SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c)
or Rule 14a-12
Lincoln National Corporation
(Name of Registrant as Specified in Its Charter)
______________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.
3) Filing Party:
4) Date Filed:
<PAGE>
LINCOLN
NATIONAL
CORPORATION
FORT WAYNE, INDIANA
April 14, 1997
Dear Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Lincoln National Corporation scheduled to be held on Thursday, May 15, 1997, at
the Grand Wayne Center, 120 West Jefferson Boulevard, Fort Wayne, Indiana, at
10:00 a.m., local time. Your Board of Directors and Management look forward to
greeting those shareholders able to attend.
The matters to be acted upon at the meeting are described in the attached
Notice of Meeting and Proxy Statement which we urge you to review carefully.
It is important that your shares are represented at the meeting. Accordingly,
we request your cooperation by signing, dating and mailing the enclosed
proxy card in the envelope provided for your convenience. On behalf of
the Board of Directors, thank you for your continued support.
Sincerely,
/S/IAN M. ROLLAND
Ian M. Rolland
Chairman
<PAGE 1>
LINCOLN NATIONAL CORPORATION
FORT WAYNE, INDIANA
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
April 14, 1997
The Annual Meeting of Shareholders of LINCOLN NATIONAL CORPORATION will be
held on Thursday, May 15, 1997, at 10:00 a.m., local time, at the Grand Wayne
Center, 120 West Jefferson Boulevard, Fort Wayne, Indiana.
The items of business are:
1. to elect three directors for three-year terms to expire in 2000,
2. to approve or disapprove the Lincoln National Corporation 1997
Incentive Compensation Plan, and
3. to consider and act upon such other matters as may properly come before
the meeting.
Only shareholders of record at the close of business on March 21, 1997,
are entitled to notice of and to vote at the annual meeting or any meeting
resulting from an adjournment thereof. Shareholders are reminded that
shares cannot be voted unless the signed proxy card is returned or
other arrangements are made to have the shares represented at the meeting.
For the Board of Directors,
/S/ C. SUZANNE WOMACK
C. Suzanne Womack
Secretary
<PAGE 2>
LINCOLN NATIONAL CORPORATION
200 East Berry Street
FORT WAYNE, INDIANA
Proxy Statement
Annual Meeting of Shareholders
May 15, 1997
Any shareholder giving a proxy has the power to revoke it at any time
before its exercise by submitting a written revocation or a new proxy, or by the
shareholder's attendance and vote at the annual meeting. This Proxy Statement is
first being mailed to shareholders on or about April 14, 1997. Proxies in the
form provided are being solicited by the Board of Directors of Lincoln National
Corporation (the "Corporation" or "LNC") for use at the annual meeting of
shareholders to be held May 15, 1997, and any meeting resulting from an
adjournment thereof.
Solicitation of Proxies
The cost of soliciting proxies will be paid by the Corporation. The
Corporation has made arrangements with brokerage firms, banks, custodians and
other fiduciaries to forward proxy materials to their principals, and the
Corporation will reimburse them for their reasonable mailing and other expenses.
In addition to solicitation by mail, certain directors, officers and employees
of the Corporation, who will receive no additional compensation for their
services, may solicit proxies by telephone, telecopy and by personal contacts.
The Corporation has retained the firm of Corporate Investor Communications,
Inc., a shareholder relations and proxy solicitation firm. Representatives of
this firm may also solicit proxies by mail, telephone, telecopy and by personal
contacts.
The enclosed proxy/direction card is considered to be voting instructions
furnished to the respective trustees of the Lincoln National Corporation
Employees' Savings and Profit-Sharing Plan, The Lincoln National Life Insurance
Company Agents' Savings and Profit-Sharing Plan, and the American States
Financial Corporation Employees' Savings and Profit-Sharing Plan with respect
to shares allocated to individual accounts under these plans. To the extent
that account information is the same, participants in one or more of the
plans who are also shareholders of record will receive a single card
representing all shares. If a plan participant does not return a
proxy/direction card to the Corporation, the trustees of the plan in
which shares are allocated to the participant's individual account will
vote such shares in proportion to shares for which directions have been
received.
Approval by the shareholders at the annual meeting of the minutes of the
previous annual meeting will not constitute approval of any of the matters
referred to in such minutes. For information regarding shareholder proposals,
please see "Shareholder Proposals" and "No Qualifying Shareholder Proposals" on
page 38. If matters other than Items 1 and 2 listed in the Notice of Annual
Meeting of Shareholders on page 1 are presented, holders of proxies given
pursuant to this Proxy Statement will vote the shares in their discretion in the
best interests of the Corporation and in accordance with their best judgment.
<PAGE 3>
SHAREHOLDERS ENTITLED TO VOTE AND
SHARES OUTSTANDING
Only shareholders of record at the close of business on March 21, 1997,
will be entitled to vote at the meeting. As of that date, there were 103,227,674
shares of capital stock of the Corporation issued, outstanding and entitled to
vote as follows: 103,190,912 shares of Common Stock and 36,762 shares of $3.00
Cumulative Convertible Preferred Stock, Series A. Each share is entitled to one
vote.
VOTES NECESSARY FOR QUORUM
AND ADOPTION OF PROPOSALS
Quorum - The Corporation is domiciled in the state of Indiana. A majority
of all outstanding voting shares constitutes a quorum. Once a share is
represented for any purpose at a meeting, it is deemed present for quorum
purposes for the remainder of the meeting or any adjournment.
Votes Necessary to Adopt Proposals - A plurality of the votes cast is
required for the election of directors (Item 1). Item 2 will be approved if the
votes cast favoring the action exceed the votes cast opposing the action. For
both Item 1 and Item 2, abstentions, broker non-votes and, with respect to the
election of directors, instructions on a proxy to withhold authority to vote for
one or more of the director nominees will have no effect on the outcome of the
relevant vote.
ITEM 1 - ELECTION OF DIRECTORS
Mr. Robert A. Anker resigned from the Board effective December 31, 1996,
and the size of the Board has accordingly been reduced from thirteen to twelve
members. Proxies will be voted for nominees listed below unless the shareholder
giving the proxy withholds such authority. It is intended that shares
represented by proxies will be voted for Harry L. Kavetas, M. Leanne Lachman and
Jill S. Ruckelshaus for terms expiring in 2000.
All nominees presently are serving as directors of the Corporation. All
nominees have agreed to serve if elected; however, if any nominee is unable or
declines to serve as a director at the time of the annual meeting or any meeting
resulting from an adjournment thereof (an event not now anticipated), proxies
will be voted for the election of a qualified substitute nominee, or the size of
the Board may be reduced.
<PAGE 4>
[Picture] Nominee for a Term Expiring in May 2000
Principal Occupation:
Chief Financial Officer and Executive Vice President of Eastman
Kodak Company (a global imaging products and services company)
[February 1994 - present]
Five Year Business History:
Vice President, International Business Machines Corporation
(an information/handling systems, equipment and services
company) [1989 - December 1993]
President, IBM Credit Corporation (a finance company which
finances IBM products and services for IBM customers)
[1986 - October 1993]
Directorships of Public Companies:
Caliber System, Inc. [February 1996 - present]
Harry L. Kavetas
Director since 1990
Age 59
[Picture] Nominee for a Term Expiring in May 2000
Principal Occupation:
Managing Director of Schroder Real Estate Associates
(a national real estate investment management firm) [April
1987 - present]
Five Year Business History:
Managing Director, Schroder Mortgage Associates (a national
commercial mortgage investment firm) [April 1993 - present]
Directorships of Public Companies:
Chicago Title and Trust Company [January 1985 - present]
Chicago Title Insurance Company [January 1985 - present]
Liberty Property Trust [June 1994 - present]
M. Leanne Lachman
Director since 1985
Age 54
[Picture] Nominee for a Term Expiring in May 2000
Principal Occupation:
Director of Seattle First Bank Corporation
[September 1977 - present]
Five Year Business History:
Director, Costco, Inc. (a membership warehouse retailer)
[January 1996 - present]
Consultant, William D. Ruckelshaus Associates (environmental
consultants) [concluded January 1, 1997]
Directorships of Public Companies:
Sea-First Corporation [September 1977 - present]
Jill S. Ruckelshaus
Director since 1975
Age 60
<PAGE 5>
Continuing in Office for a Term Expiring in May 1999
[Picture] Principal Occupation and Five Year Business History:
Chairman and Chief Executive Officer of CARPAT Investments
(a private investment company) [1987 - present]
Directorships of Public Companies:
None
J. Patrick Barrett
Director since 1990
Age 60
Continuing in Office for a Term Expiring in May 1999
[Picture] Principal Occupation:
President and Chief Executive Officer of Burson-Marsteller
Worldwide (a perceptions management firm) [May 1995 - present]
Five Year Business History:
Vice-Chairman, Gulfstream Aerospace Corporation (a
manufacturer of business aircraft) [March 1994 - May 1995]
Vice-Chairman, Chief Operating Officer and Director, Burson -
Marsteller Worldwide [June 1989 - March 1994]
Directorships of Public Companies:
Gulfstream Aerospace Corporation [October 1996 - present]
Thomas D. Bell, Jr.
Director since 1988
Age 47
Continuing in Office for a Term Expiring in May 1999
[Picture] Principal Occupation:
President, Treasurer and Director of Real Silk Investments,
Inc.(a closed-end investment company)[January 1989 - present]
Five Year Business History:
First Vice President and Director, Moriah Fund, Inc.
(a private foundation)[1993 - present]
Directorships of Public Companies:
NBD Bank, N.A. Indiana [December 1985 - present]
Daniel R. Efroymson
Director since 1993
Age 55
<PAGE 6>
Continuing in Office for a Term Expiring in May 1999
[Picture] Principal Occupation:
President, Chief Executive Officer and Director of Tandem
Computers, Inc. (a manufacturer of computer hardware, servers
and networks) [January 1996 - present]
Five Year Business History:
President and Chief Executive Officer, UB Networks, Inc.
(a computer networking company) [September 1993 -
January 1996]
President and Chief Executive Officer, AT&T Unix Systems
Laboratories (a communications company) [January 1991 -
September 1993]
Directorships of Public Companies:
General Magic, Inc. [February 1996 - present]
Veritas Software Corporation [April 1992 - present]
UNIFY [February 1997 - present]
Roel Pieper
Director since 1996
Age 41
Continuing in Office for a Term Expiring in May 1999
[Picture] Principal Occupation:
Chairman, Chief Executive Officer and President of the
Corporation
Five Year Business History:
Chairman, The Corporation [January 1992 - present]
Chief Executive Officer, The Corporation [May 1977 - present]
President, The Corporation [December 1975 - December 1991,
January 1997 - present]
Director, The Corporation [December 1975 - present]
Directorships of Public Companies:
Director, Tokheim Corporation [March 1981 - present]
Director, NIPSCO Industries, Inc. [April 1978 - present]
Director, Norwest Corporation [April 1993 - present]
Ian M. Rolland
Director since 1975
Age 63
Continuing in Office for a Term Expiring in May 1998
[Picture] Principal Occupation and Five Year Business history:
Attorney at Law, Earl L. Neal & Associates [ April 1955 -
present]
Directorships of Public Companies:
Chicago Title and Trust Company [July 1975 - present]
Chicago Title Insurance Company [July 1975 - present]
Peoples Energy Corporation [1985 - present]
First Chicago NBD Corporation [1995 - present]
The First National Bank of Chicago [1988 - present]
Earl L. Neal
Director since 1985
Age 68
<PAGE 7>
Continuing in Office for a Term Expiring in May 1998
[Picture] Principal Occupation and Five Year Business History:
Chairman of Texas Biotechnology Corporation
(a research and development company) [May 1990 - present]
Directorships of Public Companies:
Hershey Foods Corporation [April 1987 - present]
General Public Utilities Corporation [January 1989 - present]
McKesson Corporation [July 1990 - present]
John M. Pietruski
Director since 1989
Age 64
Continuing in Office for a Term Expiring in May 1998
[Picture] Principal Occupation and Five Year Business History:
Chairman and Chief Executive Officer of Hollinee, Inc.
(a privately-held holding company) [June 1986 - present]
Directorships of Public Companies:
Turner Corporation [1984 - present]
Gordon A. Walker
Director since 1982
Age 69
Continuing in Office for a Term Expiring in May 1998
Principal Occupation:
Professor of Business Economics, School of Business
Administration, University of Michigan [January 1979 - present]
Five Year Business History:
Provost and Executive Vice President of Academic Affairs,
University of Michigan [September 1990 - August 1995]
Directorships of Public Companies:
Handleman Company [June 1990 - present]
Structural Dynamics Research Corporation [July 1988 - present]
Johnson Controls, Inc. [January 1986 - present]
Gilbert R.
Whitaker, Jr.
Director since 1986
Age 65
<PAGE 8>
SECURITY OWNERSHIP OF DIRECTORS,
NOMINEES AND EXECUTIVE OFFICERS
The Corporation ("LNC") encourages all employees to own shares of its
Common Stock and has established share ownership guidelines for its officers.
These guidelines were established in 1993, and officers are expected to meet
them within 5 years of attaining the relevant title. Officers are expected to
achieve stock ownership equivalent to the following multiples of their base
salary: chief executive officer - 8 times, chief operating officer - 7 times,
executive vice presidents - 6 times, senior vice presidents - 4 times, vice
presidents - 2 times, and officers below vice president - 1 time. Similarly,
directors are expected to achieve stock ownership of 5 times their annual
retainer within a period of 5 years of election. The Corporation has two classes
of equity securities, Common Stock and Preferred Stock. None of the persons
listed below own Preferred Stock. The following table shows (i) the number of
shares of the Corporation's Common Stock (as of February 17, 1997) and stock
units (as of February 14, 1997) and (ii) the number of shares of common stock of
American States Financial Corporation, the Corporation's 83% owned subsidiary
("ASFC") and ASFC stock units beneficially owned by directors, nominees for
director, and named executive officers individually and all directors and
executive officers as a group.
<TABLE>
<CAPTION>
NAME AMOUNT OF LNC LNC STOCK TOTAL OF LNC AMERICAN STATES
COMMON STOCK AND UNITS COMMON FINANCIAL
NATURE OF STOCK AND CORPORATION
BENEFICIAL STOCK UNITS COMMON STOCK<F3>
OWNERSHIP<F1,2> AND STOCK UNITS
<S> <C> <C> <C> <C>
Robert A. Anker 130,006 48,739 178,745 1,046
J. Patrick Barrett 5,129 1,584 6,713 -0-
Thomas D. Bell, Jr. 1,829 804 2,633 -0-
Jon A. Boscia 89,363 13,402 102,765 -0-
Daniel R. Efroymson 1,001,525 1,724 1,003,249 -0-
Harry L. Kavetas 1,512 2,208 3,720 10,000
M. Leanne Lachman 1,912 3,498 5,410 -0-
F. Cedric McCurley 68,037 1,122 69,159 12,539
Earl L. Neal 2,139 5,817 7,956 -0-
Roel Pieper 478 73 551 -0-
John M. Pietruski 3,139 2,303 5,442 -0-
Ian M. Rolland 259,644 115,033 374,677 -0-
Jill S. Ruckelshaus 2,912 71 2,983 -0-
Richard C. Vaughan 36,550 13,176 49,726 -0-
Gordon A. Walker 1,779 4,540 6,319 -0-
Gilbert R. Whitaker, Jr. 3,139 3,512 6,651 -0-
Directors and Executive 1,889,670 246,775 2,136,445 24,385
Officers as a group -
26 persons
__________________________
<FN>
<F1> Each of these amounts represents less than 1% of the outstanding
shares of the Corporation's Common Stock as of March 6, 1997. As to shares
beneficially owned, each person, other than Mr. Efroymson, has sole voting
and investment power except that the following persons each share voting and
investment power with another person as to the number of shares indicated:
Mr. Boscia, 11,720 shares; Mr. McCurley, 500 shares; and Ms. Ruckelshaus,
200 shares. In addition, the following persons have sole voting power (and
no investment power) as to the number of shares indicated: Mr. Barrett,
1,129 shares; Mr. Bell, 1,129 shares; Mr. Boscia, 5,065 shares; Mr.
Efroymson, 1,129 shares; Mr. Kavetas, 912 shares; Ms. Lachman, 912 shares;
Mr. McCurley, 7,232 shares; Mr. Neal, 1,139 shares; Mr. Pieper, 478 shares;
Mr. Pietruski, 1,139 shares; Ms. Ruckelshaus, 912 shares; Mr. Vaughan,
3,752 shares; Mr. Walker, 1,139 shares; and Dr. Whitaker, 1,139 shares. Of
the shares reported for Mr. Efroymson, he has sole voting and investment power
with respect to 4,430 shares, shared voting and investment power with
respect to 995,966 shares. Of the shares reported for Mr. Efroymson, 422,660
shares are held in various trusts and 577,736 are held by Moriah Fund, Inc., a
private foundation of which Mr. Efroymson is First Vice President and a
Director. Mr. Efroymson disclaims beneficial ownership of all but 5,081
shares.
<F2> This table includes the following shares which are subject to
acquisition within 60 days by the exercise of outstanding stock options:
Mr. Anker, 91,250 shares; Mr. Boscia, 53,750 shares; Mr. McCurley, 44,150
shares; Mr. Rolland, 189,250 shares; and Mr. Vaughan, 24,500 shares.
<F3> Each of these amounts represents less than 1% of the outstanding shares of
ASFC common stock as of February 17, 1997. As to the shares beneficially
owned, each person has sole voting and sole investment power, except that
the following person has sole voting (and no investment power) as to the
number of shares indicated: Mr. McCurley, 10,520 shares. All of the
amounts in this column reflect beneficial ownership of ASFC common stock.
</FN>
</TABLE>
<PAGE 9>
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS
The table below sets forth the names of persons known to the Corporation to
be the beneficial owners of more than 5% of its Common Stock. There are no
persons known to the Corporation to be the beneficial owner of more than 5% of
its Preferred Stock.
<TABLE>
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS
<CAPTION>
Title of Name and Address of Amount and Nature of Percent
Class Beneficial Owner Beneficial Ownership of Class
<S> <C> <C> <C>
Common The Dai-ichi Mutual Life 6,754,311 shares 6.5%
Insurance Company [sole voting and sole
13-1, Yurakucho 1-Chome dispositive power of
Chiyoda-ku all shares]
Tokyo 100, Japan
Common Capital Guardian Trust 8,250,960 shares 8.0%
Company and Capital [sole dispositive
Research and Management power - 8,250,960
Company, operating sub- shares; sole voting
sidiaries of The Capital - 960 shares]
Group Companies, Inc.
