part).
EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under each
Trust Agreement (an "Event of Default") with respect to the Preferred
Securities issued thereunder (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(i) the occurrence of a Debenture Event of Default under the Indenture
(see "Description of Junior Subordinated Debentures--Debenture Events of
Default"); or
(ii) default by the Property Trustee in the payment of any Distribution
when it becomes due and payable, and continuation of such default for a
period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect, of
any covenant or warranty of the Issuer Trustees in such Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the defaulting Issuer
Trustee or Trustees by the holders of at least 25% in aggregate liquidation
preference of the outstanding Preferred Securities of the applicable
Issuer, a written notice specifying such default or breach and requiring it
to be remedied and stating that such notice is a "Notice of Default" under
such Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by Lincoln to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of such Issuer's Preferred
Securities, the Administrative Trustees and Lincoln, as Depositor, unless such
Event of Default shall have been cured or waived. Lincoln, as Depositor, and
the Administrative Trustees are required to file annually with the Property
Trustee a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under each Trust Agreement.
If a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a preference over the Common Securities upon
termination of each Issuer as described above. See""--Liquidation Distribution
Upon Termination". The existence of an Event of Default does not entitle the
holders of Preferred Securities to accelerate the maturity thereof.
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REMOVAL OF ISSUER TRUSTEES
Unless a Debenture Event of Default shall have occurred and be continuing,
any Issuer Trustee may be removed at any time by the holder of the Common
Securities. If a Debenture Event of Default has occurred and is continuing,
the Property Trustee and the Delaware Trustee may be removed at such time by
the holders of a majority in Liquidation Amount of the outstanding Preferred
Securities. In no event will the holders of the Preferred Securities have the
right to vote to appoint, remove or replace the Administrative Trustees, which
voting rights are vested exclusively in Lincoln as the holder of the Common
Securities. No resignation or removal of an Issuer Trustee and no appointment
of a successor trustee shall be effective until the acceptance of appointment
by the successor trustee in accordance with the provisions of the applicable
Trust Agreement.
CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property
may at the time be located, Lincoln, as the holder of the Common Securities,
and the Administrative Trustees shall have power to appoint one or more
persons either to act as a co-trustee, jointly with the Property Trustee, of
all or any part of such Trust Property, or to act as separate trustee of any
such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such person or persons in such
capacity any property, title, right or power deemed necessary or desirable,
subject to the provisions of the applicable Trust Agreement. In case a
Debenture Event of Default has occurred and is continuing, the Property
Trustee alone shall have power to make such appointment.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or any
Administrative Trustee that is not a natural person may be merged or converted
or with which it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which such Trustee shall be a party, or
any corporation succeeding to all or substantially all the corporate trust
business of such Trustee, shall be the successor of such Trustee under each
Trust Agreement, provided such corporation shall be otherwise qualified and
eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE ISSUERS
An Issuer may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. An Issuer may, at the request of Lincoln, with the consent of
the Administrative Trustees and without the consent of the holders of the
Preferred Securities, merge with or into, consolidate, amalgamate, or be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of
any State; provided, that (i) such successor entity either (a) expressly
assumes all of the obligations of such Issuer with respect to the Preferred
Securities or (b) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank the same as
the Preferred Securities rank in priority with respect to distributions and
payments upon liquidation, redemption and otherwise, (ii) Lincoln expressly
appoints a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Corresponding Junior
Subordinated Debentures, (iii) the Successor Securities are listed, or any
Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Preferred
Securities are then listed, if any, (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Preferred Securities (including any Successor Securities) to be downgraded by
any
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nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does
not adversely affect the rights, preferences and privileges of the holders of
the Preferred Securities (including any Successor Securities) in any material
respect, (vi) such successor entity has a purpose identical to that of the
Issuer, (vii) prior to such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, Lincoln has received an opinion from
independent counsel to the Issuer experienced in such matters to the effect
that (a) such merger, consolidation, amalgamation, replacement, conveyance,
transfer or lease does not adversely affect the rights, preferences and
privileges of the holders of the Preferred Securities (including any Successor
Securities) in any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease,
neither the Issuer nor such successor entity will be required to register as
an investment company under the Investment Company Act and (viii) Lincoln or
any permitted successor or assignee owns all of the Common Securities of such
successor entity and guarantees the obligations of such successor entity under
the Successor Securities at least to the extent provided by the Guarantee.
Notwithstanding the foregoing, an Issuer shall not, except with the consent of
holders of 100% in Liquidation Amount of the Preferred Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to
any other entity or permit any other entity to consolidate, amalgamate, merge
with or into, or replace it if such consolidation, amalgamation, merger,
replacement, conveyance, transfer or lease would cause the Issuer or the
successor entity to be classified as other than a grantor trust for United
States Federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF EACH TRUST AGREEMENT
Except as provided below and under "Description of Guarantees--Amendments
and Assignment" and as otherwise required by law and the applicable Trust
Agreement, the holders of the Preferred Securities will have no voting rights.
