UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996 Commission File Number 1-6028
LINCOLN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 35-1140070
(State of incorporation) (I.R.S. Employer Identification No.)
200 East Berry Street, Fort Wayne, Indiana 46802-2706
(Address of principal executive offices)
Registrant's telephone number (219) 455-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of exchanges on
Title of each class which registered
Common Stock (Without Par Value) New York, Chicago, Pacific,
London and Tokyo
Common Share Purchase Rights New York, Chicago and Pacific
$3.00 Cumulative Convertible Preferred New York and Chicago
Stock, Series A (Without Par Value)
8.75% Cumulative Quarterly Income New York
Preferred Securities, Series A*
8.35% Trust Originated Preferred New York
Securities, Series B*
*Issued by Lincoln National Capital I and Lincoln National Capital II,
respectively. Payments of distributions and payments on liquidation or
redemption are guaranteed by Lincoln National Corporation.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [ x ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ x ]
As of February 28, 1997, 103,181,135 shares of common stock were outstanding.
The aggregate market value of such shares (based upon the closing price of
these shares on the New York Stock Exchange) held by nonaffiliates was
approximately $5,997,400,000.
Select materials from the Proxy statement for the Annual meeting of
Shareholders, scheduled for May 15, 1997, have been incorporated by reference
into Part III of this Form 10-K.
The exhibit index to this report is located on page 83.
Page 1 of 345
<PAGE> -2-
Lincoln National Corporation
Table of Contents
Page
PART I
Item 1. Business
A. General Description ---------------------------------- 3
B. Description of Business Segments:
Life Insurance and Annuities ------------------------- 3
Reinsurance ------------------------------------------ 4
Property-Casualty ------------------------------------ 5
Investment Management -------------------------------- 5
C. Other Matters:
Regulation ------------------------------------------- 5
Miscellaneous ---------------------------------------- 6
Property-Casualty Liability for Claims Information --- 6
Item 2.
Properties -------------------------------------------- 7
Item 3.
Legal Proceedings ------------------------------------- 8
Item 4.
Submission of Matters to a Vote of Security Holders --- 8
PART II
Item 5.
Market for Registrant's Common Equity and Related
Stockholder Matters ----------------------------------- 8
Item 6.
Selected Financial Data ------------------------------- 9
Item 7.
Management's Discussion and Analysis of Financial
Condition and Results of Operations ------------------- 10
Item 8.
Financial Statements and Supplementary Data ----------- 35
Item 9.
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures ------------------ 68
PART III
Item 10.
Directors and Executive Officers of the Registrant ---- 69
Item 11.
Executive Compensation -------------------------------- 70
Item 12.
Security Ownership of Certain Beneficial Owners and
Management -------------------------------------------- 70
Item 13.
Certain Relationships and Related Transactions -------- 70
PART IV
Item 14.
Exhibits, Financial Statement Schedules and Reports
on Form 8-K ------------------------------------------ 71
Index to Exhibits ---------------------------------------------- 83
Signatures ----------------------------------------------------- 84
<PAGE> -3-
PART I
Item 1. Business
Lincoln National Corporation ("LNC") is a holding company. Through subsidiary
companies, LNC operates multiple insurance and investment management
businesses. LNC is the 42nd largest (based on assets) U.S. corporation (1995
Fortune 500 Rankings, April 1996). Operations are divided into four business
segments, 1) Life Insurance and Annuities, 2) Reinsurance 3) Property-Casualty
and 4) Investment Management. The Investment Management segment was added in
April of 1995 following the acquisition of Delaware Management Holdings, Inc.
(see note 12 to the consolidated financial statements on page 67). Prior to
the sale of 71% of its direct writer of employee life-health coverages in the
first quarter of 1994, LNC operated in a business segment entitled Employee
Life-Health Benefits. After the sale, the earnings from the 29% minority
interest retained were included in "Other Operations" as described below.
Although one of the subsidiaries held by LNC was formed as early as 1905, LNC
itself was formed in 1968. LNC is an Indiana corporation with its principal
office at 200 East Berry Street, Fort Wayne, Indiana 46802-2706. As of
December 31, 1996, there were 230 persons on the staff of LNC. Total
employment of Lincoln National Corporation at December 31, 1996 on a
consolidated basis was 10,320.
Although acquisition and disposition activity has occurred during the past
five years, none of it has involved all or predominately all of a business
segment except as described above.
Numeric presentations showing revenues, pre-tax income, and assets for LNC's
major business segments and other operations in which LNC engages through its
subsidiaries are included in this report as part of the consolidated financial
statements (see note 9 to the consolidated financial statements on page 64).
The LNC "Other Operations" category includes the financial data for an
unconsolidated affiliate (subsequent to the first quarter of 1994 and prior to
the sale of this holding in October of 1995) engaged in the employee life-
health benefits business, certain other operations that are not directly
related to the business segments and unallocated corporate items (i.e.,
corporate investment income, interest expense on short-term and long-term
borrowings and unallocated corporate overhead expenses).
Following is a brief description of the four business segments:
1. Life Insurance and Annuities
The primary companies within this business segment are The Lincoln National
Life Insurance Company ("Lincoln Life"); First Penn-Pacific Life Insurance
Company ("First Penn"); Lincoln Life & Annuity Company of New York ("LLANY");
Lincoln National (UK), plc; and American States Life Insurance Company.
Lincoln Life, an Indiana corporation headquartered in Fort Wayne, Indiana, is
the 4th largest U.S. stockholder-owned life insurance company, based on
revenues, (1995 Fortune Rankings of 50 Largest Life Insurance Companies by
Revenues, April 1996) and the 12th largest, based on assets, (Best's Review
Life-Health Edition, September 1996). A network of 38 life insurance
agencies, independent life insurance brokers, insurance agencies located
within financial institutions and specifically trained employees sells fixed
annuities, variable annuities, pension products, universal life insurance,
variable universal life insurance and other individual insurance coverages in
most states of the United States. The distribution network includes
approximately 1,675 career agents, 16,100 brokers and access to 57,100
stockbrokers and financial planners.
<PAGE> -4-
First Penn is an Indiana Corporation headquartered in Oakbrook Terrace,
Illinois. Its universal life and deferred annuity products are distributed
through stockbrokers, financial planners, banks and personal producing general
agents. It also manufactures universal life, term life and deferred annuity
products for Lincoln Life for distribution through its career agents and
banks. These products are marketed in most states of the United States.
LLANY is a New York company, headquartered in Syracuse, New York. This
company was formed and licensed prior to the completion of the purchase of the
tax-qualified annuity business from UNUM Corporation's affiliates (see note 12
to the consolidated financial statements on page 67). LLANY also offers other
types of annuities, pension and insurance products within the state of New
York.
Lincoln National (UK), headquartered in Gloucester, England, is licensed to do
business throughout the United Kingdom. The principal products produced by
this operation, unit-linked life and pension products, are similar to U.S.
produced variable life products. The distribution network includes
approximately 1,700 sales representatives. Lincoln National (UK) is the
8th largest writer of unit-linked new business premiums in the UK for 1995
(Money Management Magazine-New Business Trends, June 1996).
American States Life is an Indiana Corporation, headquartered in Indianapolis.
Its products, principally universal life and term insurance, are marketed
through independent agencies that also offer property-casualty insurance in
most states of the United States.
Other companies within this segment include various general business
corporations that support the segment's sales, service and administrative
efforts and a 49% ownership in a Mexican partnership known as Aseguradora
InverLincoln.
Approximately 5,000 employees are involved in this business segment.
2. Reinsurance
This segment offers a broad range of risk management products and services to
insurance companies, HMOs, self-funded employers and other primary market risk
accepting organizations throughout the United States and economically
attractive international markets. Marketing efforts are conducted primarily
through the efforts of a reinsurance sales staff. Some business is presented
by reinsurance intermediaries and brokers. The reinsurance organization is
one of the leading life-health reinsurers worldwide measured on gross
premiums, net of ceded (LNC Report and Swiss Re Survey, April 1996).
The primary companies within this business segment are Lincoln National
Reassurance Company ("LNRAC"), Lincoln National Health & Casualty Insurance
Company ("LNH&C"), Lincoln Life, Lincoln National Reinsurance Company Ltd
(Bermuda) and Lincoln National Reinsurance Company Ltd (Barbados). LNRAC and
Lincoln Life offer reinsurance programs for individual life, group life, group
medical, disability income, personal accident and annuity products to U.S. and
international clients. LNH&C offers group medical products and services on
both a direct and reinsurance basis. The insurance companies in Bermuda and
Barbados offer specialized reinsurance programs for life, health and annuity
business. They also offer funded cover programs to property-casualty carriers
in the U.S. and select international markets.
Other companies in this business segment include various general business
corporations that support the segment's sales, service and administration
efforts.
Approximately 680 employees are involved in this business segment.
<PAGE> -5-
3. Property-Casualty
Property-casualty insurance includes both personal lines (auto, homeowners
multi-peril and other) and commercial lines (business owners policies, auto,
multi-peril, workers' compensation, general liability and other).
Most of LNC's property-casualty business is conducted through American States
Financial Corporation and its subsidiaries ("American States"), headquartered
in Indianapolis. These companies operate multi-line property-
casualty insurance businesses in most states of the United States. American
States adopted a realignment plan in October of 1995 (see note 12 to the
consolidated financial statements on page 67). Upon completion American
States will operate through four regional offices rather than through 20
divisional offices. The regional offices have broad authority for
underwriting, agency contracting, marketing and claims settlement for most
lines of business. The distribution network involves approximately 4,800
independent agencies. Following the sale of a 16.7% minority interest of
American States in the second quarter of 1996, the earnings for this segment
have been shown net of amounts attributable to the minority interest
shareholders.
Another company within this business segment, not owned by American States, is
Linsco Reinsurance Company. This company is involved in servicing a closed
block of business.
Approximately 3,370 employees are involved in this business segment.
4. Investment Management
The companies within this business segment include Lincoln National
Investments, Inc. ("LNI"), Lincoln National Investment Companies, Inc.
("LNIC"), Delaware Management Holdings, Inc. ("Delaware"), Lincoln Investment
Management, Inc. ("Lincoln Investment"), Lynch & Mayer, Inc. ("L&M") and
Vantage Global Advisors, Inc. ("Vantage"). LNI and LNIC are intermediate
level holding companies that own the operating companies within this segment.
The operating companies provide a variety of asset management services to
institutional and retail customers including other insurance companies,
pension plans, college endowment funds, individuals and trusts. These
companies serve as investment advisor to approximately 600 pension funds and
other institutional accounts; act as investment manager/national distributor
and shareholder services agent for 49 registered, open-end funds; and serve as
investment manager for four registered, closed-end funds.
Approximately 1,030 employees are involved in this business segment.
LNC's insurance subsidiaries protect themselves against losses greater than
the amount they are willing to retain on any one risk or event by purchasing
reinsurance from unaffiliated insurance companies (see note 7 to the
consolidated financial statements on page 58).
All businesses LNC is involved in are highly competitive due to the market
structure and the large number of competitors.
At the end of 1995, the latest year for which data is available, there were
more than 1,700 life insurance companies in the United States. Lincoln Life
was among the 20 largest stock and mutual life insurance companies in the
United States based on revenues (1995 Fortune Ranking of 50 Largest U.S. Life
Insurance Companies by Revenues, April 1996).
At the end of 1995, the latest year for which data is available, there were
more than 1,100 groups and unaffiliated individual companies selling property
and casualty insurance. LNC's group of companies writing property-casualty
insurance ranked 31st in net written premiums for 1995 (A.M. Best Aggregates
and Averages, August 1996) among all such groups and companies.
<PAGE> -6-
The business of LNC's Life Insurance and Annuities, Reinsurance and Property-
Casualty business segments, in common with those of other insurance companies,
is subject to regulation and supervision by the states, territories and
countries in which they are licensed to do business. The laws of these
jurisdictions generally establish supervisory agencies with broad
administrative powers relative to granting and revoking licenses to transact
business, regulating trade practices, licensing agents, prescribing and
approving policy forms, regulating premium rates for some lines of business,
establishing reserve requirements, regulating competitive matters, prescribing
the form and content of financial statements and reports, regulating the type
and amount of investments permitted and prescribing minimum levels of capital.
The ability to continue an insurance business is dependent upon the
maintenance of the licenses in the various jurisdictions.
LNC's Investment Management segment, in common with other investment
management groups, is subject to regulation and supervision by the Securities
and Exchange Commission, National Association of Securities Dealers and
jurisdictions of the states, territories and foreign countries in which they
are licensed to do business.
Because of the nature of the insurance and investment management businesses,
there is no single customer or group of customers upon whom the business is
dependent. Factors such as backlog, raw materials, patents (including
trademarks, licenses, franchises and any other concessions held) or
environmental impact do not have a material effect upon such businesses.
However, within LNC's Reinsurance segment, Lincoln National Risk Management,
Inc., does hold a patent for "The Method and Apparatus for Evaluating a
Potentially Insurable Risk" and markets multiple knowledge-based underwriting
products that rely on this product. While generally the businesses in which
LNC's subsidiaries operate are not considered seasonal businesses, claims and
expenses for the property-casualty segment tend to be higher for periods of
severe or inclement weather. LNC does not have a separate unit that conducts
market research. Research activities related to new products or services, or
the improvement of existing products or services, are conducted within the
business segments. Expenses related to such activities are not material.
Also, sales are not dependent upon select geographic areas. LNC has foreign
operations that are significant in relationship to the consolidated group (see
note 9 to the consolidated financial statements on page 65).
Liabilities for claims and claim expenses for the Property-Casualty
segment are estimated at the end of each accounting period using case-basis
evaluations and statistical projections. These liabilities include estimates
for the ultimate cost of claims that have been 1) reported but not settled and
2) incurred but not yet reported. A provision for inflation is implicitly
considered in the estimated liability as the development of the estimated
liability is based on historical data which reflects past inflation and on
other factors which are judged to be appropriate modifiers of past experience.
Adjustments to previously established estimates are reflected in current
operating results, along with initial estimates for claims arising within the
current accounting period.
A reconciliation of the beginning-of-year and end-of-year liability for claims
and claim expenses is included in this report as part of the financial
statements (see note 5 to the consolidated financial statements on page 51).
The liability for claims and claim expenses included in this report is shown
on a basis prescribed by generally accepted accounting principles ("GAAP").
Such liabilities differ from that reported to state insurance regulators. A
reconciliation of the GAAP liability and the corresponding liability reported
to state insurance regulators is as follows:
December 31 (in millions) 1996 1995
Liability reported to state insurance regulators --- $2,342.9 $2,443.4
Increase (decrease) related to:
Estimated salvage and subrogation recoveries ------- (37.1) (37.1)
Amount recoverable from reinsurers ----------------- 179.8 189.0
Liability reported on a GAAP basis --------------- $2,485.6 $2,595.3
The table on page 7 shows the development of the estimated liability for claim
and claim expenses for the ten-year period prior to 1996. Each column shows
the liability as originally estimated and cumulative data on payments and re-
estimated liabilities for that accident year and all prior accident years.
<PAGE> -7-
Amounts are reflected net of reinsurance recoverable for all years. The
resulting redundancy (deficiency) is also a cumulative amount for that year
and all prior years. Conditions and trends that have affected the development
of these liabilities in the past may not necessarily recur in the future.
Therefore, it would not be appropriate to use this cumulative history in the
projection of future performance.
Analysis of Combined Property-Casualty Claims and Claim Expense Development.
December 31 (in millions)
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
Liability for unpaid claims and claim expenses, net of reinsurance
recoverable:
$1,730 $2,020 $2,372 $2,669 $2,246 $2,502 $2,673 $2,585 $2,499 $2,406 $2,306
Liability re-estimated as of: (First column represents number of years later)
1 1,692 1,984 2,347 2,690 2,258 2,549 2,634 2,506 2,474 2,363 --
2 1,753 1,990 2,382 2,718 2,303 2,571 2,607 2,553 2,483
3 1,790 2,026 2,403 2,767 2,384 2,563 2,686 2,611
4 1,833 2,054 2,443 2,847 2,403 2,673 2,772
5 1,863 2,104 2,538 2,869 2,522 2,774
6 1,910 2,199 2,551 2,986 2,624
7 2,003 2,210 2,604 3,067
8 2,012 2,311 2,670
9 2,113 2,363
10 2,151
Cumulative redundancy (deficiency)
(421) (343) (298) (398) (378) (272) (99) (26) 16 43 --
Change in cumulative amount
-- 78 45 (100) 20 106 173 73 42 27 (43)
Cumulative amount of liability paid through:
(First column represents number of years later)
1 571 649 750 1,430* 809 839 849 728 689 649 --
2 935 1,012 1,650* 1,862 1,253 1,325 1,294 1,156 1,093
3 1,160 1,568* 1,875 2,088 1,542 1,596 1,581 1,434
4 1,508* 1,700 1,996 2,255 1,709 1,796 1,773
5 1,593 1,776 2,095 2,355 1,839 1,934
6 1,647 1,840 2,154 2,439 1,935
7 1,694 1,877 2,157 2,503
8 1,721 1,914 2,202
9 1,751 1,950
10 1,781
*Includes the release of reserves for National Reinsurance Corporation due to
the sale of that company during April 1990. The reserves released for LNC's
period of ownership of National Re were $241 million, $386 million, $526
million and $665 million in 1986, 1987, 1988 and 1989, respectively.
Item 2. Properties
LNC and the various Fort Wayne operating businesses own or lease approximately
1.5 million square feet of office space in the Fort Wayne area. The
businesses operating in Indianapolis, Indiana; suburban Chicago, Illinois;
Philadelphia, Pennsylvania; and areas near London, England own or lease
another 1.0 million square feet of office space. An additional 1.6 million
square feet of office space is owned or leased in other U.S. cities and
foreign countries for branch offices and other smaller operations. The square
feet of office space utilized for this third group is less than prior years
and will be reduced by approximately 500,000 square feet over the next few
years due to the consolidation of offices within the Property-Casualty segment
(see note 12 to the consolidated financial statements on page 67). As shown
in the notes to the consolidated financial statements (see note 7 to the
consolidated financial statements on page 57), the rental expense on operating
leases for office space and equipment for continuing operations totaled $71.6
million for 1996. Office space rent expense accounts for $56.5 million of
this total. This discussion regarding properties does not include information
on investment properties.
<PAGE> -8-
Item 3. Legal Proceedings
LNC and its subsidiaries are involved in various pending or threatened legal
proceedings arising from the conduct of business. In some instances, these
proceedings include claims for unspecified or substantial punitive damages and
similar types of relief in addition to amounts for alleged contractual
liability or requests for equitable relief. After consultation with legal
counsel and a review of available facts, it is management's opinion that these
proceedings ultimately will be resolved without materially affecting the
consolidated financial position of LNC.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 1996, no matters were submitted to security
holders for a vote.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Stock Market and Dividend Information
Common Stock Data: (per share) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
1996
High -------------------------------- $57.000 $52.875 $47.000 $54.625
Low --------------------------------- 48.000 45.875 40.750 44.000
Dividend declared ------------------- $.46 $.46 $.46 $.49
1995
High -------------------------------- $41.375 $46.250 $47.250 $53.750
Low --------------------------------- 34.625 39.875 38.750 42.625
Dividend declared ------------------- $.43 $.43 $.43 $.46
Notes:
(1) At December 31, 1996, the number of shareholders of record of LNC's
common stock was 13,130.
(2) The payment of dividends to shareholders is subject to the restrictions
described in notes 5, Supplemental Financial Data, and 7, Restrictions,
Commitments and Contingencies to the consolidated financial statements (see
pages 52 and 56, respectively) and is discussed in the Management's Discussion
and Analysis of Financial Condition (see page 34).
Exchanges: New York, Chicago, Pacific, London and Tokyo.
Stock Exchange Symbol: LNC
Dividend Guideline:
The dividend on LNC's common stock is determined each quarter by the
Corporation's Board of Directors. The Board takes into consideration the
financial condition of the Corporation, including current and expected
earnings, projected cash flows and anticipated financing needs. The Board
also considers the ability to maintain the dividend through bad times as well
as good. In this way, the dividend would need to be reduced only under
unusual circumstances. One guideline that the Board has found useful is to
consider a dividend approximately equal to five percent of the book value per
share. This book value is computed excluding the impact of marking securities
available-for-sale to fair value.
<PAGE> -9-
Item 6. Selected Financial Data
(Millions of dollars, except per share data)
Year Ended December 31 1996 1995 1994 1993 1992
Total revenue ----------------- 6,721.3 6,633.3 6,179.9 7,392.8 7,267.7
Income before cumulative effect
of accounting change(1) ------ 513.6 482.2 349.9 415.3 359.2
Net income(1) ----------------- 513.6 482.2 349.9 318.9 359.2
Per Share Information:
Income before cumulative
effect of accounting
change(1) ------------------ $4.91 $4.63 $3.37 $4.06 $3.86
Net income(1) --------------- 4.91 4.63 3.37 3.12 3.86
Common stock dividend(1) ---- 1.87 1.75 1.66 1.55 1.475
December 31 1996 1995 1994 1993 1992
Assets(1) --------------------- 71,713.4 63,257.7 48,864.8 47,825.1 39,042.2
Long-term debt ---------------- 626.3 659.3 474.2 422.2 489.8
Minority interest-preferred
securities of subsidiary
companies(2) ----------------- 315.0 -- -- -- --
Shareholders' equity(1) ------- 4,470.0 4,378.1 3,042.1 4,072.3 2,826.9
Market value of
common stock(1) -------------- $52.50 $53.75 $35.00 $43.50 $37.00
(1) Factors affecting the comparability of income before cumulative effect of
accounting change and net income for the 1992-1996 period are shown below (see
"Supplemental Data"). Assets and shareholders' equity as of December 31,
1996, 1995, 1994 and 1993 include the effect of carrying securities
available-for-sale at their fair values. At the end of 1992, the bulk of the
securities owned by LNC were carried at amortized cost. Per share
amounts were affected by the issuance in February 1993 of 9,200,000 shares
of common stock and the retirement of 500,000 and 694,582 shares of common
stock in November 1994 and the fourth quarter of 1996, respectively. For
other factors affecting comparability see the review of operations for
each segment.