(formerly, The Capital
Group, Inc.)
333 South Hope Street
Los Angeles, California 90071
Common Sanford C. Bernstein & 5,202,477 shares 5.0%
Co., Inc. [sole voting power-
One State Street Plaza 2,760,294; shared
New York, NY 10004 voting power-628,663;
sole dispositive power-
5,202,477 shares]
</TABLE>
<Page 10>
COMPENSATION OF DIRECTORS, ATTENDANCE,
COMMITTEES AND COMPLIANCE WITH
SECTION 16(a) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMPENSATION OF DIRECTORS
Directors of the Corporation who are not employees of the Corporation or a
subsidiary of the Corporation ("non-employee directors") are paid retainer and
meeting fees that approximate the median for similar companies. Non-employee
directors of the Corporation were paid an annual retainer at a rate of $30,000
plus a fee of $1,100 for each Board and Board committee meeting attended in
1996. In addition, Committee chairpersons were paid an annual fee of $5,000. The
Corporation reimburses directors, and on some occasions their spouses, for
reasonable travel expenses incurred in attending Board and Board committee
meetings.
The Board has endorsed all six "Best Practices" recommended in the Report
of the Blue Ribbon Commission on Director Compensation of the National
Association of Corporate Directors. Consistent with these Best Practices, the
Board has determined that the philosophy and process used to determine director
compensation at the Corporation are that: (1) a substantial portion of each
director's compensation will be in Common Stock or phantom units of Common Stock
("stock units"); (2) directors will not be eligible for defined benefit pensions
to avoid the appearance of employee-like tenure or compromised independence; and
(3) directors are expected to achieve stock ownership of 5 times their annual
retainer within five years of election.
Under the 1993 Stock Plan for Non-Employee Directors (the "Stock Plan")
directors receive an annual retainer of $30,000 ($18,000 in cash and $12,000 in
restricted stock of the Corporation). In addition, on the July 1 following the
date a non-employee director commences a new three-year term, such director
receives an additional award of restricted shares equal to $10,000 (rounded up
to the nearest whole share). The restrictions on all Common Stock issued to
directors will lapse on the earliest of the non-employee director's death,
disability or retirement as a director at age 70; however, the full Board may by
a majority vote vest such shares on termination.
Under the Lincoln National Corporation Directors' Value Sharing Plan
("DVSP"), which became effective January 1, 1996, non-employee directors are
eligible to receive bonus and service awards. The bonus is based on the total
shareholder return of the Corporation's Common Stock compared to a group of 14
peer companies over a three-year period. As a transition to this three-year
cycle, the first cycle was one year (1996), the second cycle is two years
(1996-1997) and future cycles will be three years. For 1996, the award was based
on the one year performance of the following companies compared to the
Corporation: Allstate Insurance Companies, American General Corporation, CIGNA
Corporation, First Colony Insurance Company, Provident Life and Accident
Insurance Company of America, Providian Corporation, ReliaStar, SAFECO
Corporation, The Equitable Companies, Inc., Torchmark Corporation, Transamerica
Corporation, Travelers Inc., USF&G Corporation, and US LIFE Corporation. The
award ranges from $0, if the Corporation's total shareholder return is not above
the median, to $41,000, if the Corporation's total shareholder return is the
best. There was no award for the 1996 cycle. This bonus is credited to a
non-qualified deferred compensation account which is invested in stock units of
the Corporation's Common Stock. Under the service award portion of the DVSP, for
each non-employee director, a quarterly award will
<PAGE 11>
be credited for a maximum of forty quarters to a non-qualified deferred
compensation account which is invested in stock units of the Corporation's
Common Stock. The quarterly award is a function of the director's age
upon election to the Board, the annual retainer, and an expected minimum
return on the Corporation's stock. A director's actual account value will be
based on the value of the stock units when it is distributed.
A special guaranteed death benefit is provided for directors who were
serving on the Board as of January 1, 1996, and who elected to participate in
the DVSP service award. That provision guarantees the value of the service award
account payable in the event one of these directors dies prior to retirement
will be no less than the lump sum death benefit that would have been payable
under the terms of the Directors' Retirement Plan described below. The DVSP
service award replaced the Directors' Retirement Plan for people who first
became directors after January 1, 1996, and its adoption canceled all rights and
obligations of the Corporation to non-employee directors as of that date who
elected to become eligible for service awards under the DVSP.
Non-employee directors who did not elect to participate in the DVSP service
award continue to be eligible for retirement benefits. The annual benefit
payable under the Directors' Retirement Plan to a director is .833% of the
director's retainer during the last year he/she was a director multiplied by
the number of months of service (with a maximum of 120 months). The benefit is
payable either in a single lump sum or monthly beginning at the later of age 65
or when the director retires from the Corporation's Board. In the event of a
director's death prior to the commencement of retirement benefits, a death
benefit is paid to a beneficiary. Presently, only two directors participate in
the Retirement Plan.
Non-employee directors may defer the cash portion of their annual retainer
and fees in stock units as provided under Section 3.2 of the Stock Plan. The
value of such units are paid in annual installments over a period of up to
fifteen years or in a lump sum after the director has ceased to be a director.
The value of such units are paid in Common Stock of the Corporation or in cash
upon the director's retirement.
ATTENDANCE
The Board held five regularly scheduled meetings and one special meeting
during 1996. All directors, except Mr. Pieper, attended 75% or more of the
aggregate meetings of the Board and Board committees which he or she was
eligible to attend. The Corporation believes attendance at meetings is
only one criterion for judging the contribution of individual directors, and
all directors have made substantial and valuable contributions to the
management of the Corporation.
COMMITTEES
The Board currently has four standing committees (i.e., committees composed
entirely of Board members): the Audit Committee, the Compensation Committee,
the Development Committee and the Nominating and Governance Committee.
<PAGE 12>
Audit Committee
The members of the Audit Committee are: Earl L. Neal (Chairperson), J.
Patrick Barrett, Thomas D. Bell, Jr., Daniel R. Efroymson, Harry L. Kavetas,
Jill S. Ruckelshaus and Gilbert R. Whitaker, Jr. During 1996 the Audit Committee
met five times. No member of the Audit Committee is an officer or employee of
the Corporation. The principal functions of the Audit Committee are: (1) to
review audits of the consolidated financial statements of the Corporation
performed by independent auditors, (2) to confer with the independent auditors
and officers of the Corporation regarding accounting and financial statement
matters, (3) to recommend to the Board the selection, retention, or termination
of the independent auditors, (4) to review the Corporation's accounting and
auditing procedures and (5) to perform such other related functions as are
necessary and desirable.
Compensation Committee
The members of the Compensation Committee are: John M. Pietruski
(Chairperson), Thomas D. Bell, Jr., Earl L. Neal, Jill S. Ruckelshaus and
Gordon A. Walker. The Compensation Committee held seven meetings during 1996.
No member of the Compensation Committee is an officer or employee of the
Corporation. The functions of the Compensation Committee relate to
compensation of officers and key personnel and include: (1) reviewing and
conferring on the selection and development of officers and key personnel,
(2) selecting and recommending to the Board for approval candidates for
chairman of the board and chief executive officer, (3) establishing salaries
for Executive Officers and approving salaries for other officers and key
personnel, (4) approving the payment of bonuses, both discretionary and
contractual, for officers and key personnel, (5) approving employment
contracts and agreements for officers and key personnel, (6) recommending
to the Board the establishment of employee and officer retirement, group
insurance and other benefit plans, (7) approving modifications to employee
benefit plans if all such modifications, according to actuarial estimates,
do not in the aggregate have a present value cost in excess of $10 million
for the five calendar years after the effective date of such modifications,
(8) administering those benefit plans of the Corporation designed to comply
with the provisions of Rule 16b-3(d) under the Securities Exchange Act of
1934 and (9) such other related functions as are necessary or desirable.
Development Committee
The members of the Development Committee are: M. Leanne Lachman
(Chairperson), J. Patrick Barrett, Daniel R. Efroymson, Roel Pieper, John M.
Pietruski and Ian M. Rolland. During 1996 the Development Committee met five
times. The Development Committee generally has authority to authorize the
following transactions and expenditures having a value greater than $5 million
and less than or equal to $10 million: (1) acquisitions or divestitures of
companies, assets or blocks of business, mergers, strategic investments and
joint ventures, (2) capital commitments or expenditures for leases and asset
purchases, (3) sale of an equity interest in a company, (4) purchases by the
Corporation or its affiliates of securities issued by the Corporation or any of
its affiliates and issuance of securities by the Corporation or any of its
affiliates, (5) acquisitions or dispositions of information systems development
projects and (6) such other transactions as the chief executive officer may
elect to refer to the Committee. The Development Committee also has authority to
authorize capital transactions (excluding dividends) between affiliates having a
value greater than $40 million and less than or equal to $100 million.
<PAGE 13>
Nominating and Governance Committee
The members of the Nominating and Governance Committee are: Gilbert R.
Whitaker, Jr. (Chairperson), Harry L. Kavetas, M. Leanne Lachman, Ian M.
Rolland, and Gordon A. Walker. During 1996 the Nominating and Governance
Committee met five times. The functions of the Nominating and Governance
Committee include: (1) the nomination of directors for election by shareholders,
(2) the nomination of directors to fill vacancies, (3) the compensation and
reimbursement of directors, (4) the retirement policy and benefit plans for
directors, (5) the determination of the size of the Board, (6) review and
confer on the selection of members of Board committees and (7) develop
governance principles which guide the Board in the conduct of its business.
Although the Nominating and Governance Committee does not solicit
shareholder suggestions regarding nominees for director to be proposed by the
Board, it will consider such recommendations if they are made. Recommendations
regarding nominees for director to be proposed by the Board, along with relevant
qualifications and biographical material, should be sent to the Secretary of the
Corporation.
Nominations for directors to be proposed by a shareholder at a
shareholders meeting must comply with the provisions of the Corporation's
Bylaws (See Shareholder Proposals on page 38).
SECTION 16(a) BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, the Corporation's
directors, its executive officers (which include all the Named Executive
Officers shown on the Summary Compensation Table on page 21), and any persons
holding more than ten percent of a class of its equity securities ("Reporting
Persons") are required to report their initial ownership of such securities and
any subsequent changes in that ownership to the Securities and Exchange
Commission ("SEC") and the New York Stock Exchange on Forms 3, 4 and 5. All
Reporting Persons are required by SEC regulations to furnish the Corporation
with copies of all Forms 3, 4 and 5 they file. Specific due dates for these
reports have been established, and the Corporation is required to disclose in
this proxy statement any failure during 1996 to file by these dates. All of
these filing requirements were satisfied. In making these disclosures, the
Corporation has relied solely on written representations of the Reporting
Persons and copies of the reports that were filed with the SEC.
COMPENSATION COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
The following persons served as members of the Corporation's Compensation
Committee during the 1996 fiscal year: Thomas D. Bell, Jr., Earl L. Neal, John
M. Pietruski, Jill S. Ruckelshaus and Gordon A. Walker. None of these people had
interlocks reportable under Section 402(j)(3) and (4) of Regulation S-K, and
none were employees, officers or former officers of the Corporation or its
subsidiaries.
<PAGE 14>
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
RESPONSIBILITIES AND COMPOSITION
The Corporation's executive compensation programs are administered by the
Compensation Committee (the "Committee"), a committee of the Board of Directors
comprised exclusively of non-employee directors. The Committee approves payment
amounts and award levels for the Corporation's executive officers, including
payments under plans approved by the Board of Directors. The Committee's
decisions assist the Corporation in attracting and retaining high caliber
executives while providing appropriate compensation programs that reinforce the
attainment of superior financial results for the benefit of the shareholders,
customers, employees and communities in which the Corporation operates. None of
these non-employee directors have any interlocking or other relationships that
would call into question their independence as Committee members, nor have any
ever served as officers of the Corporation.
Prior to May 23, 1996, compensation decisions concerning the executive
officers of the entities that are currently subsidiaries of American States
Financial Corporation, the Corporation's majority owned subsidiary ("ASFC"),
were made by the Committee. Since that date, however, such determinations have
been (and will continue to be) made by the compensation committee of ASFC (the
"ASFC Committee"), although the ASFC Committee coordinates with the Committee in
order to align its compensation programs as nearly as practicable with those of
the Corporation. In this regard, the Committee makes specific recommendations to
the ASFC Committee regarding awards to be made under ASFC long-term compensation
plans. ASFC is a reporting company under the Securities Exchange Act of 1934, as
amended (the "1934 Act"). As a result, the compensation policies of ASFC
established after May 23, 1996, will be separately discussed in the relevant
reports required under the 1934 Act to be filed by ASFC.
COMPENSATION PHILOSOPHY AND OBJECTIVES
The Committee believes that the Corporation's executive officers' compensation
should be determined according to a competitive framework and based
on overall corporate financial results, individual contributions, teamwork and
business unit results that help build shareholder value. Within this overall
philosophy, the Committee's specific objectives are to:
. Maximize long-term shareholder value creation. To accomplish this
objective, the Corporation has adopted a comprehensive business strategy.
The overall goal of the Committee is to develop executive compensation
policies which are consistent with and linked to the Corporation's
strategic business objectives.
. Provide a direct link between executive compensation and the Corporation's
financial performance (as more specifically described below) and
total long-term shareholder return, relative to a comparable group of
specialty and multi-line insurance companies. This group currently
includes 14 insurance companies that are the same companies listed on the
Performance Graph on page 30, and are hereafter referred to in this report
as the "Peer Group." Consistent with this objective, the Committee
establishes performance criteria and incentive
<PAGE 15>
targets, evaluates actual performance against these criteria and
determines actual incentive awards.
. Align the financial interests of executive officers with those of the
shareholders by providing significant equity-based long-term incentives.
. Emphasize performance-based compensation at executive officer levels. As
a result, executive officers have a greater portion of total compensation
at risk depending on overall corporate performance.
TOTAL COMPENSATION PRINCIPLES
There are key principles to which the Committee adheres in structuring the
compensation program for its executive officers. They are as follows:
Long-Term and At-Risk Focus: The majority of compensation for Executive
Officers is long-term and at-risk, to focus management on the long-term
interests of shareholders. Less emphasis is placed on annual compensation.
Equity Orientation: Stock-based plans comprise a significant part of an
Executive Officer's compensation. This is to instill ownership thinking
and to more closely link compensation to long-term shareholder return.
Consistent with this philosophy, the Corporation requires officers to meet
certain share ownership guidelines.
Management Development: Compensation opportunities are structured to
attract and retain those individuals who can maximize the creation of
shareholder value. The compensation structure facilitates the Corporation's
philosophy of developing and retaining leaders.
Competitiveness: Base pay will be competititve with selected companies
within the Corporation's market. Total direct compensation will be
average or below for average or below average financial performance
but will be in the top quartile for top quartile financial performance.
The market to which we compare includes the Peer Group as well as other
companies in our industry. The development of at-risk pay policies is
driven more by corporate strategy than by competitive pay practice.
The Committee has utilized these key principles in the design and
administration of the executive compensation program and believes that the
structure of this compensation approach encourages the creation of shareholder
value over the long term.
COMPENSATION COMPONENTS AND PROCESS
The primary components of executive compensation used by the Committee are:
. Base pay
. Long-term incentives
. Benefits
<PAGE 16>
These components are strucured to meet varying vusiness objectives and to
cumulatively provide a level of total compensation opportunity that compares
favorably to levels of total compensation offered by other successful companies
in our business.
Base Pay
The Corporation has established executive base pay bands, assigning each
executive to a band of compensation based on job responsibilities. Each band was
established to be fully competitive after consideration of available market data
and by using methodology and data provided and developed by independent
compensation consulting firms.
Compensation recommendations are provided to the Committee by the Chief
Executive Officer after an annual evaluation of individual contribution to the
business. The executive base pay bands were established after a review of
published projections of executive cash compensation increases by well known
consulting firms and national compensation associations and comparing individual
compensation to the external market. These projections (which included
information on 1995 compensation) covered the results of surveys of compensation
levels of executive officers at a group of 38 companies.
Long-term Incentives
Long-term incentives comprise the largest portion of total compensation for
Executive Officers. These incentives are provided through annual grants of Stock
Options and the Executive Value Sharing Plan ("EVSP"). The Committee has the
authority to convert cash payments from the EVSP awards into restricted stock or
restricted stock units, thus creating three forms of long-term incentives
utilized for key executives: stock options, restricted stock or stock units, and
cash awards. In any given year, an executive may receive a combination of all or
some of these incentives, depending on circumstances such as individual and
corporate performance. The objective of both the stock option grants and the
conversion of long-term cash incentives to restricted stock or restricted stock
unit awards is to motivate executives to make changes in the Corporation that
will enhance long-term return to shareholders.
For 1996, approximately 65% of the value of the Named Executive Officers'
total compensation was variable. This total variable portion was comprised of
long-term incentives which are based on long-term corporate financial
performance and the Corporation's Common Stock performance relative to the Peer
Group as discussed above. The long-term incentive plans are discussed below:
Stock Options: Stock option grants provide the opportunity to purchase
shares of the Corporation's Common Stock at Fair Market Value (the average of
the high and low trading prices on the day preceding the date of the grant). The
objective of these grants is to increase executive officers' equity interest in
the Corporation and to allow them to share in the appreciation of the
Corporation's Common Stock. Stock options only have value for the executive
officers if the stock price appreciates in value from the date the options are
granted. Stock options become exercisable in four equal annual installments
beginning on the first anniversary of the grant and has a ten-year term. The
Committee has typically granted stock options each year to executive officers at
its May meeting. The option grants cover shares of Common Stock authorized under
shareholder-approved plans. Four hundred ninety employees across the Corporation
received option grants in 1996.
<PAGE 17>
Executives are encouraged to hold shares received upon the exercise of the
options, linking their interests to those of shareholders. Executives who sell
shares prior to reaching the share ownership guidelines (discussed on page 18)
may have future stock option awards reduced or eliminated.
In granting stock options to Executive Officers, including the Named
Executive Officers, the Committee takes into account the executive's level of
responsibility, individual contribution and the Committee's objective of
attaining long-term incentive compensation levels deemed appropriate by
the Committee when compared to market compensation data. In addition, the
Committee took into account the Chief Executive officer's award
recommendation for the Named Executive Officers. The Committee also considers
the practices of other companies as verified by external surveys, shares of
Common Stock owned by the individual and total compensation objectives.