Each Trust Agreement may be amended from time to time by Lincoln, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities (i) to cure any ambiguity, correct or
supplement any provisions in such Trust Agreement that may be inconsistent
with any other provision, or to make any other provisions with respect to
matters or questions arising under such Trust Agreement, which shall not be
inconsistent with the other provisions of such Trust Agreement, or (ii) to
modify, eliminate or add to any provisions of such Trust Agreement to such
extent as shall be necessary to ensure that the Issuer will be classified for
United States Federal income tax purposes as a grantor trust at all times that
any Trust Securities are outstanding or to ensure that the Issuer will not be
required to register as an "investment company" under the Investment Company
Act; provided, however, that in the case of clause (i), such action shall not
adversely affect in any material respect the interests of any holder of Trust
Securities, and any amendments of such Trust Agreement shall become effective
when notice thereof is given to the holders of Trust Securities. Each Trust
Agreement may be amended by the Issuer Trustees and Lincoln with (i) the
consent of holders representing not less than a majority (based upon
Liquidation Amounts) of the outstanding Trust Securities, and (ii) receipt by
the Issuer Trustees of an opinion of counsel to the effect that such amendment
or the exercise of any power granted to the Issuer Trustees in accordance with
such amendment will not affect the Issuer's status as a grantor trust for
United States Federal income tax purposes or the Issuer's exemption from
status as an "investment company" under the Investment Company Act, provided
that without the consent of each holder of Trust Securities, such Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount
of any Distribution required to be made in respect of the Trust Securities as
of a specified date or (ii) restrict the right of a holder of Trust Securities
to institute suit for the enforcement of any such payment on or after such
date.
So long as any Corresponding Junior Subordinated Debentures are held by the
Property Trustee, the Issuer Trustees shall not (i) direct the time, method
and place of conducting any proceeding for
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any remedy available to the Debenture Trustee, or executing any trust or power
conferred on the Property Trustee with respect to such Corresponding Junior
Subordinated Debentures, (ii) waive any past default that is waivable under
Section 513 of the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or
termination of the Indenture or such Corresponding Junior Subordinated
Debentures, where such consent shall be required, without, in each case,
obtaining the prior approval of the holders of a majority in aggregate
Liquidation Amount of all outstanding Preferred Securities; provided, however,
that where a consent under the Indenture would require the consent of each
holder of Corresponding Junior Subordinated Debentures affected thereby, no
such consent shall be given by the Property Trustee without the prior consent
of each holder of the corresponding Preferred Securities. The Issuer Trustees
shall not revoke any action previously authorized or approved by a vote of the
holders of the Preferred Securities except by subsequent vote of the holders
of the Preferred Securities. The Property Trustee shall notify each holder of
Preferred Securities of any notice of default with respect to the
Corresponding Junior Subordinated Debentures. In addition to obtaining the
foregoing approvals of the holders of the Preferred Securities, prior to
taking any of the foregoing actions, the Issuer Trustees shall obtain an
opinion of counsel experienced in such matters to the effect that the Issuer
will not be classified as a corporation for United States Federal income tax
purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or
pursuant to written consent. The Property Trustee will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of
any matter upon which action by written consent of such holders is to be
taken, to be given to each holder of record of Preferred Securities in the
manner set forth in each Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for an Issuer to redeem and cancel its Preferred Securities in accordance with
the applicable Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities that are owned by Lincoln, the Issuer Trustees or any affiliate of
Lincoln or any Issuer Trustees, shall, for purposes of such vote or consent,
be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
The Preferred Securities of a series may be issued in whole or in part in
the form of one or more Global Preferred Securities that will be deposited
with, or on behalf of, the Depositary identified in the Prospectus Supplement
relating to such series. Unless otherwise indicated in the applicable
Prospectus Supplement for such series, the Depositary will be DTC. Global
Preferred Securities may be issued only in fully registered form and in either
temporary or permanent form. Unless and until it is exchanged in whole or in
part for the individual Preferred Securities represented thereby, a Global
Preferred Security may not be transferred except as a whole by the Depositary
for such Global Preferred Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by the Depositary or any nominee to a successor Depositary or
any nominee of such successor.
The specific terms of the depositary arrangement with respect to a series of
Preferred Securities will be described in the Prospectus Supplement relating
to such series. Lincoln anticipates that the following provisions will
generally apply to depositary arrangements.