(2) Also known as "Company-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts Holding Solely Junior Subordinated Deferrable
Interest Debentures of Company."
Supplemental Data
Year Ended December 31 (in millions) 1996 1995 1994 1993 1992
Income from operations(1)---------- $434.1 $306.5 $389.8 $343.5 $240.6
Realized gain (loss) on investments,
net of related amortization,
expenses and taxes --------------- 79.5 136.4 (88.7) 170.3 118.6
Gain (loss) on sale of affiliates/
operating property, net of taxes - -- 39.3 48.8 (98.5) --
Cumulative effect of accounting
change (postretirement benefits) - -- -- -- (96.4) --
Net Income --------------------- $513.6 $482.2 $349.9 $318.9 $359.2
(1) 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.
<PAGE> -10-
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The pages to follow review LNC's results of operations and financial condi-
tion. Historical financial information is presented and analyzed. Where
appropriate, factors that may affect future financial performance are
identified and discussed. Actual results could differ materially from those
indicated in forward-looking statements due to, among other specific changes
currently not known, subsequent significant changes in: the company (e.g.,
acquisitions and divestitures), financial markets (e.g., interest rates and
securities markets), legislation (e.g., taxes and product taxation),
regulations (e.g., insurance and securities regulations), acts of God (e.g.,
hurricanes, earthquakes and storms), other insurance risks (e.g., policyholder
mortality and morbidity) and competition.
On pages 11 through 21, the financial results of LNC's four business segments
and other operations are presented and discussed. Within these business
segment discussions, reference is made to "Income from Operations" (see
definition in Item 6 above). Pages 22 through 34 discuss factors that have
affected specific elements of the consolidated financial statements as well as
information pertaining to LNC as a whole.
This "Management's Discussion and Analysis of Financial Condition and Results
of Operations" should be read in conjunction with the audited financial
statements and accompanying notes presented on pages 36 through 68.
<PAGE> -11-
<TABLE>
<CAPTION>
Review of Operations: Life Insurance and Annuities
Year Ended December 31 (in millions) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Financial Results by Source
Lincoln Life/LLANY/First Penn -
Annuities -------------------------- $165.0 $149.3 $120.0 $ 96.5 $ 73.9
Lincoln Life/LLANY/First Penn -
Insurance -------------------------- 36.4 31.1 34.2 37.8 46.8
Lincoln National (UK) --------------- 66.0 45.9 17.2 11.8 9.2
American States Life ---------------- 12.2 13.0 12.4 12.1 11.1
Lincoln Life/LLANY - Pensions ------- 2.9 22.1 22.4 30.6 15.5
Lincoln Life - Disability Income(1) - -- (18.3) (14.9) 3.5 (19.6)
Other ------------------------------- 8.3 8.5 (5.5) (17.0) 14.0
Income from Operations(2) --------- 290.8 251.6 185.8 175.3 150.9
Realized Gain (Loss) on
Investments/Operating Properties(3)- 39.1 82.5 (91.7) 59.3 --
Net Income(2) --------------------- $329.9 $334.1 $ 94.1 $234.6 $150.9
</TABLE>
<TABLE>
<CAPTION>
December 31 (in billions) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Account Values
Lincoln Life/LLANY/First Penn -
Annuities ---------------------- $38.017 $30.316 $24.604 $20.923 $16.327
Reinsurance Ceded - Annuities --- (1.816) (1.778) (1.536) (.690) (.207)
Lincoln Life/LLANY - 401k
Retirement Plans --------------- 2.920 2.428 1.861 1.518 1.186
Lincoln Life/LLANY - Other
Pensions ----------------------- 4.912 5.583 5.548 5.454 5.081
Lincoln Life/LLANY/First Penn -
Universal and Variable Life
Insurance ---------------------- 2.869 2.629 2.392 2.207 1.988
American States Life ------------ .343 .317 .286 .255 .217
Total U.S. Account Values ----- 47.245 39.495 33.155 29.667 24.592
Lincoln National (UK) -
Unit Linked -------- 5.074 4.307 1.320 1.235 .652
Total Account Values ---------- $52.319 $43.802 $34.475 $30.902 $25.244
</TABLE>
(1) Lincoln stopped writing disability income coverages on a direct basis
at the end of March 1996. The administration of this business was moved to
the Reinsurance segment at the end of September 1995.
(2) Income from operations and net income of the annuities and pension sub-
segments for 1993 include an increase in the estimate of net investment
income ($26.0 million after-tax) related to a refinement in the method
used to calculate its estimated effective yields on mortgage-backed
securities.
(3) Prior to 1993, all realized gain (loss) on investments was included in
Other Operations. Realized gain (loss) on investments for 1993 includes an
increase in the allowance for losses for mortgage loans ($42.3 million
after-tax) related to a change in accounting for the impairment of
mortgage loans as prescribed by Financial Accounting Standard No. 114.
LNC's Life Insurance and Annuities segment reported its seventh consecutive
year of record earnings in 1996. Income from operations increased 16% to
$290.8 million in 1996 from $251.6 million in 1995. This increase was
produced primarily through the continued growth of annuity business in the
United States and increased unit-linked life insurance and pension business in
the United Kingdom.
Profile
The Life Insurance and Annuities segment is composed of the operations of
Lincoln National Life ("Lincoln Life"), Lincoln National(UK) plc ("Lincoln
(UK)") First Penn-Pacific ("First Penn"), Lincoln Life & Annuity Company of
New York and American States Life. As shown above, this segment has combined
annuity, 401(k) retirement plan, life insurance and pension account values of
$52.3 billion. This segment's family of companies have more than $88 billion
of life insurance in-force.
Based in Fort Wayne, Ind., Lincoln Life is the 12th largest life insurer in
the United States as measured by assets (Best's Review, Life-Health Edition,
September 1996). Lincoln (UK), located in Uxbridge, England, is the 8th
largest unit-linked life insurer in the United Kingdom as measured by 1995
<PAGE> -12-
premiums of companies that write predominantly unit-linked life insurance and
pension business (Money Management, June 1996). Unit-linked policies are
similar to variable life insurance policies in the United States.
First Penn, headquartered in Oakbrook Terrace, Ill., is known for product
innovations such as MoneyGuard, a life insurance policy with long-term care
benefits. Lincoln Life & Annuity Company of New York, based in Syracuse,
N.Y., was established in 1996. American States Life, based in Indianapolis,
serves the income protection needs of individuals who are clients of
independent agencies associated with American States Insurance Company, LNC's
property-casualty affiliate.
Varied Distribution
The five companies in LNC's Life Insurance and Annuities segment reach their
customers through multiple distribution channels that include career agents,
independent agencies, insurance brokers, banks, stockbrokers and financial
planners in the U.S. and, in the U.K., a direct sales force and tied agents.
Lincoln Life's wealth accumulation and wealth protection products are sold in
49 states through the approximately 1,700 career agents and 16,100 insurance
brokers associated with the 38 regional offices of Lincoln Financial Group, as
well as 57,100 stockbrokers and financial planners. The Lincoln Life product
portfolio includes: fixed and variable annuities; term, universal and variable
universal life insurance; and 401(k) retirement plans.
Lincoln Financial Group began a profound evolution in 1996. Its regional
marketing offices are becoming a network of regional financial planning
offices, emphasizing the value of the one-to-one, consultative, needs-based
approach that such a network can offer each of its customers.
First Penn offers annuities through banks, universal life insurance through
independent marketers and life insurance through brokers and Lincoln Financial
Group agents. Lincoln Life & Annuity Company of New York distributes
annuities, 401(k) and insurance products in the state of New York through
brokers. The universal and term life insurance products of American States
Life are offered through 4,800 independent property-casualty agencies.
Lincoln (UK) offers life, investment and income protection and retirement
planning products primarily through approximately 1,700 direct sales
representatives and tied agents.
Lincoln Life Transformation
A major transformation of processes begun in 1995 is designed to create major
improvements in service, products and expense levels at Lincoln Life. As part
of this transformation effort, Lincoln Life is narrowing its focus to four
target markets: small-to medium-sized businesses; not-for-profit
organizations; retirees with investable assets and individuals with high net
worth. Expenses for transformation efforts reduced operating earnings $18.5
million, after-tax, in 1996. The initial phase of these efforts is scheduled
to be completed by the end of 1997, after which the related expenses are
expected to decline.
Annuities
The combined annuity earnings of Lincoln Life, Lincoln Life & Annuity Company
of New York and First Penn grew nearly 11% to a record $165.0 million in 1996.
The engine of this growth was a 25% rise in annuity account values, which
reached $38.0 billion at the end of the year. Business from Lincoln Life
career agents represents half of this total. Business from stockbrokers and
financial planners contributes 39% of annuity account values. The remaining
11% is from financial institutions.
The acquisition of a block of group tax-qualified annuity business from UNUM,
completed in the fourth quarter of 1996, added $2.7 billion to annuity account
values in 1996. With this transaction, Lincoln Life became one of the
nation's four largest writers of tax-qualified annuities for employees of non-
profit organizations (Best's Policy Reports, July 1996).
Lincoln Life, Lincoln Life & Annuity Company of New York and First Penn
amassed $4.0 billion in annuity deposits in 1996, an 8% increase from 1995.
The increase was tempered by increased competition from other insurers in the
bank marketplace. Lincoln Life's career agents produced 50% of this business
segment's annuity deposits in 1996. Stockbrokers and financial planners
generated 46% and distribution through financial institutions accounted for
4%.
<PAGE> -13-
According to the most recent statistics available, Lincoln Life was the
nation's leading writer of individual annuities and the second largest writer
of individual variable annuities in 1995 (Best's Policy Reports, July 1996).
Approximately half of Lincoln Life's annuity business is variable and not
subject to interest rate risk.
U.S. Life Insurance
Operating income from this segment's life insurance operations in the United
States was $48.7 million, a 10% increase from 1995. Combined universal life
and variable universal life account values increased 9% in 1996 to $2.9
billion. Across the industry, life insurance sales have been flat to
declining for several years. Since 1994, however, life insurance sales by
Lincoln Life and First Penn have been compounding in excess of 25%.
Term life and variable universal life insurance represent an increasing
portion of new sales for this segment's U.S. based companies. First Penn
introduced a new term life product in mid-1995 and since then has issued
45,000 of these policies with a total face value of $9 billion. Lincoln Life
re-entered the term life market in 1996 through sales of First Penn's
product. Lincoln Life's variable universal life sales, as measured by first-
year premiums, increased 50% in 1996. These sales, coupled with First Penn's
term life business, account for one-third of the entire segment's life
insurance sales.
Lincoln (UK)
Income from operations for Lincoln (UK) advanced to $66.0 million in 1996, up
from $45.9 million in 1995. Production of new business at LNC's British life
insurance and pension company increased 21% in 1996. Twenty-seven percent of
the Life Insurance and Annuities segment's $88 billion of life insurance in-
force is with this LNC affiliate. Lincoln (UK) grew rapidly in 1995 with the
acquisition of two companies. Efforts to realize expense savings from the
merging of their operations will continue in 1997. Agent recruitment,
training and teleservicing support also are priorities at Lincoln (UK) in
1997.
Pensions
Lincoln Life's pension business is focused on 401(k) retirement plan sales
and service. By targeting companies with fewer than 100 employees, 90% of
which have not yet established 401(k) plans, Lincoln Life's new 401(k)
deposits have averaged annual increases of 30% for 10 years. Total 401(k)
deposits in 1996 increased 6% over 1995, when total deposits rose 37%. The
service capacity demanded by this steep increase in volume has put pressure on
401(k) earnings.
Lincoln Life entered into an alliance in 1996 to transfer regulatory and
reporting aspects of its 401(k) servicing to a third-party administrator for
nearly one-third of its 401(k) plans. The other two-thirds of Lincoln Life's
401(k) plans already obtain regulatory and reporting services through other
administrators. This outsourcing of a selected portion of 401(k) plan
servicing is expected to produce a meaningful reduction in expenses. Lincoln
Life continues to provide fund transfer and statement services to its 401(k)
plan participants.
The remainder of Lincoln Life's pension operations consist primarily of
guaranteed interest contracts (GICs) and group pension annuities (GPAs).
Lincoln Life ceased writing GICs and GPAs in the third quarter of 1995
because neither fit its sharper focus in the small-business retirement
planning market. Lincoln Life's total pension account values, excluding the
401(k) business, declined to $4.9 billion in 1996 from $5.6 billion in 1995.
Outlook
Annuities growth and transformation benefits figure prominently in this
segment's near-term forecast. Annuities grew to 38% of LNC's total operating
earnings in 1996 and are expected to continue to drive earnings over the next
several years. Access to New York's annuity market through a new subsidiary
promises to boost annuity earnings even higher. The initial phase of Lincoln
Life's transformation efforts is expected to conclude by the end of 1997.
This endeavor aims at raising service levels to match the best service
available from Lincoln Life's competitors, including the top mutual fund
companies. Results were evident in the closing months of 1996: Increased life
insurance and annuity business in the fourth quarter was attributable in part
to transformation-related service enhancements.
<PAGE> -14-
Review of Operations: Reinsurance
Year Ended December 31 (in millions) 1996 1995 1994 1993 1992
Financial Results by Source
Individual Markets --------------- $49.9 $43.4 $41.4 $34.6 $33.5
Group Markets -------------------- 19.0 25.2 21.6 19.5 15.4
Financial Reinsurance ------------ 16.4 10.2 14.7 20.5 16.3
Other ---------------------------- (.2) .7 (1.9) (1.7) .4
Income from Operations,
excluding Disability Income --- 85.1 79.5 75.8 72.9 65.6
Disability Income(1) ------------- (11.1) (132.2) (9.2) (54.0) (7.3)
Income from Operations(1) ------ 74.0 (52.7) 66.6 18.9 58.3
Realized Gain (Loss) on
Investments(2) ------------------ 11.7 10.7 .5 (1.6) --
Net Income (Loss)(1)------------ $ 85.7 $(42.0) $67.1 $17.3 $58.3
Sales and In-Force
Individual Life Sales (in billions) $ 26.6 $22.7 $19.9 $17.3 $14.0
December 31 (in billions) 1996 1995 1994 1993 1992
Individual and Group Life
Insurance In-Force -------------- $160.9 $142.8 $125.6 $118.0 $113.6
(1) Income from operations and net income for 1995 and 1993 include the impact
of a change in estimate of the reserve level needed for LNC's
disability income business ($121.6 million and $32.8 million
after-tax, respectively).
(2) Prior to 1993, all realized gain (loss) on investments was included in
Other Operations.
LNC's Reinsurance segment, conducted through the Lincoln National Reinsurance
companies ("LNRC"), reported record income from operations of $74.0 million in
1996. For the year, LNRC's individual and group life business in-force
increased an impressive 13% to $160.9 billion.
Profile
LNRC is one of the leading life-health reinsurers in the world, based on net
premium income (LNC Report and Swiss Re, Economic Studies, June 1996). LNRC
reported to regulatory authorities consolidated, worldwide net premium income
of $2.1 billion in 1996. However, LNRC does not peg its stature solely on its
size. Nor does it compete primarily on the basis of price. LNRC brings value
to the marketplace by expanding the reinsurance concept beyond traditional
risk transfer. LNRC develops mass customized risk management solutions to
share risk, knowledge, capital and strategic alliance capabilities.
Mass Customization
Rather than provide a simple risk-transfer commodity, LNRC packages and
distributes modular pricing, underwriting, systems, alliance resources,
marketing consultation, product development and claims management components
to meet the needs of client companies in a mass customized approach. More
than 600 customized transactions were completed by LNRC in 1996. LNRC has a
current client base of more than 1,700 U.S. and 200 international companies.
Its client retention rate exceeds 95%.
LNRC reorganized in 1996 to apply its mass customization approach on a global
basis. International and domestic operations are now combined in each of
LNRC's three major business categories: individual markets, group markets and
financial reinsurance. Each now offers its customers a global service and
knowledge base and products conceptualized for worldwide application. For
domestic clients, LNRC will be able to offer deeper insights for delivering
products and services in new environments. For international clients, it
means increased access to LNRC's technical services and a faster processing
cycle.
Doing business in more than 50 countries, LNRC seeks to develop an even
greater global presence. LNRC established new offices in London, Tel Aviv and
Singapore in 1996 and plans to have an office in Buenos Aires in 1997.
<PAGE> -15-
Knowledge Management
An underwriting manual introduced by LNRC more than a decade ago quickly set
the industry standard for life and health risk selection. This manual is used
to assist in making underwriting decisions at approximately 500 North American
life and health insurance companies. Lincoln National Risk Management
("LNRM"), an LNRC company, develops proprietary knowledge-based systems that
are used throughout the insurance industry.
LNRM's patented Life Underwriting System ("LUS"), which uses a state-of-the-art
risk management technology, is licensed to more than 50 life insurance
companies in the U.S. and Canada. The companies using LUS wrote approximately
20% of all the individual life insurance applications taken in the United
States and Canada in 1996.
Five other proprietary knowledge-based systems similarly leverage LNRC's
knowledge throughout the industry. A health insurance counterpart to LUS,
Individual Medical Expense Underwriting System, is in production. Lincoln
Mortality System, patent pending, aids the development of preferred term life
products. Life Claim System ("LCS") processes claims for life and disability
income coverage. Remote Data Capture is a laptop-based system for agents and
brokers to collect and analyze the data necessary to complete or take life
insurance applications. Datalliance [registered trademark], an electronic
data interchange switchboard, links agents, insurers, information sources and
reinsurers.
Alliance Management
LNRC develops solutions that call upon the capabilities of nearly 40 alliance
partners. These solutions are delivered seamlessly by LNRC and are provided
through a "virtual organization" of direct marketers, medical equipment
suppliers, electronic information providers and variable life and annuity
administration vendors. For example, LNRC clients can quickly enter the
variable life and annuity market by distributing products from alliance
partners. Another example is LNRC's joint ownership of Reinsurance Marketing
("ReMark"), a direct marketing company based in the Netherlands that seeks out
business opportunities with banks and insurers.
Individual Markets
Superior customer service, particularly the information flow provided by LUS,
differentiates LNRC in the increasingly competitive individual life markets.
Operating income from individual life business has grown at a compound annual
rate of 13% for the past three years. In 1996, operating income grew 15% from
the previous year to $49.9 million. Favorable life mortality was an important
factor. Sales volume, measured by face amount of new business, increased 17%
in 1996 to $26.6 billion. Individual life sales maintained their consistent
growth pattern: They have increased at a compound annual rate of 15% for the
last three years.
Group Markets
LNRC's mass customization approach is well suited to the group life and
health market's wide range of clients, which includes life and health
insurers, financial services companies, HMOs and other managed health care
entities, self-funded employer coverage plans and associations. Operating
earnings from group life and health business in 1996 decreased $6.2 million
from the previous year to $19.0 million. An increase in claims was the
primary factor. Total revenue in the group markets grew 16% to $289.5
million.
Financial Reinsurance
As the financial reinsurance marketplace evolves, regulatory changes have
spurred a move away from using reinsurance as a means of providing capital
for insurance companies. However, LNRC's financial reinsurance operating
earnings grew by more than $6 million in 1996 to $16.4 million, halting a
two-year decline. Trends are emerging that represent growth opportunities in
this business. For example, as the property-casualty insurance industry
consolidates, some companies are seeking financial reinsurance and finite
risk solutions rather than traditional catastrophic reinsurance. LNRC is
well positioned to take advantage of this shift. The use of annuity
reinsurance to cover investment risk is another growth opportunity, as is the
development of blended reinsurance and capital markets instruments.
Disability Income
Lincoln Life, the largest company in LNC's Life Insurance and Annuities
segment, withdrew from the difficult direct disability income market in 1996.
Since the fourth quarter of 1995, LNRC has managed Lincoln Life's block of
<PAGE> -16-
direct disability income business as well as its own block of reinsurance
disability income business. LNRC's challenge is to minimize losses on this
in-force business. Losses were $11.1 million in 1996.
LNC took a charge against earnings of $121.6 million, after-tax, in the
fourth quarter of 1995 to strengthen reserves related to its direct and
reinsurance individual disability income business. The reserves were
established assuming that recent experience would continue. If incidence
levels or claim terminations vary significantly from LNC's assumptions,
further adjustments to reserves may be required.
Outlook
LNRC's organizational shift in 1996 to a global reinsurance consultant that
senses and responds to client needs with mass customized solutions is
expected to significantly enhance revenue growth. LNRC also should benefit
by continuing to build partnerships with financial institutions that are
entering life insurance markets. LNRC's goal is to exceed $100 million in
annual operating earnings by the year 2000.
Review of Operations: Property-Casualty
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Financial Results by Source
Underwriting Loss:
Personal Insurance -------------- $(39.8) $(21.2) $(30.2) $(13.5) $(31.8)
Commercial Insurance ------------ (20.8) (26.9) (19.5) (68.2) (133.3)
Investment Income ----------------- 200.6 200.7 208.5 217.0 242.4
Other ----------------------------- 1.2 -- -- (1.4) .3
Minority Interest(1) -------------- (18.1) -- -- -- --
Income from Operations ----------- 123.1 152.6 158.8 133.9 77.6
Realized Gain on Investments(2) --- 21.2 32.1 12.8 91.8 --
Loss on Sale of Affiliates/
Operating Property --------------- -- (18.4) -- -- --
Net Income ---------------------- $144.3 $166.3 $171.6 $225.7 $ 77.6
Catastrophe Losses(3) ------------- $102.6 $ 80.3 $ 71.9 $ 58.3 $106.9
Natural Peril Losses(4) ----------- 165.6 122.1 140.5 122.7 151.6
Combined Loss and Expense Ratios(5)
Personal Insurance ---------------- 109.3% 104.8% 107.8% 103.0% 105.5%
Commercial Insurance -------------- 103.2% 105.0% 104.4% 110.3% 116.5%
Consolidated Combined Ratio ------- 105.8% 104.9% 105.7% 107.5% 112.7%
Consolidated Combined Ratios:
Excluding Catastrophe Losses ---- 99.5% 100.1% 101.5% 104.3% 107.6%
Excluding Natural Peril Losses -- 95.5% 97.6% 97.5% 100.8% 105.5%
</TABLE>
(1) Minority interest was recorded following the sale of 16.7% of the
principal subsidiary within the Property-Casualty segment (see note 12 to the
consolidated financial statements on page 67).