The Committee does consider the amounts and terms of prior option grants as
an important component in achieving a competitive total compensation
package.
Executive Value Sharing Plan ("EVSP"): In May 1994, the shareholders of the
Corporation approved the amended and restated EVSP so that payments made under
the EVSP to the Named Executive Officers might not be subject to the one
million-dollar limit on deductibility that was enacted by the Omnibus Budget
Reconciliation Act of 1993 ("OBRA"). Under the EVSP, participants are awarded
bonuses only if specified performance objectives are attained. The amounts of
these awards depend on the Corporation's or a designated business segment's
performance over three-year "Performance Cycles" relative to the performance of
other companies contained in a designated peer group. A new three-year cycle
begins each year; however, newly promoted or newly hired executives may
participate in cycles that are currently running. The Committee approves the
participants, establishes the performance goals or formula for measuring the
Corporation's or a business segment's performance, determines the peer groups,
establishes the maximum amounts which can become payable, certifies the extent
to which such performance goals or formulas have been attained, and determines
the actual award. Under the shareholder approved plan, the Committee does not
have the authority to increase an award above the maximum set by the formula nor
can the formula for a specific performance cycle be changed, once it has begun.
The first payment under the 1994 shareholder approved plan will be made in 1997.
For the performance cycle that ended in 1996, the 1994 - 1996 performance
cycle information on the Peer Group (which is the same as the companies on the
Performance Graph on page 30 except for 1994 and 1995 when The Equitable
Companies, Inc. replaced Kemper Corporation, except for 1995 when Allstate
replaced Continental Corp., and except for 1996 when First Colony replaced
Aetna) will not be available until the end of April 1997; therefore, the EVSP
award will be determined after the date of this proxy statement and discussed in
the Compensation Committee Report in the 1998 proxy statement. The EVSP award
for the 1993 - 1995 performance cycle was determined in May 1996. The major
considerations by the Committee in determining the awards were the Corporation's
1993 - 1995 performance at the 65th percentile for increase in book value and at
the 66th percentile for total shareholder return compared to the Peer Group.
Commencing May 23, 1996 and January 1, 1997, Mr. McCurley and Mr. Anker,
respectively, became eligible to participate in the long-term compensation plans
supported by ASFC, although Mr. Anker may receive an award under the EVSP for
the performance cycle that ended in 1996.
Restricted Stock and Stock Units: Restricted stock awards or restricted
stock unit awards were made to the Named Executive Officers in lieu of a cash
payment for half of their award under
<PAGE 18>
the EVSP in 1996. The shares awarded are typically restricted from sale or
trade for three years after the end of the performance cycle for which they were
granted, except in a situation relating to death or disability. During the
period that the shares are issued but restricted, the executives may vote the
shares and dividends are deemed to have been reinvested in additional restricted
stock. Restricted stock units are deferred compensation which vests after three
years. There are no voting rights and dividends are reinvested in additional
stock units.
Share Ownership Guidelines: The Committee endorses stock ownership by
directors, executive officers and key personnel in the belief that stock
ownership enhances the alignment of management and shareholder interests.
Further, the Committee endorses stock-based performance compensation
arrangements as being essential in achieving this alignment. In support of
achieving stock ownership, the Corporation has adopted the following guidelines.
Officers are expected to achieve stock ownership equivalent to the following
multiples of their base salary: Chief Executive Officer - eight times, Chief
Operating Officer, - seven times, Executive Vice Presidents - six times, Senior
Vice Presidents - four times, Vice Presidents - two times and officers below
vice president - one times base salary. These guidelines were established in
1993, and officers currently in the same positions as then are expected to meet
them no later than 1998. Newly appointed officers have five years to achieve the
guideline.
Benefits
Benefits offered to key executives are largely those that are offered to
the general employee population, with some variation, largely to promote tax
efficiency and replacement of benefit opportunities lost due to regulatory
limits. In general, they provide a safety net for protection against the
financial catastrophes that can result from illness, disability or death.
1996 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's base salary was increased effective July 14,
1996 by 5.1%. The Committee also awarded Mr. Rolland options to purchase 75,000
shares of Common Stock at the then fair market price of $45.38 per share on May
8, 1996. The Committee determined Mr. Rolland's EVSP award for the 1993 - 1995
performance cycle following methodology similar to the shareholder approved
formula for performance cycles beginning in 1994. This award was evenly divided
into a cash payment and restricted stock units. The number of stock units was
determined by dividing the cash portion of the award by $53.31 (average closing
price of LNC Common Stock on December 29, 1995, January 31, 1996, and February
29, 1996). The total value of the award (after conversion to stock units,
including the cash payment) was $1,300,000. The value of the restricted stock
units is payable on a date no earlier than one year after retirement and such
amounts should be fully deductible by the Corporation.
In making 1996 compensation decisions for the Chief Executive Officer, the
Committee reviewed the Corporation's positive financial performance during 1995.
The Committee also considered the Chief Executive Officer's leadership in
continuing to strategically position the Corporation for the future. During
1996, income from operations grew to a record $434.1 million. This compares with
$306.5 million in 1995, which was net of a special charge of $121.6 million for
disability income insurance reserve strengthening. Also during 1996 LNC
completed an initial public offering of 17 percent of American States and
completed the acquisition of UNUM's group tax-qualified annuity business.
Finally, assets managed by LNC surpassed the $100 billion mark in 1996, reaching
a total
<PAGE 19>
exceeding $105 billion at December 31, 1996, an increase of approximately
11 percent compared to the prior year end.
The Committee also considered the Corporation's 1993 - 1995 performance at
the 65th percentile for increase in book value and at the 66th percentile for
total shareholder return compared to the Peer Group. No adjustment was made in
the calculation of book value increase for the special charge in 1995 of $121.6
million for disability income insurance reserve strengthening.
IMPACT OF TAX DEDUCTION LIMITATIONS ON EXECUTIVE COMPENSATION
It is the responsibility of the Committee to address tax deduction limits
which make "non-performance-based" compensation to certain executives of the
Corporation in excess of $1,000,000 non-deductible to the Corporation. To
qualify as "performance-based" compensation payments must be made from a plan
that is administered by a committee of outside directors and be based on
achieving objective performance goals. In addition, the material terms of the
plan must be disclosed to and approved by shareholders, and the Committee must
certify that the performance goals were achieved before payments can be awarded.
The Committee has taken several steps to minimize the effect of these tax
deduction limits on the Corporation's deduction for compensation to be paid to
any of the Named Executive Officers listed on the Summary Compensation Table.
The Corporation's 1986 Stock Option Incentive Plan was amended to place maximums
on the amount of stock options awarded to any officer, and the EVSP was approved
by shareholders in 1994. All stock options awarded under that plan and all
awards under the EVSP beginning in 1997 will not count toward the one million
dollar limit. In addition, instead of amounts being paid in restricted stock for
EVSP cycles that began before 1994, some officers receive these amounts as
restricted stock units under a deferred compensation arrangement designed to
assure deductibility by the Corporation. Although the plans meet the
requirements for payments to be deductible, the Committee may, in accordance
with its powers, award discretionary bonuses to executives that are not
deductible to recognize exceptional service or to correct below market
compensation. Should compliance with the million dollar limit conflict with the
Committee's compensation philosophy, the Committee will act in accordance with
that philosophy and in the best interests of shareholders. The Committee will
continue to monitor the level of compensation paid to executive officers in
order to take any steps which may be appropriate.
RECOMMENDATION OF ADOPTION OF 1997 INCENTIVE COMPENSATION PLAN
During 1996, the Compensation Committee commissioned a study by an outside
consultant in the field of executive compensation to assess and make
recommendations regarding the Corporation's long-term incentive compensation
plans. The purpose was to determine whether revisions in the design of those
plans would be advisable based on the Compensation Committee's compensation
philosophy as stated above, business conditions, competitive practices and other
factors. Following this study, the Compensation Committee recommended to the
Board the adoption, and submission to shareholders for their approval, of the
proposed 1997 Incentive Compensation Plan. The Compensation Committee also
established, subject to shareholder approval of the Plan, performance goals and
maximum award levels for performance awards for persons anticipated to be plan
participants for certain performance periods beginning in 1997 (as described in
Item 2 of the Proxy Statement). This plan, if approved by shareholders, will
allow the Compensation Committee greater
<PAGE 20>
flexibility in tailoring awards to satisfy the Corporation's business needs
and objectives. The plan is described more fully in Item 2 of the Proxy
Statement.
CONCLUSION
The Compensation Committee believes the executive compensation policies and
programs serve the interest of the shareholders and the Corporation.
Pay delivered to the executives is intended to be linked to and
commensurate with corporate performance. The Committee believes the
performance of the Corporation validates this compensation philosophy.<F1>
John M. Pietruski, Chairperson
Thomas D. Bell, Jr.
Earl L. Neal
Jill S. Ruckelshaus
Gordon A. Walker
<FN1> Pursuant to item 402(a)(9) of Regulation S-K promulgated by the
Securities and Exchange Commission ("SEC"), the "Compensation Committee Report"
shall not be deemed to be filed with the SEC for purposes of the Securities
Exchange Act, nor shall such report or such material be deemed to be
incorporated by reference in any past or future filing by the Corporation under
the Securities Exchange Act or the Securities Act of 1933 as amended.
[This portion of page intentionally left blank]
<PAGE 20>
SUMMARY ANNUAL AND LONG-TERM COMPENSATION
The Corporation's compensation program for executive officers for the
fiscal year ended December 31, 1996 consisted primarily of salaries, bonuses,
and other compensation. The numbers necessary to determine the amount of the
awards under the Executive Value Sharing Plan are not available and are not
included for 1996 below, but will be included in next year's proxy statement.
Shown below is information concerning the annual compensation for services in
all capacities to the Corporation and its subsidiaries for the fiscal years
ended December 31, 1996, 1995, and 1994 of those persons who were, at December
31, 1996 (i) the chief executive officer at any time during 1996; (ii) the four
other most highly compensated executive officers on December 31, 1996, and, if
applicable, (iii) up to two additional executive officers during 1996 but not at
year-end (collectively, the "Named Executive Officers"):
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUT
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
NAME AND COMPEN- STOCK OPTIONS/ LTIP COMPEN-
PRINCIPAL YEAR SALARY BONUS SATION<F2> AWARDS<F3> SARs PAYOUT(S) SATION<F10>
POSITION ($) ($) ($) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
IAN M. ROLLAND 1996 1,003,077 -0- -0- ----- 75,000 289,078<F8> 72,103
Chairman,CEO 1995 958,461 -0- -0- -0-<F4> 39,000 1,309,806<F4,9> 113,238<F11>
and President 1994 938,077 -0- 1,923 -0- 30,000 1,458,221 120,224
of LNC
ROBERT A. ANKER 1996 563,846 -0- -0- ----- 40,000 115,418<F8> 51,046
Chairman and CEO 1995 534,038 -0- -0- -0-<F4> 25,000 704,915<F4,9> 84,151<F11>
of American 1994 508,077 -0- -0- -0- 18,000 712,829 66,427
States Insurance
Company
F. CEDRIC 1996 385,000 12,500 9,553 ----- 32,000<F6> 27,702<F8> 33,662
MCCURLEY<F1> 1995 370,425 -0- 350 344,643<F5>14,000 229,450<F7,9> 47,920<F11>
Retired Chairman 1994 352,000 -0- 164 205,580 14,000 179,825 49,916
of American States
Insurance Company
JON A. BOSCIA 1996 384,768 -0- -0- ---- 18,000 71,430<F8> 24,233
CEO and 1995 375,384 -0- -0- 257,019 16,000 312,975<F7,9> 39,635<F11>
President of 1994 359,422 -0- 104 293,303 15,000 299,575 38,565
The Lincoln
National Life
Insurance Company
RICHARD C. 1996 343,653 -0- -0- ---- 14,500 28,307<F8> 22,767
VAUGHAN 1995 312,577 -0- -0- 385,247 12,000 200,000<F7,9> 36,514<F11>
Executive Vice 1994 280,959 -0- -0- 112,828 10,000 98,692 37,331
President and
CFO of LNC
<FN>
<F1> For the years set forth in this compensation table, Mr. McCurley's
compensation was paid by American States Insurance Company ("ASI"), an indirect
subsidiary of the Corporation. However, prior to the partial public offering of
ASI's parent, American States Financial Corporation ("ASFC"), Mr. McCurley
participated in various plans of the Corporation and the amounts set forth in
columns (f) and (g) reflect not only awards made under ASFC plans, but also
awards made under the Corporation's plans. For amounts attributable to awards
made in ASFC's securities, see footnotes 5 and 6.
<F2> The amounts included represent amounts reimbursed during the fiscal year
for payment of taxes. Perquisites and other personal benefits did not exceed the
lesser of $50,000 or 10% of the total of base salary and annual bonus for the
Named Executive Officers during the years reported in the table and, therefore,
were not included in the table.
<F3> Represents the Fair Market Value on the date of grant of the award of
restricted shares of Common Stock awarded under the Executive Value Sharing Plan
("EVSP") in 1994 and 1995. No dividends are payable on the restricted shares;
however, when the restrictions lapse, a "dividend equivalency" bonus is paid.
The restrictions on the shares awarded under the EVSP lapse on the third
anniversary of January 1 of the year next succeeding the applicable performance
cycle. EVSP numbers for 1996 are not
<PAGE 22>
available at this time because financial information on peer group
companies necessary to calculate these awards will not be available from all
peer group companies until late April or early May 1997. These EVSP awards will
be included for the applicable year in next year's Proxy Statement. The
restricted stock holdings, including restricted stock units, of the Named
Executive Officers as of December 31, 1996, are as follows: Mr. Rolland, 70,987
shares; Mr. Anker, 42,513 shares; Mr. McCurley, 16,089 shares; Mr. Boscia,
23,729 shares; and Mr. Vaughan, 15,903 shares. As of December 31, 1996, the
number and value of the aggregate restricted stock holdings (including
restricted stock units) of all employees of the corporation were 475,982 shares
representing a total value of $24,989,105.
<F4> Because of 162(m) of the Code, the 1995 awards to Messrs. Rolland and
Anker were made in restricted stock units in lieu of restricted stock. The value
of these stock units is reflected in the "LTIP Payout(s)" column.
<F5> Of this amount, $241,960 represents an award of ASFC restricted stock
based on a market price of $23.00 per share on the date of grant.
<F6> Represents options on shares of ASFC common stock granted to Mr.
McCurley on May 29, 1996 under the ASFC Stock Option Incentive Plan.
<F7> The LTIP Payout includes cash payments under the EVSP for 1995.
<F8> This amount includes dividend equivalencies which were paid in cash or
in restricted stock or restricted stock units with respect to restricted stock
or restricted stock units which vested in 1996 as follows: Mr. Rolland,
$131,751; Mr. Anker, $ 67,518.00; Mr. McCurley, $ 27,702; Mr. Boscia, $ 51,129;
and Mr. Vaughan, $7,542.
<F9> The amount shown in last year's table was increased by the following
amounts, which were awarded by the Board at its May 1996 meeting and were not
available for inclusion in last year's proxy statement: (1) for the cash portion
of the 1993-1995 EVSP award: Mr. Rolland, $650,000; Mr. Anker, $350,000; Mr.
McCurley, $229,450; Mr. Boscia, $ 270,000 and Mr. Vaughan, $200,000; and (2) for
the 1993-1995 EVSP award that was credited to deferred compensation accounts as
restricted stock units: Mr. Rolland, $650,033 and Mr. Anker, $350,047 and (3)
for the value of dividend equivalencies paid in stock units: Mr. Rolland, $
9,773; and Mr. Anker, $ 4,868.
<F10> Amounts included in the All Other Compensation column are amounts
contributed or accrued for the Named Executive Officers under the Corporation's
Employees' Savings and Profit-Sharing Plan, the related supplemental savings
plans and the dollar value of insurance premiums paid by the Corporation. The
amounts contributed to the Profit-Sharing Plan and accrued supplements for
fiscal 1996 are as follows: Mr. Rolland, $15,046; Mr. Anker, $ 8,458; Mr.
McCurley, $ 5,775, Mr. Boscia, $ 5,772; and Mr. Vaughan, $ 5,155; however, the
Board is expected to determine the additional profit-sharing amount for 1996 at
its May 1997 board meeting, and this amount will be disclosed in the 1998 Proxy
Statement. The amounts of insurance premiums for fiscal 1996 are as follows: Mr.
Rolland, $55,328; Mr. Anker, $41,000; Mr. McCurley, $25,565; Mr. Boscia,
$16,954; and Mr. Vaughan, $16,024.
<F11> The additional profit-sharing amounts for 1995 which were not available
for last year's proxy statement and which were awarded by the Board at its May
1996 meeting were as follows: Mr. Rolland, $43,533; Mr. Anker, $24,256; Mr.
McCurley, $16,805; Mr. Boscia, $17,050; and Mr. Vaughan, $14,197.
</FN>
</TABLE>
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<PAGE 23>
LONG-TERM INCENTIVE PLANS
Effective January 1, 1994, Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), generally disallows deductions for
"non-performance-based" compensation in excess of $1,000,000 paid to the
executive officers who are listed in the Summary Compensation Table for the tax
year in which the Corporation would be entitled to the deduction. The
Corporation adopted, and shareholders approved, a restatement of the
Corporation's Executive Value Sharing Plan (the "EVSP") at its May 1994 annual
meeting of shareholders. The Corporation believes that the EVSP, as approved,
qualifies for a "performance-based compensation" exception to this disallowance
rule and payments made thereunder beginning in 1997 should be fully deductible.
Shown below are the estimated future payouts for the 1996 to 1998 Performance
Cycle under the Corporation's Executive Value Sharing Plan.
<TABLE>
LONG-TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
<CAPTION>
Estimated future payouts under
non-stock price-based plans
Number Performance
of shares, or other
units period until
or other maturation Threshold<F3>
Name rights<F2> or payout $ or # Target<F4> Maximum<F5>
#
<S> <C> <C> <C> <C> <C>
Rolland N/A 1996 - 1998 $970,000 $2,330,000 $4,100,000
Anker N/A 1996 - 1998 590,000 1,430,000 2,500,000
McCurley<F1> N/A 1996 - 1998 420,000 1,010,000 1,760,000
Boscia N/A 1996 - 1998 460,000 1,100,000 1,920,000
Vaughan N/A 1996 - 1998 360,000 860,000 1,500,000
________________________
<FN>
<F1> As an executive officer of American States Insurance Company, Mr.