Upon the issuance of a Global Preferred Security, and the deposit of such
Global Preferred Security with or on behalf of the Depositary, the Depositary
for such Global Preferred Security or its nominee will credit, on its book-
entry registration and transfer system, the respective aggregate
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Liquidation Amounts of the individual Preferred Securities represented by such
Global Preferred Securities to the accounts of Participants. Such accounts
shall be designated by the dealers, underwriters or agents with respect to
such Preferred Securities or by Lincoln if such Preferred Securities are
offered and sold directly by Lincoln. Ownership of beneficial interests in a
Global Preferred Security will be limited to Participants or persons that may
hold interests through Participants. Ownership of beneficial interests in such
Global Preferred Security will be shown on, and the transfer of that ownership
will be effected only through, records maintained by the applicable Depositary
or its nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests
in a Global Preferred Security.
So long as the Depositary for a Global Preferred Security, or its nominee,
is the registered owner of such Global Preferred Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder
of the Preferred Securities represented by such Global Preferred Security for
all purposes under the Indenture governing such Preferred Securities. Except
as provided below, owners of beneficial interests in a Global Preferred
Security will not be entitled to have any of the individual Preferred
Securities of the series represented by such Global Preferred Security
registered in their names, will not receive or be entitled to receive physical
delivery of any such Preferred Securities of such series in definitive form
and will not be considered the owners or holders thereof under the Indenture.
Payments of principal of (and premium, if any) and interest on individual
Preferred Securities represented by a Global Preferred Security registered in
the name of a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Preferred
Security representing such Preferred Securities. None of Lincoln, the Property
Trustee, any Paying Agent, or the Securities Registrar for such Preferred
Securities will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests of the Global Preferred Security representing such Preferred
Securities or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
Lincoln expects that the Depositary for a series of Preferred Securities or
its nominee, upon receipt of any payment of Liquidation Amount, premium or
Distributions in respect of a permanent Global Preferred Security representing
any of such Preferred Securities, immediately will credit Participants'
accounts with payments in amounts proportionate to their respective beneficial
interest in the aggregate Liquidation Amount of such Global Preferred Security
for such Preferred Securities as shown on the records of such Depositary or
its nominee. Lincoln also expects that payments by Participants to owners of
beneficial interests in such Global Preferred Security held through such
Participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name." Such payments will be
the responsibility of such Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for a series of Preferred Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is
not appointed by Lincoln within 90 days, Lincoln will issue individual
Preferred Securities of such series in exchange for the Global Preferred
Security representing such series of Preferred Securities. In addition,
Lincoln may at any time and in its sole discretion, subject to any limitations
described in the Prospectus Supplement relating to such Preferred Securities,
determine not to have any Preferred Securities of such series represented by
one or more Global Preferred Securities and, in such event, will issue
individual Preferred Securities of such series in exchange for the Global
Preferred Security or Securities representing such series of Preferred
Securities. Further, if Lincoln so specifies with respect to the Preferred
Securities of a series, an owner of a beneficial
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interest in a Global Preferred Security representing Preferred Securities of
such series may, on terms acceptable to Lincoln, the Property Trustee and the
Depositary for such Global Preferred Security, receive individual Preferred
Securities of such series in exchange for such beneficial interests, subject
to any limitations described in the Prospectus Supplement relating to such
Preferred Securities. In any such instance, an owner of a beneficial interest
in a Global Preferred Security will be entitled to physical delivery of
individual Preferred Securities of the series represented by such Global
Preferred Security equal in principal amount to such beneficial interest and
to have such Preferred Securities registered in its name. Individual Preferred
Securities of such series so issued will be issued in denominations, unless
otherwise specified by Lincoln, of $25 and integral multiples thereof.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities shall be made to the
Depositary, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any Issuer's Preferred Securities are not
held by the Depositary, such payments shall be made by check mailed to the
address of the holder entitled thereto as such address shall appear on the
Register. Unless otherwise specified in the applicable Prospectus Supplement,
the paying agent (the "Paying Agent") shall initially be the Property Trustee
and any co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and Lincoln. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Property Trustee
and Lincoln. In the event that the Property Trustee shall no longer be the
Paying Agent, the Administrative Trustees shall appoint a successor (which
shall be a bank or trust company acceptable to the Administrative Trustees and
Lincoln) to act as Paying Agent.
REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable Prospectus Supplement, the
Property Trustee will act as registrar and transfer agent for the Preferred
Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of each Issuer, but upon payment of any tax or other
governmental charges that may be imposed in connection with any transfer or
exchange. The Issuers will not be required to register or cause to be
registered the transfer of their Preferred Securities after such Preferred
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of an
Event of Default, undertakes to perform only such duties as are specifically
set forth in each Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise
or use in the conduct of his or her own affairs. Subject to this provision,
the Property Trustee is under no obligation to exercise any of the powers
vested in it by the applicable Trust Agreement at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. If no Event of
Default has occurred and is continuing and the Property Trustee is required to
decide between alternative causes of action, construe ambiguous provisions in
the applicable Trust Agreement or is unsure of the application of any
provision of the applicable Trust Agreement, and the matter is not one on
which holders of Preferred Securities are entitled under such Trust Agreement
to vote, then the Property Trustee shall take such action as is directed by
Lincoln and if not so directed, shall take such action as it deems advisable
and in the best interests of the holders of the Trust Securities and will have
no liability except for its own bad faith, negligence or willful misconduct.
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MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Issuers in such a way that no Issuer will be
deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a
corporation for United States Federal income tax purposes and so that the
Corresponding Junior Subordinated Debentures will be treated as indebtedness
of Lincoln for United States Federal income tax purposes. In this connection,
Lincoln and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of each Issuer or
each Trust Agreement, that Lincoln and the Administrative Trustees determine
in their discretion to be necessary or desirable for such purposes, as long as
such action does not materially adversely affect the interests of the holders
of the related Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
No Issuer may borrow money or issue debt or mortgage or pledge any of its
assets.
BOOK-ENTRY ISSUANCE
DTC will act as securities depositary for all of the Preferred Securities
and the Junior Subordinated Debentures, unless otherwise referred to in the
Prospectus Supplement relating to an offering of Preferred Securities or
Junior Subordinated Debentures. The Preferred Securities and the Junior
Subordinated Debentures will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more fully-
registered global certificates will be issued for the Preferred Securities of
each Issuer and the Junior Subordinated Debentures, representing in the
aggregate the total number of such Issuer's Preferred Securities or aggregate
principal balance of Junior Subordinated Debentures, respectively, and will be
deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law,
a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as
transfers and pledges, in deposited securities through electronic computerized
book-entry changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations ("Direct Participants"). DTC is owned by a
number of its Direct Participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain custodial relationships with Direct Participants, either directly
or indirectly ("Indirect Participants"). The rules applicable to DTC and its
Participants are on file with the Commission.
Purchases of Preferred Securities or Junior Subordinated Debentures within
the DTC system must be made by or through Direct Participants, which will
receive a credit for the Preferred Securities or Junior Subordinated
Debentures on DTC's records. The ownership interest of each actual purchaser
of each Preferred Security and each Junior Subordinated Debenture ("Beneficial
Owner") is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from DTC of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Preferred Securities or Junior
Subordinated Debentures. Transfers of ownership interests in the Preferred
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Securities or Junior Subordinated Debentures are to be accomplished by entries
made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Preferred Securities or Junior Subordinated Debentures, except in
the event that use of the book-entry system for the Preferred Securities of
such Issuer or Junior Subordinated Debentures is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities or Junior Subordinated Debentures; DTC's records reflect only the
identity of the Direct Participants to whose accounts such Preferred
Securities or Junior Subordinated Debentures are credited, which may or may
not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications buy DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. as the registered holder of
the Preferred Securities or Junior Subordinated Debentures. If less than all
of an Issuer's Preferred Securities or the Junior Subordinated Debentures are
being redeemed, DTC's current practice is to determine by lot the amount of
the interest of each Direct Participant to be redeemed.
Although voting with respect to the Preferred Securities or the Junior
Subordinated Debentures is limited to the holders of record of the Preferred
Securities or Junior Subordinated Debentures, in those instances in which a
vote is required, neither DTC nor Cede & Co. will itself consent or vote with
respect to Preferred Securities or Junior Subordinated Debentures. Under its
usual procedures, DTC would mail an omnibus proxy (the "Omnibus Proxy") to the
relevant Trustee as soon as possible after the record date. The Omnibus Proxy
assigns Cede & Co.'s consenting or voting rights to those Direct Participants
to whose accounts such Preferred Securities or Junior Subordinated Debentures
are credited on the record date (identified in a listing attached to the
Omnibus Proxy).
Distribution payments on the Preferred Securities or the Junior Subordinated
Debentures will be made by the relevant Trustee to DTC. DTC's practice is to
credit Direct Participants' accounts on the relevant payment date in
accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participant and not of DTC, the relevant Trustee, the Issuer thereof or
Lincoln, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of Distributions to DTC is the
responsibility of the relevant Trustee, disbursement of such payments to
Direct Participants is the responsibility of DTC, and disbursements of such
payments to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
DTC may discontinue providing its services as securities depositary with
respect to any of the Preferred Securities or the Junior Subordinated
Debentures at any time by giving reasonable notice to the relevant Trustee and
Lincoln. In the event that a successor securities depositary is not obtained,
definitive Preferred Security or Junior Subordinated Debenture certificates
representing such Preferred Securities or Junior Subordinated Debentures are
required to be printed and delivered. Lincoln, at its option, may decide to
discontinue use of the system of book-entry transfers through DTC (or a
successor depositary). After a Debenture Event of Default, the holders of a
majority in liquidation preference of Preferred Securities or aggregate
principal amount of Junior Subordinated Debentures may determine to
discontinue the system of book-entry transfers through DTC. In any such event,
definitive certificates for such Preferred Securities or Junior Subordinated
Debentures will be printed and delivered.