(2) Prior to 1993, all realized gain (loss) on investments was included in
Other Operations.
(3) Effective January 1, 1997 an event or series of related events must be in
excess of $25 million in order to be deemed catastrophe losses.
(4) A company-defined term for losses caused by wind, hail, water (including
freezing water) and earthquake, regardless of the size of any individual
event, including the catastrophe losses shown above.
(5) The combined loss and expense ratio is the ratio of losses and loss
expenses incurred to net earned premiums plus the ratio of underwriting
expense to net premiums written.
LNC's Property-Casualty segment reported income from operations of $123.1
million in 1996, compared with previous year's earnings of $152.6 million.
This decline is attributable to LNC's reduced ownership of American States
Financial Corporation ("American States") -- 83% since the initial public
offering in May -- and higher natural peril losses. Natural peril losses in
1996, after minority interest and taxes, were $98.4 million, compared with
<PAGE> -17-
$79.4 million in 1995. Across the industry, there was a greater frequency of
weather-related property-casualty insurance claims in 1996 than in any
previous year (American Insurance Services Group study, Wall Street Journal,
Jan. 15, 1997).
The Property-Casualty segment's net written premium decreased 4.2% in 1996 to
$1.6 billion. Net investment income contributed $200.6 million to 1996 income
from operations, essentially flat compared with 1995.
Profile
LNC's Property-Casualty segment consists primarily of American States and its
consolidated subsidiaries. American States offers a broad spectrum of
personal and commercial lines insurance in most of the United States. The
company's market focus is on providing commercial insurance to small-to
medium-sized businesses and preferred personal lines coverage to individuals.
The greatest concentration of business and market share is in eight "core"
states in the Midwest and Pacific Northwest, where half of American States'
net written premium is produced. Headquartered in Indianapolis, American
States ranks 31st among property-casualty insurers in the United States, as
measured by net written premium (A.M. Best Aggregates & Averages, 1996).
Initial Public Offering
LNC's property-casualty operating earnings were reduced $18.1 million in 1996
as a result of its decreased ownership percentage of American States.
Seventeen percent of American States was sold in an initial public offering in
May. LNC retains the remaining 83%. While proceeds from the offering
remained at American States, a special dividend of $300 million was paid to
LNC before the offering and American States will make $300 million in debt
repayments to LNC over the next few years.
Distribution
American States has strong, long-term relationships with nearly 4,800
independent local agencies. Two-thirds have represented American States for
10 or more years. Nearly 600 of these agencies are associated with banks.
Realignment
In November 1995, American States announced a realignment of its field
structure designed to reduce expenses and enhance growth. By 1998, American
States will have consolidated most of the underwriting and certain
administrative operations of 20 division offices into four regional offices.
American States continues to provide sales, claims and technology support
services for agencies and policyholders from more than 200 locations.
Additionally, the company created 24 field executive positions to build even
stronger working relationships with its agencies. Realignment produced nearly
$9 million in 1996 expense savings, after-tax, compared to 1995. By 1998,
this effort appears on target to produce annual expense savings of
approximately $30 million, after-tax.
Combined Ratio
The Property-Casualty segment's combined ratio increased to 105.8% in 1996,
compared with 104.9% in 1995. Natural perils contributed 10.3 points to the
combined ratio in 1996, compared with 7.3 points in 1995. The Property-
Casualty segment's combined ratio reached a high of 112.7% in 1992, which
marked the beginning of American States' strategy to reduce market share in
underperforming business lines, lower premium volume in targeted areas and
focus on profitable agencies. American States' book of business has been
reduced by approximately 20% since 1992. At the same time, operating income
has nearly doubled. American States' goal is a combined ratio of 100%, which
would result in a return on equity of approximately 15%.
Personal Lines
Personal lines business represented 43% of the Property-Casualty segment's
total net written premium for 1996. The personal lines underwriting loss was
$39.8 million in 1996, compared with a $21.2 million loss in 1995. The
combined ratio in personal lines was 109.3% in 1996, compared with 104.8% in
1995. Natural peril losses contributed 13.9 points to the personal lines
combined ratio in 1996, compared with 10.0 points in 1995. American States'
personal lines business is predominantly private passenger auto and
homeowners' coverage.
Private passenger auto represents 68% of American State's personal lines
business, nearly all of it in the preferred market. American States will
continue to focus on writing more private passenger auto policies, especially
for small-business owners with commercial lines accounts. Homeowners'
insurance earnings deteriorated in 1996 due to higher storm losses. American
<PAGE> -18-
States is reducing its overall homeowners' exposure, which represents 27% of
its net written premium in personal lines. At the same time, American States
is seeking modest growth in homeowners' business in the handful of states
where this coverage is profitable.
Commercial Lines
Commercial lines business represented 57% of the Property-Casualty segment's
total net written premium for 1996. Commercial lines had a $20.8 million
underwriting loss in 1996, compared with a $26.9 million loss in 1995. The
commercial lines combined ratio improved to 103.2% in 1996, compared with
105.0% in 1995. Natural peril losses contributed 7.6 points to the commercial
lines combined ratio in 1996, compared with 5.4 points in 1995.
American States is noted as the nation's second largest writer of commercial
lines insurance for small-to medium-sized businesses with 50 or fewer
employees and the largest operating through the independent agency system
(Conning & Co. Study, 1995). American States targets small-to medium-sized
businesses engaged in retail, wholesale, service, contracting and other
trades. Its commercial clients include relatively few manufacturing and
industrial operations. American States' long-term relationships with
independent agencies are especially important in this market: Independent
agencies dominate the distribution of commercial lines products to small-to
medium-sized businesses.
Automation Edge
American States, through interactive systems available in its agents'
offices, provides fully automated policy production and services in both
personal and commercial lines. The result: It's easier and more economical
for an agency to do business with American States. The company uses
knowledge-based systems in its claims operation and is implementing
knowledge-based underwriting systems in its personal lines business. American
States also is developing knowledge-based applications for selected commercial
lines business. The company's strides in automation are enabling it to
consolidate offices and empower agents at the point of sale.
Outlook
Fourth-quarter net written premium at American States grew slightly from the
same period in 1995. This gives a clear signal that the market impact of
field office realignment is behind the company and may signify the end of a
period of declining premiums. American States is positioned to renew both
unit and premium growth in 1997. A key element of this growth strategy is to
leverage the company's strength in the commercial lines market. Personal
lines products, such as life and private passenger auto insurance, will be
marketed along with commercial lines coverage to owners of small-to medium
- -sized businesses. American States, which operates in more than 40 states,
seeks to increase market share in its eight "core" states. Concurrently, it
is concentrating additional resources to increase both market share and agency
representation in 10 states where the company believes its market position and
favorable regulatory environments offer the potential for profitable growth.
<PAGE> -19-
Review of Operations: Investment Management (1)
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Fees and Income
Investment Advisory Fees-Regular -- $ 186.1 $126.6 $ -- $ -- $ --
Investment Advisory Fees-at Cost -- 61.6 42.8 -- -- --
Other Revenue --------------------- 24.7 16.1 -- -- --
Income from Operations ------------ $ 11.7 $14.7 $ -- $ -- $ --
Realized Gain on Investments ------ 5.2 4.3 -- -- --
Net Income ---------------------- $ 16.9 $19.0 $ -- $ -- $ --
Year Ended December 31 (in billions) 1996 1995 1994 1993 1992
Assets Managed
Assets Managed-Regular:
Institutional-Fixed ------------- $11.588 $ 7.720 $ 6.284 $ 3.485 $ 2.657
Institutional-Equity ------------ 23.835 22.537 19.217 19.721 18.300
Retail-Fixed -------------------- 4.609 4.995 4.877 5.309 4.587
Retail-Equity ------------------- 11.507 8.223 6.070 6.220 5.101
Total Assets Under Management
Within the Investment Manage-
ment Segment at Regular Fees - 51.539 43.475 36.448 34.735 30.645
Assets Managed by Lincoln
Investment Management at Cost ---- 30.471 33.084 27.847 28.411 24.777
Assets Managed by Non-LNC
Affiliates ----------------------- 16.209 12.961 9.447 9.875 6.711
Assets Managed by Lincoln
National (UK) -------------------- 6.865 5.375 1.571 1.503 .783
Total Assets Managed ----------$105.084 $94.895 $75.313 $74.524 $62.916
</TABLE>
(1) This segment was added in April 1995 following the acquisition of Delaware
Management Holdings, Inc. (see note 12 to the consolidated financial
statements on page 67). Assets managed shown above includes data for Delaware
Management Holdings, Inc. prior to the April 1995 acquisition.
LNC's Investment Management segment, conducted through Lincoln National
Investments Inc. ("LNI"), reported income from operations of $11.7 million in
1996, compared with $14.7 million in 1995. The decrease was primarily caused
by an increase in expenses related to retail mutual fund growth initiatives.
This segment's 1996 operating income, excluding amortization of goodwill and
other intangibles, was $35.4 million.
Profile
LNC began reporting Investment Management as a separate business segment in
April 1995 when LNC completed its strategic acquisition of Delaware
Management Holdings, Inc. ("Delaware"). Although investment management has
long been an area of expertise within LNC, the addition of Delaware signaled
LNC's intention to expand its role as a money manager and meet its objective
to become a top-tier company in the financial services industry. Particular
emphasis is being given to accelerating the growth of Delaware's mutual funds
operation.
The companies that comprise the Investment Management segment are: Delaware;
Lynch & Mayer, Inc.; Vantage Global Advisors, Inc. ("Vantage"); and, through
1996, Lincoln Investment Management, Inc. Delaware is located in
Philadelphia. Lynch & Mayer and Vantage each have separate headquarters in
New York City. Lincoln Investment Management is based in Fort Wayne, Ind.
Complementary Approaches
Delaware, Lynch & Mayer, Vantage and Lincoln Investment Management operate
autonomously and are encouraged to preserve their distinctive cultures and
investment styles. Their breadth of complementary styles and strengths is a
prudent way to diversify risks, especially in today's sometimes uncertain and
volatile investment markets.
Delaware is best known for a conservative, "value" investment style that
focuses on stocks with above-average dividend yields. Delaware also is
recognized for its small-cap and mid-cap growth investment styles and its
expertise in municipal and high-yield bonds. Delaware's London operation
adds to the overall international expertise of Lincoln National.
<PAGE> -20-
Lynch & Mayer pursues a growth investment style and specializes in mid-cap
and large-cap equities, as well as investment partnerships. Vantage invests
in undervalued companies that have strong potential for above-average growth.
It employs a disciplined, systematic, risk-controlled investment approach.
Lincoln Investment Management is the investment advisor for LNC's insurance
operations and is best known as a manager of fixed-income assets for insurance
and pension clients. Effective January 1, 1997, this operation was moved from
the Investment Management segment to Other Operations. This move allows
Lincoln Investment Management to concentrate its resources on its advisory
role to LNC.
Assets Under Management
Of the $105.1 billion in assets managed by LNC as of December 31, 1996, LNI
managed $82.0 billion. The remainder includes $6.9 billion managed by Lincoln
(UK) and $16.2 billion subcontracted to outside investment managers. Domestic
institutional assets represent $61.6 billion of LNI's total assets under
management. Domestic retail assets represent $15.6 billion of the total.
International equity and global bond assets managed by Delaware's London
operations account for $4.8 billion.
Distribution
Multiple distribution channels enable LNI to deliver its broad range of
products to an expanding community of retail and institutional investors.
LNI's retail mutual funds are marketed through: regional and national
broker/dealers; financial planners; insurance agents, including those
associated with the regional marketing offices of Lincoln Life; and banks.
LNI's institutional products are marketed primarily by its sales force in
conjunction with pension consultants. They also are offered to defined benefit
and defined contribution plan sponsors, endowments, foundations and insurance
companies.
Retail Mutual Funds
LNI's retail mutual fund and wrap fee assets totaled $16.1 billion at December
31, 1996. Delaware, which houses LNI's retail mutual fund operations, offers
38 open-end retail mutual funds and two closed-end funds. These funds had
assets under management of $10.2 billion. The remaining $5.9 billion was
wrap-fee business and retail mutual funds managed by Lynch & Mayer and
Vantage. Internal growth initiatives begun in mid-1996 at Delaware are
designed to add wholesalers, broaden retail mutual fund options and upgrade
service. Expenses related to these ongoing initiatives in 1996 were $2.3
million, after-tax.
Delaware is the platform from which LNI has launched a more aggressive retail
mutual fund strategy. As part of this strategy, LNC announced plans in
January 1997 to acquire Voyageur Fund Managers, Inc. ("Voyageur"). Completion
of the acquisition is expected in the spring of 1997. Minneapolis-based
Voyageur manages 23 open-end single-state municipal bond funds, nine other
open-end retail mutual funds, six closed-end funds, four national tax-free
funds and several retail unit investment trusts. The Voyageur acquisition
will add $2.8 billion to LNI's assets under management.
Institutional Investment Management
LNI's institutional investment management business had assets under
management of $65.9 billion at December 31, 1996. The 1995 acquisition of
Delaware enhanced the strong position already held by Lynch & Mayer and
Vantage in this mature but still growing business.
Investment Performance
Delaware's mutual funds experienced several ranking upgrades in 1996. As of
December 31, 1996, seven Delaware Mutual Funds had rankings of four or five
stars from Morningstar, Inc., a service that assigns rankings from one star at
the lowest to five stars at the highest. These funds are: Decatur Income
Fund, Delchester Fund, Decatur Total Return Fund, Tax-Free USA Fund, Tax-Free
USA Intermediate Fund, Tax-Free Pennsylvania Fund and Devon Fund. The Vantage
Social Awareness Fund's return was 27.96% in 1996, well ahead of the 20.27%
return for the top quartile variable annuity in the Morningstar Growth
Universe. This performance earned Vantage a 15th-place ranking among 691
variable annuity funds in that category.
<PAGE> -21-
Among institutional investment managers, Delaware produced strong results in
the value equity category, with a return of 21.1% that qualified as second-
quartile performance as measured by Callan's Yield Universe. In the
international equity category, Delaware's return of 22.4% exceeded the 6.05%
return for its comparative Morgan Stanley Capital International Europe,
Australia, Far East index.
Outlook
The rapid growth of LNI's retail mutual fund business, both through internal
efforts and selective acquisitions, is an essential component of LNC's long-
term strategy. Delaware's marketing initiatives are at the heart of LNC's
commitment to the growth of its retail-mutual fund business.
Review of Other Operations:
<TABLE>
<CAPTION>
Year Ended December 31 (in millions) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Financial Results by Source
Earnings from Unconsolidated
Affiliate-------------------- $ -- $ 13.7 $ 14.8 $ -- $ --
Investment Management(1) --------- -- .3 7.1 6.1 4.7
LNC Financing -------------------- (49.7) (52.7) (31.7) (26.7) (33.8)
LNC Operations ------------------- (14.8) (19.5) (21.8) (22.3) (18.2)
Other Corporate ------------------ (.9) (1.5) (3.9) 4.0 (3.1)
Corporate Equity Investments------ -- -- -- -- (36.6)
Loss from Operations ----------- (65.4) (59.7) (35.5) (38.9) (87.0)
Realized Gain (Loss)
on Investments(2) --------------- 2.2 6.2 (10.6) 19.8 118.6
Gain (Loss) on Sale of Affiliates/
Operating Property -------------- -- 58.3 48.8 (98.5) --
Cumulative Effect of Accounting
Change (Postretirement Benefits) -- -- -- (96.4) --
Net Income (Loss) ------------- $(63.2) $ 4.8 $ 2.7 $(214.0) $ 31.6
</TABLE>
(1) Includes results through March 31, 1995. Activity subsequent to that date
was recorded within the "Investment Management" segment of business.
(2) Prior to 1993, all realized gain (loss) on investments was included in
Other Operations.
The loss from operations shown above includes the earnings from LNC's
investment in an unconsolidated affiliate engaged in the employee life-health
benefits business (prior to the sale of this holding in October 1995, as
described in note 12 to the consolidated financial statements on page 67),
certain other operations that are not directly related to the business
segments and unallocated corporate revenues and expenses (i.e., corporate
investment income, interest expense on short-term and long-term borrowings,
and corporate overhead expenses).
Corporate interest expense included within the LNC financing line above was
greater for 1996 and 1995 than years prior to 1995 as the result of additions
to long-term debt and minority interest-preferred securities of subsidiary
companies (see liquidity and cash flow discussion on page 33). The reduction
in LNC financing in 1996 compared to 1995 was the result of increased
investment income following a special dividend from its major company within
the Property-Casualty segment (see page 33).
Net income (loss) shown above for "Other Operations" includes the items
described above under loss from operations plus the cumulative effect of the
1993 accounting change for the consolidated group of companies related to
postretirement benefits, the gain (loss) on sale of affiliates/operating
property (see note 12 to the consolidated financial statements on page 67) and
realized gain (loss) on sale of certain investments.
<PAGE> -22-
REVIEW OF CONSOLIDATED OPERATIONS AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
Summary Information
Increase
(Decrease)
Year Ended December 31 (in millions) 1996 1995 1994 1996 1995
<S> <C> <C> <C> <C> <C>
Insurance premiums:
Life and annuity ---------------- $ 779.7 $ 764.8 $ 908.9 2% (16%)
Health -------------------------- 793.4 810.2 1,005.2 (2%) (19%)
Property-casualty --------------- 1,608.9 1,678.9 1,710.6 (4%) (2%)
Insurance fees ------------------ 628.2 523.2 449.6 20% 16%
Investment advisory fees -------- 180.8 125.6 --
Net investment income ----------- 2,365.9 2,251.2 1,994.6 5% 13%
Equity in earnings of
unconsolidated affiliates ------ 1.4 12.4 14.7 (16%)
Realized gain (loss)
on investments ----------------- 128.1 215.6 (130.8)
Gain (loss) on sale of affiliates/
operating property ------------- -- 54.2 48.8
Other revenue ------------------- 234.9 197.1 178.2 20% 11%
Insurance benefits and expenses:
Life and annuity ---------------- 2,044.0 2,081.7 2,174.0 (2%) (4%)
Health -------------------------- 674.9 822.0 758.7 (18%) 8%
Property-casualty --------------- 1,202.4 1,209.5 1,262.5 (1%) (4%)
Expenses:
Operating expenses -------------- 2,003.0 1,821.0 1,558.8 10% 17%
Interest and debt expenses ------ 84.7 72.5 49.5 17% 47%
Federal income taxes ------------ 179.2 144.4 26.4 24%
Minority interest in
consolidated subsidiaries ------ 19.5 -- --
</TABLE>
REVIEW OF CONSOLIDATED OPERATIONS
Insurance Premiums
Life and annuity premiums increased $14.9 million or 2% in 1996 compared to
1995 as the result of increased volumes of business in the Reinsurance segment
being partially offset by a decrease in premium in the Life Insurance and
Annuities segment. Life and annuity premiums decreased $144.1 million or 16%
in 1995 compared with 1994. This decrease is the net result of an increase in
business volume from the Reinsurance segment (9% increase) being more than
offset by a decrease in volume from the U.S. portion of the Life Insurance and
Annuities segment (10% decrease) and a decrease from the United Kingdom
component of the Life Insurance and Annuities segment (51% decrease). This
decrease in the United Kingdom component was the net result of: 1) increases
from the premiums generated by the newly acquired U.K. companies (see note 12
to the consolidated financial statements on page 67) and; 2) decreases due to
modifying, on a prospective basis, the classification of premiums associated
with unit-linked transactions within Lincoln National (UK) to more closely
conform to the classification used for universal life transactions within the
U.S. operations. As noted below, there is a corresponding decrease in life
and annuity benefits. Prior period data was not reclassified because the
amounts involved are not material to consolidated revenue. Barring the
passage of unfavorable tax legislation that would eliminate the tax-advantages
for some of LNC's life and annuity products, LNC expects life and annuity
premium growth in 1997.
Health premiums decreased $16.8 million or 2% in 1996 as a result of increased
volumes of business in the Reinsurance segment being more than offset by
decreases in the Life Insurance and Annuities segment due to the withdrawal
from the disability income business. Excluding the activity of its direct
<PAGE> -23-
writer of employee life-health coverages, which was sold in 1994 (see note 12
to the consolidated financial statements on page 67), LNC's health premiums
increased $97.5 million or 14% in 1995. The increases in both years were the
result of increased volumes of business in the Reinsurance segment.
Property-casualty premiums decreased $70.0 million or 4% in 1996 following
decreases of 2% in 1995 and 7% in 1994. These decreases were the result of a
program initiated in 1992 that involved a re-evaluation of underwriting
actions with a focus on account selection, risk evaluation and pricing. A
special emphasis is being placed on reversing the downward trend of the last
three years and increasing premiums in 1997. However, the volume of premium
that this segment will produce in 1997 is partially dependent upon whether the
property-casualty insurance marketplace allows price increases that are
necessary to maintain and improve profitability.
Insurance Fees
Insurance fees from universal life, other interest-sensitive life insurance
contracts and variable life insurance contracts increased $105.0 million or
20% in 1996 and $73.6 million or 16% in 1995. These increases are the result
of an increase in the volume of transactions and a market-driven increase in
the value of existing customer accounts upon which some of the fees are based
in the Life Insurance and Annuities segment. The growth in fees from this
business is expected to continue in 1997.
Investment Advisory Fees
This line was added to the statements of income in the second quarter of 1995
following LNC's purchase of Delaware Management Holdings, Inc. (see note 12 to
the consolidated financial statements on page 67). On an annualized basis,
investment advisory fees increased 8.0% as the result of increased volumes and
an increase in the fair value of customer accounts.
Net Investment Income
Net investment income increased $114.7 million or 5% in 1996. The impact of a
7% increase in mean invested assets was partially offset by: 1) a decrease in
the yield on investments from 7.75% to 7.61% (all calculations on a cost
basis) and; 2) a charge of $4.1 million in 1996 versus a benefit of $20.3
million in 1995 from the recurring adjustment of discount on mortgage-backed
securities. Net investment income increased $256.6 million or 13% in 1995 as
the result of a 5% increase in mean invested assets, an increase in the yield
on investments from 7.30% to 7.75% and a benefit of $20.3 million in 1995
versus a charge of $13.2 million in 1994 from the recurring adjustments of
discount on mortgaged-backed securities. The increase in mean invested assets
for both years was the result of increased volumes of business in the Life
Insurance and Annuities segment.