McCurley participated in the American States Financial Corporation Executive
Performance Incentive Compensation Plan ("EPIC") during 1996. Under the EPIC
Plan, Mr. McCurley's award for 1996 will be calculated by reference to
performance cycles established under the EVSP.
<F2> The Corporation's Executive Value Sharing Plan permits the Compensation
Committee to establish performance goals. The 1996-1998 performance goals for
the Named Executive Officers relate the Corporation's performance to a selected
group of companies which are not the same as the peer group in the performance
graph on page 30. If the increase in the dividend-adjusted value sharing return
on equity of the Corporation for the three-year performance cycle exceeds the
average performance of selected companies, then an award will be made according
to a pre-established formula with Compensation Committee discretion to adjust
downward. The selected companies for the 1996-1998 cycle include Aetna Life &
Casualty Company, Allstate Insurance Companies, American General Corporation,
CIGNA Corporation, Provident Life and Accident Insurance Company of America,
Providian Corporation, ReliaStar, SAFECO Corporation, The Equitable Companies,
Inc., Torchmark Corporation, Transamerica Corporation, Travelers Inc., USF&G
Corporation, and US LIFE Corporation.
<F3> The basic philosophy is to make no payment if performance is equal to or
below the average performance of the selected companies; however, the maximums
produced by the formula and payable at threshold are established at higher
levels than zero in order to permit the Compensation Committee the discretion to
adjust downward to comply with Section 162(m) of the Code. The average
performance is determined for each of the three years in a performance cycle by
deleting the top three and bottom three companies to determine an annual average
and then averaging the three years to determine the Corporation's ranking.
<F4> The target is the estimated maximum to be paid in 1999 for the 1996-1998
three-year cycle if the Corporation's performance is at the 75th percentile
compared to the Peer Group. Upon completion of the cycle, any award may be paid
in restricted stock or stock units, cash or any combination thereof.
<F5> The maximum is the most that would be awarded if the Corporation was the
top company among the selected group of competitors for the 1996-1998
Performance Cycle. If there is no increase in book value for a performance
cycle, no payment is made.
</FN>
</TABLE>
<PAGE 24>
STOCK OPTION PLANS
Shown below is further information on grants of stock options pursuant to
the Corporation's 1986 Stock Option Incentive Plan during the fiscal year 1996
to the Named Executive Officers (other than Mr. McCurley, who received his award
under the American States Financial Corporation Stock Option Incentive Plan)
which are reflected in the Summary Compensation Table. No stock appreciation
rights were granted under either of those Plans during fiscal 1996.
<TABLE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Individual Grants Price Appreciation for Option
Term
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or
Granted<F1> Fiscal Year<F3> Base Price<F5> Expiration
Name (#) ($/Shares) Date<F6> 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Rolland 75,000 11.85% 45.38 5/8/2006 2,139,832 5,423,329
Anker 40,000 6.32% 45.38 5/8/2006 1,141,243 2,892,442
McCurley 32,000<F2> 16.05%<F4> 23.00 5/29/2006 202,504 513,185
Boscia 18,000 2.84% 45.38 5/8/2006 513,559 1,301,599
Vaughan 14,500 2.29% 45.38 5/8/2006 413,700 1,048,510
_________________________
<FN>
<F1> Options granted on May 8, 1996 are exercisable starting 12 months after
the grant date with respect to 25% of the shares covered and with an additional
25% of the option shares becoming exercisable on each successive anniversary,
with full vesting occurring on the earliest of death, disability, fourth
anniversary of the date of grant or a change of control of the Corporation.
<F2> Options granted to Mr. McCurley related to shares of ASFC. Such grant
was made on May 29, 1996, and 25% of the options became exercisable on the first
anniversary date of the grant, with an additional 25% of the option shares
becoming exercisable on each successive anniversary date, with full vesting
occurring on the earliest of death, disability or the fourth anniversary of the
date of grant.
<F3> The Corporation granted options representing 632,700 shares to employees
in fiscal year 1996.
<F4> Represents the percentage of total options for ASFC shares granted to
employees of ASFC and its subsidiaries during 1996.
<F5> The exercise price and tax withholding obligations related to exercise
may be paid by delivery of already owned shares or by offset of the underlying
shares, subject to certain conditions.
<F6> The options were granted for a term of 10 years, subject to earlier
forfeiture in certain events related to termination of employment.
</FN>
</TABLE>
<PAGE 25>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to option exercises in fiscal year
1996 and unexercised options to purchase the Corporation's Common Stock (and,
with respect to certain options held by Mr. McCurley, to purchase shares of the
Corporation's majority-owned subsidiary, American States Financial Corporation
("ASFC")) granted in fiscal year 1996 and prior years under the Corporation's
1982 and 1986 Stock Option Incentive Plans (and,with respect to certain options
granted to Mr. McCurley, under the ASFC Stock Option Incentive Plan) to the
Named Executive Officers.
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<CAPTIONS>
(a) (b) (c) (d) (e)
Number of Unexercised Value of Unexercised in-the-
Options held at December 31, money Options Held at
1996 December 31, 1996<F2>
Shares
Name Acquired Value Realized Exercisable Unexercisable Exercisable Unexercisable
on Exercise
<S> <C> <C> <C> <C> <C> <C>
Rolland 30,000 $623,475 189,250 130,750 $4,212,307 $1,165,222
Anker 7,000 197,312 110,250 73,750 2,535,162 663,902
McCurley 8,000 195,380 44,150 53,250<F1> 856,290 354,867
Boscia 2,000 43,500 60,750 41,250 1,323,802 392,362
Vaughan 3,200 99,000 24,500 30,000 440,645 276,495
<FN>
<F1> Includes options to purchase 21,250 shares of the Corporation's Common
Stock and 32,000 shares of ASFC common stock.
<F2> Based on the closing price on the New York Stock Exchange Composite
Transactions ("NYSE") of the Corporation's Common Stock on December 31, 1996
($52.50) and, with respect to options held by Mr. McCurley to purchase shares
of common stock of ASFC, the closing price of ASFC common stock on the NYSE
on the same date ($26.50).
</FN>
</TABLE>
[This portion of page intentionally left blank]
<PAGE 26>
RETIREMENT PLANS
The following table shows the estimated annual retirement benefits payable
on a straight life annuity basis to participating employees, including the Named
Executive Officers, under the Corporation's retirement plans which cover most
officers and other employees on a non-contributory basis. Such benefits reflect
a reduction to recognize in part the Corporation's cost of Social Security
Benefits related to service for the Corporation.
<TABLE>
PENSION TABLE
<CAPTION>
Estimated annual retirement benefit for credited years of service<F1,3>
Final
Average
Salary<F2> 10 Years 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
<S> <C> <C> <C> <C> <C> <C> <C>
$ 300,000 $ 49,897 $ 74,845 $ 99,794 $124,742 $149,691 $ 174,639 $ 182,139
350,000 58,397 87,595 116,794 145,992 175,191 204,389 213,139
400,000 66,897 100,345 133,794 167,242 200,691 234,139 244,139
450,000 75,397 113,095 150,794 188,492 226,191 263,889 275,139
500,000 83,897 125,845 167,794 209,742 251,691 293,639 306,139
550,000 92,397 138,595 184,794 230,992 277,191 323,389 337,139
600,000 100,897 151,345 201,794 252,242 302,691 353,139 368,139
650,000 109,397 164,095 218,794 273,492 328,191 382,889 399,139
700,000 117,897 176,845 235,794 294,742 353,691 412,639 430,139
750,000 126,397 189,595 252,794 315,992 379,191 442,389 461,139
800,000 134,897 202,345 269,794 337,242 404,691 472,139 492,139
850,000 143,397 215,095 286,794 358,492 430,191 501,889 523,139
900,000 151,897 227,845 303,794 379,742 455,691 531,639 554,139
950,000 160,397 240,595 320,794 400,992 481,191 561,389 585,139
1,000,000 168,897 253,345 337,794 422,242 506,691 591,139 616,139
1,050,000 177,397 266,095 354,794 443,492 532,191 620,889 647,139
1,100,000 185,897 278,845 371,794 464,742 557,691 650,639 678,139
<FN>
<F1> This table assumes retirement at age 65 (current normal retirement
date), and at age 65, the following individuals will have the number of years
credited service indicated: Mr. Rolland, 41; Mr. Anker, 31; Mr. McCurley, 14;
Mr. Boscia, 33; and Mr. Vaughan, 23.
<F2> Final average salary is the average of an employee's base salary paid in
any consecutive 60-month period during an employee's last ten years of active
employment which produces the highest average salary. The base salary for the
Named Executive Officers is reflected in Column (c) of the Summary Compensation
Table.
<F3> As a result of limitations under the Internal Revenue Code, a portion of
these amounts will be paid under supplemental benefit plans established by the
Corporation to provide benefits (included in this table) which would exceed
these limits.
</FN>
</TABLE>
<PAGE 27>
SUPPLEMENTAL RETIREMENT ARRANGEMENTS
Certain officers of the Corporation and its subsidiaries, including all the
Named Executive Officers, have entered into salary continuation agreements with
their employers under the terms of either the Salary Continuation Plan for
Executives of Lincoln National Corporation and Affiliates or the American States
Executive Salary Continuation Plan ("Salary Continuation Plans"). Under the
Salary Continuation Plans, the amount each officer is entitled to receive upon
retirement is 2% of final monthly compensation times the number of years the
agreement has been in effect up to a maximum of 10% of final monthly salary; so
long as the officer agrees to an exclusive consulting arrangement with the
Corporation until the earlier of the waiver of such arrangement or attainment of
age 65. This amount will be paid in the form of a 120-month certain and life
annuity. In the event of death prior to retirement, a designated beneficiary of
executives who were participating in the Salary Continuation Plans on December
31, 1991, will instead receive annual payments each equal to 25% of the
employee's final annual salary until the later of the date on which the employee
would have attained age 65 or the date on which a minimum of ten payments have
been made. These agreements automatically terminate upon the officer's
termination of service for reasons other than death, disability or retirement;
except that in the event of a change in control of the Corporation, as defined
in the Executives' Severance Plan, and a subsequent voluntary or involuntary
termination of the employee's employment within 2 years of the change in
control, such employee shall be treated as continuing employment with the
Corporation and its affiliates until age 65 at which time benefits shall begin.
The Salary Continuation Plan caps compensation used to determine benefits at the
greater of $200,000 or the annual base compensation in effect on December 31,
1991 for executives participating on that date. Effective December 31,
1993, the exclusive consulting arrangement was waived for Messrs. Rolland and
McCurley.
CHANGE-IN-CONTROL ARRANGEMENTS
Recognizing that an unforeseen change of control is unsettling to the
Corporation's key executives, the Board adopted the Lincoln National Corporation
Executives' Severance Benefit Plan ("Executives' Severance Plan") for the
following reasons: (1) to encourage attraction and the continued employment of
certain executives in the face of a threat of a change of control; (2) to enable
such executives, if the Corporation is under a proposal for a change of control,
to help the Board assess the proposal and advise what would be in the best
interests of the Corporation, its shareholders, and the policyholders and
customers of its affiliates without being unduly influenced by the uncertainty
of continued employment; (3) to demonstrate to executives the desire of the
Corporation to treat them fairly; and (4) to provide such executives with
compensation and benefits upon a change of control which are designed to ensure
that expectations of the executives will be satisfied.
Executives eligible for participation in the Executives' Severance Plan
("Eligible Executives") are the members of the Corporation's Senior Management
Committee and other employees as determined by the Compensation Committee. All
Named Executive Officers were Eligible Executives during 1996. Pursuant to the
Executives' Severance Plan, the Corporation may enter into agreements (which are
not employment agreements) with Eligible Executives to provide severance
benefits in the event that within three years after a change of control of the
Corporation has occurred (1) the Corporation terminates their employment for any
reason other than cause, death or disability, or (2) the Eligible Executive
terminates employment for good reason, such as a change in the Eligible
Executives' responsibilities, a reduction in salary or benefits, or relocation.
Any termination of employment by the chief executive officer or the chief
operating officer during such three year period is deemed to be for good reason
under the Executives' Severance Plan.
<PAGE 28>
The benefit to which an Eligible Executive would be entitled under the
terms of the Executives' Severance Plan is the greater of (1) 299.9% of the
Eligible Executive's average annual compensation for the period consisting of
the five most recent taxable years ending before the change in control and (2)
200% of the Eligible Executive's annual compensation (including all forms of
compensation reportable on a Form W-2) based on the highest amount of
consideration paid during (a) the calendar year preceding termination or (b)
either of the two calendar years immediately preceding the year in which the
change of control occurred. In addition, an Eligible Executive would be entitled
to benefits such as the continuation of certain benefits under the welfare
benefit plans in which he or she participates, immediate and 100% vesting in all
retirement benefits, the value of certain unexercisable stock options and
restricted stock, relocation benefits, outplacement services and a lump sum
payment equal to 40.6% of any amount paid which is deemed an "excess parachute
payment" under the Code. The Corporation must reimburse an Eligible Executive
any and all legal fees and expenses incurred by the Eligible Executive relating
to enforcing the Corporation's obligations under the Executives' Severance Plan.
The Executives' Severance Plan supplements and does not supersede other plans,
contracts of employment, or other arrangements which Eligible Executives may
have with the Corporation or its affiliates.
The Corporation and ASFC on March 26, 1997, had under consideration and
likely will adopt subsequent to preparation of this proxy statement certain ASFC
change-in-control arrangements affecting Mr. Anker and certain other executive
officers of ASFC.
EMPLOYMENT CONTRACTS
On March 15, 1996, a subsidiary of the Corporation, American States
Financial Corporation ("ASFC"), filed a registration statement for an initial
public offering for up to 18.7% of the Common Stock of ASFC, including the
overallotment option granted the underwriters. ASFC is a holding company for
American States Insurance Company and its subsidiaries. ASFC has entered into an
employment contract with Mr. McCurley which became effective with the closing of
the initial public offering. The contract extends to the later of December 31,
1997, or 12 months after the ASFC board designates someone other than Mr.
McCurley as CEO. Effective January 1, 1997 Mr. Robert A. Anker was elected CEO
of ASFC, so Mr. McCurley's contract will terminate on December 31, 1997. In
1996, Mr. McCurley's base salary was $385,000. For 1997, Mr. McCurley's bonus
will be an amount equal to the bonus that would have been payable under the EVSP
for the performance cycle ending in 1996, in lieu of the EVSP award. The bonus
can be paid in cash, restricted ASFC common stock, or restricted stock or stock
units of ASFC.
ASFC, an 83% owned subsidiary of the Corporation, has entered into
employment agreements with Mr. Anker and Mr. McCurley which will expire on
December 31, 1997. These agreements provide for the capacities in which Messrs.
Anker and McCurley will serve as employees of ASFC, their responsibilities,
compensation, benefits and eligibility for stock option and restricted stock
awards. Each of the employment agreements provides that the employment of the
relevant executive may be terminated for "cause" (defined generally to include
actions taken or caused by the executive that are adverse to the interests of,
or reflect negatively upon, ASFC). They also provide that in the event of
termination of employment for reasons other than incapacity or death and without
cause, ASFC will continue to provide Messrs. Anker and McCurley's salary, bonus
under the EPIC Plan and benefits until the termination of the employment
agreement and for vesting and exercisability of all stock options as if
employment had continued until such date.
In addition, Mr. Anker's employment agreement provides that if his
employment terminates at the agreement's expiration for reasons other than
death, incapacity or cause, he will be entitled to an early
<PAGE 29>
retirement benefit without adjustment for his age, outplacement benefits
and executive financial planning benefits for calendar year 1998. If his
employment terminates due to death or disability during 1997, early retirement
benefits, severance and EPIC bonus amounts are payable. In the event that Mr.
Anker's employment is terminated for cause, he may, in certain limited
circumstances, be entitled to a final payment of $285,000 payable in twenty-six
equal biweekly installments. Mr. Anker's employment agreement also contains
provisions which protect ASFC from competition by him and prevent him from
seeking to effect a change of control of ASFC or Lincoln National Corporation
for a period of three years after his employment terminates.
Pursuant to their employment agreements, in 1997 Mr. Anker's base salary
will be not less than $565,000 and Mr. McCurley's will be not less than
$385,000. Subject to these minimums, Mr. Anker's and Mr. McCurley's base salary
may be adjusted annually at the discretion of the board of directors of ASFC.
Messrs. Anker and McCurley are also entitled to participate in and receive all
benefits under any and all benefit programs maintained by ASFC for executives at
their levels, except for the severance plan.
Messrs. Anker and McCurley have agreed not to disclose or reveal any trade
secrets or other confidential information related to ASFC both during and after
the term of their respective employment agreements. Both have also agreed that
certain specified amounts payable under their respective employment agreements
are subject to compliance with these and other provisions of their employment
agreements.
Mr. Vaughan has a severance agreement which provides that from June 18,
1996 until the first month following his 55th birthday, if his employment is
involuntarily terminated by the Corporation, he will be entitled to one year of
severance pay at his then base salary. This arrangement does not apply to
voluntary termination or if termination is for cause.
[This portion of page intentionally left blank]
<PAGE 30>
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
The following graph shows a five-year comparison of the yearly performance
of the Corporation's cumulative total shareholder return (change in the year-end
stock price plus reinvested dividends), based on a hypothetical investment of
$100, with the S&P 500 Composite Index and an index of peer companies selected
by the Corporation. Companies in the Peer Group are as follows: American General
Corporation, CIGNA Corporation, Equitable of Iowa Corporation, Providian
Corporation, Provident Life and Accident Insurance Company of America,
ReliaStar, SAFECO Corporation, The Allstate Corporation, The Equitable
Companies, Inc., Torchmark Corporation, Transamerica Corporation, Travelers
Inc., USF&G Corporation, and US LIFE Corporation. Companies in the Peer Group
are publicly traded insurance holding companies with business units which are
considered to be significant competitors of major business units of the
Corporation, and their returns have been weighted for stock market
capitalization. During 1996 Equitable of Iowa Corporation replaced Aetna Life &
Casualty because Aetna disposed of its property casualty business, made a
significant health care acquisition and is now focusing on the health care
business.