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The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Issuers and Lincoln believe to be
accurate, but the Issuers and Lincoln assume no responsibility for the
accuracy thereof. Neither the Issuers nor Lincoln has any responsibility for
the performance by DTC or its Participants of their respective obligations as
described herein or under the rules and procedures governing their respective
operations.
DESCRIPTION OF GUARANTEES
A Guarantee will be executed and delivered by Lincoln concurrently with the
issuance by each Issuer of its Preferred Securities for the benefit of the
holders from time to time of such Preferred Securities. The First National
Bank of Chicago will act as indenture trustee ("Guarantee Trustee") under each
Guarantee for the purposes of compliance with the Trust Indenture Act and each
Guarantee will be qualified as an Indenture under the Trust Indenture Act.
This summary of certain provisions of the Guarantees does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of each Guarantee Agreement, including the definitions
therein of certain terms, and the Trust Indenture Act. The form of the
Guarantee has been filed as an exhibit to the Registration Statement of which
this Prospectus forms a part. Reference in this summary to Preferred
Securities means that Issuer's Preferred Securities to which a Guarantee
relates. The Guarantee Trustee will hold each Guarantee for the benefit of the
holders of the related Issuer's Preferred Securities.
GENERAL
Lincoln will irrevocably agree to pay in full on a subordinated basis, to
the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that such Issuer may have or assert
other than the defense of payment. The following payments with respect to the
Preferred Securities, to the extent not paid by or on behalf of the related
Issuer (the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid Distributions required to be paid on such Preferred
Securities, to the extent that such Issuer has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption to the extent that such Issuer has funds on
hand available therefor at such time, or (iii) upon a voluntary or involuntary
dissolution, winding up or liquidation of such Issuer (unless the
Corresponding Junior Subordinated Debentures are distributed to holders of
such Preferred Securities), the lesser of (a) the Liquidation Distribution and
(b) the amount of assets of such Issuer remaining available for distribution
to holders of Preferred Securities. Lincoln's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by Lincoln
to the holders of the applicable Preferred Securities or by causing the Issuer
to pay such amounts to such holders.
Each Guarantee will be an irrevocable guarantee on a subordinated basis of
the related Issuer's obligations under the Preferred Securities, but will
apply only to the extent that such related Issuer has funds sufficient to make
such payments, and is not a guarantee of collection.
If Lincoln does not make interest payments on the Corresponding Junior
Subordinated Debentures held by the Issuer, the Issuer will not be able to pay
Distributions on the Preferred Securities and will not have funds legally
available therefor. Each Guarantee will rank subordinate and junior in right
of payment to all Senior Debt of Lincoln. See "--Status of the Guarantees".
Lincoln is a non-operating holding company and almost all of the operating
assets of Lincoln and its consolidated subsidiaries are owned by such
subsidiaries. Lincoln relies primarily on dividends from such subsidiaries to
meet its obligations for payment of principal and interest on its outstanding
debt obligations and corporate expenses. Accordingly, Lincoln's obligations
under the Guarantees will be effectively subordinated to all existing and
future liabilities of Lincoln's subsidiaries, and claimants should look only
to the assets
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of Lincoln for payments thereunder. The payment of dividends by Lincoln's
insurance company subsidiaries is limited under the insurance holding company
laws in which such subsidiaries are domiciled. See "Lincoln National
Corporation." Except as otherwise provided in the applicable Prospectus
Supplement, the Guarantees do not limit the incurrence or issuance of other
secured or unsecured debt of Lincoln, whether under the Indenture, any other
indenture that Lincoln may enter into in the future or otherwise. See the
Prospectus Supplement relating to any offering of Preferred Securities.
Lincoln has, through the applicable Guarantee, the applicable Trust
Agreement, the Junior Subordinated Debentures, the Indenture and the Expense
Agreement, taken together, fully, irrevocably and unconditionally guaranteed
all of the Issuer's obligations under the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation
of these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer's obligations under the Preferred
Securities. See "Relationship Among the Preferred Securities, the
Corresponding Junior Subordinated Debentures and the Guarantee".