Equity in Earnings of Unconsolidated Affiliates
This line was added to the statements of income in 1994 to report the
earnings from the remaining 29% ownership following LNC's sale of 71% of the
ownership of its primary direct writer of employee life-health benefit
coverages. LNC sold its 29% interest in this company in October 1995. See
note 12 to the consolidated financial statements on page 67. Since this
holding represented the bulk of LNC's unconsolidated affiliates, the activity
in this account was minimal in 1996.
Realized Gain (Loss) on Investments
The pre-tax realized gain (loss) on investments, net of related amortization,
was $128.1 million, $215.6 million and $(130.8) million in 1996, 1995 and
1994, respectively. The after-tax gain (loss) in 1996, 1995 and 1994 was
$79.5 million, $136.4 million and $(88.7) million, respectively. These gains
and losses were the result of the sale of investments, write-downs and
provisions for losses. During 1996, LNC completed a bulk sale of performing
and non-performing mortgage loans and real estate holdings through a sealed
bid process. The selling price for these holdings was $6.1 million in excess
of the carrying value, resulting in a gain on sale. The losses in 1994 were
the result of net realized investment gains being more than offset by: 1)
realized investment losses and; 2) writedowns of security investments and
provisions for losses for mortgage loans and real estate. The investment
losses in 1994, primarily in the second and third quarters, were the result of
realizing investment losses to recover capital gains taxes paid in prior
years.
Securities available-for-sale, mortgage loans on real estate and real estate
that were deemed to have declines in fair value that were other than temporary
were written down. The fixed maturity securities to which these write-downs
apply were generally of investment grade quality at the time of purchase but
<PAGE> -24-
were classified as "below-investment-grade" at the time of the write-downs.
Also, write-downs and allowances for losses on select mortgage loans on real
estate, real estate and other investments were established when the underlying
value of the property was deemed to be less than the carrying value. These
write-downs and provisions for losses are disclosed within the notes to the
accompanying financial statements (see note 3 to the consolidated financial
statements on page 46).
Gain on Sale of Affiliates/Operating Property
In 1995, LNC recorded the gain on sale of the remaining 29% of the employee
life-health benefits company. Also in 1995, LNC recorded an allowance for the
expected loss related to its decision to sell certain of its operating
properties used in its Property-Casualty segment. In 1994, LNC recorded a
gain on the sale of 71% of its interest in its primary direct writer of
employee life-health benefits. See note 12 to the consolidated financial
statements on page 67 for additional information.
Other Revenue
Other revenue increased $37.8 million or 20% in 1996 as the result of
increases in the volume of transactions in the Reinsurance and Investment
Management segments. In 1995, other revenue increased $18.9 million or 11% as
the result of increases in the volume of transactions in the Life Insurance
and Annuities segment.
Benefits and Settlement Expenses
Life and annuity benefit and settlement expenses decreased $37.7 million or 2%
in 1996 as compared to 1995. This decrease was the result of decreased
volumes of business and improved mortality in the Life Insurance and Annuities
segment being partially offset by increases in volume in the Reinsurance
segment. Life and annuity benefit and settlement expenses in 1995 decreased
$92.3 million or 4% as compared to 1994. This decrease was the net result of
an increase of 6% from the U.S. portion of the Life Insurance and Annuities
segment and decreases of 2% from the Reinsurance segment and 60% from the
United Kingdom portion of the Life Insurance and Annuities segment. The
decrease in the United Kingdom component relates to the change in
classification of life and annuity premiums noted above. The increase in life
and annuity benefits expense in 1997 is expected to parallel the growth in
life and annuity premiums.
Health benefits increased $39.9 million or 6% in 1996 compared to 1995 health
benefits after excluding the special addition to the disability income reserve
in 1995. Excluding the activity of its primary direct writer of employee
life-health benefits, which was sold in 1994 (see note 12 to the consolidated
financial statements on page 67), and the special addition to the disability
income reserves in 1995, LNC's health benefits increased $92.7 million or 17%
in 1995 as the result of increased volumes of business in the Reinsurance
segment and Life Insurance and Annuities segment. See note 2 to the
consolidated financial statements on page 45 regarding the special addition to
the disability income reserve.
Property-casualty benefits decreased by $7.1 million or 1% in 1996 compared to
1995. This decrease is the net result of a reduction in the volumes of
insurance being partially offset by increases in catastrophe and storm losses.
In 1995, property-casualty benefits decreased by $53.0 million or 4% compared
to 1994. This decrease was the net result of moderate decreases in the volume
of business being partially offset by increases in catastrophe and storm
losses. Assuming average catastrophe and storm loss experience in 1997, the
increase in property-casualty benefits is expected to parallel the change in
property-casualty premiums.
Underwriting, Acquisition, Insurance and Other Expenses
These expenses increased $182.0 million or 10% in 1996 as the result of
increased business volumes in the Reinsurance, Investment Management and Life
Insurance and Annuities segments. Excluding the impact of the subsidiary sold
in 1994 (see note 12 to the consolidated financial statements on page 67),
these expenses increased $349.8 million or 23.5% in 1995. The primary drivers
behind this increase beyond the general inflation rate were: 1) the write-off
of deferred acquisition costs associated with special additions to disability
reserves and; 2) higher expenses related to increased business volumes in the
Reinsurance segment and Life Insurance and Annuities segment. Also, 1995's
Property-Casualty segment results included $21.0 million of expenses,
primarily severance compensation, related to the consolidation of 20
divisional operations into four regional operations. Other than this special
1995 expense item, 1995 and 1996 expenses for the Property-Casualty segment
<PAGE> -25-
were essentially the same as 1994, as staff levels were adjusted to the
current level of business. In 1997, all business segments will continue to
adjust staff levels as appropriate to match business volumes.
During the 1997-1999 period LNC's business units are expected to redirect a
portion of their internal data processing efforts and contract with outside
consultants to ensure that all computer software systems will accommodate
dates that extend into the next century. Expenditures for outside
consultants, that are above normal system enhancements and upgrades, have been
estimated to be $20 million ($13 million after-tax). These expenditures are
not material to the consolidated financial statements of LNC.
Interest and Debt Expense
Interest and debt expense increased $12.2 million or 17% in 1996 and $23.0
million in 1995. These increases were the result of increases in the average
debt outstanding and the impact of changes in the composition of debt
outstanding (see page 33). The higher outstanding debt relates to the
acquisitions of companies during 1995 (see note 12 to the consolidated
financial statements on page 67). During 1996 Standard and Poor's and Moody's
re-affirmed LNC's debt ratings as A ("Excellent") and A2 ("Very Good, Strong
or High"), respectively.
Federal Income Taxes
Federal income taxes increased $34.8 million or 24% in 1996 primarily as the
result of an increase in pre-tax earnings. Federal income taxes increased
$118.0 million in 1995. This increase was the result of: 1) higher pre-tax
earnings in 1995 and; 2) lower 1994 taxes because no tax expense was recorded
on the 1994 gain on sale of 71% of LNC's primary direct writer of employee
life-health benefit coverages (see note 12 to the consolidated financial
statements on page 67). Pre-tax earnings in 1994 were lower than 1993 and
1995 due to: 1) the absence of earnings from subsidiaries sold in 1994 and; 2)
the realization of losses on the sale of investments during 1994 versus the
realization of gains on investments in 1993 and 1995. Tax benefits from 1994
realized losses result from the carryback of such losses to realized gains
recognized in prior years.
Minority Interest in Consolidated Subsidiaries
This represents earnings applicable to minority shareholders following the
sale of 16.7% of LNC's principal subsidiary within its Property-Casualty
segment (see note 12 to the consolidated financial statements on page 67).
Summary
Net income for 1996 was $513.6 million compared with $482.2 million in 1995.
Excluding realized gain (loss) on investments, gain (loss) on sale of
affiliates/operating property and special 1995 additions to the disability
income reserves and the after-tax impact of expenses associated with the 1995
charge for realignment of division offices in the Property-Casualty segment,
all net of taxes, LNC earned $434.1 million for 1996 compared to $441.8
million in 1995. This decrease is the net result of increased earnings in the
Reinsurance and Life Insurance and Annuities segments being more than offset
by the decrease in Property-Casualty segment earnings. Net income for 1995
was $482.2 million compared with $349.9 million in 1994. Excluding realized
gain (loss) on investments and gain on sale of affiliates/operating property,
LNC earned $306.5 million for 1995 compared to $389.8 million in 1994. This
decrease is the net result of increased earnings in the Life Insurance and
Annuities segment and Investment Management segment being more than offset by
decreases within the Reinsurance and Property-Casualty segments.
REVIEW OF CONSOLIDATED FINANCIAL CONDITION
Investments
The investment portfolio, excluding cash and invested cash, is comprised of
fixed maturity securities; equities; mortgage loans on real estate; real
estate, either wholly owned or joint ventures; and other long-term
investments. LNC purchases investments for its segmented portfolios with
yield, duration and other characteristics that take into account the
liabilities of the products being supported. The total investment portfolio
increased $2.1 billion in 1996. This increase was the net result of decreases
in the fair value of securities available-for-sale being more than offset by
the new purchases of investments from cash flow generated by the business
units.
<PAGE> -26-
LNC maintains a high-quality fixed maturity securities portfolio. As of
December 31, 1996, $12.0 billion or 42.8% of its fixed maturity securities
portfolio had ratings of AA or better. Only $1.7 billion or 6.1% had ratings
below-investment-grade (BB or less) (see note 3 to the consolidated financial
statements on page 47). The below-investment-grade fixed maturity securities
represent only 5.0% of LNC's total investment portfolio. The interest rates
available on these below-investment-grade securities are significantly higher
than are available on other corporate debt securities. Also, the risk of loss
due to default by the borrower is significantly greater with respect to such
below investment grade securities because these securities are generally
unsecured, often subordinated to other creditors of the issuer and issued by
companies that usually have high levels of indebtedness. LNC attempts to
minimize the risks associated with these below investment grade securities by
limiting the exposure to any one issuer and by closely monitoring the credit
worthiness of such issuers. For the year ended December 31, 1996, the
aggregate cost of such investments purchased was $1.2 billion. Aggregate
proceeds from such investments sold were $1.1 billion, resulting in a realized
pre-tax gain at the time of sale of $31.5 million.
LNC's entire fixed maturity and equity securities portfolio is classified as
"available-for-sale" and is carried at fair value. Changes in fair values,
net of related deferred acquisition costs, amounts required to satisfy
policyholder commitments and taxes are charged or credited directly to
shareholders' equity. Note 3 to the consolidated financial statements (see
page 46) shows the gross unrealized gains and losses as of December 31, 1996.
LNC's fixed maturity securities available-for-sale include mortgage-backed
securities. The mortgage-backed securities included in LNC's investment
portfolio are subject to risks associated with variable prepayments or delayed
repayments. This may result in these securities having a different actual
cash flow and maturity than planned at the time of purchase. Securities that
have an amortized cost greater than par and backed by mortgages that prepay
faster than expected will incur a reduction in yield or a loss. Those
securities with an amortized cost lower than par that prepay faster than
expected will generate an increase in yield or a gain. Repayments occurring
slower than expected have the opposite impact. The degree to which a security
is susceptible to either gains or losses is influenced by the difference
between its amortized cost and par, the relative sensitivity of the underlying
mortgages backing the assets to prepayment or delayed repayments in a changing
interest rate environment and the repayment priority of the securities in the
overall securitization structure.
LNC limits the extent of its risk on mortgage-backed securities by generally
avoiding the purchase of securities with a cost that significantly exceeds
par, by purchasing securities backed by stable collateral, and by
concentrating on securities with enhanced priority in their trust structure.
Such securities with reduced risk typically have a lower yield (but higher
liquidity) than higher-risk mortgage-backed securities. At selected times,
higher-risk securities may be purchased if they do not compromise the safety
of the general portfolio. At December 31, 1996, LNC did not have a
significant amount of higher-risk mortgage-backed securities. There are
negligible default risks in the mortgage-backed securities portfolio as a
whole as the vast majority of the assets are either guaranteed by U.S.
government-sponsored entities or are supported in the securitization structure
by junior securities enabling the assets to achieve high investment grade
status. See note 3 to the consolidated financial statements on page 47 for
additional detail about the underlying collateral.
As of December 31, 1996, mortgage loans on real estate and investments in real
estate represented 9.6% and 1.9% of the total investment portfolio. As of
December 31, 1996, the underlying properties supporting the mortgage loans on
real estate consisted of 20.5% in commercial office buildings, 27.9% in retail
stores, 22.0% in apartments, 14.9% in industrial buildings, 5.7% in
hotels/motels and 9.0% in other. In addition to the dispersion by type of
property, the mortgage loan portfolio is geographically diversified throughout
the United States.
Investment in Unconsolidated Affiliates
This line was added to the balance sheet in 1994 following LNC's sale of 71%
of the ownership of its primary direct writer of employee life-health
coverages. The minimal balance at December 31, 1996 and 1995 is due to the
October 1995 sale of the remaining 29% ownership in this company. See note 12
to the consolidated financial statements on page 67.
<PAGE> -27-
Cash and Invested Cash
Cash and invested cash decreased by $341.1 million in 1996. This decrease is
the result of investing a portion of the operating cash flow that had
previously been invested in short-term investments pending the placement of
funds in longer term investments.
Deferred Acquisition Costs
Deferred acquisition costs increased $455.3 million in 1996. A portion of
this increase ($215.3 million) was the result of a balance sheet
reclassification between deferred acquisition costs and policy liabilities and
accruals by LNC's United Kingdom subsidiary. This reclassification was made
in order to more closely conform the United Kingdom classifications to those
used by LNC's U.S. life operations. The remainder of the increase is the
result of the growth in business and increases related to the reduction in
unrealized gain on securities available-for-sale during 1996.
Premiums and Fees Receivable
Premiums and fees receivable increased $112.8 million in 1996 as the result of
increased volume of business in the Reinsurance segment.
Assets Held in Separate Accounts
This asset account, as well as the corresponding liability account, increased
by $6.0 billion in 1996 as a result of increases in annuity and pension funds
under management.
Amounts Recoverable from Reinsurers
The increase of $49.0 million in amounts recoverable from reinsurers was the
result of an increased volume of business ceded in the Life Insurance and
Annuities segment.
Goodwill
The decrease of $22.0 million in this balance sheet account in 1996 represents
the amortization for the year.
Other Intangible Assets
The $179.5 million increase in this balance sheet account in 1996 is the net
increase of additional amounts in intangible assets associated with LNC's
purchase of a block of tax-qualified annuity business (see note 12 to the
consolidated financial statements on page 67), and the impact of the change in
foreign currency adjustment less the impact of the amortization of existing
amounts in 1996.
Other Assets
The decrease in other assets of $176.4 million is the result of having a lower
receivable related to investment securities sold in the last few days of 1996
versus the end of 1995.
Total Liabilities
Total liabilities increased by $8.0 billion in 1996. This increase reflects:
1) an increase in business activity as evidenced by an increase in policy
liabilities and accruals of $359.8 million (this increase was partially offset
by the reclassification discussed above under the deferred acquisition cost
heading), an increase of $2.4 billion in contractholder funds and an increase
of $6.0 billion in the liabilities related to separate accounts and; 2) an
increase in minority interest in consolidated subsidiaries of $223.6 million
(see note 12 to the consolidated financial statements on page 67), being
partially offset by decreases in debt of $270.9 million and a net decrease in
all other liabilities of $696.2 million.
The property-casualty liabilities for unpaid claims and claims expense were
$2.5 billion and $2.6 billion at December 31, 1996 and 1995, respectively.
These liabilities include liabilities for environmental claims of $265 million
and $256 million, respectively. At December 31, 1996 and 1995, these amounts
include approximately $153 million and $140 million of reserve for claims that
have been incurred but not reported, and approximately $44 million and $47
million of related claim expenses, respectively. Because of the limited
coverages that have been written by LNC, these environmental claims represent
only 11% of LNC's total property-casualty policy liabilities (2.3% based on
claim counts of direct business) and less than 2% of LNC's total policy
liabilities. Paid environmental claims and claim expenses totaled
approximately $13.8 million in 1996 compared with approximately $15.5 million
in 1995.
<PAGE> -28-
The percentages and amounts referenced above are at these levels due to LNC's
concentration on writing coverages for small to medium-size companies rather
than the larger companies that tend to incur most of the environmental and
product liability claims. LNC's management challenges environmental claims in
cases of questionable liability and reviews the level of the environmental
liabilities on an on-going basis to help ensure that the liability maintained
is adequate. Nonetheless, establishing liabilities for environmental claims
is subject to significant uncertainties because of the long reporting delays,
lack of historical data and the complexity of unresolved legal and regulatory
issues (see note 7 to the consolidated financial statements on page 56).
While it is management's judgment that, based on available information, the
appropriate level of liabilities have been recorded, it is reasonably possible
that a change in the estimate of the liability required could occur in the
near term.
In addition to liabilities for environmental claims, LNC has other areas where
changes in estimates of related liabilities required could occur in the near
term. These areas include claims for disability income coverages, liabilities
and recoveries related to inappropriate selling of pension products in the
United Kingdom, liabilities for marketing and compliance issues and the
reserve for the run-off of group pension annuities (see note 7 to the
consolidated financial statements on page 57).
The increase in other liabilities relates to an increase in the expected
payouts for security investments purchased in the last few days of 1996 versus
a lower volume of such transactions late in 1995.
Minority Interest - Preferred Securities of Subsidiary Companies
This line was added to the balance sheet following the financing activity
described within the Liquidity and Cash Flow section on page 33.
Shareholders' Equity
Total shareholders' equity increased $91.8 million during the year ended
December 31, 1996. Excluding the decrease of $263.5 million related to a
decline in the unrealized gain (loss) on securities available-for-sale,
shareholders' equity increased $358.0 million. This increase in shareholders'
equity was the net result of increases due to $513.6 million of net income,
$15.0 million from the gain on sale of a minority interest in a subsidiary,
$2.8 million from the issuance of common stock related to benefit plans, $53.1
million related to an increase in the accumulated foreign exchange gain and
decreases of $194.2 million related to the declaration of dividends to
shareholders and $35.0 million for the retirement of common stock.
Capital adequacy is a primary measure used by insurance regulators to
determine the financial stability of an insurance company. In the U.S., risk-
based capital guidelines are used by the National Association of Insurance
Commissioners to determine the amount of capital that represents minimum
acceptable operating amounts related to insurance and investment risks.
Regulatory action is triggered when an insurer's statutory-basis capital falls
below the formula-produced capital level. At December 31, 1996, statutory-
basis capital for each of LNC's U.S. life and property-casualty insurance
subsidiaries was substantially in excess of regulatory action levels of risk-
based capital required by the jurisdiction of domicile except for one
property-casualty company. This company is servicing a closed block of
business and therefore operates at minimum capital levels.
As noted above, shareholders' equity includes net unrealized gain (loss) on
securities available-for-sale. At December 31, 1996, the book value of $43.00
per share included $3.97 of unrealized gains on securities and at December 31,
1995, the book value of $41.89 per share included $6.68 of unrealized gains on
securities.
Both realized and unrealized gains or losses on investments that support long-
term life insurance, pension and annuity contracts are expected to be applied
to contract benefits. These realized and unrealized gains or losses are
included in net income and shareholders' equity, respectively. Current
accounting standards do not require or permit adjustment of policyholder
reserves to recognize the full effect of these realized and unrealized gains
or losses on future benefit payments in the absence of a contractual
obligation requiring their attribution to policyholders.
<PAGE> -29-
Market Risk Exposures of Financial Instruments
LNC analyzes and manages the risks arising from market exposures of financial
instruments, as well as other risks, in an integrated asset-liability
management process that takes diversification into account. By aggregating
the potential effect of market and other risks of the entire enterprise, LNC
estimates and manages the risk to its earnings and shareholder value. The
risks of market exposures of financial instruments, and the related risk
management processes, are most important in the Life Insurance and Annuities
segment. This segment is where most of the invested assets support
accumulation and investment oriented insurance products. As an important
element of its integrated asset-liability management process, LNC uses
derivatives to minimize the effects of changes in interest rate levels and the
shape of the yield curve. In this context, derivatives are designated as a
hedge and serve to reduce interest rate risk by mitigating the effect of
interest rate changes on LNC's stream of earnings. Additional market
exposures exist in LNC's other general account insurance products and in its
debt structure and derivatives positions. The primary sources of market risk
are: 1) substantial, relatively rapid and sustained increases or decreases in
interest rates; 2) a period of greater than normal default experience and; 3)
a sharp drop in equity market values, as discussed below. Specific market
risk exposures as they relate to derivatives are included in the Derivatives
section of Management's Discussion and Analysis on page 31.
Accumulation and Investment Oriented Insurance Products. General account
assets supporting accumulation and investment oriented insurance products
total $22.8 billion or 67% of total invested assets. With respect to these
products, LNC seeks to earn a stable and profitable spread between investment
income and interest credited to account values. If LNC has adverse experience
on investments that cannot be passed through to customers, its spreads are
reduced. The interest rate scenarios of concern are those in which there is a
substantial, relatively rapid increase or decrease in interest rates that is
then sustained over a long period.
Assets of $15.6 billion supports the biggest category of accumulation and
investment oriented insurance products, fixed deferred annuities. For these
products, LNC may adjust renewal crediting rates monthly or annually, subject
to guaranteed minimums ranging from 3.0% to 4.5%. The higher minimums apply
to in-force blocks of older products that no longer are sold. LNC has $3.6
billion in assets supporting universal life insurance on which it has the
right to adjust renewal crediting rates subject to guaranteed minimums ranging
from 4% to 5% at December 31, 1996. Annuity and universal life insurance
customers have the right to surrender their policies at account value less a
surrender charge that grades to zero over periods ranging from 5 to 10 years
from policy issue date or, in some cases, the date of each premium received.
LNC also has assets totaling $4.8 billion that support guaranteed interest
contracts, pension buy-out annuities and immediate annuities. Generally, the
cash flows expected on these liabilities do not vary with fluctuations in
market interest rates and are not adjustable by LNC. Accordingly, if
experience on the assets supporting these products is more adverse than the
assumptions used in pricing the products, spreads will tend to be below
expectations. LNC limits exposure to interest rate risk by managing the
duration and maturity structure of each investment portfolio in relation to
the liabilities it supports.