<TABLE>
PERFORMANCE GRAPH
AMONG LNC, S&P 500 AND PEER GROUP
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
LNC 100.00 142.05 173.48 145.38 232.83 236.33
S&P 100.00 107.64 118.50 120.06 165.18 203.11
Peer Group 100.00 126.96 150.86 133.30 208.37 273.26
Source: Medic General Financial Services
</TABLE>
The Performance Graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act of 1933 or under the Securities Exchange Act of
1934, except to the extent that the Corporation specifically incorporates this
graph by reference, and shall not otherwise be deemed filed under such Acts.
There can be no assurance that the Corporation's stock performance will
continue into the future with the same or similar trends depicted in the
preceding graph. The Corporation will not make or endorse any predictions as to
future stock performance.
<PAGE 31>
ITEM 2 - PROPOSED 1997 INCENTIVE
COMPENSATION PLAN
The Board of Directors of the Corporation has adopted, subject to
shareholder approval, the 1997 Incentive Compensation Plan (the "1997 ICP").
The 1997 ICP is intended to supersede the Lincoln National Corporation 1986
Stock Option Incentive Plan (the "Stock Option Plan") and the 1994 Amended and
Restated Lincoln National Corporation Executive Value Sharing Plan (the "EVSP")
(collectively, the "Preexisting Plans"). The EVSP has been terminated effective
as of December 31, 1996 and the Stock Option Plan will be terminated effective
as of May 15, 1997, although awards granted prior to the termination of the
Preexisting Plans will remain outstanding in accordance with their terms and
the terms of the Preexisting Plans. The maximum award payable to any individual
for either of the performance periods ending in 1997 and 1998 under either the
1997 ICP or the EVSP, when combined with the payment from the other plan for
such period, may not exceed the greater of the amount determined under the 1997
ICP or the EVSP. Approval of the 1997 ICP requires that the votes cast favoring
approval of the 1997 ICP exceed the votes cast opposing approval of the 1997
ICP.
The Board of Directors believes that attracting and retaining key employees
is essential to the Corporation's growth and success. In addition, the Board
believes that the long term success of the Corporation is enhanced by a
competitive and comprehensive compensation program, which may include tailored
incentives designed to motivate and reward such persons for outstanding service,
including awards that link compensation to applicable measures of the
Corporation's performance and the creation of shareholder value. Such awards
will enable the Corporation to attract and retain key employees and enable such
persons to acquire and/or increase their proprietary interest in the Corporation
and thereby align their interests with the interests of the Corporation's
shareholders. In addition, the Board has concluded that the Compensation
Committee of the Board (the "Committee") should be given as much flexibility as
possible to provide for annual and long-term incentive awards contingent on
performance.
The following is a brief description of the material features of the 1997
ICP. Such description is qualified in its entirety by reference to the full text
of the 1997 ICP, which is attached hereto as Exhibit A.
Types of Awards. The terms of the 1997 ICP provide for grants of stock
options, stock appreciation rights ("SARs"), restricted stock, deferred stock
units, other stock-related awards, and performance or annual incentive awards
that may be settled in cash, stock, or other property ("Awards").
Shares Subject to the 1997 ICP; Annual Per-Person Limitations. Under the
1997 ICP, the total number of shares of the Corporation's Common Stock reserved
and available for delivery to participants in connection with Awards is
12,700,000, less any shares of stock which are the subject of an option granted
or other award made under the Preexisting Plans after March 12, 1997. In
determining the maximum number of shares to be available under the 1997 ICP, the
Compensation Committee took into account the number of shares (approximately
7,200,000 as of March 12, 1997) that were authorized for issuance but unused
under the Preexisting Plans. The total number of shares of Common Stock with
respect to which incentive stock options ("ISOs") may be granted shall not
exceed 1,000,000, and the total number of shares of Restricted Stock that may be
granted shall not exceed 3,000,000, less any shares of restricted stock awarded
under the Preexisting Plans after March 12, 1997. Any shares of Common Stock
delivered under the Plan shall consist of authorized and unissued shares.
<PAGE 32>
In addition, the 1997 ICP imposes individual limitations on the amount of
certain Awards in order to comply with Section 162(m) of the Internal Revenue
Code (the "Code"). Under these limitations, during any fiscal year the number of
options, SARs, shares of restricted stock, units of deferred stock, shares of
Common Stock issued as a bonus or in lieu of other obligations, and other
stock-based Awards granted to any one participant shall not exceed 1,000,000
shares for each type of such Award, subject to adjustment in certain
circumstances. The maximum amount that may be earned as an annual incentive
award or other cash Award (payable currently or on a deferred basis) in any
fiscal year by any one participant is $8,000,000, and the maximum amount that
may be earned as a performance award or other cash Award (payable currently or
on a deferred basis) in respect of a performance period by any one participant
is $8,000,000.
The Committee is authorized to adjust the number and kind of shares subject
to the aggregate share limitations and annual limitations under the 1997 ICP and
subject to outstanding Awards (including adjustments to exercise prices and
number of shares of options and other affected terms of Awards) in the event
that a dividend or other distribution (whether in cash, shares, or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event affects the Common Stock so that an
adjustment is appropriate. The Committee is also authorized to adjust
performance conditions and other terms of Awards in response to these kinds of
events or in response to changes in applicable laws, regulations, or accounting
principles.
Eligibility. Executive officers and other officers and employees, agents
and brokers of the Corporation or any subsidiary, including any such person who
may also be a director of the Corporation, shall be eligible to be granted
Awards under the 1997 ICP. It is anticipated that approximately 450 persons will
be granted Awards under the 1997 ICP.
Administration. The 1997 ICP will be administered by the Committee. Subject
to the terms and conditions of the 1997 ICP, the Committee is authorized to
interpret the provisions of the plan, select participants, determine the type
and number of Awards to be granted and the number of shares of Common Stock to
which Awards will relate, specify times at which Awards will be exercisable or
settleable (including performance conditions that may be required as a condition
thereof), set other terms and conditions of such Awards, prescribe forms of
Award agreements, adopt, amend and rescind rules and regulations relating to the
1997 ICP, and make all other determinations that may be necessary or advisable
for the administration of the 1997 ICP. The Committee may, in its discretion,
convert any Award or the value of any Award under the 1997 ICP, subject to
applicable laws and regulations, into Deferred Stock Units which will be
administered under the Lincoln National Corporation Deferred Compensation Plan
for Employees (the "Deferred Compensation Plan"). The 1997 ICP provides that
Committee members shall not be personally liable, and shall be fully
indemnified, in connection with any action, determination, or interpretation
taken or made in good faith under the 1997 ICP. No award of stock options, SARs,
restricted stock, deferred stock units or other stock-related awards may be made
under the 1997 ICP prior to the date on which the shareholders of the
Corporation approve the adoption of the 1997 ICP.
Stock Options and SARs. The Committee is authorized to grant stock options,
including both ISOs that can result in potentially favorable tax treatment to
the participant and non-qualified stock options (i.e., options not qualifying as
ISOs), and SARs entitling the participant to receive the excess of the Fair
Market Value of a share of Common Stock on the date of exercise over the grant
price of the SAR. The exercise price per share subject to an option and the
grant price of an SAR is determined by the Committee, but must not be less than
the Fair Market Value of a share of Common Stock on the date of grant. On March
20, 1997, the market value of Common Stock was $57.75 per share. The maximum
term of each option or SAR, the times at which each option or SAR will be
exercisable, and
<PAGE 33>
provisions requiring forfeiture of unexercised options or SARs at or
following termination of employment generally are fixed by the Committee, except
no option or SAR may have a term exceeding ten years. Options may be exercised
by payment of the exercise price in cash, Common Stock, outstanding Awards, or
other property (possibly including notes or obligations to make payment on a
deferred basis) having a Fair Market Value equal to the exercise price, as the
Committee may determine from time to time. Methods of exercise and settlement
and other terms of the SARs are determined by the Committee. The Committee may
include a provision in an option permitting the grant of a new option when
payment of the exercise price of an option is made in shares of Common Stock.
Restricted Stock and Deferred Stock Units. The Committee is authorized to
grant restricted stock and deferred stock units. Restricted stock is a grant of
Common Stock which may not be sold or disposed of, and which may be forfeited in
the event of certain terminations of employment and/or failure to meet certain
performance requirements, prior to the end of a restricted period specified by
the Committee. A participant granted restricted stock generally has all of the
rights of a shareholder of the Corporation, including the right to vote the
shares and to receive dividends thereon, unless otherwise determined by the
Committee. An Award of deferred stock units is credited to a bookkeeping reserve
account under the Deferred Compensation Plan. Such an Award confers upon a
participant the right to receive shares at the end of a specified deferral
period, subject to possible forfeiture of the Award in the event of certain
terminations of employment and/or failure to meet certain performance
requirements prior to the end of a specified restricted period (which restricted
period need not extend for the entire duration of the deferral period). Prior to
settlement, an Award of deferred stock units carries no voting or dividend
rights or other rights associated with share ownership, although dividend
equivalents may be granted, as discussed below.
Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant shares as a bonus free of restrictions, or to grant shares
or other Awards in lieu of obligations to pay cash under other plans or
compensatory arrangements, subject to such terms as the Committee may specify.
Other Stock-Based Awards. The 1997 ICP authorizes the Committee to grant
Awards that are denominated or payable in, valued by reference to, or otherwise
based on or related to shares. Such Awards might include convertible or
exchangeable debt securities, other rights convertible or exchangeable into
shares, purchase rights for shares, Awards with value and payment contingent
upon performance of the Corporation or any other factors designated by the
Committee, and Awards valued by reference to the book value of shares or the
value of securities of or the performance of specified subsidiaries. The
Committee determines the terms and conditions of such Awards, including
consideration to be paid to exercise Awards in the nature of purchase rights,
the period during which Awards will be outstanding, and forfeiture conditions
and restrictions on Awards.
Performance Awards, Including Annual Incentive Awards. The right of a
participant to exercise or receive a grant or settlement of an Award, and the
timing thereof, may be subject to such performance conditions as may be
specified by the Committee. In addition, the 1997 ICP authorizes specific annual
incentive awards, which represent a conditional right to receive cash, shares or
other Awards upon achievement of preestablished performance goals during a
specified one-year period. Performance awards and annual incentive awards
granted to persons the Committee expects will, for the year in which a deduction
arises, be among the Chief Executive Officer and four other most highly
compensated executive officers (the "Named Executive Officers"), will, if so
intended by the Committee, be subject to provisions that should qualify such
Awards as "performance-based compensation" not subject to the limitation on tax
deductibility by the Corporation under Code Section 162(m).
The performance goals to be achieved as a condition of payment or
settlement of a performance award or annual incentive award will consist of (i)
one or more business criteria and (ii) a targeted level or levels of performance
with respect to each such business criterion. In the case of performance awards
<PAGE 34>
intended to meet the requirements of Code Section 162(m), the business
criteria used must be one of those specified in the 1997 ICP, although for other
participants the Committee may specify any other criteria. The business criteria
specified in the 1997 ICP are, as defined by the Committee: (1) earnings per
share; (2) revenues; (3) cash flow; (4) cash flow return on investment; (5)
return on assets, return on investment, return on capital, return on equity; (6)
economic value added; (7) operating margin; (8) net income; pretax earnings;
pretax earnings before interest, depreciation and amortization; pretax operating
earnings after interest expense and before incentives, service fees, and
extraordinary or special items; operating earnings; income from operations; (9)
total shareholder return; (10) any of the above goals as compared to the
performance of a published or special index deemed applicable by the Committee
including, but not limited to, the Standard & Poor's 500 Stock Index or a group
of comparator companies; and (11) any criteria comparable to those listed above
that shall be approved by the Committee.
In granting annual incentive or performance awards, the Committee may
establish unfunded award "pools," the amounts of which will be based upon the
achievement of a performance goal or goals using one or more of the business
criteria described in the preceding paragraph. During the first 90 days of a
fiscal year or performance period, the Committee will determine who will
potentially receive annual incentive or performance awards for that fiscal year
or performance period, either out of the pool or otherwise. After the end of
each fiscal year or performance period, the Committee will determine the amount,
if any, of the pool, the maximum amount of potential annual incentive or
performance awards payable to each participant in the pool, and the amount of
any potential annual incentive or performance award otherwise payable to a
participant. The Committee may, in its discretion, determine that the amount
payable as an annual incentive or performance award will be increased or reduced
from the amount of any potential Award, but may not exercise discretion to
increase any such amount intended to qualify under Code Section 162(m).
Subject to the requirements of the 1997 ICP, the Committee will determine
other performance award and annual incentive award terms, including the required
levels of performance with respect to the business criteria, the corresponding
amounts payable upon achievement of such levels of performance, termination and
forfeiture provisions, and the form of settlement.
Because of the discretionary nature of the awards that may be made under
the 1997 ICP, the benefits available under the plan are not readily
determinable. However, the following table illustrates the maximum amounts that
would have been payable under the 1997 ICP if the plan had been in effect during
1996, based upon the performance goals established by the Compensation Committee
on March 12, 1997 for 1997 under the 1997 ICP. The amounts in this example are
expressed as (1) maximum percentages of income from operations during 1996 and
(2) maximum dollar amounts. The performance goals established by the
Compensation Committee for the three performance cycles ending in 1997, 1998,
and 1999, respectively, determine maximum awards as the lesser of the applicable
percentages or the applicable dollar amounts.
<PAGE 35>
<TABLE>
MAXIMUM PERCENTAGES OF INCOME FROM OPERATIONS AND
AMOUNTS AVAILABLE FOR PAYMENT AS PERFORMANCE GOAL AWARDS
<CAPTION>
Maximum is Lesser of:
Level Position Dollar Maximum Example
Maximums Percentages of Using 1996
Income from Income from
Operations Operations
<S> <C> <C> <C> <C>
1 CEO $5.0 million .70% $3,038,700
2 COO 3.5 million .50 2,170,500
3 Business Unit Heads 2.0 million .25 1,085,250
4 CFO, CLO, CIO 1.5 million .20 868,200
</TABLE>
_____
* "Income from Operations" is defined as 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.
While the maximum dollar amounts and maximum percentages of income from
operations are the limits in determining maximum amounts available for payment
as performance goal awards under the 1997 ICP, the Committee has discretionary
authority to reduce any participant's performance award to a lower amount or to
make no payment to the participant. Similar principles apply with respect to
payments that may be made under either of the remaining performance periods
under the EVSP to the extent that such payments may exceed payments that may be
made under the 1997 ICP.
Other Terms of Awards. Awards may be settled in the form of cash, Common
Stock, other Awards, or other property, in the discretion of the Committee. The
Committee may require or permit participants to defer the settlement of all or
part of an Award in accordance with such terms and conditions as the Committee
may establish, including payment or crediting of interest or dividend
equivalents on deferred amounts, and the crediting of earnings, gains, and
losses based on deemed investment of deferred amounts in specified investment
vehicles. The Committee is authorized to place cash, shares, or other property
in trusts or make other arrangements to provide for payment of the Corporation's
obligations under the 1997 ICP. The Committee may condition any payment relating
to an Award on the withholding of taxes and may provide that a portion of any
shares or other property to be distributed will be withheld (or previously
acquired shares or other property surrendered by the participant) to satisfy
withholding and other tax obligations. Awards granted under the 1997 ICP
generally may not be pledged or otherwise encumbered and are not transferable
except by will or by the laws of descent and distribution, or to a designated
beneficiary upon the participant's death, except that the Committee may, in its
discretion, permit transfers for estate planning or other purposes.
Awards under the 1997 ICP are generally granted without a requirement that
the participant pay consideration in the form of cash or property for the grant
(as distinguished from the exercise), except to the extent required by law. The
Committee may, however, grant Awards in exchange for other Awards under the 1997
ICP, awards under other plans of the Corporation, or other rights to payment
from the Corporation, and may grant Awards in addition to and in tandem with
such other Awards, awards, or rights as well.
Unless the Award agreement specifies otherwise, the Committee may cancel or
rescind Awards if the participant fails to comply with certain noncompetition,
confidentiality or intellectual property
<PAGE 36>
covenants. For instance, Awards may be canceled or rescinded if the
participant engages in competitive activity while employed with the Corporation
or within a specified period following termination of employment. The
Corporation may, in its discretion, in any individual case provide for waiver in
whole or in part of compliance with the noncompetition, confidentiality or
intellectual property covenants.
Acceleration of Vesting. The Committee may, in its discretion, accelerate
the exercisability, the lapsing of restrictions, or the expiration of deferral
or vesting periods of any Award, and such accelerated exercisability, lapse,
expiration and vesting shall occur automatically in the case of a "change of
control" of the Corporation except to the extent otherwise determined by the
Committee at the date of grant. In addition, the Committee may provide that the
performance goals relating to any performance-based award will be deemed to have
been met upon the occurrence of any change of control. Upon the occurrence of a
change of control, except to the extent otherwise determined by the Committee at
the date of grant, options will become fully vested and exercisable and
restrictions on restricted stock and deferred stock units will lapse. "Change of
Control" is defined in the 1997 ICP to include a variety of events, including
significant changes in the stock ownership of the Corporation or a significant
subsidiary, changes in the Corporation's board of directors, certain mergers and
consolidations of the Corporation or a significant subsidiary, and the sale or
disposition of all or substantially all the consolidated assets of the
Corporation.
Amendment and Termination of the 1997 ICP. The Board of Directors, or the
Committee acting pursuant to authority delegated to it by the Board, may amend,
alter, suspend, discontinue, or terminate the 1997 ICP or the Committee's
authority to grant Awards without further shareholder approval, except
shareholder approval must be obtained for any amendment or alteration if
required by law or regulation or under the rules of any stock exchange or
automated quotation system on which the shares are then listed or quoted.
Shareholder approval will not be deemed to be required under laws or
regulations, such as those relating to ISOs, that condition favorable treatment
of participants on such approval, although the Board may, in its discretion,
seek shareholder approval in any circumstance in which it deems such approval
advisable. Thus, shareholder approval will not necessarily be required for
amendments that might increase the cost of the 1997 ICP or broaden eligibility.
Unless earlier terminated by the Board, the 1997 ICP will terminate at such time
as no shares remain available for issuance under the 1997 ICP and the
Corporation has no further rights or obligations with respect to outstanding
Awards under the 1997 ICP.
Federal Income Tax Implications of the 1997 ICP. The following is a brief
description of the federal income tax consequences generally arising with
respect to Awards under the 1997 ICP.