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of Lincoln and will
rank subordinate and junior in right of payment to all Senior Debt.
Each Guarantee will rank pari passu with all other Guarantees issued by
Lincoln. Each Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Guarantor to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity). Each Guarantee will be held for the benefit of the holders of the
related Preferred Securities. Each Guarantee will not be discharged except by
payment of the Guarantee Payments in full to the extent not paid by the Issuer
or upon distribution to the holders of the Preferred Securities of the
Corresponding Junior Subordinated Debentures. None of the Guarantees places a
limitation on the amount of additional Senior Debt that may be incurred by
Lincoln. Lincoln expects from time to time to incur additional indebtedness
constituting Senior Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the related Preferred Securities (in which case no
vote will be required), no Guarantee may be amended without the prior approval
of the holders of not less than a majority of the aggregate Liquidation Amount
of such outstanding Preferred Securities. The manner of obtaining any such
approval will be as set forth under "Description of the Preferred Securities--
Voting Rights; Amendment of Each Trust Agreement". All guarantees and
agreements contained in each Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of Lincoln and shall inure to the
benefit of the holders of the related Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under each Guarantee will occur upon the failure of
Lincoln to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
related Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Guarantee
Trustee in respect of such Guarantee or to direct the exercise of any trust or
power conferred upon the Guarantee Trustee under such Guarantee.
Any holder of the Preferred Securities may institute a legal proceeding
directly against Lincoln to enforce its rights under such Guarantee without
first instituting a legal proceeding against the Issuer, the Guarantee Trustee
or any other person or entity.
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Lincoln, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not Lincoln is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by Lincoln in performance of any Guarantee, undertakes to perform only
such duties as are specifically set forth in each Guarantee and, after default
with respect to any Guarantee, must exercise the same degree of care and skill
as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Guarantee Trustee is under no
obligation to exercise any of the powers vested in it by any Guarantee at the
request of any holder of any Preferred Securities unless it is offered
reasonable indemnity against the costs, expenses and liabilities that might be
incurred thereby.
TERMINATION OF THE GUARANTEES
Each Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the related Preferred Securities, upon
full payment of the amounts payable upon liquidation of the related Issuer or
upon distribution of Corresponding Junior Subordinated Debentures to the
holders of the related Preferred Securities. Each Guarantee will continue to
be effective or will be reinstated, as the case may be, if at any time any
holder of the related Preferred Securities must restore payment of any sums
paid under such Preferred Securities or such Guarantee.
GOVERNING LAW
Each Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by Lincoln under each Trust
Agreement (the "Expense Agreement"), Lincoln will irrevocably and
unconditionally guarantee to each person or entity to whom the Issuer becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the Issuer, other than obligations of the Issuer to pay to the holders of any
Preferred Securities or other similar interests in the Issuer of the amounts
due such holders pursuant to the terms of the Preferred Securities or such
other similar interests, as the case may be.
RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE CORRESPONDING JUNIOR
SUBORDINATED DEBENTURES AND THE GUARANTEES
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Issuer has funds available for the payment of such
Distributions) are irrevocably guaranteed by Lincoln as and to the extent set
forth under "Description of Guarantees." Taken together, Lincoln's obligations
under each series of Junior Subordinated Debentures, the Indenture, the
related Trust Agreement, the related Expense Agreement, and the related
Guarantee provide, in the aggregate, a full, irrevocable and unconditional
guarantee of payments of distributions and other amounts due on the related
series of Preferred Securities. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Issuer's obligations under the Preferred Securities. If and to the extent that
Lincoln does not make
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payments on any series of Corresponding Junior Subordinated Debentures, such
Issuer will not pay Distributions or other amounts due on its Preferred
Securities. The Guarantees do not cover payment of Distributions when the
related Issuer does not have sufficient funds to pay such Distributions. In
such event, the remedy of a holder of a series of Preferred Securities is to
institute a legal proceeding directly against Lincoln for enforcement of
payment of such Distributions to such holder. The obligations of Lincoln under
each Guarantee are subordinate and junior in right of payment to all Senior
Debt of Lincoln.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on each
series of Corresponding Junior Subordinated Debentures, such payments will be
sufficient to cover Distributions and other payments due on the related
Preferred Securities, primarily because (i) the aggregate principal amount of
each series of Corresponding Junior Subordinated Debentures will be equal to
the sum of the aggregate stated Liquidation Amount of the Related Preferred
Securities and related Common Securities; (ii) the interest rate and interest
and other payment dates on each series of Corresponding Junior Subordinated
Debentures will match the Distribution rate and Distribution and other payment
dates for the related Preferred Securities; (iii) Lincoln shall pay for all
and any costs, expenses and liabilities of such Issuer except the Issuer's
obligations to holders of its Preferred Securities under such Preferred
Securities; and (iv) each Trust Agreement further provides that the Issuer
will not engage in any activity that is not consistent with the limited
purposes of such Issuer.