Other General Account Insurance Products. LNC also has $11.2 billion of
assets supporting general account products, including disability income,
property casualty insurance and term life insurance. For these products, the
liability cash flows may have actuarial uncertainty. However, their amounts
and timing do not vary significantly with interest rates. LNC limits interest
rate risk by analyzing the duration of the projected cash flows and
structuring investment portfolios with similar durations.
Debt. LNC has short-term and long-term debt of which $650.1 million is at
fixed rates and $165.2 million is at floating rates. LNC manages the timing
of maturities and the mixture of fixed-rate and floating-rate debt as part of
the process of integrated management of interest rate risk for the entire
enterprise.
Interest Rate Risk--Falling Rates. After rising in 1994, interest rates fell
in 1995 and rose again in 1996. For example, the five-year Treasury yield
rose from 5.2% to 7.8% during 1994 and fell back to 5.4% at the end of 1995
and increased to 6.2% by the end of 1996. Under scenarios in which interest
rates fall and remain at levels significantly lower than those prevailing at
December 31, 1996, minimum guarantees on annuity and universal life insurance
policies could cause spreads to deteriorate. Select contracts that specify
these minimum guarantees can be amended periodically to reflect current
<PAGE> -30-
interest rate conditions. The earned rate on the annuity and universal life
insurance portfolios averaged 7.8% and 7.9%, respectively, for the year ended
December 31, 1996, providing a cushion for further decline before the earned
rates would be insufficient to cover minimum guaranteed rates plus the target
spread. The maturity structure and call provisions of the related portfolios
are structured to afford protection against erosion of this cushion for a
period of time. However, spreads would be at risk if interest rates continued
to fall and remained lower for a long period. LNC manages these exposures by
maintaining a suitable maturity structure and by limiting its exposure to call
risk in each respective investment portfolio.
LNC believes that the portfolios supporting its accumulation and investment
oriented insurance products have a prudent degree of call protection in each
category of liability and on a consolidated basis. The mortgage-backed
securities ("MBS") portion of the portfolio, including collateralized mortgage
obligations ("CMOs"), represents a total of $4.4 billion or 19% of the $22.8
billion of general account assets supporting such products. LNC's MBS
portfolio has better call protection than the MBS pass-through market in
general. This is because of its 45% concentration in protected amortization
class CMOs.
Interest Rate Risk--Rising Rates. For both annuities and universal life
insurance, a rapid and sustained rise in interest rates poses risks of
deteriorating spreads and high surrenders. The portfolios supporting these
products have fixed-rate assets laddered over maturities generally ranging
from one to 10 years or more. Accordingly, the earned rate on each portfolio
lags behind changes in market yields. As rates rise, the lag may be increased
by slowing MBS prepayments. The greater and faster the rise in interest
rates, the more the earned rate will tend to lag behind market rates. If LNC
sets renewal crediting rates to earn the desired spread, the gap between its
renewal crediting rates and competitors' new money rates may be wide enough to
cause increased surrenders. If LNC credits more competitive renewal rates to
limit surrenders, its spreads will narrow. LNC devotes extensive effort to
evaluating these risks by simulating asset and liability cash flows for a wide
range of interest rate scenarios. Such analysis has led to adjustments in the
target maturity structure and to hedging the risk of rising rates by buying
out-of-the-money interest rate cap agreements and swaptions (see Derivatives
section of Management's Discussion and Analysis on page 31). With this hedge,
the potential adverse impact of a sustained rise in rates is kept within
corporate risk tolerances. LNC believes that the risks of rising interest
rates are also mitigated by its emphasis on periodic premium products.
Default Risk. In assessing the risk that the rate of default losses for each
category of asset may be higher than the rates assumed in pricing its
products, LNC considers the entire $34.0 billion portfolio of invested assets,
taking diversification into account. Of this total, $16.5 billion consists of
corporate bonds and $3.3 billion consists of commercial mortgages. LNC
manages the risk of adverse default experience on these investments by
applying disciplined credit evaluation and underwriting standards, prudently
limiting allocations to lower-quality, higher-yielding investments, and
diversifying exposures by issuer, industry, region and property type. For
each counter-party or borrowing entity and its affiliates, LNC's exposures
from all transactions are aggregated and managed in relation to formal limits
set by rating quality and industry group. LNC remains exposed to occasional
adverse cyclical economic downturns during which default rates may be
significantly higher than the long-term historical average used in pricing.
Equity Market Exposures. At December 31, 1996, LNC owned equities consisting
of $992.7 million of common stocks, $655.0 million of real estate and $198.9
million of other equity interests. While LNC invests in these categories with
the expectation of achieving higher returns than would be available in its
core fixed-income investments, the returns on, and values of, these equity
investments are subject to somewhat greater market risk than its fixed income
investments.
The fee revenues of LNC's Investment Management segment and fees earned from
variable annuities are exposed to the risk of a decline in equity market
values. Investment advisory fees are generally a fixed percentage of the
market value of assets under management. In a severe equity market decline,
fee income could be reduced by not only reduced market valuations but also by
customer withdrawals. Such withdrawals from equity funds and accounts might
be partially offset by transfers to LNC's fixed-income accounts and the
transfer of funds to LNC by its competitors' customers.
<PAGE> -31-
Derivatives
As indicated in note 7 to the consolidated financial statements (see page 59),
LNC has entered into derivative transactions to reduce its exposure to
interest rate fluctuations, the widening of bond yield spreads over comparable
maturity U.S. Government obligations, foreign exchange risk and fluctuations
in Financial Times Stock Exchange ("FTSE") index. A discussion of LNC's seven
significant programs using derivative agreements and contracts follows. Six
programs are used within the Life Insurance and Annuities segment and the
Reinsurance segment. The seventh program relates to foreign exchange risk on
an investment in a foreign subsidiary is used within Other Operations.
1) LNC uses interest rate cap agreements to hedge against the negative impact
of a significant and sustained rise in interest rates. Interest rate caps are
contracts that require counterparties to pay LNC at specified future dates the
amount, if any, by which a specified market interest rate exceeds the cap rate
stated in the agreements, applied to a notional amount. As of December 31,
1996, LNC had agreements with notional amounts of $5.5 billion with cap rates
ranging from 207 to 419 basis points above prevailing interest rates. These
agreements expire in 1997 - 2003. The cap rates in some contracts increase
over time.
2) LNC also uses swaptions to hedge against the negative impact of a
significant and sustained rise in interest rates. Swaptions are options to
enter into a swap at a specified future date. At expiration, the option is
either settled in cash or exercised into a swap agreement. LNC purchases
swaptions to be settled in cash. At expiration, the counterparty is required
to pay LNC the amount, if any, of the present value of the difference between
the fixed rate on a market rate swap and the strike, applied to a notional
amount. As of December 31, 1996, LNC had agreements with notional amounts of
$672 million with strike rates ranging from 178 to 241 basis points above
prevailing interest rates. These agreements expire in 2002.
For future periods the fair value of LNC's interest rate caps and swaptions
depends on the levels of interest rates on U.S. Treasury securities with
maturities of two, five, seven and 10 years and U.S. dollar swap rates with
five, seven and 10 year maturities. The table below analyzes fair value
levels at December 31, 1996 and for the next five years if the rates were 1%,
2%, 3%, or 4% higher than they were at December 31, 1996. In relation to the
level of these rates at December 31, 1996, the cap and swaption rates were
from 1.78% to 4.19% out of the money, i.e., higher. Fair value levels of
interest rate caps and swaptions under these scenarios are as follows:
Year Ended December 31 (in millions) 1996 1997 1998 1999 2000 2001
No change $ 18.5 $ 11.1 $ 5.6 $ 2.3 $ .7 $ .1
Up 1% 49.8 33.7 20.8 9.4 4.1 .9
Up 2% 107.7 77.0 55.7 35.8 17.4 8.0
Up 3% 202.1 149.6 114.6 95.0 62.5 37.8
Up 4% 334.2 260.2 201.1 172.0 125.7 88.4
3) LNC periodically uses spread-lock agreements to hedge a portion of the
value of its fixed maturity securities against the risk of widening in the
spreads between their yields and the yields of comparable maturity U.S.
Government obligations. The actual risk being hedged by these agreements is
the potential widening of bond spreads that would be caused by widening swap
spreads. Under these agreements, LNC assumed the right and the obligation to
enter into an interest rate swap at a future date in which LNC would pay a
fixed rate equal to a contractually specified spread over the yield of a
specified U.S. Treasury security and receive a floating rate. As of December
31, 1996, LNC did not have any open spread-lock agreements.
4) LNC uses exchange-traded financial futures contracts and options on
financial futures to hedge against interest rate risks and to manage duration
of a portion of its fixed maturity securities. Financial futures contracts
obligate LNC to buy or sell a financial instrument at a specified future date
for a specified price. They may be settled in cash or through delivery of the
financial instrument. Cash settlements on the change in market values of
financial futures contracts are made daily. Put options on a financial
futures contract give LNC the right, but not the obligation, to assume a long
or short position in the underlying futures contract at a specified price
during a specified time period.
At December 31, 1996, LNC had long positions in the March 1997 ten year note
futures with an aggregate face amount of $147.7 million. As the yields on the
underlying Treasury securities rise (fall), the value of these long positions
to LNC will decrease (increase) by approximately $.9 million for each 10 basis
point parallel shift in the yield curve.
<PAGE> -32-
5) LNC uses Over-the-Counter ("OTC") call options to hedge against the
increase of the FTSE index. These call options require the counterparties to
pay LNC at specified future expiration dates the amount, if any, of the
percentage increase in the FTSE index over the strike price defined in the
contract, applied to a notional amount. As of December 31, 1996, LNC had
agreements with notional amounts of $14.7 million. These options expire in
1997 - 2001.
6) LNC uses a combination of foreign exchange forward contracts, foreign
currency options, and foreign currency swaps to hedge some of the foreign
exchange risk related to its investments in fixed maturity securities
denominated in foreign currencies. The foreign currency forward contracts
obligate LNC to deliver a specified amount of currency at a future date at a
specified exchange rate. As of December 31, 1996, LNC had a short position in
foreign exchange forward contracts with a notional amount of $251.6 million.
Foreign currency options give LNC the right, but not the obligation, to buy or
sell a foreign currency at a specific exchange rate during a specified time
period. At December 31, 1996, LNC had long and short positions in foreign
currency options with notional amounts of $24.7 million and $25.5 million,
respectively.
A foreign currency swap is a contractual agreement to exchange the currencies
of two different countries pursuant to an agreement to re-exchange the two
currencies at the same rate of exchange at a specified future date. As of
December 31, 1996, LNC had a foreign currency swap with a notional amount of
$15 million.
The values of the foreign exchange contracts, foreign currency options and
foreign currency swaps, which are used to reduce the risk of reduction of the
value in U.S. dollars of investments denominated in foreign currencies that
might result from an adverse change in currency exchange rates, fluctuate
according to the underlying level of exchange rates. At December 31, 1996,
LNC had notional amounts of contracts in place of $316.8 million. If the U.S.
dollar were to appreciate (depreciate) 1% in relation to each of the
currencies involved in these contracts, the value of these positions would
rise (fall) by $3.2 million.
7) LNC periodically uses foreign exchange forward contracts to hedge against
foreign exchange risk related to LNC's investment in its British subsidiary,
Lincoln National (UK). The foreign exchange forward contracts obligate LNC to
deliver a specified amount of currency at a future date at a specified
exchange rate.
The value of the foreign exchange forward contracts at any given point
fluctuates according to the underlying level of exchange rate and interest
rate differentials. At December 31, 1996, LNC did not have any open foreign
exchange forward contracts related to its investment in subsidiary companies.
The first five programs discussed above are designed to help LNC achieve more
stable margins while providing competitive crediting rates to policyholders
during periods when interest rates are rising, corporate bond spreads are
widening or the FTSE index is rising. Failure to maintain competitive
crediting rates could cause policyholders to withdraw their funds and place
them in more competitive products. The other two programs discussed above are
designed to reduce LNC's risk related to changes in foreign currency exchange
rates.
LNC is depending on the ability of derivative product dealers and their
guarantors to honor their obligations to pay the contract amounts under
interest rate cap agreements and other over-the-counter derivative products
such as swaptions, spread-lock agreements, foreign currency exchange
contracts, foreign currency options, foreign currency swaps and call options.
In order to minimize the risk of default losses, LNC diversifies its exposures
among several dealers and limits the amount of exposure in accordance with the
credit rating of each dealer or its guarantor. LNC generally limits its
selection of counterparties that are obligated under these derivative
contracts to those with an A credit rating or above.
In addition to continuing existing programs, LNC may use derivative products
in other strategies to limit risk and enhance returns, particularly in the
management of investment spread businesses. LNC has established policies,
guidelines and internal control procedures for the use of derivatives as tools
to enhance management of the overall portfolio of risks assumed in LNC's
operations.
<PAGE> -33-
LIQUIDITY AND CASH FLOW
Liquidity refers to the ability of an enterprise to generate adequate amounts
of cash from its normal operations to meet cash requirements with a prudent
margin of safety. Because of the interval of time from receipt of a deposit
or premium until payment of benefits or claims, LNC and other insurers employ
investment portfolios as an integral element of operations. By segmenting its
investment portfolios along product lines, LNC enhances the focus and
discipline it can apply to managing the liquidity as well as the interest rate
and credit risk of each portfolio commensurate with the profile of the
liabilities. For example, portfolios backing products with less certain cash
flows and/or withdrawal provisions are kept more liquid than portfolios
backing products with more predictable cash flows.
The Consolidated Statements of Cash Flows on page 41 indicate that operating
activities provided cash of $1.2 billion, $1.9 billion and $1.2 billion in
1996, 1995 and 1994, respectively. This statement also classifies the other
sources and uses of cash by investing activities and financing activities and
discloses the amount of cash available at the end of the year to meet LNC's
obligations.
Although LNC generates adequate cash flow to meet the needs of its normal
operations, periodically LNC may issue debt or equity securities to fund
internal expansion, acquisitions, investment opportunities and the retirement
of LNC's debt and equity. As of December 31, 1996 LNC has a shelf
registration with an unused balance of $600 million that would allow LNC to
issue debt or equity securities. In 1996, LNC filed another shelf
registration for $500 million which included the right to offer various forms
of hybrid securities. These securities, which have a combination of both debt
and equity characteristics, utilize a series of three newly formed trusts.
All of these trusts' common securities are owned by LNC (Lincoln National
Capital I, II and III). As of December 31, 1996, LNC had an unused balance of
$185 million related to this hybrid security registration. Cash funds also are
available from LNC's revolving credit agreement, which provides for borrowing
up to $750 million (see note 5 to the consolidated financial statements on
page 52).
Recent transactions such as those described in the preceding paragraph include
LNC's purchase and retirement of 694,582 shares of common stock at a cost of
$35.0 million in the fourth quarter of 1996. After deducting these shares,
the current Board authorization would allow the repurchase of an additional
4,305,418 shares of common stock. Also, LNC issued $215 million, 8.75%
Quarterly Income Preferred Securities ("QUIPS") in July of 1996 and $100
million, 8.35% Trust Originated Preferred Securities ("TOPrS") in August of
1996. Both issues mature in 2026 (callable in 2001). These securities are
shown on the accompanying balance sheet between the liability and
shareholders' equity sections. Proceeds from these transactions were used to
pay down short-term debt and for general corporate purposes.
Another transaction which occurred in 1996 was the sale of 16.7% of the
principal subsidiary within the Property-Casualty segment. This transaction
was completed in the form of an initial public offering of common stock. The
net cash proceeds after expenses from the sale of common stock in this
subsidiary of $215.2 million is being used to support the capital base of the
property-casualty operations and to meet working capital needs of the related
holding company. In conjunction with this offering, this subsidiary issued
$200 million of term debt payable to LNC plus $100 million, 7 1/8% debt due in
1999. Also, prior to closing the sale, this subsidiary made a one-time,
special dividend distribution of $300 million to LNC. This dividend
distribution consisted primarily of tax-exempt municipal securities that were
previously in the subsidiary's investment portfolio. Following the completion
of the transaction, this subsidiary adopted a policy of declaring regular
quarterly cash dividends, commencing with $.21 per share in the third quarter
of 1996. As of December 31, 1996, LNC owns 50,000,000 of the 60,050,515
outstanding shares of this subsidiary.
<PAGE> -34-
In order to maximize the use of available cash, the holding company (Lincoln
National Corporation) maintains a facility where subsidiaries can borrow from
the holding company to meet their short-term needs and can invest their
short-term funds with the holding company. Depending on the overall cash
availability or need, the holding company invests excess cash in short-term
investments or borrows funds in the financial markets. In addition to
facilitating the management of cash, the holding company receives dividends
from its subsidiaries, invests in operating companies, maintains an investment
portfolio and pays shareholder dividends and certain corporate expenses.
Holding Company Cash Flow
Year Ended December 31 (in millions) 1996 1995 1994
Dividends from subsidiaries:
Lincoln Life ------------------------------------ $ 135.0 $ 310.0 $ 125.0
American States --------------------------------- 74.7 199.0 215.0
Other ------------------------------------------- 96.4 29.5 4.5
Net investment income ----------------------------- 4.3 2.9 1.2
Operating expenses -------------------------------- (44.6) (41.7) (33.7)
Interest ------------------------------------------ (67.8) (57.3) (44.3)
Net sales (purchases) of investments -------------- 91.2 16.6 (22.1)
Increase (decrease) in cash collateral on
loaned securities -------------------------------- (53.4) (4.5) 14.3
Additional investment in subsidiaries ------------- 217.8 (697.1) (2.7)
(Investment in) sale of unconsolidated affiliates - (16.0) 194.0 (103.5)
Net increase (decrease) in debt ------------------- (178.5) 217.1 15.9
Increase in receivables from subsidiaries --------- (36.0) (.3) (3.9)
Increase (decrease) in loans from subsidiaries ---- 28.2 (42.4) 271.8
Decrease (increase) in loans to subsidiaries ------ (303.5) (107.0) (20.5)
Federal income taxes received (paid) -------------- (143.8) (38.3) 65.6
Net tax receipts from (payments to) subsidiaries -- 122.3 61.5 (61.1)
Dividends paid to shareholders -------------------- (191.2) (178.8) (172.2)
Common stock issued for benefit plans ------------- (0.2) 24.1 30.0
Retirement of common stock ------------------------ (32.7) -- (18.4)
Other --------------------------------------------- (35.2) 56.4 20.5
Cash and invested cash - December 31 -------------- $ 133.8 $ 466.8 $ 523.1
Other investments - December 31 ------------------- 227.2 20.3 28.7
Debt - December 31 -------------------------------- 1,251.9 1,402.1 1,227.5
The table above shows the cash flow activity for the holding company from
1994 through 1996. The line, "net tax receipts from (payments to)
subsidiaries", recognizes that the holding company receives tax payments from
subsidiaries, pays the consolidated tax liability and reimburses subsidiaries
for the tax effect of any taxable operating and capital losses.
LNC's insurance subsidiaries are subject to certain insurance department
regulatory restrictions as to the transfer of funds and payments of dividends
to the holding company (see note 7 to the consolidated financial statements on
page 56). However, these restrictions pose no short-term liquidity concerns
for the holding company. The financial strength and stability of the
subsidiaries permit ready access to short-term or long-term credit sources for
the holding company.
Effect of Inflation
As indicated earlier in this review of consolidated operations, inflation
affects LNC's revenues and expenses. LNC's insurance affiliates, as well as
other companies in the insurance industry, attempt to minimize the effect of
inflation by anticipating inflationary trends in the pricing of their
products. Inflation, except for changes in interest rates, does not have a
significant effect on LNC's balance sheet due to the minimal amount of dollars
invested in property, plant and equipment and the absence of inventories.
<PAGE> -38-
Item 8. Financial Statements and Supplementary Data
Operating Results by Quarter
(in millions, except per share) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
1996 Data
Premiums and other considerations --- $1,008.5 $1,041.7 $1,095.2 $1,081.9
Net investment income --------------- 560.7 572.7 587.9 644.6
Realized gain on investments -------- 71.3 29.5 1.8 25.5
Net income -------------------------- 140.0 111.4 119.3 142.9
Net income per share ---------------- $1.34 $1.07 $1.14 $1.37
1995 Data
Premiums and other considerations --- $ 909.6 $1,000.3 $1,032.7 $1,135.2
Net investment income --------------- 530.1 583.6 567.7 604.3
Realized gain on investments -------- 44.1 62.3 68.1 41.1
Gain on sale of affiliates/
operating property ----------------- -- -- -- 54.2
Net income(1) ----------------------- 134.8 117.9 154.3 75.2
Net income per share ---------------- $1.30 $1.13 $1.48 $ .72
(1) The fourth quarter of 1995 includes a change in estimate related to LNC's
disability income business (see note 2 to the consolidated financial
statements on page 45).
Consolidated Financial Statements
The consolidated financial statements of Lincoln National Corporation and
Subsidiaries follow on pages 36 through 68.
<PAGE> -36-
LINCOLN NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31 (000s omitted) 1996 1995
ASSETS
Investments:
Securities available-for-sale, at fair value:
Fixed maturity
(cost: 1996-$26,830,704; 1995-$23,935,527) - $27,906,440 $25,834,476
Equity
(cost: 1996-$797,222; 1995-$936,124) ------- 992,702 1,164,844
Mortgage loans on real estate ---------------- 3,272,980 3,186,872
Real estate ---------------------------------- 655,024 775,912
Policy loans --------------------------------- 758,166 602,573
Other investments ---------------------------- 459,652 371,765
Total Investments -------------------------- 34,044,964 31,936,442
Investment in unconsolidated affiliates -------- 21,223 5,562
Cash and invested cash ------------------------- 1,231,724 1,572,855
Property and equipment ------------------------- 257,821 243,763
Deferred acquisition costs --------------------- 1,891,949 1,436,685
Premiums and fees receivable ------------------- 650,789 537,979
Accrued investment income ---------------------- 483,064 462,737
Assets held in separate accounts --------------- 28,809,137 22,769,068
Amounts recoverable from reinsurers ------------ 2,544,196 2,495,189
Goodwill --------------------------------------- 449,479 471,465
Other intangible assets ------------------------ 708,446 528,934
Other assets ----------------------------------- 620,613 797,054
Total Assets ----------------------------- $71,713,405 $63,257,733
See notes to the consolidated financial statements on pages 42 - 68.