The grant of an option or SAR will create no tax consequences for the
participant or the Corporation. A participant will not recognize taxable income
upon exercising an ISO (except that the alternative minimum tax may apply). Upon
exercising an option other than an ISO, the participant must generally recognize
ordinary income equal to the difference between the exercise price and Fair
Market Value of the freely transferable and nonforfeitable shares acquired on
the date of exercise. Upon exercising an SAR, the participant must generally
recognize ordinary income equal to the cash or the Fair Market Value of the
freely transferable and nonforfeitable shares received.
Upon a disposition of shares acquired upon exercise of an ISO before the
end of the applicable ISO holding periods, the participant must generally
recognize ordinary income equal to the lesser of (i) the Fair Market Value of
the shares at the date of exercise of the ISO minus the exercise price, or (ii)
the amount realized upon the disposition of the ISO shares minus the exercise
price. Otherwise, a participant's disposition of shares acquired upon the
exercise of an option (including an ISO for which the ISO holding periods are
met) or SAR generally will result in short-term or long-term capital gain or
loss measured by the difference between the sale price and the participant's tax
basis in such shares
<PAGE 37>
(the tax basis generally being the exercise price plus any amount
previously recognized as ordinary income in connection with the exercise of
the option or SAR).
The Corporation generally will be entitled to a tax deduction equal to the
amount recognized as ordinary income by the participant in connection with an
option or SAR. The Corporation generally is not entitled to a tax deduction
relating to amounts that represent a capital gain to a participant. Accordingly,
the Corporation will not be entitled to any tax deduction with respect to an ISO
if the participant holds the shares for the ISO holding periods prior to
disposition of the shares.
With respect to Awards granted under the 1997 ICP that result in the
payment or issuance of cash or shares or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the Fair Market Value of shares or other property received. Thus,
deferral of the time of payment or issuance will generally result in the
deferral of the time the participant will be liable for income taxes with
respect to such payment or issuance. The Corporation generally will be entitled
to a deduction in an amount equal to the ordinary income recognized by the
participant.
With respect to Awards involving the issuance of shares or other property
that is restricted as to transferability and subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the Fair Market Value of the shares or other property received at the first time
the shares or other property becomes transferable or is not subject to a
substantial risk of forfeiture, whichever occurs earlier. A participant may
elect to be taxed at the time of receipt of shares or other property rather than
upon lapse of restrictions on transferability or substantial risk of forfeiture,
but if the participant subsequently forfeits such shares or property, the
participant would not be entitled to any tax deduction, including as a capital
loss, for the value of the shares or property on which he previously paid tax.
The participant must file such election with the Internal Revenue Service within
30 days of the receipt of the shares or other property. The Corporation
generally will be entitled to a deduction in an amount equal to the ordinary
income recognized by the participant.
Awards that are granted, accelerated or enhanced upon the occurrence of a
change of control may give rise, in whole or in part, to "excess parachute
payments" within the meaning of Code Section 280G and, to such extent, will be
non-deductible by the Corporation and subject to a 20% excise tax by the
participant.
The foregoing summary of the federal income tax consequences in respect of
the 1997 ICP is for general information only. Interested parties should consult
their own advisors as to specific tax consequences, including the application
and effect of foreign, state and local tax laws.
The Board of Directors recommends a vote FOR approval of the 1997 Incentive
Compensation Plan.
GENERAL
RELATIONSHIP WITH INDEPENDENT AUDITORS
Ernst & Young LLP has been selected by the Board to be the independent
auditors to audit the consolidated financial statements of the Corporation for
the year 1997. This firm has been employed by the Corporation in that capacity
continuously since January 17, 1968. Representatives of Ernst & Young LLP will
be present at the annual meeting of shareholders, will be given an opportunity
to make
<PAGE 38>
a statement if they so desire, and will be available to respond to
appropriate questions relating to the audit of the Corporation's 1996
consolidated financial statements.
SHAREHOLDER PROPOSALS
To Be Included in the Corporation's Proxy Materials - Any shareholder
proposals intended to be considered for inclusion in the proxy materials for the
Corporation's 1998 annual meeting of shareholders must be received by the
Corporation no later than December 11, 1997. All such proposals should be sent
to the Secretary of the Corporation.
To Be Presented In-Person at Shareholder Meetings - Shareholders wishing to
propose matters for consideration at a meeting of shareholders or to propose
nominees for election as directors must follow specified procedures contained in
the Corporation's Bylaws. Such procedures include giving notice to the Secretary
of the Corporation at least fifty and not more than ninety days prior to the
meeting; provided, however, that in the event that less than sixty days' notice
of the date of the meeting is given to shareholders, notice by the shareholder
to be timely must be so received not later than the close of business on the
tenth day following the day on which such notice of the date of the meeting was
given. Such notice must include: the name and address of the proposing
shareholder (as they appear on the Corporation's stock records), a brief
description of the business desired to be brought before the meeting, the class
and number of shares of the Corporation which are beneficially owned by the
proposing shareholder and a description of any interest of such proposing
shareholder in the business proposed. In the case of a shareholder-proposed
nominee for director, the required notice must also contain as to each person
whom the shareholder proposes to nominate for election or re-election as a
director: (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person, (iv) any other information relating to such person that is required
to be disclosed in solicitation of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including without limitation such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected), and (v) the qualifications of the nominee to
serve as a director of the Corporation. The person presiding at a meeting of
shareholders is authorized by the Bylaws, if the facts warrant, to determine
that the proposed business was not properly brought before, or was not lawful or
appropriate for consideration at, the meeting, or that a nomination for director
was not properly made. Upon a declaration of such determination, the proposed
business shall not be transacted or the defective nomination shall be
disregarded, as the case may be.
No Qualifying Shareholder Proposals - No shareholder complied with the
requirements for inclusion of a proposal in this year's proxy statement.
Similarly, no shareholder has raised an issue which is proper for consideration
at this year's annual meeting. A disgruntled shareholder, who alleges he was
constructively terminated by a subsidiary of the Corporation has sued the
subsidiary and has asked to make an in-person proposal at the annual meeting.
His proposal was untimely for inclusion in this year's proxy statement, and in
any event, is not proper for shareholder action because it does not comport with
Indiana law for matters to be considered by shareholders. Your proxy will be
voted in the discretion of the proxy holders with respect to each matter
properly brought before the meeting that has not been enumerated in this proxy
statement or for which no specific direction was given on the proxy card.
<PAGE 39>
ANNUAL REPORT
Form 10-K, annual report of the Corporation filed with the Securities and
Exchange Commission for the fiscal year 1996, will be provided on written
request and without charge to each shareholder. Write to Donald Van Wyngarden,
Second Vice President and Controller, Lincoln National Corporation, 200 East
Berry Street, Fort Wayne, Indiana, 46802-2706.
For the Board of Directors,
/S/C. SUZANNE WOMACK
C. Suzanne Womack
Secretary
April 14, 1997
<PAGE>
Exhibit A
LINCOLN NATIONAL CORPORATION
- -----------------------------------------------------------------------
1997 Incentive Compensation Plan
A - 1
<PAGE>
LINCOLN NATIONAL CORPORATION
- -----------------------------------------------------------------------
1997 Incentive Compensation Plan
- -----------------------------------------------------------------------
Page
1. Purpose........................................................ A-4
2. Definitions.................................................... A-4
3. Administration................................................. A-6
(a) Authority of the Committee............................ A-6
(b) Manner of Exercise of Committee Authority............. A-6
(c) Limitation of Liability............................... A-6
4. Stock Subject to Plan.......................................... A-7
(a) Overall Number of Shares Available for Delivery......... A-7
(b) Application of Limitation to Grants of Awards........... A-7
(c) Availability of Shares Not Delivered under Awards ...... A-7
5. Eligibility; Per-Person Award Limitations...................... A-7
6. Specific Terms of Awards....................................... A-7
(a) General.................................................... A-7
(b) Options.................................................... A-8
(c) Stock Appreciation Rights.................................. A-8
(d) Restricted Stock........................................... A-9
(e) Deferred Stock Units....................................... A-9
(f) Bonus Stock and Awards in Lieu of Obligations.............. A-9
(g) Other Stock-Based Awards................................... A-10
7. Certain Provisions Applicable to Awards........................... A-10
(a) Stand-Alone, Additional, Tandem, and Substitute Awards .... A-10
(b) Term of Awards............................................. A-10
(c) Form and Timing of Payment under Awards; Deferrals ......... A-10
(d) Exemptions from Section 16(b) Liability.................... A-11
(e) Cancellation and Rescission of Awards ...................... A-11
8. Performance and Annual Incentive Awards........................... A-12
(a) Performance Conditions..................................... A-12
(b) Performance Awards Granted to Designated Covered Employees A-12
(c) Annual Incentive Awards Granted to Designated Covered
Employees A-13
(d) Written Determinations...................................... A-14
(e) Status of Section 8(b) and 8(c) Awards under Code
Section 162(m) A-14
A-2
<PAGE>
LINCOLN NATIONAL CORPORATION
- -----------------------------------------------------------------------
1997 Incentive Compensation Plan
- ------------------------------------------------------------------------
Page
9. Change of Control................................................. A-14
(a) Options and SARs .......................................... A-14
(b) Restricted Stock and Deferred Stock Units.................. A-15
(c) Other Awards............................................... A-15
10. General Provisions................................................ A-15
(a) Compliance with Legal and Other Requirements............... A-15
(b) Limits on Transferability; Beneficiaries................... A-15
(c) Adjustments................................................ A-15
(d) Taxes...................................................... A-16
(e) Changes to the Plan and Awards............................. A-16
(f) Limitation on Rights Conferred under Plan.................. A-17
(g) Unfunded Status of Awards; Creation of Trusts.............. A-17
(h) Nonexclusivity of the Plan................................. A-17
(i) Payments in the Event of Forfeitures; Fractional Shares ... A-17
(j) Governing Law.............................................. A-17
(k) Awards under Preexisting Plans............................. A-17
(l) Plan Effective Date and Shareholder Approval............... A-17
A - 3
<PAGE>
LINCOLN NATIONAL CORPORATION
1997 Incentive Compensation Plan
1. Purpose. The purpose of this 1997 Incentive Compensation Plan (the
"Plan") is to assist Lincoln National Corporation, an Indiana corporation (the
"Corporation"), and its subsidiaries in attracting, retaining, and rewarding
high-quality executives, employees, and other persons who provide services to
the Corporation and/or its subsidiaries, enabling such persons to acquire or
increase a proprietary interest in the Corporation in order to strengthen the
mutuality of interests between such persons and the Corporation's shareholders,
and providing such persons with annual and long-term performance incentives to
expend their maximum efforts in the creation of shareholder value. The Plan is
also intended to qualify certain compensation awarded under the Plan for tax
deductibility under Code Section 162(m) (as hereafter defined) to the extent
deemed appropriate by the Committee (or any successor committee) of the Board of
Directors of the Corporation.
2. Definitions. For purposes of the Plan, the following terms shall be
defined as set forth below, in addition to such terms defined in Section 1
hereof:
(a) "Annual Incentive Award" means a conditional right granted to a
Participant under Section 8(c) hereof to receive a cash payment, Stock or other
Award, unless otherwise determined by the Committee, after the end of a
specified fiscal year.
(b) "Award" means any Option, SAR (including Limited SAR), Restricted
Stock, Deferred Stock Units, Stock granted as a bonus or in lieu of another
award, Other Stock-Based Award, Performance Award or Annual Incentive Award,
together with any other right or interest granted to a Participant under the
Plan.
(c) "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Awards or other rights are
transferred if and to the extent permitted under Section 10(b) hereof. If, upon
a Participant's death, there is no designated Beneficiary or surviving
designated Beneficiary, then the term Beneficiary means the person, persons,
trust or trusts entitled by will or the laws of descent and distribution to
receive such benefits.
(d) "Board" means the Corporation's Board of Directors.
(e) "Change of Control" shall have the same meaning ascribed to such term
in the Lincoln National Corporation Executives' Severance Benefit Plan (the
"Severance Benefit Plan") on the date immediately preceding the Change of
Control.
(f) "Change of Control Price" means an amount in cash equal to the higher
of (i) the amount of cash and Fair Market Value of property that is the highest
price per share paid (including extraordinary dividends) in any transaction
triggering the Change of Control or any liquidation of shares following a sale
of substantially all assets of the Corporation, or (ii) the highest Fair Market
Value per share at any time during the 60-day period preceding and 60-day period
following the Change of Control.
(g) "Code" means the Internal Revenue Code of 1986, as amended from time to
time, including regulations thereunder and successor provisions and regulations
thereto.
A - 4
<PAGE>
(h) "Committee" means at any date each of those members of the Compensation
Committee of the Board who shall be (i) a "non-employee director" within the
meaning of Rule 16b-3 under the Exchange Act, unless administration of the Plan
by "non-employee directors" is not then required in order for exemptions under
Rule 16b-3 to apply to transactions under the Plan, and (ii) an "outside
director" as defined under Code Section 162(m), unless the action taken pursuant
to the Plan is not required to be taken by "outside directors" in order to
qualify for tax deductibility under Code Section 162(m). Unless otherwise
designated by the Board, the Committee shall include not fewer than three
members. In the event that fewer than three members of the Compensation
Committee are eligible to serve on the Committee, the Board may appoint one or
more of its other members who is otherwise eligible to serve on the Committee
until such time as three members of the Compensation Committee are eligible to
serve.
(i) "Covered Employee" means an Eligible Person who is a Covered Employee
as specified in Section 8(e) of the Plan.
(j) "Deferred Stock Unit" means a right, granted to a Participant under
Section 6(e) hereof, to receive Stock, cash or a combination thereof at the end
of a specified deferral period.
(k) "Effective Date" means January 1, 1997.
(l) "Eligible Person" means each Executive Officer and other officers and
employees of the Corporation or of any subsidiary, including employees, agents
and brokers who may also be directors of the Corporation. An employee on leave
of absence may be considered as still in the employ of the Corporation or a
subsidiary for purposes of eligibility for participation in the Plan.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, including rules thereunder and successor provisions and rules
thereto.
(n) "Executive Officer" means an executive officer of the Corporation as
defined under the Exchange Act.
(o) "Fair Market Value" means the Fair Market Value of Stock, Awards or
other property as determined by the Committee or under procedures established by
the Committee. Unless otherwise determined by the Committee the Fair Market
Value of Stock shall be the average of the highest and lowest prices of a share
of Stock, as quoted on the composite transactions table on the New York Stock
Exchange, on the last trading day prior to the date on which the determination
of Fair Market Value is being made.
(p) "Incentive Stock Option" or "ISO" means any Option intended to be and
designated as an incentive stock option within the meaning of Code Section 422
or any successor provision thereto.
(q) "Limited SAR" means a right granted to a Participant under Section 6(c)
hereof.
(r) "Option" means a right, granted to a Participant under Section 6(b)
hereof, to purchase Stock or other Awards at a specified price during specified
time periods.
(s) "Other Stock-Based Awards" means Awards granted to a Participant under
Section 6(g) hereof.
(t) "Participant" means a person who has been granted an Award under the
Plan which remains outstanding, including a person who is no longer an Eligible
Person.
(u) "Performance Award" means a right, granted to a Participant under
Section 8 hereof, to receive Awards based upon performance criteria specified by
the Committee.
A - 5
<PAGE>
(v) "Preexisting Plans" mean the Lincoln National Corporation 1986 Stock
Option Incentive Plan (the "Stock Option Plan") and the 1994 Amended and
Restated Lincoln National Corporation Executive Value Sharing Plan (the "EVSP").
(w) "Restricted Stock" means Stock granted to a Participant under Section
6(d) hereof, that is subject to certain restrictions and to a risk of
forfeiture.
(x) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act or any similar law or
regulation that may be a successor thereto.
(y) "Stock" means the Corporation's Common Stock, and such other securities
as may be substituted (or resubstituted) for Stock pursuant to Section 10(c)
hereof.
(z) "Stock Appreciation Right" or "SAR" means a right granted to a
Participant under Section 6(c) hereof.
3. Administration.
(a) Authority of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full and final authority, in each case
subject to and consistent with the provisions of the Plan, to interpret the
provisions of the Plan, select Eligible Persons to become Participants, grant
Awards, determine the type, number and other terms and conditions of, and all
other matters relating to, Awards, prescribe Award agreements (which need not be
identical for each Participant), adopt, amend and rescind rules and regulations
for the administration of the Plan, construe and interpret the Plan and Award
agreements and correct defects, supply omissions or reconcile inconsistencies
therein, ensure that awards continue to qualify under Rule 16b-3, and make all
other decisions and determinations as the Committee may deem necessary or
advisable for the administration of the Plan.
(b) Manner of Exercise of Committee Authority. Any action of the Committee
shall be final, conclusive and binding on all persons, including the
Corporation, its subsidiaries, Participants, Beneficiaries, transferees under
Section 10(b) hereof or other persons claiming rights from or through a
Participant, and shareholders. The Committee shall exercise its authority only
by a majority vote of its members at a meeting or without a meeting by a writing
signed by a majority of its members. The express grant of any specific power to
the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. The Committee may
delegate to officers or managers of the Corporation or any subsidiary, or
committees thereof, the authority, subject to such terms as the Committee shall
determine, (i) to perform administrative functions, (ii) with respect to
Participants not subject to Section 16 of the Exchange Act, to perform such
other functions as the Committee may determine, and (iii) with respect to
Participants subject to Section 16, to perform such other functions of the
Committee as the Committee may determine to the extent performance of such
functions will not result in the loss of an exemption under Rule 16b-3 otherwise
available for transactions by such persons, in each case to the extent permitted
under applicable law and subject to the requirements and restrictions set forth
in Section 8(e). The Committee may appoint agents to assist it in administering
the Plan.
(c) Limitation of Liability. The Committee and each member thereof shall be
entitled, in good faith, to rely or act upon any report or other information
furnished to it, him or her by any executive officer, other officer or employee
of the Corporation or a subsidiary, the Corporation's independent auditors,
consultants or any other agents assisting in the administration of the Plan.
Members of the Committee and any officer or employee of the Corporation or a
subsidiary acting at the direction or on behalf of the Committee shall not be
personally liable for any action or determination taken or made in good faith
with respect to the Plan, and shall, to the extent
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permitted by law, be fully indemnified and protected by the Corporation
with respect to any such action or determination.