Notwithstanding anything to the contrary in the Indenture, Lincoln has the
right to set-off any payment it is otherwise required to make thereunder with
and to the extent Lincoln has theretofore made, or is concurrently on the date
of such payment making, a payment under the related Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any related Preferred Security may institute a legal proceeding
directly against Lincoln to enforce its rights under the related Guarantee
without first instituting a legal proceeding against the Guarantee Trustee,
the related Issuer or any other person or entity.
A default or event of default under any Senior Debt of Lincoln would not
constitute a default or Event of Default. However, in the event of payment
defaults under, or acceleration of, Senior Debt of Lincoln, the subordination
provisions of the Indenture provide that no payments may be made in respect of
the Corresponding Junior Subordinated Debentures until such Senior Debt has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on any series of Corresponding Junior
Subordinated Debentures would constitute an Event of Default.
LIMITED PURPOSE OF ISSUERS
Each Issuer's Preferred Securities evidence a beneficial interest in such
Issuer, and each Issuer exists for the sole purpose of issuing its Preferred
Securities and Common Securities and investing the proceeds thereof in
Corresponding Junior Subordinated Debentures. A principal difference between
the rights of a holder of a Preferred Security and a holder of a Corresponding
Junior Subordinated Debenture is that a holder of a Corresponding Junior
Subordinated Debenture is entitled to receive from Lincoln the principal
amount of and interest accrued on Corresponding Junior Subordinated Debentures
held, while a holder of Preferred Securities is entitled to receive
Distributions from such Issuer (or from Lincoln under the applicable
Guarantee) if and to the extent such Issuer has funds available for the
payment of such Distributions.
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<PAGE>
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
any Issuer involving the liquidation of the Corresponding Junior Subordinated
Debentures, the holders of the related Preferred Securities will be entitled
to receive, out of assets held by such Issuer, the Liquidation Distribution in
cash. See "Description of Preferred Securities--Liquidation Distribution Upon
Termination." Upon any voluntary or involuntary liquidation or bankruptcy of
Lincoln, the Property Trustee, as holder of the Corresponding Junior
Subordinated Debentures, would be a subordinated creditor of Lincoln,
subordinated in right of payment to all Senior Debt, but entitled to receive
payment in full of principal and interest, before any stockholders of Lincoln
receive payments or distributions. Since Lincoln is the guarantor under each
Guarantee and has agreed to pay for all costs, expenses and liabilities of
each Issuer (other than the Issuer's obligations to the holders of its
Preferred Securities), the positions of a holder of such Preferred Securities
and a holder of such Corresponding Junior Subordinated Debentures relative to
other creditors and to stockholders of Lincoln in the event of liquidation or
bankruptcy of Lincoln are expected to be substantially the same.
PLAN OF DISTRIBUTION
The Junior Subordinated Debentures or the Preferred Securities may be sold
in a public offering to or through underwriters or dealers designated from
time to time. Lincoln and each Issuer may sell its Junior Subordinated
Debentures or Preferred Securities as soon as practicable after effectiveness
of the Registration Statement of which this Prospectus is a part. The names of
any underwriters or dealers involved in the sale of the Junior Subordinated
Debentures or Preferred Securities in respect of which this Prospectus is
delivered, the amount or number of Junior Subordinated Debentures and
Preferred Securities to be purchased by any such underwriters and any
applicable commissions or discounts will be set forth in the Prospectus
Supplement.
Underwriters may offer and sell Junior Subordinated Debentures or Preferred
Securities at a fixed price or prices, which may be changed, or from time to
time at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices. In connection with the
sale of Preferred Securities, underwriters may be deemed to have received
compensation from Lincoln and/or the applicable Issuer in the form of
underwriting discounts or commissions and may also receive commissions.
Underwriters may sell Junior Subordinated Debentures or Preferred Securities
to or through dealers, and such dealers may receive compensation in the form
of discounts, concessions or commissions from the underwriters.
Any underwriting compensation paid by Lincoln and/or the applicable Issuer
to underwriters in connection with the offering of Junior Subordinated
Debentures or Preferred Securities, and any discounts, concessions or
commissions allowed by such underwriters to participating dealers, will be
described in a Prospectus Supplement. Underwriters and dealers participating
in the distribution of Junior Subordinated Debentures or Preferred Securities
may be deemed to be underwriters, and any discounts and commissions received
by them and any profit realized by them on resale of such Junior Subordinated
Debentures or Preferred Securities may be deemed to be underwriting discounts
and commissions, under the Securities Act. Underwriters and dealers may be
entitled, under agreement with Lincoln and the applicable Issuer, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act, and to reimbursement by
Lincoln for certain expenses.