<PAGE> -37-
LINCOLN NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
-CONTINUED-
December 31 (000s omitted) 1996 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Policy liabilities and accruals:
Future policy benefits, claims
and claim expenses ------------------------- $13,331,098 $12,922,547
Unearned premiums --------------------------- 766,050 813,380
Total Policy Liabilities and Accruals ----- 14,097,148 13,735,927
Contractholder funds -------------------------- 21,176,963 18,784,508
Liabilities related to separate accounts ------ 28,809,137 22,769,068
Federal income taxes -------------------------- 33,736 128,426
Short-term debt ------------------------------- 188,960 426,848
Long-term debt -------------------------------- 626,311 659,303
Minority interest in consolidated
subsidiaries --------------------------------- 223,628 --
Other liabilities ----------------------------- 1,772,566 2,375,531
66,928,449 58,879,611
Company-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts
Holding Solely Junior Subordinated
Deferrable Interest Debentures of Company ---- 315,000 --
Shareholders' Equity:
Series A preferred stock
(1996 liquidation value - $2,951) ------------ 1,212 1,335
Common stock ---------------------------------- 857,450 889,476
Retained earnings ----------------------------- 3,129,249 2,775,718
Foreign currency translation adjustment ------- 66,454 13,413
Net unrealized gain (loss) on
securities available-for-sale ---------------- 415,591 698,180
Total Shareholders' Equity ---------------- 4,469,956 4,378,122
Total Liabilities and
Shareholders' Equity --------------------- $71,713,405 $63,257,733
See notes to the consolidated financial statements on pages 42 - 68.
<PAGE> -38-
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 (000s omitted) 1996 1995 1994
Revenue:
Insurance premiums ------------------ $3,181,999 $3,253,833 $3,624,648
Insurance fees ---------------------- 628,181 523,237 449,643
Investment advisory fees ------------ 180,792 125,593 --
Net investment income --------------- 2,365,922 2,251,281 1,994,651
Equity in earnings of
unconsolidated affiliates ---------- 1,428 12,361 14,652
Realized gain (loss) on investments - 128,052 215,623 (130,820)
Gain on sale of affiliates/
operating property ----------------- -- 54,195 48,842
Other ------------------------------- 234,896 197,133 178,234
Total Revenue --------------------- 6,721,270 6,633,256 6,179,850
Benefits and Expenses:
Benefits and settlement expenses ---- 3,921,278 4,113,143 4,195,243
Underwriting, acquisition,
insurance and other expenses ------- 2,003,007 1,821,022 1,558,806
Interest and debt expense ----------- 84,720 72,516 49,520
Total Benefits and Expenses ------- 6,009,005 6,006,681 5,803,569
Income Before Federal Income Taxes
and Minority Interest ------------ 712,265 626,575 376,281
Federal income taxes ------------------ 179,152 144,389 26,383
Income Before Minority Interest --- 533,113 482,186 349,898
Minority interest in consolidated
subsidiaries ------------------------- 19,555 -- --
Net Income ------------------------ $ 513,558 $ 482,186 $ 349,898
Earnings Per Share:
Net Income ---------------------------- $4.91 $4.63 $3.37
See notes to the consolidated financial statements on pages 42 - 68.
<PAGE> -39-
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year Ended December 31 (000s omitted) 1996 1995 1994
Preferred Stock:
Series A Preferred Stock:
Balance at beginning-of-year ----------- $ 1,335 $ 1,420 $ 1,553
Conversion into common stock ----------- (123) (85) (133)
Balance at End-of-Year --------------- 1,212 1,335 1,420
Series E and F Preferred Stock:
Balance at beginning-of-year ----------- -- 309,913 309,913
Conversion into common stock ----------- -- (309,913) --
Balance at End-of-Year --------------- -- -- 309,913
Common Stock:
Balance at beginning-of-year ------------ 889,476 555,382 543,659
Conversion of series A preferred stock -- 123 85 133
Conversion of series E and F
preferred stock ------------------------ -- 309,913 --
Issued for benefit plans ---------------- 7,597 26,888 30,616
Shares forfeited under benefit plans ---- (4,771) (2,792) (631)
Retirement of common stock -------------- (34,975) -- (18,395)
Balance at End-of-Year --------------- 857,450 889,476 555,382
Retained Earnings:
Balance at beginning-of-year ------------ 2,775,718 2,479,532 2,303,731
Net income ------------------------------ 513,558 482,186 349,898
Realized gain (loss) on sale of minority
interest in subsidiary ----------------- 34,121 -- --
Dividends declared:
Series A preferred stock -------------- (112) (123) (134)
Series E and F preferred stock -------- -- (8,532) (17,065)
Common stock -------------------------- (194,036) (177,345) (156,898)
Balance at End-of-Year --------------- 3,129,249 2,775,718 2,479,532
Foreign Currency Translation Adjustment:
Accumulated adjustment at
beginning-of-year ---------------------- 13,413 6,890 (1,214)
Change during the year ------------------ 53,041 6,523 8,104
Balance at End-of-Year --------------- 66,454 13,413 6,890
Net Unrealized Gain (Loss) on Securities
Available-for-sale:
Balance at beginning-of-year ----------- 698,180 (311,077) 914,679
Realized gain (loss) on sale of
minority interest in subsidiary ------ (19,101) -- --
Change during the year ----------------- (263,488) 1,009,257 (1,225,756)
Balance at End-of-Year --------------- 415,591 698,180 (311,077)
Total Shareholders' Equity
at End-of-Year ----------------------$4,469,956 $4,378,122 $3,042,060
See notes to the consolidated financial statements on pages 42 - 68.
<PAGE> -40-
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - continued
Year Ended December 31 (Number of Shares) 1996 1995 1994
Preferred Stock:
(10,000,000 shares authorized)
Series A Preferred Stock:
Balance at beginning-of-year -------- 40,646 43,218 47,289
Conversion into common stock -------- (3,761) (2,572) (4,071)
Balance Issued and Outstanding
at End-of-Year ------------------- 36,885 40,646 43,218
Series E and F Preferred Stock:
Balance at beginning-of-year ------- -- 4,417,897 4,417,897
Conversion into common stock ------- -- (4,417,897) --
Balance Issued and Outstanding
at End-of-Year ------------------ -- -- 4,417,897
Common Stock:
(800,000,000 shares authorized)
Balance at beginning-of-year ---------- 104,185,117 94,477,942 94,183,190
Conversion of series A preferred stock- 30,088 20,576 32,568
Conversion of series E and F
preferred stock ---------------------- -- 8,835,794 --
Issued for benefit plans -------------- 250,072 905,361 778,587
Shares forfeited under benefit plans -- (112,120) (54,556) (16,403)
Retirement of common stock ------------ (694,582) -- (500,000)
Balance Issued and Outstanding
at End-of-Year --------------------- 103,658,575 104,185,117 94,477,942
Common Stock (assuming conversion of
series A, E and F preferred stock):
End-of-Year -------------------------- 103,953,655 104,510,285 103,659,480
Average for the Year ----------------- 104,560,826 104,115,650 103,863,196
Dividends Per Share:
Series A preferred stock -------------- $3.00 $3.00 $3.00
Series E preferred stock -------------- -- 1.89 3.79
Series F preferred stock -------------- -- 1.97 3.94
Common stock -------------------------- 1.87 1.75 1.66
See notes to the consolidated financial statements on pages 42 - 68.
<PAGE> -41-
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31 (000s omitted) 1996 1995 1994
Cash Flows from Operating Activities:
Net income ------------------------------ $ 513,558 $ 482,186 $ 349,898
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Deferred acquisition costs ----------- 34,644 (44,990) (199,419)
Premiums and fees receivable --------- (113,022) (15,087) (7,777)
Accrued investment income ------------ (20,489) (41,268) (44,171)
Policy liabilities and accruals ------ (51,556) 147,989 11,487
Contractholder funds ----------------- 1,281,535 1,631,192 1,674,888
Amounts recoverable from reinsurers -- (110,752) (435,776) (776,408)
Federal income taxes ----------------- 31,335 268,338 (59,611)
Equity in undistributed earnings of
unconsolidated affiliates ----------- (1,428) (11,493) (12,408)
Minority interest in consolidated
subsidiaries ------------------------ 19,555 -- --
Provisions for depreciation ---------- 58,878 59,835 58,689
Amortization of goodwill and other
intangible assets ------------------- 87,442 74,229 9,274
Realized (gain) loss on investments -- (128,052) (300,840) 212,201
(Gain) loss on sale of affiliates/
operating property ------------------ -- (54,195) (48,842)
Other -------------------------------- (364,633) 160,180 14,365
Net Adjustments -------------------- 723,457 1,438,114 832,268
Net Cash Provided by
Operating Activities ------------- 1,237,015 1,920,300 1,182,166
Cash Flows from Investing Activities:
Securities available-for-sale:
Purchases ----------------------------- (14,310,549)(15,327,959)(13,383,236)
Sales --------------------------------- 13,324,606 14,253,858 10,352,938
Maturities ---------------------------- 1,048,306 1,051,471 1,106,687
Purchase of other investments ----------- (2,343,735) (1,770,790) (1,696,570)
Sale or maturity of other investments --- 2,195,664 1,103,380 1,755,113
Sale of affiliates ---------------------- -- 186,900 417,367
Purchase of affiliates/business --------- (71,593) (736,966) --
Increase (decrease) in cash collateral
on loaned securities ------------------- (97,257) (39,223) (149,597)
Other ----------------------------------- (150,972) (148,029) 94,566
Net Cash Used in Investing Activities - (405,530) (1,427,358) (1,502,732)
<PAGE> -42-
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year Ended December 31 (000s omitted) 1996 1995 1994
Cash Flows from Financing Activities:
Principal payments on long-term debt ---- (35,074) (14,182) (142,065)
Issuance of long-term debt -------------- 2,082 197,785 199,482
Net increase (decrease) in
short-term debt ------------------------ (237,888) 25,785 (59,698)
Company-Obligated Mandatorily Redeemable
Preferred Securities of Subsidiary Trusts
Holding Solely Junior Subordinated
Deferrable Interest Debentures of Company 315,000 -- --
Universal life and investment
contract deposits ---------------------- 1,172,673 2,142,043 2,429,113
Universal life and investment
contract withdrawals ------------------- (2,380,187) (2,158,392) (1,613,780)
Common stock issued for benefit plans --- (565) 24,096 29,985
Retirement of common stock -------------- (32,716) -- (18,395)
Proceeds from sale of minority
interest in subsidiary ----------------- 215,182 -- --
Dividends paid to shareholders ---------- (191,223) (178,805) (172,157)
Net Cash Provided by (Used in)
Financing Activities ----------------- (1,172,616) 38,330 652,485
Net Increase (Decrease) in Cash ------- (341,131) 531,272 331,919
Cash at Beginning-of-Year --------------- 1,572,855 1,041,583 709,664
Cash at End-of-Year ------------------- $1,231,724 $1,572,855 $1,041,583
See notes to the consolidated financial statements on pages 42 - 68.
LINCOLN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation. The accompanying consolidated financial statements
include Lincoln National Corporation ("LNC") and its majority-owned
subsidiaries. Through subsidiary companies, LNC operates multiple insurance
and investment management businesses. Operations are divided into four
business segments (see note 9 on page 63). Less than majority-owned entities
in which LNC has at least a 20% interest are reported on the equity basis.
These consolidated financial statements have been prepared in conformity with
generally accepted accounting principles.
Use of Estimates. The nature of the insurance and investment management
businesses requires management to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements and accompanying
notes. Actual results could differ from those estimates.
Investments. LNC classifies its fixed maturity and equity securities (common
and non-redeemable preferred stocks) as available-for-sale and, accordingly,
such securities are carried at fair value. The cost of fixed maturity
securities is adjusted for amortization of premiums and discounts. The cost
of fixed maturity and equity securities is adjusted for declines in value that
are other than temporary.
For the mortgage-backed securities portion of the fixed maturity securities
portfolio, LNC recognizes income using a constant effective yield based on
anticipated prepayments and the estimated economic life of the securities.
When estimates of prepayments change, the effective yield is recalculated to
reflect actual payments to date and anticipated future payments. The net
investment in the securities is adjusted to the amount that would have existed
had the new effective yield been applied at the time of acquisition. This
adjustment is reflected in net investment income.
Mortgage loans on real estate are carried at the outstanding principal
balances less unaccrued discounts. Investment real estate is carried at cost
<PAGE> -43-
less allowances for depreciation. The cost for both mortgage loans and real
estate and investment real estate is adjusted for declines in value that are
other than temporary. Also, allowances for losses are established, as
appropriate, for real estate holdings that are in the process of being sold.
Real estate acquired through foreclosure proceedings is recorded at fair value
on the settlement date which establishes a new cost basis. If a subsequent
periodic review of a foreclosed property indicates the fair value, less
estimated costs to sell, is lower than the carrying value at the settlement
date, the carrying value is adjusted to the lower amount. Any changes to the
reserves for mortgage loans on real estate and real estate are reported as
realized gain (loss) on investments.
Policy loans are carried at aggregate unpaid balances.
Cash and invested cash are carried at cost and include all highly liquid debt
instruments purchased with a maturity of three months or less.
Realized gain (loss) on investments is recognized in net income, net of
related amortization of deferred acquisition costs and capital gains expenses,
using the specific identification method. Changes in the fair values of
securities carried at fair value are reflected directly in shareholders'
equity, after deductions for related adjustments for deferred acquisition
costs and amounts required to satisfy policyholder commitments that would have
been recorded had these securities been sold at their fair value, and after
deferred taxes or credits to the extent deemed recoverable.
Realized gain (loss) on sale of affiliates/operating property, net of taxes,
is recognized in net income. Realized gain (loss) on sale of minority
interests in subsidiaries is reflected directly in shareholders' equity net of
deferred taxes, if any.
Derivatives. LNC hedges certain portions of its exposure to interest rate
fluctuations, the widening of bond yield spreads over comparable maturity U.S.
Government obligations, fluctuations in the Financial Times Stock Exchange
("FTSE") index and foreign exchange risk by entering into derivative
transactions. A description of LNC's accounting for its hedge of such risks
is discussed in the following two paragraphs.
The premiums paid for interest rate caps and swaptions are deferred and
amortized to net investment income on a straight-line basis over the term of
the respective derivative. Any settlement received in accordance with the
terms of the interest rate caps is also recorded as net investment income.
Settlements received on swaptions are deferred and amortized over the life of
the hedged assets as an adjustment to yield. Swaptions, spread-lock
agreements, interest rate swaps and financial futures that hedge fixed
maturity securities available-for-sale are carried at fair value. The change
in fair value is reflected directly in shareholders' equity. Realized gain
(loss) from the settlement of such derivatives is deferred and amortized over
the life of the hedged assets as an adjustment to the yield. Over-the-counter
call options are carried at fair value. Foreign exchange forward contracts,
which hedge LNC's investment in its British subsidiary, Lincoln National (UK),
are carried at fair value. The change in fair value and realized gain (loss)
on such contracts is reflected directly in the foreign currency translation
adjustment component of shareholders' equity. Foreign exchange forward
contracts, foreign currency options and foreign currency swaps, which hedge
some of the foreign exchange risk of investments in fixed maturity securities
denominated in foreign currencies, are carried at fair value. The change in
fair value is reflected in earnings. Realized gain (loss) from the settlement
of such derivatives is also reflected in earnings.
Hedge accounting is applied as indicated above after LNC determines that the
items to be hedged expose LNC to interest rate fluctuations, the widening of
bond yield spreads over comparable maturity U.S. Government obligations,
fluctuations in the FTSE index and foreign exchange risk. Moreover, the
derivatives used are designated as a hedge and reduce the indicated risk by
having a high correlation of changes in the value of the derivatives and the
items being hedged at both the inception of the hedge and throughout the hedge
period. Should such criteria not be met, the change in value of the
derivatives is included in net income.
Property and Equipment. Property and equipment owned for company use is
carried at cost less allowances for depreciation.
Premiums and Fees. Revenue for universal life and other interest-sensitive
life insurance policies consists of policy charges for the cost of insurance,
policy initiation and administration, and surrender charges that have been
assessed. Traditional individual life-health and annuity premiums are
<PAGE> -44-
recognized as revenue over the premium-paying period of the policies. Group
health and property-casualty premiums are prorated over the contract term of
the policies.
Investment Advisory Fees. As specified in the investment advisory agreements
with the mutual funds, fees are determined and recognized as revenues monthly,
based on the average daily net assets of the mutual funds managed. Investment
advisory contracts generally provide for the determination and payment of
advisory fees based on market values of managed portfolios at the end of a
calendar month or quarter. Investment management and advisory contracts are
renewable annually with cancellation clauses ranging from 30 to 90 days.
Assets Held in Separate Accounts/Liabilities Related to Separate Accounts.
These assets and liabilities represent segregated funds administered and
invested by LNC's insurance subsidiaries for the exclusive benefit of pension
and variable life and annuity contractholders. The fees received by LNC's
insurance subsidiaries for administrative and contractholder maintenance
services performed for these separate accounts are included in LNC's
consolidated statements of income.
Deferred Acquisition Costs. Commissions and other costs of acquiring
universal life insurance, variable universal life insurance, traditional life
insurance, unit-linked products, annuities, group health insurance and
property-casualty insurance which vary with and are primarily related to the
production of new business, have been deferred to the extent recoverable.
Acquisition costs for universal and variable universal life insurance policies
and unit-linked products are being amortized over the lives of the policies in
relation to the incidence of estimated gross profits from surrender charges
and investment, mortality, and expense margins, and actual realized gain
(loss) on investments. That amortization is adjusted retrospectively when
estimates of current or future gross profits to be realized from a group of
products are revised. Traditional life-health and annuity acquisition costs
are being amortized over the premium-paying period of the related policies
using assumptions consistent with those used in computing policy reserves.
Deferred acquisition costs for property-casualty policies are amortized over
the contract term of the policies. Property-casualty acquisition costs that
are not recoverable from future premiums and related investment income are
expensed.
Expenses. Expenses for universal and variable universal life insurance
policies include interest credited to policy account balances and benefit
claims incurred during the period in excess of policy account balances.
Interest crediting rates associated with funds invested in the insurance
company's general account during 1994 through 1996 ranged from 5.9% to 8.0%.
Interest and debt expense includes interest on Company-Obligated Mandatorily
Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Junior
Subordinated Deferrable Interest Debentures of Company ("Minority Interest -
Preferred Securities of Subsidiary Companies").
Goodwill and Other Intangible Assets. The cost of acquired subsidiaries or
blocks of business in excess of the fair value of net assets (goodwill) is
amortized using the straight-line method over periods that generally
correspond with the benefits expected to be derived from the acquisitions.
Goodwill recorded subsequent to 1994 is amortized over 20 to 25 years.
Goodwill arising prior to 1995 is generally amortized over 40 years.
Other intangible assets includes the present value of business in-force that
is recorded in connection with the acquisition of an insurance company or a
block of policies. The initial value is determined actuarially by discounting
estimated future gross profits as a measure of the value of business in-force
purchased. The resulting asset is amortized on a constant yield basis over
the expected revenue recognition period of the business acquired, with the
accrual of interest added to the unamortized balance at rates ranging from 5%
to 9%.
Other intangible assets for the non-insurance subsidiaries (i.e.,
institutional customer relationships, covenants not to compete and mutual fund
customer relationships) have been recorded in connection with the acquisition
of an asset management services company. These assets are amortized on a
straight-line basis over 6 to 15 years.
The carrying value of goodwill and other intangible assets is reviewed
periodically for indicators of impairment in value.
Policy Liabilities and Accruals. The liabilities for future policy benefits
and expenses for universal and variable universal life insurance policies
consist of policy account balances that accrue to the benefit of the
policyholders, excluding surrender charges. The liabilities for future policy
benefits and expenses for traditional life policies and immediate and deferred
<PAGE> -45-
paid-up annuities are computed using a net level premium method and
assumptions for investment yields, mortality and withdrawals based principally
on company experience projected at the time of policy issue, with provision
for possible adverse deviations. Interest assumptions for traditional direct
individual life reserves for all policies range from 2.6% to 8.4% graded to
5.7% after 30 years depending on time of policy issue. Interest rate
assumptions for reinsurance reserves range from 5.0% to 11.0% graded to 8.0%
after 20 years. The interest assumptions for immediate and deferred paid-up
annuities range from 4.5% to 8.0%.
The liability for unpaid property-casualty claims is based on estimates of
payments to be made for individual claims reported and unreported claims,
reduced by estimated recoveries from salvage and subrogation. With respect to
its policy liabilities and accruals, LNC carries on a continuing review of
its: 1) overall reserve position; 2) reserving techniques and; 3) reinsurance
arrangements. As experience develops and new information becomes known,
liabilities are adjusted as deemed necessary. The effects of changes in
estimates are included in the operating results for the period in which such
estimates occur.
Reinsurance. LNC's insurance companies enter into reinsurance agreements with
other companies in the normal course of their business. LNC's insurance
subsidiaries may assume reinsurance from unaffiliated companies and/or cede
reinsurance to such companies. Assets/liabilities and premiums/benefits from
certain reinsurance contracts that grant statutory surplus to other insurance
companies have been netted on the balance sheets and income statements,
respectively, since there is a right of offset. All other reinsurance
agreements are reported on a gross basis.
Depreciation. Provisions for depreciation of investment real estate and
property and equipment owned for company use are computed principally on the
straight-line method over the estimated useful lives of the assets.
Postretirement Medical and Life Insurance Benefits. LNC accounts for its
postretirement medical and life insurance benefits using the full accrual
method.
Stock Options. LNC recognizes compensation expense for its stock option
incentive plans using the intrinsic value method of accounting. Under the
terms of the intrinsic value method, compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date, or other
measurement date, over the amount an employee must pay to acquire the stock.