4. Stock Subject to Plan.
(a) Overall Number of Shares Available for Delivery. Subject to adjustment
as provided in Section 10(c) hereof, the total number of shares of Stock
reserved and available for delivery in connection with Awards under the Plan
shall be 12,700,000, less any shares of Stock which are the subject of an option
granted or other award made under the Preexisting Plans after March 12, 1997;
provided, however, that the total number of shares of Stock with respect to
which ISOs may be granted shall not exceed 1,000,000; and provided, further,
that the total number of shares of Restricted Stock that may be granted shall
not exceed 3,000,000, less any shares of restricted stock awarded under the
Pre-existing Plans after March 12, 1997. Any shares of Stock delivered under the
Plan shall consist of authorized and unissued shares.
(b) Application of Limitation to Grants of Awards. No Award may be granted
if the number of shares of Stock to be delivered in connection with such Award
or, in the case of an Award relating to shares of Stock but settleable only in
cash (such as cash-only SARs), the number of shares to which such Award relates,
exceeds the number of shares of Stock remaining available under the Plan minus
the number of shares of Stock issuable in settlement of or relating to
then-outstanding Awards. The Committee may adopt reasonable counting procedures
to ensure appropriate counting, avoid double counting (as, for example, in the
case of tandem or substitute awards) and make adjustments if the number of
shares of Stock actually delivered differs from the number of shares previously
counted in connection with an Award.
(c) Availability of Shares Not Delivered under Awards. Shares of Stock
subject to an Award under the Plan or award under a Preexisting Plan that is
canceled, expired, forfeited, settled in cash or otherwise terminated without a
delivery of shares to the Participant, including (i) the number of shares
withheld in payment of any exercise or purchase price of an Award or award or
taxes relating to Awards or awards, and (ii) the number of shares surrendered in
payment of any exercise or purchase price of an Award or award or taxes relating
to any Award or award, will again be available for Awards under the Plan, except
that if any such shares could not again be available for Awards to a particular
Participant under any applicable law or regulation, such shares shall be
available exclusively for Awards to Participants who are not subject to such
limitation.
5. Eligibility; Per-Person Award Limitations. Awards may be granted under
the Plan only to Eligible Persons. In each fiscal year during any part of which
the Plan is in effect, an Eligible Person may not be granted Awards relating to
more than 1,000,000 shares of Stock, subject to adjustment as provided in
Section 10(c), under each of the following separate provisions: Sections 6(b),
6(c), 6(d), 6(e), 6(f), 6(g), 8(b) and 8(c). In addition, the maximum cash
amount that may be earned under Section 8(c) of the Plan as an Annual Incentive
Award or other cash annual Award payable in cash (currently or on a deferred
basis) in respect of any fiscal year by any one Participant shall be $8,000,000,
and the maximum cash amount that may be earned under Section 8(b) of the Plan as
a Performance Award or other cash Award payable in cash (currently or on a
deferred basis) in respect of any individual performance period by any one
Participant shall be $8,000,000.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth in
this Section 6, provided, however, that no Award shall be made under this
Section 6 prior to the date on which shareholders of the Corporation approve the
adoption of the Plan. In addition, the Committee may impose on any Award or the
exercise thereof, at the date of grant or thereafter (subject to Section 10(e)),
such additional terms and conditions, not inconsistent with the provisions of
the Plan, as the Committee shall determine, including terms requiring forfeiture
of Awards in the event of termination of employment by the Participant and terms
permitting a
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Participant to make elections relating to his or her Award. The Committee
shall retain full power and discretion to accelerate, waive or modify, at any
time, any term or condition of an Award that is not mandatory under the Plan.
Except in cases in which the Committee is authorized to require other forms of
consideration under the Plan, or to the extent other forms of consideration must
be paid to satisfy the requirements of Indiana law, no consideration other than
services may be required for the grant (but not the exercise) of any Award. Any
Award or the value of any Award that is made under this Plan may, subject to any
requirements of applicable law or regulation, in the Committee or its designee's
sole discretion, be converted into Deferred Stock Units and treated as provided
in Section 6(e) below.
(b) Options. The Committee is authorized to grant Options to Participants
on the following terms and conditions:
(i) Exercise Price. The exercise price per share of Stock purchasable under
an Option shall be determined by the Committee, provided that such exercise
price shall be not less than the Fair Market Value of a share of Stock on the
date of grant of such Option.
(ii) Time and Method of Exercise. The Committee shall determine, at the
date of grant or thereafter, the time or times at which or the circumstances
under which an Option may be exercised in whole or in part (including based on
achievement of performance goals and/or future service requirements), the
methods by which such exercise price may be paid or deemed to be paid, the form
of such payment, including, without limitation, cash, Stock, other Awards or
awards granted under other plans of the Corporation or any subsidiary, or other
property (including notes or other contractual obligations of Participants to
make payment on a deferred basis), and the methods by or forms in which Stock
will be delivered or deemed to be delivered to Participants.
(iii) ISOs. The terms of any ISO granted under the Plan shall comply in all
respects with the provisions of Code Section 422. Anything in the Plan to the
contrary notwithstanding, no term of the Plan relating to ISOs (including any
SAR in tandem therewith) shall be interpreted, amended or altered, nor shall any
discretion or authority granted under the Plan be exercised, so as to disqualify
either the Plan or any ISO under Code Section 422, unless the Participant has
first requested the change that will result in such disqualification.
(c) Stock Appreciation Rights. The Committee is authorized to grant SAR's
to Participants on the following terms and conditions:
(i) Right to Payment. A SAR shall confer on the Participant to whom it is
granted a right to receive, upon exercise thereof, the excess of (A) the Fair
Market Value of one share of Stock on the date of exercise (or, in the case of a
"Limited SAR," the Fair Market Value determined by reference to the Change of
Control Price) over (B) the grant price of the SAR as determined by the
Committee.
(ii) Other Terms. The Committee shall determine, at the date of grant or
thereafter, the time or times at which and the circumstances under which a SAR
may be exercised in whole or in part (including based on achievement of
performance goals and/or future service requirements), the method of exercise,
method of settlement, form of consideration payable in settlement, method by or
forms in which any Stock payable will be delivered or deemed to be delivered to
Participants, whether or not a SAR shall be in tandem or in combination with any
other Award, and any other terms and conditions of any SAR. Limited SARs that
may only be exercised in connection with a Change of Control or other event as
specified by the Committee may be granted on such terms, not inconsistent with
this Section 6(c), as the Committee may determine. SARs and Limited SARs may be
either freestanding or in tandem with other Awards.
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(d) Restricted Stock. The Committee is authorized to grant Restricted Stock
to Participants on the following terms and conditions:
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability, risk of forfeiture and other restrictions, if
any, as the Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances (including based on
achievement of performance goals and/or future service requirements), in such
installments or otherwise, as the Committee may determine at the date of grant
or thereafter. Except to the extent restricted under any Award agreement
relating to the Restricted Stock, a Participant granted Restricted Stock shall
have all of the rights of a shareholder, including the right to vote the
Restricted Stock and the right to receive dividends thereon (subject to any
mandatory reinvestment or other requirement imposed by the Committee). During
the restricted period applicable to the Restricted Stock, subject to
Section 10(b) below, the Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the Participant.
(ii) Forfeiture. Except as otherwise determined by the Committee, upon
termination of employment during the applicable restriction period, Restricted
Stock that is at that time subject to restrictions shall be forfeited and
reacquired by the Corporation; provided that the Committee may, in its
discretion, in any individual case provide for waiver in whole or in part of
restrictions or forfeiture conditions relating to Restricted Stock.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of the
Participant, the Committee may require that such certificates bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to such Restricted Stock, that the Corporation retain physical
possession of the certificates, and that the Participant deliver a stock
power to the Corporation, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends and Splits. As a condition to the grant of an Award of
Restricted Stock, the Committee may require that any cash dividends paid on a
share of Restricted Stock be automatically reinvested in additional shares of
Restricted Stock or applied to the purchase of additional Awards under the Plan.
Unless otherwise determined by the Committee, Stock distributed in connection
with a Stock split or Stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of forfeiture to the same
extent as the Restricted Stock with respect to which such Stock or other
property has been distributed.
(e) Deferred Stock Units. The Committee is authorized to grant to
Participants Deferred Stock Units, which are rights to receive Stock, cash, or a
combination thereof at the end of a specified deferral period. Unless otherwise
specified by the Committee, Deferred Stock Units shall be credited as of the
date of award to a bookkeeping reserve account maintained by the Employer under
the Lincoln National Corporation Executive Deferred Compensation Plan for
Employees or its successor (the "Deferred Compensation Plan") in units which are
equivalent in value to shares of Common Stock ("Deferred Stock Units"). Once
credited to such account, Deferred Stock Units shall be governed by the terms of
the Deferred Compensation Plan.
(f) Bonus Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of obligations to pay cash or deliver other property under the Plan or under
other plans or compensatory arrangements, provided that, in the case of
Participants subject to Section 16 of the Exchange Act, the amount of such
grants remains within the discretion of the Committee to the extent necessary to
ensure that acquisitions of Stock or other Awards do not impair a participant's
exemption from liability under Section 16(b) of the Exchange Act. Stock or
Awards granted hereunder shall be subject to such other terms as shall be
determined by the Committee.
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(g) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Stock, as deemed by the Committee to
be consistent with the purposes of the Plan, including, without limitation,
convertible or exchangeable debt securities, other rights convertible or
exchangeable into Stock, purchase rights for Stock, Awards with value and
payment contingent upon performance of the Corporation or any other factors
designated by the Committee, and Awards valued by reference to the book value of
Stock or the value of securities of or the performance of specified
subsidiaries. The Committee shall determine the terms and conditions of such
Awards. Stock delivered pursuant to an Award in the nature of a purchase right
granted under this Section 6(g) shall be purchased for such consideration, paid
for at such times, by such methods, and in such forms, including, without
limitation, cash, Stock, other Awards, or other property, as the Committee shall
determine. Cash awards, as an element of or supplement to any other Award under
the Plan, may also be granted pursuant to this Section 6(g).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with, or in substitution or exchange for, any other
Award or any award granted under another plan of the Corporation, any
subsidiary, or any business entity to be acquired by the Corporation or a
subsidiary, or any other right of a Participant to receive payment from the
Corporation or any subsidiary. Such additional, tandem, and substitute or
exchange Awards may be granted at any time. If an Award is granted in
substitution or exchange for another Award or award, the Committee shall require
the surrender of such other Award or award in consideration for the grant of the
new Award.
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee; provided that in no event shall the term of any
Option or SAR exceed a period of ten years (or such shorter term as may be
required in respect of an ISO under Code Section 422).
(c) Form and Timing of Payment under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Award agreement, payments to be made by the
Corporation or a subsidiary upon the exercise of an Option or other Award or
settlement of an Award may be made in such forms as the Committee shall
determine, including, without limitation, cash, Stock, other Awards or other
property, and may be made in a single payment or transfer, in installments, or
on a deferred basis. The settlement of any Award may be accelerated, and cash
paid in lieu of Stock in connection with such settlement, in the discretion of
the Committee or upon occurrence of one or more specified events (in addition to
a Change of Control). Installment or deferred payments may be required by the
Committee (subject to Section 10(e) of the Plan, including the consent
provisions thereof) in the case of any deferral of an outstanding Award not
provided for in the original Award agreement, except that this provision shall
not prevent the Committee or its designee from converting an Award to Deferred
Stock Units as provided under Section 6(a) above or permitted at the election of
the Participant on terms and conditions established by the Committee. Payments
may include, without limitation, provisions for the payment or crediting of
reasonable interest on installment or deferred payments or the grant or
crediting of dividend equivalents or other amounts in respect of installment or
deferred payments denominated in Stock.
(d) Exemptions from Section 16(b) Liability. It is the intent of the
Corporation that the grant of any Awards to or other transaction by a
Participant who is subject to Section 16 of the Exchange Act shall be exempt
under Rule 16b-3 (except for transactions acknowledged in writing to be
non-exempt by such Participant). Accordingly, if any provision of this Plan or
any Award agreement does not comply with the requirements of Rule 16b-3 as then
applicable to any such
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transaction, unless the Participant shall have acknowledged in writing that
a transaction pursuant to such provision is to be non-exempt, such provision
shall be construed or deemed amended to the extent necessary to conform to the
applicable requirements of Rule 16b-3 so that such Participant shall avoid
liability under Section 16(b) of the Exchange Act.
(e) Cancellation and Rescission of Awards. Unless the Award agreement
specifies otherwise, the Committee may cancel any unexpired, unpaid, or deferred
Awards at any time, and the Corporation shall have the additional rights set
forth in Section 7(e)(iv) below, if the Participant is not in compliance with
all applicable provisions of the Award agreement and the Plan including the
following conditions:
(i) A Participant shall not render services for any organization or engage
directly or indirectly in any business which, in the judgment of the Chief
Executive Officer of the Corporation or other senior officer designated by the
Committee, is or becomes competitive with the Corporation. For Participants
whose employment has terminated, the judgment of the Chief Executive Officer or
other senior officer designated by the Committee shall be based on the
Participant's position and responsibilities while employed by the Corporation,
the Participant's post-employment responsibilities and position with the other
organization or business, the extent of past, current and potential competition
or conflict between the Corporation and the other organization or business, the
effect on the Corporation's shareholders, customers, suppliers and competitors
of the Participant assuming the post-employment position and such other
considerations as are deemed relevant given the applicable facts and
circumstances. A Participant who has terminated employment shall be free,
however, to purchase as an investment or otherwise, stock or other securities of
such organization or business so long as they are listed upon a recognized
securities exchange or traded over-the-counter, and such investment does not
represent a greater than five percent equity interest in the organization or
business.
(ii) A Participant shall not, without prior written authorization from the
Corporation, disclose to anyone outside the Corporation, or use in other than
the Corporation's business, any confidential information or material relating to
the business of the Corporation that is acquired by the Participant either
during or after employment with the Corporation.
(iii) A Participant shall disclose promptly and assign to the Corporation
all right, title, and interest in any invention or idea, patentable or not, made
or conceived by the Participant during employment by the Corporation, relating
in any manner to the actual or anticipated business, research or development
work of the Corporation and shall do anything reasonably necessary to enable the
Corporation to secure a patent where appropriate in the United States and in
foreign countries.
(iv) Upon exercise, settlement, payment or delivery pursuant to an Award,
the Participant shall certify on a form acceptable to the Committee that he or
she is in compliance with the terms and conditions of the Plan. Failure to
comply with the provisions of this Section 7(e) prior to, or during the six
months after, any exercise, payment or delivery pursuant to an Award shall cause
such exercise, payment or delivery to be rescinded. The Corporation shall notify
the Participant in writing of any such rescission within two years after such
exercise, payment or delivery; provided, however, that the Corporation may, in
its discretion, in any individual case provide for waiver in whole or in part of
compliance with the provisions of this Section 7(e). Within ten days after
receiving such a notice from the Corporation, the Participant shall pay to the
Corporation the amount of any gain realized or payment received as a result of
the rescinded exercise, payment or delivery pursuant to an Award. Such payment
shall be made either in cash or by returning to the Corporation the number of
shares of Stock that the Participant received in connection with the rescinded
exercise, payment or delivery. In the case of any Participant whose employment
is terminated by the Corporation and its subsidiaries without "cause" (as
defined in the Award agreement), however, a failure of the Participant to comply
with the
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provisions of Section 7(e)(i) after such termination of employment shall
not in itself cause rescission or require repayment with respect to any Award
exercised, paid or delivered before such termination.
8. Performance and Annual Incentive Awards.
(a) Performance Conditions. The right of a Participant to exercise or
receive a grant or settlement of any Award, and the timing thereof, may be
subject to such performance conditions as may be specified by the Committee. The
Committee may use such business criteria and other measures of performance as it
may deem appropriate in establishing any performance conditions, and may
exercise its discretion to reduce or increase the amounts payable under any
Award subject to performance conditions, except as limited under Sections 8(b)
and 8(c) hereof in the case of a Performance Award or Annual Incentive Award
intended to qualify under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees. If the
Committee determines that a Performance Award to be granted to an Eligible
Person who is or may become a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Performance Award shall be contingent upon
achievement of preestablished performance goals and other terms set forth in
this Section 8(b).
(i) Performance Goals Generally. The performance goals for such
Performance Awards shall consist of one or more business criteria and a
targeted level or levels of performance and associated maximum Award payments
with respect to each of such criteria, as specified by the Committee
consistent with this Section 8(b). Performance goals shall be objective and
shall otherwise meet the requirements of Code Section 162(m) and regulations
thereunder (including Regulation 1.162-27 and successor regulations thereto),
including the requirement that the level or levels of performance targeted
by the Committee result in the achievement of performance goals being
"substantially uncertain." The Committee may determine that such Performance
Awards shall be granted, exercised and/or settled upon achievement of any
performance goal or that more than one performance goal must be achieved as
a condition to grant, exercise and/or settlement of such Performance
Awards. Performance goals may differ for Performance Awards granted to any
one Participant or to different Participants.
(ii) Business Criteria. One or more of the following business
criteria for the Corporation, as defined by the Committee, on a consolidated
basis, and/or for specified subsidiaries or business units of the Corporation
(except with respect to the total shareholder return and earnings per share
criteria), shall be used by the Committee in establishing performance goals
for such Performancec Awards: (1) earnings per share; (2) revenues;
(3) cash flow; (4) cash flow return on investment; (5) return on assets,
return on investment, return on capital, return on equity; (6) economic
value added; (7) operating margin; (8) net income; pretax earnings; pretax
earnings before interest, depreciation and amortization; pretax operating
earnings after interest expense and before incentives, service fees,
and extraordinary or special items; operating earnings; income from
operations; (9) total shareholder return; (10) any of the above goals as
compared to the performance of a published or special index deemed
applicable by the Committee including, but not limited to, the Standard &
Poor's 500 Stock Index or a group of comparator companies; and (11) any
criteria comparable to those listed above that shall be approved by the
Committee. One or more of the foregoing business criteria shall also be
exclusively used in establishing performance goals for Annual Incentive
Awards granted to a Covered Employee under Section 8(c) hereof.
(iii) Performance Period; Timing for Establishing Performance Goals.
Achievement of performance goals in respect of such Performance Awards shall be
measured over a
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performance period, which may overlap with another performance period or
periods, of up to ten years, as specified by the Committee. Performance goals
shall be established not later than 90 days after the beginning of any
performance period applicable to such Performance Awards, or at such other date
as may be required or permitted for "performance-based compensation" under Code
Section 162(m).