In connection with the offering of the Preferred Securities of any Issuer,
such Issuer may grant to the underwriters an option to purchase additional
Preferred Securities to cover over-allotments, if any, at the initial public
offering price (with an additional underwriting commission), as may be set
forth in the accompanying Prospectus Supplement. If such Issuer grants any
over-allotment option, the terms of such over-allotment option will be set
forth in the Prospectus Supplement for such Preferred Securities.
36
<PAGE>
Underwriters and dealers may engage in transactions with, or perform
services for, Lincoln and/or the applicable Issuer and/or any of their
affiliates in the ordinary course of business.
The Junior Subordinated Debentures and the Preferred Securities will be new
issues of securities and will have no established trading market. Any
underwriters to whom Junior Subordinated Debentures or Preferred Securities
are sold for public offering and sale may make a market in such Junior
Subordinated Debentures and Preferred Securities, but such underwriters will
not be obligated to do so and may discontinue any market making at any time
without notice. Such Junior Subordinated Debentures or Preferred Securities
may or may not be listed on a national securities exchange or the Nasdaq
National Market. No assurance can be given as to the liquidity of or the
existence of trading markets for any Junior Subordinated Debentures or
Preferred Securities.
VALIDITY OF SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, certain
legal matters will be passed upon for Lincoln and the Issuers by Sonnenschein
Nath & Rosenthal, 8000 Sears Tower, Chicago, Illinois 60606, counsel to
Lincoln and for the Issuers by Richards, Layton & Finger, special Delaware
counsel to the Issuers. The validity of the Guarantees and the Junior
Subordinated Debentures will be passed upon for the Underwriters by Sullivan &
Cromwell, New York, New York. Sonnenschein Nath & Rosenthal and Sullivan &
Cromwell will rely on (i) the opinion of Richards, Layton & Finger as to
matters of Delaware law and (ii) the opinion of Jack D. Hunter, Esq.,
Executive Vice President and General Counsel of Lincoln, as to matters of
Indiana law. As of March 15, 1996, Mr. Hunter beneficially owned 100,731
shares of Common Stock of Lincoln, including shares held in the Lincoln
National Corporation Savings and Profit-Sharing Plan and the Lincoln National
Corporation Employees' and Agents' Stock Bonus Plan. In addition, Mr. Hunter
held as of December 31, 1995 options to acquire 28,000 shares which options
were not exercisable.
EXPERTS
The consolidated financial statements and schedules of Lincoln National
Corporation and subsidiaries appearing in Lincoln National Corporation's
Annual Report (Form 10-K) for the year ended December 31, 1995, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements and schedules are incorporated herein by
reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
37
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY LINCOLN NATIONAL CORPORATION OR BY THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF LINCOLN NATIONAL CORPORATION SINCE THE DATE HEREOF. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by Reference.......................... S-4
Risk Factors............................................................. S-4
Lincoln National Capital II.............................................. S-9
Lincoln National Corporation............................................. S-9
Ratio of Earnings to Fixed Charges....................................... S-10
Use of Proceeds.......................................................... S-10
Capitalization........................................................... S-11
Accounting Treatment..................................................... S-12
Certain Terms of Series B TOPrS.......................................... S-13
Certain Terms of Series B Subordinated Debentures........................ S-15
Certain Federal Income Tax Consequences.................................. S-18
Underwriting............................................................. S-21
Validity of Securities................................................... S-22
PROSPECTUS
Available Information.................................................... 3
Incorporation of Certain Documents by Reference.......................... 4
Lincoln National Corporation............................................. 5
The Issuers.............................................................. 5
Use of Proceeds.......................................................... 6
Description of Junior Subordinated Debentures............................ 6
Description of Preferred Securities...................................... 17
Book-Entry Issuance...................................................... 30
Description of Guarantees................................................ 32
Relationship Among the Preferred Securities, the Corresponding Junior
Subordinated Debentures and the Guarantees.............................. 34
Plan of Distribution..................................................... 36
Validity of Securities................................................... 37
Experts.................................................................. 37
</TABLE>
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4,000,000 PREFERRED SECURITIES
LINCOLN NATIONAL CAPITAL II
8.35% TRUST ORIGINATED
PREFERRED SECURITIES,
SERIES B (TOPRS SM)
FULLY AND UNCONDITIONALLY GUARANTEED,
AS DESCRIBED HEREIN, BY
LINCOLN NATIONAL
CORPORATION
-----------
PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
A.G. EDWARDS & SONS, INC.
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
AUGUST 16, 1996
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