Foreign Exchange. LNC's foreign subsidiaries' balance sheet accounts and
income statement items are translated at the current exchange and average
exchange rates for the year, respectively. Resulting translation adjustments
are reported as a component of shareholders' equity. Other translation
adjustments for foreign currency transactions that affect cash flows are
reported in earnings.
2. Change in Estimate for Disability Income Reserve.
During the fourth quarter of 1995, LNC completed an in-depth review of the
experience of its disability income business. As a result of this study, and
based on the assumption that recent experience will continue in the future,
net income decreased by $121,600,000 or $1.17 per share ($187,000,000 pre-tax)
as a result of strengthening the disability income reserve by $142,700,000 and
writing-off deferred acquisition costs of $44,300,000 in the Reinsurance
segment.
3. Investments
The major categories of net investment income are as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Fixed maturity securities --------------------- $1,937.6 $1,853.6 $1,614.9
Equity securities ----------------------------- 35.5 30.3 29.9
Mortgage loans on real estate ----------------- 295.8 272.0 277.2
Real estate ----------------------------------- 125.4 117.9 104.4
Policy loans ---------------------------------- 42.1 37.9 34.0
Invested cash --------------------------------- 54.3 49.2 39.1
Other investments ----------------------------- 36.8 43.2 54.5
Investment revenue -------------------------- 2,527.5 2,404.1 2,154.0
Investment expense ---------------------------- 161.6 152.8 159.4
Net investment income ----------------------- $2,365.9 $2,251.3 $1,994.6
<PAGE> -46-
The realized gain (loss) on investments is as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Fixed maturity securities available-for-sale:
Gross gain ----------------------------------- $ 219.5 $ 257.7 $ 87.8
Gross loss ----------------------------------- (214.1) (95.8) (331.2)
Equity securities available-for-sale:
Gross gain ----------------------------------- 206.9 160.6 92.6
Gross loss ----------------------------------- (54.2) (60.0) (80.8)
Other investments ----------------------------- 40.3 61.9 19.6
Related restoration or amortization of deferred
acquisition costs, provision for policyholder
commitments and capital gains expenses ------- (70.3) (108.8) 81.2
Total -------------------------------------- $ 128.1 $ 215.6 $(130.8)
Provisions (credits) for write-downs and net changes in allowances for loss,
which are included in the realized gain (loss) on investments shown above, are
as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Fixed maturity securities --------------------- $ 12.3 $ 19.9 $ 19.5
Equity securities ----------------------------- 4.9 3.7 8.7
Mortgage loans on real estate ----------------- 3.1 14.2 18.2
Real estate ----------------------------------- 4.6 (9.2) 14.9
Other long-term investments ------------------- (0.8) (4.6) 1.7
Guarantees ------------------------------------ 0.2 (2.6) 2.5
Total --------------------------------------- $ 24.3 $ 21.4 $ 65.5
The change in unrealized appreciation (depreciation) on investments in fixed
maturity and equity securities is as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Fixed maturity securities available-for-sale - $ (823.3) $2,448.9 $(2,295.1)
Equity securities available-for-sale --------- (33.2) 138.2 (93.3)
Total -------------------------------------- $ (856.5) $2,587.1 $(2,388.4)
The cost, gross unrealized gain and loss, and fair value of securities
available-for-sale are as follows:
Fair
December 31 (in millions) Cost Gain Loss Value
1996:
Corporate bonds -------------------- $15,934.2 $ 700.0 $ 95.9 $16,538.3
U.S. Government bonds -------------- 1,512.4 52.8 19.5 1,545.7
Foreign governments bonds ---------- 1,671.2 149.6 31.7 1,789.1
Mortgage-backed securities:
Mortgage pass-through securities - 1,331.3 28.8 7.0 1,353.1
Collateralized mortgage
obligations --------------------- 3,931.3 170.8 11.0 4,091.1
Other mortgage-backed securities - .8 .4 -- 1.2
State and municipal bonds ---------- 2,200.5 138.3 5.5 2,333.3
Redeemable preferred stocks -------- 249.0 7.6 2.0 254.6
Total fixed maturity securities -- 26,830.7 1,248.3 172.6 27,906.4
Equity securities ------------------ 797.2 240.2 44.7 992.7
Total ---------------------------- $27,627.9 $1,488.5 $ 217.3 $28,899.1
1995:
Corporate bonds -------------------- $14,011.4 $1,262.3 $ 31.2 $15,242.5
U.S. Government bonds -------------- 1,033.1 115.0 .1 1,148.0
Foreign governments bonds ---------- 1,273.2 98.6 9.7 1,362.1
Mortgage-backed securities:
Mortgage pass-through securities - 1,175.0 45.6 3.4 1,217.2
Collateralized mortgage
obligations --------------------- 4,089.0 266.9 3.8 4,352.1
Other mortgage-backed securities - 2.7 .4 .1 3.0
State and municipal bonds ---------- 2,238.1 154.0 2.0 2,390.1
Redeemable preferred stocks -------- 113.0 7.0 .5 119.5
Total fixed maturity securities -- 23,935.5 1,949.8 50.8 25,834.5
Equity securities ------------------ 936.1 232.4 3.7 1,164.8
Total ---------------------------- $24,871.6 $2,182.2 $ 54.5 $26,999.3
<PAGE> -47-
Future maturities of fixed maturity securities available-for-sale are as
follows:
1996
Fair
December 31 (in millions) Cost Value
Due in one year or less ------------------------------ $ 585.1 $ 588.1
Due after one year through five years ---------------- 5,450.7 5,611.2
Due after five years through ten years --------------- 6,933.6 7,167.2
Due after ten years ---------------------------------- 8,597.9 9,094.5
Subtotal ------------------------------------------- 21,567.3 22,461.0
Mortgage-backed securities --------------------------- 5,263.4 5,445.4
Total ---------------------------------------------- $26,830.7 $27,906.4
The foregoing data is based on stated maturities. Actual maturities will
differ in some cases because borrowers may have the right to call or pre-pay
obligations.
At December 31, 1996, the current par, amortized cost and estimated fair value
of investments in mortgage-backed securities summarized by interest rates of
the underlying collateral are as follows:
Current Fair
December 31 (in millions) Par Cost Value
Below 7% ------------------------------- $ 123.3 $ 117.4 $ 117.2
7% - 8% -------------------------------- 1,881.1 1,840.4 1,855.9
8% - 9% -------------------------------- 1,840.0 1,786.9 1,847.3
Above 9% ------------------------------- 1,573.3 1,518.7 1,625.0
Total -------------------------------- $5,417.7 $5,263.4 $5,445.4
The quality ratings of fixed maturity securities available-for-sale are as
follows:
December 31 1996
Treasuries and AAA ----------------------------------- 32.8%
AA --------------------------------------------------- 10.0
A ---------------------------------------------------- 28.2
BBB -------------------------------------------------- 22.9
BB --------------------------------------------------- 2.7
Less than BB ----------------------------------------- 3.4
100.0%
Mortgage loans on real estate are considered impaired when, based on current
information and events, it is probable that LNC will be unable to collect all
amounts due according to the contractual terms of the loan agreement. When
LNC determines that a loan is impaired, the cost is adjusted or a provision
for loss is established equal to the difference between the initial cost of
the mortgage loan and the estimated value. Estimated value is based on: 1)
the present value of expected future cash flows discounted at the loan's
effective interest rate; 2) the loan's observable market price or; 3) the fair
value of the collateral. The provision for losses is reported as realized
gain (loss) on investments. Mortgage loans deemed to be uncollectible are
charged against the allowance for losses and subsequent recoveries, if any,
are credited to the allowance for losses.
The allowance for losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Management's periodic
evaluation of the adequacy of the allowance for losses is based on LNC's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay (including the
timing of future payments), the estimated value of the underlying collateral,
composition of the loan portfolio, current economic conditions and other
relevant factors. This evaluation is inherently subjective as it requires
estimating the amounts and timing of future cash flows expected to be received
on impaired loans that may be susceptible to significant change.
<PAGE> -48-
Impaired loans along with the related allowance for losses are as follows:
December 31 (in millions) 1996 1995
Impaired loans with allowance for losses --------- $ 71.9 $150.9
Allowance for losses ----------------------------- (12.4) (29.6)
Impaired loans with no allowance for losses ------ 2.3 2.2
Net impaired loans ----------------------------- $ 61.8 $123.5
Impaired loans with no allowance for losses are a result of: 1) direct
write-downs or; 2) collateral dependent loans where the fair value of the
collateral is greater than the recorded investment in the loan.
A reconciliation of the mortgage loan allowance for losses for these impaired
mortgage loans is as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Balance at beginning-of-year -------------------- $ 29.6 $ 62.7 $226.6
Provisions for losses --------------------------- 3.1 14.2 18.2
Releases due to write-downs --------------------- -- (11.9) --
Releases due to sales --------------------------- (19.9) (20.2) (163.2)
Releases due to foreclosures -------------------- (.4) (15.2) (18.9)
Balance at end-of-year ------------------------ $ 12.4 $ 29.6 $ 62.7
The average recorded investment in impaired loans and the interest income
recognized on impaired loans were as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Average recorded investment in impaired loans --- $139.6 $189.6 $498.1
Interest income recognized on impaired loans ---- 12.7 16.9 38.3
All interest income on impaired loans was recognized on the cash basis of
income recognition.
As of December 31, 1996 and 1995, LNC had restructured loans of $39,600,000
and $62,500,000, respectively. LNC recorded $4,000,000 and $6,300,000 of
interest income on these restructured loans in 1996 and 1995, respectively.
Interest income in the amount of $4,000,000 and $6,600,000 would have been
recorded on these loans according to their original terms in 1996 and 1995,
respectively. As of December 31, 1996 and December 31, 1995, LNC had no
outstanding commitments to lend funds on restructured loans.
An investment in real estate is considered impaired when the projected
undiscounted cash flow from the investment is less than the carrying value.
When LNC determines that an investment in real estate is impaired, it is
written-down to reduce the carrying value to the estimated value.
As of December 31, 1996, LNC's investment commitments for fixed maturity
securities (primarily private placements), mortgage loans on real estate and
real estate were $388,100,000.
For the year ended December 31, 1996, fixed maturity securities available-for-
sale, mortgage loans on real estate and real estate investments which were
non-income producing were not significant.
The cost information for mortgage loans on real estate, real estate and other
long-term investments are net of allowances for losses. The balance sheet
account for other liabilities includes a reserve for guarantees of third-party
debt. The amount of allowances and reserves for such items is as follows:
December 31 (in millions) 1996 1995
Mortgage loans on real estate ------------------------- $12.4 $29.6
Real estate ------------------------------------------- 3.0 58.0
Other long-term investments --------------------------- -- 13.6
Guarantees -------------------------------------------- 1.8 7.1
<PAGE> -49-
4. Federal Income Taxes
The Federal income tax expense (benefit) is as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Current -------------------------------------- $158.9 $206.8 $(93.9)
Deferred ------------------------------------- 20.3 (62.4) 120.3
Total -------------------------------------- $179.2 $144.4 $ 26.4
The effective tax rate on pre-tax income is lower than the prevailing corpo-
rate Federal income tax rate. A reconciliation of this difference is as
follows:
Year Ended December 31 (in millions) 1996 1995 1994
Tax rate times pre-tax income ----------------- $249.3 $219.3 $131.7
Effect of:
Tax-exempt investment income ------------------ (66.5) (70.0) (74.0)
Loss (gain) on sale of affiliates/
operating property --------------------------- -- -- (17.1)
Other items ----------------------------------- (3.6) ( 4.9) (14.2)
Provision for income taxes ------------------ $179.2 $144.4 $ 26.4
Effective tax rate -------------------------- 25% 23% 7%
The Federal income tax recoverable (liability) is as follows:
December 31 (in millions) 1996 1995
Current ----------------------------------------------- $ 16.1 $ (7.2)
Deferred ---------------------------------------------- (49.8) (121.2)
Total ----------------------------------------------- $(33.7)$(128.4)
Significant components of LNC's net deferred tax asset (liability) are as
follows:
December 31 (in millions) 1996 1995
Deferred tax assets:
Policy liabilities and accruals and
contractholder funds --------------------------------- $ 966.1 $1,032.2
Net operating loss ------------------------------------ 90.0 120.7
Loss on investments ----------------------------------- -- 16.3
Postretirement benefits other than pensions ----------- 62.2 56.6
Other ------------------------------------------------- 108.7 91.7
Total deferred tax assets --------------------------- 1,227.0 1,317.5
Deferred tax liabilities:
Deferred acquisition costs ---------------------------- 431.4 415.0
Premiums and fees receivable -------------------------- 55.7 44.6
Gain on investments ----------------------------------- 35.1 --
Net unrealized gain on securities available-for-sale--- 425.4 717.0
Present value of business in-force -------------------- 220.4 148.7
Other ------------------------------------------------- 108.8 113.4
Total deferred tax liabilities ---------------------- 1,276.8 1,438.7
Net deferred tax asset (liability) ------------------ $ (49.8)$ (121.2)
Cash paid for Federal income taxes in 1996, 1995 and 1994 was $143,800,000,
$38,300,000 and $70,900,000, respectively. The cash paid in 1995 is net of a
$147,400,000 cash refund related to the carryback of 1994 capital losses to
prior years.
At December 31, 1996, LNC had net operating loss carryforwards of $149,900,000
for Federal income tax purposes related to its foreign life reinsurance
companies that expire in years 2005 through 2009. Delaware Management
Holdings, Inc. ("Delaware"), acquired in 1995, has net operating loss
carryforwards for Federal income tax purposes of $107,400,000 at December 31,
1996, which expire in the years 2002 through 2010. These carryforwards will
only be available to reduce the respective taxable income of the foreign life
reinsurance companies and Delaware.
Prior to 1984, a portion of the life companies' current income was not subject
to income tax, but was accumulated for income tax purposes in a memorandum
account designated as the "policyholders' surplus account". Due to changes in
<PAGE> -50-
the tax law, the total of the life companies' balances in their respective
"policyholders' surplus accounts" have not increased since December 31, 1983.
However, the portion of current income on which income taxes have been paid
continues to accumulate in a memorandum account designated as the
"shareholders' surplus account", and this balance is available for dividends
to shareholders without additional payment of tax. The December 31, 1996
total of the life companies' account balances for their "shareholders' surplus
accounts" was $1,855,000,000. Should dividends to shareholders for each life
company exceed its respective "shareholders' surplus account", amounts would
be transferred from its respective "policyholders' surplus account" and would
be subject to Federal income tax at that time. Under existing or foreseeable
circumstances, LNC neither expects nor intends that distribution will be made
from the $213,600,000 "policyholders' surplus account" that would result in
any such tax. Accordingly, no provision for deferred income taxes has been
provided by LNC on its "policyholders' surplus account". In the event that
such excess distributions were made, it is estimated that income taxes of
approximately $74,800,000 would be due.
Undistributed earnings of certain LNC foreign subsidiaries that are considered
to be indefinitely reinvested amounted to approximately $135,000,000 at
December 31, 1996. Accordingly, no provisions for U.S. income taxes have been
provided on these undistributed earnings. Upon distribution of those earnings
in the form of dividends or otherwise, LNC would be subject to both U.S.
income taxes (with adjustments for foreign tax credits) and withholding taxes
payable to the applicable foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable because of
the complexities associated with its hypothetical calculations.
5. Supplemental Financial Data
The balance sheet captions, "Real Estate" and "Property and Equipment," are
shown net of allowances for depreciation and valuation allowances for
operating property held-for-sale as follows:
December 31 (in millions) 1996 1995
Real estate (allowances for depreciation) ----------- $ 44.1 $ 58.7
Property and equipment (allowances for depreciation)- 232.5 228.5
Property and equipment (valuation allowance) -------- 26.9 28.3
Details underlying the balance sheet caption, "Contractholder Funds," are as
follows:
December 31 (in millions) 1996 1995
Premium deposit funds ------------------------------- $20,894.7 $18,489.6
Undistributed earnings on participating business ---- 81.9 91.9
Other ----------------------------------------------- 200.4 203.0
Total --------------------------------------------- $21,177.0 $18,784.5
A reconciliation of the present value of business in-force for LNC's insurance
subsidiaries included in other intangible assets is as follows:
December 31 (in millions) 1996 1995 1994
Balance at beginning-of-year ----------------- $407.4 $ 38.0 $ 67.7
Acquisitions of insurance companies/business - 163.5 388.7 --
Divestitures of insurance companies ---------- -- -- (25.5)
Interest accrued on unamortized balance ------ 37.9 30.7 3.6
Amortization of asset ------------------------ (47.6) (50.0) (7.8)
Foreign Exchange Adjustment ------------------ 41.1 -- --
Balance at end-of-year --------------------- 602.4 407.4 38.0
Other intangible assets (non-insurance) ------ 106.0 121.5 4.8
Total other intangible assets
at end-of-year ---------------------------- $708.4 $528.9 $ 42.8
Future estimated amortization of the present value of business in-force net of
interest on unamortized balance for LNC's insurance subsidiaries is as follows
(in millions):
1997 - $22.7 1999 - $24.2 2001 - $27.9
1998 - 24.4 2000 - 25.0 Thereafter - 478.2
<PAGE> -51-
A reconciliation of the beginning-of-year and end-of-year liability for
property-casualty claims and claim expenses is as follows:
December 31 (in millions) 1996 1995 1994
Total liability reported at beginning-of-year -- $2,595.3 $2,702.5 $2,810.1
Reinsurance recoverable ------------------------ 189.0 203.1 225.5
Liability for claims and claim expenses
at beginning-of-year, net of reinsurance --- 2,406.3 2,499.4 2,584.6
Plus:
Provision for claims and claim expenses arising
in the current year, net of reinsurance ------- 1,245.6 1,234.0 1,340.6
Decrease in estimated claims and claim expenses
arising in prior years, net of reinsurance ---- (43.2) (24.5) (78.2)
Total incurred claims and claim expenses,
net of reinsurance ------------------------- 1,202.4 1,209.5 1,262.4
Less:
Claims and claim expense payments arising
in the current year, net of reinsurance ------- 654.0 613.2 619.4
Payments for claims and claim expenses
arising in prior years, net of reinsurance ---- 648.9 689.4 728.2
Total payments, net of reinsurance ---------- 1,302.9 1,302.6 1,347.6
Total liability for claims and claim expenses
at end-of-year, net of reinsurance --------- 2,305.8 2,406.3 2,499.4
Reinsurance recoverable ------------------------ 179.8 189.0 203.1
Total liability reported at end-of-year ----- $2,485.6 $2,595.3 $2,702.5
The reconciliation shows a decrease of $43,200,000, $24,500,000, and
$78,200,000 to the December 31, 1995, 1994 and 1993 liability for claims and
claim expenses, respectively, arising in prior years. Such reserve
adjustments, which affected current operations during 1996, 1995 and 1994,
respectively, resulted from developed claims for prior years being different
than anticipated when liabilities for claims and claim expenses were
originally estimated. The favorable development trends are reflective of the
changes in underwriting practices adopted during the last few years. These
development trends have been considered in establishing current year reserves.
Details underlying the balance sheet captions, "Short-term and Long-term
Debt," are as follows:
December 31 (in millions) 1996 1995
Short-term debt:
Commercial paper ------------------------------------ $164.5 $301.9
Other short-term notes ------------------------------ .7 123.4
Current portion of long-term debt ------------------- 23.8 1.5
Total short-term debt ----------------------------- $189.0 $426.8
Long-term debt less current portion:
7 1/8% notes payable, due 1999 ---------------------- $ 99.5 $ 99.4
7 5/8% notes payable, due 2002 ---------------------- 99.3 99.2
7 1/4% notes payable, due 2005 ---------------------- 199.1 199.0
9 1/8% notes payable, due 2024 ---------------------- 199.1 199.1
Mortgages and other notes payable ------------------- 29.3 62.6
Total long-term debt ------------------------------ $626.3 $659.3
The commercial paper outstanding at December 31, 1996 and 1995, had a weighted
average interest rate of approximately 5.87% and 6.00%, respectively.
Future maturities of long-term debt are as follows (in millions):
1997 - $ 23.8 1999 - $100.7 2001 - $ 1.1
1998 - 27.3 2000 - .7 Thereafter - 500.4
<PAGE> -52-
LNC maintains a revolving credit agreement with a group of domestic and
foreign banks in the aggregate amount of $750,000,000. This agreement, which
expires in October 2001, provides for interest on borrowings based on various
money market indices. Under the terms of this agreement, debt levels must
remain below 45% of adjusted consolidated net worth if debt ratings fall below
a prescribed level. LNC's current debt ratings are above this prescribed
level. Also, LNC must maintain a prescribed level of adjusted consolidated
net worth. At December 31, 1996, LNC had no outstanding borrowings under this
agreement. During 1996, 1995 and 1994, fees paid for maintaining revolving
credit agreements amounted to $715,000, $649,000, and $1,000,000,
respectively.
Cash paid for interest for 1996, 1995 and 1994 was $79,900,000, $73,200,000,
and $47,900,000, respectively.
Reinsurance transactions included in the income statement caption, "Insurance
Premiums," are as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Insurance assumed --------------------------- $1,374.0 $1,297.6 $1,159.9
Insurance ceded ----------------------------- 376.6 448.7 482.9
Net reinsurance premiums ------------------ $ 997.4 $ 848.9 $ 677.0
The income statement caption, "Benefits and Settlement Expenses," is net of
reinsurance recoveries of $292,900,000, $422,600,000 and $284,000,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
The income statement caption, "Underwriting, Acquisition, Insurance and Other
Expenses," includes amortization of deferred acquisition costs of
$766,500,000, $687,300,000 and $598,300,000 for the years ended December 31,
1996, 1995 and 1994, respectively. An additional $(65,200,000), $(85,200,000)
and $81,200,000 of deferred acquisition costs was restored (amortized) and
netted against "Realized Gain (Loss) on Investments" for the years ended
December 31, 1996, 1995 and 1994, respectively.
6. Employee Benefit Plans
Pension Plans - U.S. LNC maintains funded defined benefit pension plans for
most of its U.S. employees and, prior to January 1, 1995, full-time agents.