(iv) Performance Award Pool. The Committee may establish a Performance
Award pool, which shall be an unfunded pool, for purposes of measuring
performance of the Corporation in connection with Performance Awards. The amount
of such Performance Award pool shall be based upon the achievement of a
performance goal or goals based on one or more of the business criteria set
forth in Section 8(b)(ii) hereof during the given performance period, as
specified by the Committee in accordance with Section 8(b)(iii) hereof. The
Committee may specify the amount of the Performance Award pool as a percentage
of any of such business criteria, a percentage thereof in excess of a threshold
amount, or as another amount which need not bear a strictly mathematical
relationship to such business criteria.
(v) Settlement of Performance Awards; Other Terms. Settlement of such
Performance Awards shall be in cash, Stock, other Awards or other property,
including deferred payments in any such forms, in the discretion of the
Committee. The Committee may, in its discretion, reduce the amount of a
settlement otherwise to be made in connection with such Performance Awards, but
may not exercise discretion to increase any such amount payable to a Covered
Employee in respect of a Performance Award subject to this Section 8(b). The
Committee shall specify the circumstances in which such Performance Awards shall
be paid or forfeited in the event of termination of employment by the
Participant prior to the end of a performance period or settlement of
Performance Awards.
(c) Annual Incentive Awards Granted to Designated Covered Employees. If the
Committee determines that an Annual Incentive Award to be granted to an Eligible
Person who is or may become a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the grant,
exercise and/or settlement of such Annual Incentive Award shall be contingent
upon achievement of preestablished performance goals and other terms set forth
in this Section 8(c).
(i) Annual Incentive Award Pool. The Committee may establish an Annual
Incentive Award pool, which shall be an unfunded pool, for purposes of measuring
performance of the Corporation in connection with Annual Incentive Awards. The
amount of such Annual Incentive Award pool shall be based upon the achievement
of a performance goal or goals based on one or more of the business criteria set
forth in Section 8(b)(ii) hereof during the given performance period, as
specified by the Committee in accordance with Section 8(b)(iii) hereof. The
Committee may specify the amount of the Annual Incentive Award pool as a
percentage of any of such business criteria, a percentage thereof in excess of a
threshold amount, or as another amount which need not bear a strictly
mathematical relationship to such business criteria.
(ii) Potential Annual Incentive Awards. Not later than the end of the
90th day after the beginning of each fiscal year, or at such other date as
may be required or permitted in the case of Awards intended to be
"performance-based compensation" under Code Section 162(m), the Committee
shall determine the Eligible Persons who will potentially receive Annual
Incentive Awards, and the amounts potentially payable thereunder, for that
fiscal year, either out of an Annual Incentive Award pool established by
such date under Section 8(c)(i) hereof or as individual Annual Incentive
Awards. In the case of individual Annual Incentive Awards intended to
qualify under Code Section 162(m), the amount potentially payable shall
be based upon the achievement of a performance goal or goals based on one or
more of the business criteria set forth in Section 8(b)(ii) hereof in the given
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performance year, as specified by the Committee; in other cases, such
amount shall be based on such criteria as shall be established by the Committee.
In all cases, the maximum Annual Incentive Award of any Participant shall be
subject to the limitation set forth in Section 5 hereof.
(iii) Payout of Annual Incentive Awards. After the end of each fiscal
year, the Committee shall determine the amount, if any, of (A) the Annual
Incentive Award pool, and the maximum amount of potential Annual Incentive
Award payable to each Participant in the Annual Incentive Award pool,
or (B) the amount of potential Annual Incentive Award otherwise payable
to each Participant. The Committee may, in its discretion, determine
that the amount payable to any Participant as a final Annual Incentive Award
shall be increased or reduced from the amount of his or her potential
Annual Incentive Award, including a determination to make no final Award
whatsoever, but may not exercise discretion to increase any such amount
in the case of an Annual Incentive Award intended to qualify under Code
Section 162(m). The Committee shall specify the circumstances in which an
Annual Incentive Award shall be paid or forfeited in the event of
termination of employment by the Participant prior to the end of a fiscal year
or settlement of such Annual Incentive Award.
(d) Written Determinations. All determinations by the Committee as to the
establishment of performance goals, the amount of any Performance Award pool or
potential individual Performance Awards and as to the achievement of performance
goals relating to Performance Awards under Section 8(b), and the amount of any
Annual Incentive Award pool or potential individual Annual Incentive Awards and
the amount of final Annual Incentive Awards under Section 8(c), shall be made in
writing in the case of any Award intended to qualify under Code Section 162(m).
The Committee may not delegate any responsibility relating to such Performance
Awards or Annual Incentive Awards.
(e) Status of Section 8(b) and Section 8(c) Awards under Code
Section 162(m). It is the intent of the Corporation that Performance Awards and
Annual Incentive Awards under Sections 8(b) and 8(c) hereof granted to persons
who are designated by the Committee as likely to be Covered Employees within the
meaning of Code Section 162(m) and regulations thereunder (including
Regulation 1.162-27 and successor regulations thereto) shall, if so designated
by the Committee, constitute "performance-based compensation" within the meaning
of Code Section 162(m) and regulations thereunder. Accordingly, the terms of
Sections 8(b), (c), (d) and (e), including the definitions of Covered Employee
and other terms used therein, shall be interpreted in a manner consistent with
Code Section 162(m) and regulations thereunder. If any provision of the Plan as
in effect on the date of adoption or any agreements relating to Performance
Awards or Annual Incentive Awards that are designated as intended to comply with
Code Section 162(m) does not comply or is inconsistent with the requirements of
Code Section 162(m) or regulations thereunder, such provision shall be construed
or deemed amended to the extent necessary to conform to such requirements.
9. Change of Control. In the event of a "Change of Control," the following
provisions shall apply unless otherwise provided in the Award agreement:
(a) Options and SARs. Any Option or SAR carrying a right to exercise that
was not previously exercisable and vested shall become fully exercisable and
vested as of the time of the Change of Control and shall remain exercisable and
vested for the balance of the stated term of such Option or SAR without regard
to any termination of employment by the Participant, subject only to applicable
restrictions set forth in Section 10(a) hereof;
(b) Restricted Stock and Deferred Stock Units. The restrictions, deferral
of settlement, and forfeiture conditions applicable to any Restricted Stock or
Deferred Stock Unit granted under the Plan shall lapse and such Awards shall be
deemed fully vested as of the time of the Change
A - 14
<PAGE>
of Control, except to the extent of any waiver by the Participant and
subject to applicable restrictions set forth in Section 10(a) hereof; and
(c) Other Awards. The rights and obligations respecting, and the payment
of, all other Awards under the Plan shall be governed solely by the provisions
of the Severance Benefit Plan.
10. General Provisions.
(a) Compliance with Legal and Other Requirements. The Corporation may, to
the extent deemed necessary or advisable by the Committee, postpone the issuance
or delivery of Stock or payment of other benefits under any Award until
completion of such registration or qualification of such Stock or other required
action under any federal or state law, rule or regulation, listing or other
required action with respect to any stock exchange or automated quotation system
upon which the Stock or other securities of the Corporation are listed or
quoted, or compliance with any other obligation of the Corporation, as the
Committee may consider appropriate, and may require any Participant to make such
representations, furnish such information and comply with or be subject to such
other conditions as it may consider appropriate in connection with the issuance
or delivery of Stock or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other obligations. The
foregoing notwithstanding, in connection with a Change of Control, the
Corporation shall take or cause to be taken no action, and shall undertake or
permit to arise no legal or contractual obligation, that results or would result
in any postponement of the issuance or delivery of Stock or payment of benefits
under any Award or the imposition of any other conditions on such issuance,
delivery or payment, to the extent that such postponement or other condition
would represent a greater burden on a Participant than existed on the 90th day
preceding the Change of Control.
(b) Limits on Transferability; Beneficiaries. No Award or other right or
interest of a Participant under the Plan shall be pledged, hypothecated or
otherwise encumbered or subject to any lien, obligation or liability of such
Participant to any party (other than the Corporation or a subsidiary), or
assigned or transferred by such Participant otherwise than by will or the laws
of descent and distribution or to a Beneficiary upon the death of a Participant,
and such Awards or rights that may be exercisable shall be exercised during the
lifetime of the Participant only by the Participant or his or her guardian or
legal representative, except that Awards and other rights (other than ISOs and
SARs in tandem therewith) may be transferred to one or more Beneficiaries or
other transferees during the lifetime of the Participant, and may be exercised
by such transferees in accordance with the terms of such Award, but only if and
to the extent such transfers are permitted by the Committee pursuant to the
express terms of an Award agreement (subject to any terms and conditions which
the Committee may impose thereon). A Beneficiary, transferee, or other person
claiming any rights under the Plan from or through any Participant shall be
subject to all terms and conditions of the Plan and any Award agreement
applicable to such Participant, except as otherwise determined by the Committee,
and to any additional terms and conditions deemed necessary or appropriate by
the Committee.
(c) Adjustments. In the event that any dividend or other distribution
(whether in the form of cash, Stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Stock such that an adjustment
is determined by the Committee to be appropriate under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock which may be delivered in connection
with Awards granted thereafter, (ii) the number and kind of shares of Stock by
which annual per-person Award limitations are measured under Section 5 hereof,
(iii) the number and kind of shares of Stock subject to or deliverable in
respect of outstanding Awards and (iv) the exercise price, grant price or
purchase price relating to any Award and/or make provision for payment of cash
or other property in respect of any outstanding Award. In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Awards (including Performance Awards and performance
goals,
A - 15
<PAGE>
and Annual Incentive Awards and any Annual Incentive Award pool or
performance goals relating thereto) in recognition of unusual or nonrecurring
events (including, without limitation, events described in the preceding
sentence, as well as acquisitions and dispositions of businesses and assets)
affecting the Corporation, any subsidiary or any business unit, or the financial
statements of the Corporation or any subsidiary, or in response to changes in
applicable laws, regulations, accounting principles, tax rates and regulations
or business conditions or in view of the Committee's assessment of the business
strategy of the Corporation, any subsidiary or business unit thereof,
performance of comparable organizations, economic and business conditions,
personal performance of a Participant, and any other circumstances deemed
relevant; provided that no such adjustment shall be authorized or made if and to
the extent that such authority or the making of such adjustment would cause
Options, SARs, Performance Awards granted under Section 8(b) hereof or Annual
Incentive Awards granted under Section 8(c) hereof to Participants designated by
the Committee as Covered Employees and intended to qualify as "performance-
based compensation" under Code Section 162(m) and regulations thereunder to
otherwise fail to qualify as "performance-based compensation" under Code
Section 162(m) and regulations thereunder.
(d) Taxes. The Corporation and any subsidiary is authorized to withhold
from any Award granted, any payment relating to an Award under the Plan,
including from a distribution of Stock, or any payroll or other payment to a
Participant, amounts of withholding and other taxes due or potentially payable
in connection with any transaction involving an Award, and to take such other
action as the Committee may deem advisable to enable the Corporation and
Participants to satisfy obligations for the payment of withholding taxes and
other tax obligations relating to any Award. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Participant's tax obligations,
either on a mandatory or elective basis in the discretion of the Committee.
(e) Changes to the Plan and Awards. The Board, or the Committee acting
pursuant to such authority as may be delegated to it by the Board, may amend,
alter, suspend, discontinue or terminate the Plan or the Committee's authority
to grant Awards under the Plan without the consent of shareholders or
Participants, except that any amendment or alteration to the Plan shall be
subject to the approval of the Corporation's shareholders not later than the
annual meeting next following such Board action if such shareholder approval is
required by any federal or state law or regulation or the rules of any stock
exchange or automated quotation system on which the Stock may then be listed or
quoted, and the Board may otherwise, in its discretion, determine to submit
other such changes to the Plan to shareholders for approval; provided that,
without the consent of an affected Participant, no such Board action may
materially and adversely affect the rights of such Participant under any
previously granted and outstanding Award. The Committee may waive any conditions
or rights under, or amend, alter, suspend, discontinue or terminate any Award
theretofore granted and any Award agreement relating thereto, except as
otherwise provided in the Plan; provided that, without the consent of an
affected Participant, no such Committee action may materially and adversely
affect the rights of such Participant under such Award. Notwithstanding anything
in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interest accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interest accounting
shall be available, including the substitution of Stock having a Fair Market
Value equal to the cash otherwise payable hereunder for the right which caused
the transaction to be ineligible for pooling of interest accounting.
(f) Limitation on Rights Conferred under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any Eligible Person or
Participant the right to continue as an Eligible Person or Participant or in the
employ or service of the Corporation or a subsidiary, (ii) interfering in any
way with the right of the Corporation or a subsidiary to terminate any Eligible
Person's or Participant's employment or service at any time, (iii) giving an
Eligible Person or Participant any claim to be granted any Award under the Plan
or to be treated uniformly with other Participants and employees, or
(iv) conferring on a Participant any of the rights of a shareholder
A - 16
<PAGE>
of the Corporation unless and until the Participant is duly issued or
transferred shares of Stock in accordance with the terms of an Award.
accordance with the terms of an Award.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant or obligation to deliver
Stock pursuant to an Award, nothing contained in the Plan or any Award shall
give any such Participant any rights that are greater than those of a general
creditor of the Corporation; provided that the Committee may authorize the
creation of trusts and deposit therein cash, Stock, other Awards or other
property, or make other arrangements to meet the Corporation's obligations under
the Plan. Such trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant. The trustee of such trusts may be
authorized to dispose of trust assets and reinvest the proceeds in alternative
investments, subject to such terms and conditions as the Committee may specify
and in accordance with applicable law.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Corporation for approval
shall be construed as creating any limitations on the power of the Board or a
committee thereof to adopt such other compensation and incentive arrangements
for employees, agents and brokers of the Corporation and its subsidiaries as it
may deem desirable.
(i) Payments in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture of an Award
with respect to which a Participant paid cash or other consideration, the
Participant shall be repaid the amount of such cash or other consideration. No
fractional shares of Stock shall be issued or delivered pursuant to the Plan or
any Award. The Committee shall determine whether cash, other Awards or other
property shall be issued or paid in lieu of such fractional shares or whether
such fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
(j) Governing Law. The validity, construction and effect of the Plan, any
rules and regulations under the Plan, and any Award agreement shall be
determined in accordance with Indiana law, without giving effect to principles
of conflicts of laws, and applicable federal law.
(k) Awards under Preexisting Plans. No further awards shall be granted
under the Preexisting Plans, after the Effective Date with respect to the EVSP
and after Midnight, May 15, 1997 with respect to the Stock Option Plan.
(l) Plan Effective Date and Shareholder Approval. The Plan has been adopted
by the Board as of the Effective Date, subject to approval by the shareholders
of the Corporation.
A - 17
[Front of Proxy Card]
DETACH HERE
LINCOLN NATIONAL CORPORATION
FORT WAYNE, INDIANA
The undersigned shareholder in LINCOLN NATIONAL CORPORATION (the
"Corporation"), an Indiana corporation, hereby constitutes and appoints
EARL L. NEAL, IAN M. ROLLAND, JILL S. RUCKELSHAUS and C. SUZANNE WOMACK or
any one or more of them, the true and lawful attorney in fact and proxy of
the undersigned, with full power of substitution to all or any one or more
of them, to vote as proxy for and in the name, place and stead of the
undersigned at the ANNUAL MEETING of the shareholders of the Corporation,
to be held at the Grand Wayne Center, 120 West Jefferson Boulevard, Fort
Wayne, Indiana at 10:00 a.m., local time, Thursday, May 15, 1997, or at
any adjournment thereof, all the shares of stock in the corporation shown
on the other side (whether Common Stock or $3.00 Cumulative Convertible
Preferred Stock, Series A) which the undersigned would be entitled to vote
if then personally present, hereby revoking any proxy heretofore given.
A majority of such attorneys and proxies who shall be present and
shall act as such at the meeting or any adjournment thereof, or if only
one such attorney and proxy be present and act, then that one, shall have
and may exercise all the powers hereby conferred.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED IN ITEM 1, FOR ITEM 2 AND
AUTHORIZATION WILL BE GIVEN TO THE NAMED PROXIES, OR ANY ONE OR MORE OF
THEM, IN THEIR DISCRETION TO ACT OR VOTE UPON OTHER MATTERS WHICH MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
[SEE REVERSE
(Continued, and to be Signed on reverse side) SIDE]
[Back of Proxy Card]
LINCOLN
NATIONAL
CORPORATION
Regardless of whether you plan to attend the Annual Meeting of
Shareholders, you can be sure your shares are represented at the meeting
by promptly returning your proxy in the enclosed envelope.
Company Highlights During 1996
. Income from operations and net income were at record highs in 1996.
. The quarterly dividend on the Company's Common Stock was increased
at the November 1996 Board of Directors meeting to $.49, the 14th
consecutive year of increased dividends.
. Completed the acquisition of a $3.2 billion block of 403(b) tax-
qualified annuity business from UNUM. The Corporation's combined
account values for annuity and 401(k) retirement plan businesses
grew nearly 25 percent to more than $41 billion.
DETACH HERE
[X]Please mark
votes as in
this example.
The Board of Directors FOR AGAINST ABSTAIN
recommends a vote for 2.To approve [ ] [ ] [ ]
the following: or disapprove
a new management
1. To elect three incentive plan.
directors for three year
terms: 3.In their discretion, to act or vote
Nominees: Harry L. Kavetas, upon other matters which may
M. Leanne Lachman, properly come before the meeting or
Jill S. Ruckelshaus any adjournment thereof.
FOR WITHHELD MARK HERE
FOR ADDRESS [ ]
[ ] [ ] CHANGE AND
NOTE AT LEFT
[ ] ___________________ All of the above in accordance
For all nominees except as with the Notice of Annual Meeting
noted above. of Shareholders and Proxy
Statement for the meeting,
receipt of which is hereby
acknowledged.
Signature must be that of the
shareholder. If shares are held
jointly, each shareholder named
should sign. If the signer is a
corporation, please sign full
corporate name by dully authorized
officer. If the signer is a
partnership, please sign partnership
name by authorized person.
Executors, administrators, trustees,
guardians, attorneys in fact, etc.
should so indicate when signing.
Signature: ___________ Date:________ Signature: _________ Date:_________