The benefits for employees are based on total years of service and the highest
60 months of compensation during the last 10 years of employment. The
benefits for agents were based on a percentage of each agent's yearly
earnings. The plans are funded by contributions to tax-exempt trusts. LNC's
funding policy is consistent with the funding requirements of Federal law and
regulations. Contributions are intended to provide not only the benefits
attributed to service to date, but also those expected to be earned in the
future. Plan assets consist principally of listed equity securities,
corporate obligations and government bonds.
All benefits applicable to the funded defined benefit plan for agents were
frozen as of December 31, 1994. The curtailment of this plan did not have a
significant effect on net pension cost for 1994. Effective January 1, 1995,
pension benefits for agents have been provided by a new defined contribution
plan. Contributions to this plan are based on 2.3% of an agent's earnings up
to the social security wage base and 4.6% of any excess.
LNC also sponsors three types of unfunded, nonqualified, defined benefit plans
for certain U.S. employees, agents and directors. A supplemental retirement
plan provides defined benefit pension benefits in excess of limits imposed by
Federal tax law. A salary continuation plan provides certain officers of LNC
defined pension benefits based on years of service and final monthly salary
upon death or retirement. A retirement plan for outside directors provides
benefits based on years of service and the amount of the retainer paid during
the last year of service. Due to the adoption of a value sharing plan in
1996, no additional retainer fees are being added to this retirement plan for
outside directors.
<PAGE> -53-
The status of the funded defined benefit pension plans and the amounts
recognized on the balance sheets are as follows:
December 31 (in millions) 1996 1995
Actuarial present value of benefit obligation:
Vested benefits ---------------------------------------- $(399.2) $(369.7)
Nonvested benefits ------------------------------------- (16.3) (20.8)
Accumulated benefit obligation ----------------------- (415.5) (390.5)
Effect of projected future compensation increases ------ (95.1) (99.4)
Projected benefit obligation ------------------------- (510.6) (489.9)
Plan assets at fair value ------------------------------ 486.8 449.6
Projected benefit obligations in
excess of plan assets ------------------------------- (23.8) (40.3)
Unrecognized net loss ---------------------------------- 21.7 43.2
Unrecognized prior service cost ------------------------ 2.7 3.0
Prepaid (accrued) pension cost included in
other liabilities ----------------------------------- $ 0.6 $ 5.9
The status of the unfunded defined benefit pension plans and the amounts
recognized on the balance sheets are as follows:
December 31 (in millions) 1996 1995
Actuarial present value of benefit obligation:
Vested benefits --------------------------------------- $(27.6) $(25.4)
Nonvested benefits ------------------------------------ (3.1) (3.3)
Accumulated benefit obligation ---------------------- (30.7) (28.7)
Effect of projected future compensation increases ----- (6.9) (7.5)
Projected benefit obligation ------------------------ (37.6) (36.2)
Unrecognized transition obligation -------------------- .1 .2
Unrecognized net loss --------------------------------- 5.5 7.3
Unrecognized prior service cost ----------------------- .4 .4
Accrued pension cost included in other liabilities -- $(31.6) $(28.3)
The determination of the projected benefit obligation for the defined benefit
plans was based on the following assumptions:
December 31 1996 1995 1994
Weighted-average discount rate ---------------------- 7.0% 7.0% 8.0%
Rate of increase in compensation:
Salary continuation plan ---------------------------- 5.5 6.0 6.5
All other plans ------------------------------------- 4.5 5.0 5.0
Expected long-term rate of return on plan assets ---- 9.0 9.0 9.0
The components of net pension cost for the defined benefit pension plans are
as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Service cost-benefits earned during the year -------- $21.0 $17.0 $22.1
Interest cost on projected benefit obligation ------- 35.0 32.0 30.0
Actual return on plan assets ------------------------ (45.6) (82.4) 9.7
Net amortization (deferral) ------------------------- 7.7 52.4 (40.2)
Net pension cost ---------------------------------- $18.1 $19.0 $21.6
Pension Plan - Non U.S. The employees of LNC's primary foreign subsidiary are
covered by a defined benefit pension plan. The plan provides death and
pension benefits based on final pensionable salary. At December 31, 1996 and
1995, plan assets exceeded the projected benefit obligations by $9,076,000 and
$9,020,000, respectively, and were included in other assets in LNC's balance
sheet. Net pension costs for the foreign plan were $1,544,000, $1,727,000 and
$633,000, for 1996, 1995 and 1994, respectively.
<PAGE> -54-
401(k) Plans. LNC also sponsors contributory defined contribution plans for
eligible U.S. employees and agents. LNC's contributions to the plans are
equal to a participant's pre-tax contribution, not to exceed 6% of base pay,
multiplied by a percentage, ranging from 25% to 150%, which varies according
to certain incentive criteria as determined by LNC's Board of Directors.
Expense for these plans amounted to $25,400,000, $20,700,000 and $29,400,000
in 1996, 1995 and 1994, respectively.
Postretirement Medical and Life Insurance Benefit Plans. LNC sponsors unfunded
defined benefit plans that provide postretirement medical and life insurance
benefits to full-time U.S. employees and agents who, depending on the plan,
have worked for LNC 10 to 15 years and attained age 55 to 60. Medical
benefits are also available to spouses and other dependents of employees and
agents. For medical benefits, limited contributions are required from
individuals retired prior to November 1, 1988. Contributions for later
retirees, which can be adjusted annually, are based on such items as years of
service at retirement and age at retirement. Life insurance benefits are
noncontributory, however, participants can elect supplemental contributory
benefits.
The status of the postretirement medical and life insurance benefit plans and
the amount recognized on the balance sheet are as follows:
December 31 (in millions) 1996 1995
Accumulated postretirement benefit obligation:
Retirees -------------------------------------------- $ (73.8) $ (88.7)
Fully eligible active plan participants ------------- (22.9) (24.2)
Other active plan participants ---------------------- (40.1) (40.0)
Accumulated postretirement benefit obligation ----- (136.8) (152.9)
Unrecognized gain ----------------------------------- (25.9) (6.3)
Accrued plan cost included in other liabilities --- $(162.7) $(159.2)
The components of periodic postretirement benefit cost are as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Service cost ------------------------------------------- $ 3.9 $ 3.1 $ 4.3
Interest cost ------------------------------------------ 9.0 9.7 10.4
Amortized cost (credit) -------------------------------- (1.8) (2.0) .3
Net periodic postretirement benefit cost ------------- $11.1 $10.8 $15.0
The calculation of the accumulated postretirement benefit obligation assumes a
weighted-average annual rate of increase in the per capita cost of covered
benefits (i.e. health care cost trend rate) of 8.5% for 1997. It further
assumes the rate will gradually decrease to 5.0% by 2005 and remain at that
level. The health care cost trend rate assumption has a significant effect on
the amounts reported. For example, increasing the assumed health care cost
trend rates by one percentage point each year would increase the accumulated
postretirement benefit obligation as of December 1996 and 1995 by $9,900,000
and $11,100,000, respectively. The aggregate of the estimated service and
interest cost components of net periodic postretirement benefit cost for the
year ended December 31, 1996 would increase by $1,100,000. The calculation
assumes a long-term rate of increase in compensation of 4.5% and 5.0% for
December 31, 1996 and 1995, respectively. The weighted-average discount rate
used in determining the accumulated postretirement benefit obligation was 7.0%
for both December 31, 1996 and 1995.
Incentive Plans. LNC has various incentive plans for key employees, agents
and directors of LNC and its subsidiaries that provide for the issuance of
stock options, stock appreciation rights, restricted stock awards and stock
incentive awards. These plans are comprised primarily of stock option
incentive plans. Stock options granted under the stock option incentive plans
are at the market value at the date of grant and, subject to termination of
employment, expire 10 years from the date of grant. Such options are
transferable only upon death and are exercisable one year from date of grant
for options issued prior to 1992. Options issued subsequent to 1991 are
exercisable in 25% increments on the option issuance anniversary in the four
years following issuance.
<PAGE> -55-
Financial Accounting Standard No. 123 entitled "Accounting for Stock-Based
Compensation" ("FAS 123") issued in October 1995, was adopted by LNC as of
December 31, 1995. Pursuant to the provisions of FAS 123, LNC has elected to
continue its practice of recognizing compensation expense for its stock option
incentive plans using the intrinsic value based method of accounting (see note
1 on page 45) and to provide the required pro forma information for stock
options granted after December 31, 1994. Accordingly, no compensation expense
has been recognized for stock option incentive plans. Had compensation
expense for LNC's stock option incentive plans for options granted after
December 31, 1994 been determined based on the estimated fair value at the
grant dates for awards under those plans, LNC's pro forma net income and
earnings per share for 1996 and 1995 would have been $510,518,000 ($4.88 per
share) and $479,814,000 ($4.61 per share), respectively (a decrease of
$3,040,000 or $.03 per share and $2,372,000 or $.02 per share, respectively).
The effects on 1996 and 1995 pro forma net income and earnings per share of
expensing the estimated fair value of stock options are not necessarily
representative of the effects on reported net income for future years due to
factors such as the vesting period of the stock options and the potential for
issuance of additional stock options in future years.
The fair value of options granted after December 31, 1994, used as a basis for
the above pro forma disclosures, was estimated as of the date of grant using a
Black-Scholes option pricing model. For 1996, the option pricing assumptions
include a dividend yield of 4.1%; an expected volatility of 18%; a risk-free
interest rate of 6.5% and an expected life of 5 years. For 1995, the option
pricing assumptions include a dividend yield of 4.4%; an expected volatility
of 22%; a risk-free interest rate of 6.3% and an expected life of 5 years.
The weighted-average fair values per option granted during 1996 and 1995 were
$7.35 and $7.15, respectively.
Information with respect to the incentive plans involving stock options is as
follows:
Options Outstanding
Weighted-
Shares Average
Available Exercise
for Grant Shares Price
Balance at January 1, 1994 1,332,618 2,441,852 $28.80
Additional authorized ---------- 7,650,000
Granted ------------------------ (442,100) 442,100 39.49
Exercised ---------------------- -- (122,963) 25.43
Expired ------------------------ (7,000) -- --
Forfeited ---------------------- 105,203 (88,800) 33.76
Restricted stock awarded ------- (215,707)
Balance at December 31, 1994 - 8,423,014 2,672,189 30.56
Granted ------------------------ (510,150) 510,150 42.57
Exercised ---------------------- -- (313,612) 25.70
Expired ------------------------ (5,273) (275) 19.97
Forfeited ---------------------- 175,446 (36,172) 34.64
Restricted stock awarded ------- (335,126)
Balance at December 31, 1995 - 7,747,911 2,832,280 33.21
Granted ------------------------ (636,500) 636,500 45.69
Exercised ---------------------- -- (273,967) 26.68
Expired ------------------------ (1,600) (1,000) 27.75
Forfeited ---------------------- 151,818 (38,650) 36.03
Restricted stock awarded ------- (55,538)
Balance at December 31, 1996 - 7,206,091 3,155,163 36.29
Shares under options that were exercisable are as follows:
December 31 1996 1995 1994
Options exercisable
(number of shares) ----------- 1,833,269 1,647,872 1,615,839
Weighted-average exercise
price (per share) ------------ $31.22 $28.56 $26.34
<PAGE> -56-
Information with respect to incentive plan stock options outstanding at
December 31, 1996 is as follows:
Options Outstanding Options Exercisable
Weighted-
Average Weighted- Number Weighted-
Range of Number Out- Remaining Average Exercisable Average
Exercise standing at Contractual Exercise at Exercise
Prices Dec 31, 1996 Life (Years) Price Dec 31, 1996 Price
$10-$20 51,690 .96 $19.25 51,690 $19.25
21- 30 1,080,811 3.64 25.91 1,080,811 25.91
31- 40 899,976 5.96 39.58 565,261 39.63
41- 50 1,095,236 8.78 44.22 135,257 43.04
51- 60 27,450 9.38 52.23 250 52.85
$10-$60 3,155,163 1,833,269
Restricted stock (non-vested stock) awarded from 1994 through 1996 was as
follows:
Year Ended December 31 1996 1995 1994
Restricted stock (number of shares) ------------ 55,538 335,126 215,707
Weighted-average price per share at time
of grant -------------------------------------- $46.16 $41.09 $40.56
7. Restrictions, Commitments and Contingencies
Statutory Information and Restrictions
Net income as determined in accordance with statutory accounting practices for
LNC's insurance subsidiaries was as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Life-health insurance --------------------- $399.7 $314.0 $411.7
Property-casualty insurance --------------- 161.4 182.0 167.9
Life-health insurance statutory net income for 1996, 1995 and 1994, excluding
LNC's foreign life reinsurance companies, was $357,800,000, $350,400,000 and
$411,100,000, respectively.
Shareholders' equity as determined in accordance with statutory accounting
practices for LNC's insurance subsidiaries was as follows:
December 31 (in millions) 1996 1995
Life-health insurance --------------------- $2,080.5 $1,908.5
Property-casualty insurance --------------- 919.7 1,004.2
The National Association of Insurance Commissioners is involved in a multi-year
project to examine and challenge the appropriateness of current statutory
accounting principles. This project could result in changes to statutory
accounting practices that could cause changes to the statutory net income and
shareholders' equity data shown above.
LNC's insurance subsidiaries are subject to certain insurance department
regulatory restrictions as to the transfer of funds and payments of dividends
to LNC. In 1997, LNC's insurance subsidiaries can transfer up to $584,000,000
without seeking prior approval from the insurance regulators.
Environmental Losses
Total property-casualty liabilities for unpaid claims and claim expenses were
$2,486,000,000 and $2,595,000,000 at December 31, 1996 and 1995, respectively.
These liabilities include amounts for environmental losses of $265,000,000 and
$256,000,000, respectively. In establishing liabilities for claims and claim
expenses related to environmental matters, management considers facts
currently known and the current state of the law and coverage litigation.
Liabilities are recognized for known claims (including the cost of related
litigation) when sufficient information has been developed to indicate the
involvement of a specific insurance policy and management can reasonably
estimate its liability. Liabilities also have been established to cover
additional exposures on both known and unasserted claims. Estimates of the
liabilities are reviewed and updated continually. Developed case law and
adequate claim history do not exist for a portion of LNC's environmental
exposure, especially because significant uncertainty exists about the outcome
of coverage litigation and whether past claims experience will be
representative of future claims experience. Accordingly, although management
believes the estimated reserve provided for environmental losses is adequate,
<PAGE> -57-
it is reasonably possible that a change in estimate of required reserve levels
could occur in the near term. It is not possible to provide a meaningful
estimate of a range of possible outcomes at this time.
Disability Income Claims
The liability for disability income claims net of the related asset for
amounts recoverable from reinsurers at December 31, 1996 and 1995 is a net
liability of $1,561,000,000 and $1,541,000,000, respectively, excluding
deferred acquisition costs. This liability is based on the assumption that
recent experience will continue in the future. If incidence levels or claim
termination rates vary significantly from this assumption, adjustments to
reserves may be required in the future. Accordingly, this liability may prove
to be deficient or excessive. However, it is management's opinion that such
future development will not materially affect the consolidated financial
position of LNC. LNC reviews and updates the level of these reserves on an
ongoing basis (see note 2 on page 45).
United Kingdom Pension Products
Operations in the U.K. include the sale of pension products to individuals.
Regulatory agencies have raised questions as to what constitutes appropriate
advice to individuals who bought pension products as an alternative to
participation in an employer sponsored plan. In cases of inappropriate
advice, LNC may have to do extensive investigation and put the individual in a
position similar to what would have been attained if the individual had
remained in the employer sponsored plan. Liabilities of $86,700,000, which
are net of expected recoveries, have been established for the estimated cost
of this issue following regulatory guidance as to activities to be undertaken.
These liabilities were booked net of expected recoveries of $31,400,000 from
previous owners of companies acquired over the last few years as specified in
the indemnification clauses of the purchase agreements. These liabilities and
recoveries are based on various estimates that are subject to considerable
uncertainty. Accordingly, these liabilities may prove to be deficient or
excessive. However, it is management's opinion that such future development
will not materially affect the consolidated financial position of LNC.
Marketing and Compliance Issues
Regulators continue to focus on market conduct and compliance issues. Under
certain circumstances companies operating in the insurance and financial
services markets have been held responsible for providing incomplete or
misleading sales materials and for replacing existing policies with policies
that were less advantageous to the policyholder. LNC's management continues
to monitor the company's sales materials and compliance procedures and is
making an extensive effort to minimize any potential liability. However, due
to the uncertainty surrounding such matters, it is not possible to provide a
meaningful estimate of the range of potential outcomes at this time.
Group Pension Annuities
The liabilities for guaranteed interest and group pension annuity contracts,
which are no longer sold by LNC, are supported by a single portfolio of assets
that attempts to match the duration of these liabilities. Due to the long-term
nature of group pension annuities and the resulting inability to exactly
match cash flows, a risk exists that future cash flows from investments will
not be reinvested at rates as high as currently earned by the portfolio.
Accordingly, these liabilities may prove to be deficient or excessive.
However, it is management's opinion that such future development will not
materially affect the consolidated financial position of LNC.
Leases
Certain of LNC's subsidiaries lease their home office properties through
sale-leaseback agreements. The agreements provide for a 25 year lease period
with options to renew for six additional terms of five years each. The
agreements also provide LNC with the right of first refusal to purchase the
properties during the term of the lease, including renewal periods, at a price
defined in the agreements. LNC also has the option to purchase the leased
properties at fair market value as defined in the agreements on the last day
of the initial 25-year lease period ending in 2009 or the last day of any of
the renewal periods.
Total rental expense on operating leases in 1996, 1995 and 1994 was
$71,600,000, $65,600,000 and $51,400,000, respectively. Future minimum rental
commitments are as follows (in millions):
1997 - $53.4 1999 - $48.0 2001 - $ 43.6
1998 - 49.3 2000 - 46.2 Thereafter - 328.8
<PAGE> -58-
Insurance Ceded and Assumed
LNC's insurance companies cede insurance to other companies. The portion of
risks exceeding each company's retention limit is reinsured with other
insurers. LNC seeks reinsurance coverage within the business segments that
sell life insurance to limit its liabilities. Industry regulations prescribe
the maximum coverage that LNC can retain on an individual insured. As of
December 31, 1996, LNC's maximum retention on a single insured was $3,000,000.
Portions of LNC's deferred annuity business have also been co-insured with
other companies to limit its exposure to interest rate risks. At December 31,
1996, the reserves associated with these reinsurance arrangements totaled
$1,817,100,000. Effective January 1, 1997, catastrophe reinsurance
arrangements for property-casualty coverages provided for a recovery of an
average of approximately 90% of losses in excess of $30,000,000 up to
$180,000,000 per occurrence. To cover products other than life and property-
casualty insurance, LNC acquires other insurance coverages with retentions and
limits that management believes are appropriate for the circumstances. The
accompanying financial statements reflect premiums, benefits and settlement
expenses and deferred acquisition costs, net of insurance ceded (see note 5 on
page 52). LNC's insurance companies remain liable if their reinsurers are
unable to meet contractual obligations under applicable reinsurance
agreements.
Certain LNC insurance companies assume insurance from other companies. At
December 31, 1996, LNC's insurance companies have provided $828,300,000 of
statutory surplus relief to other insurance companies under reinsurance
transactions. Generally, such amounts are offset by corresponding receivables
from the ceding company, which are secured by future profits on the reinsured
business. However, LNC's insurance companies are subject to the risk that the
ceding company may become insolvent and the right of offset would not be
permitted.
Associated with these transactions, LNC's foreign insurance companies have
obtained letters of credit in favor of various unaffiliated insurance
companies from which LNC assumes business. This allows the ceding companies
to take statutory reserve credit. The letters of credit issued by the banks
represent a guarantee of performance under the reinsurance agreements. At
December 31, 1996, there was a total of $453,000,000 in outstanding bank
letters of credit. In exchange for the letters of credit, LNC paid the banks
approximately $758,000 in fees in 1996.
Vulnerability from Concentrations
At December 31, 1996, LNC did not have a material concentration of financial
instruments in a single investee, industry or geographic location. Also at
December 31, 1996, LNC did not have a concentration of: 1) business
transactions with a particular customer, lender or distributor; 2) revenues
from a particular product or service; 3) sources of supply of labor or
services used in the business or; 4) a market or geographic area in which
business is conducted that makes it vulnerable to an event that is at least
reasonably possible to occur in the near term and which could cause a severe
impact to LNC's financial condition, except for the market and geographic
concentration described in the following paragraph.
LNC writes personal and commercial lines of property and casualty insurance
throughout the United States. As a result, LNC is always at risk that there
could be significant losses arising in certain geographic areas from
catastrophes such as earthquakes and hurricanes. LNC seeks to protect itself
from such events by purchasing catastrophe insurance. LNC's policies in-force
providing earthquake, hurricane and related coverage in the Midwest, Western
and Southeastern coastal areas of the United States could expose LNC to losses
exceeding its reinsurance limits. Although the exposure exists, LNC has not
encountered losses in excess of its reinsurance limits during any year.
Other Contingency Matters
LNC and its subsidiaries are involved in various pending or threatened legal
proceedings arising from the conduct of business. In some instances, these
proceedings include claims for unspecified or substantial punitive damages and
similar types of relief in addition to amounts for alleged contractual
liability or requests for equitable relief. After consultation with legal
counsel and a review of available facts, it is management's opinion that these
proceedings ultimately will be resolved without materially affecting the
consolidated financial position of LNC.
The number of insurance companies that are under regulatory supervision has
resulted, and is expected to continue to result, in assessments by state
guaranty funds to cover losses to policyholders of insolvent or rehabilitated
<PAGE> -59-
companies. Mandatory assessments may be partially recovered through a
reduction in future premium taxes in some states. LNC has accrued
for expected assessments net of estimated future premium tax deductions.
Guarantees
LNC has guarantees with off-balance-sheet risks whose contractual amounts
represent credit exposure. Outstanding guarantees with off-balance-sheet
risks, shown in notional or contract amounts along with their carrying value
and estimated fair values, are as follows:
Assets (Liabilities)
Notional or Carrying Fair Carrying Fair
Contract Amounts Value Value Value Value
December 31 (in millions) 1996 1995 1996 1996 1995 1995
Industrial revenue bonds ------ $ 36.4 $ 63.5 $(1.8) -- $ (7.1) $ --
Real estate partnerships ------ 3.5 6.4 -- -- -- --
Mortgage loan pass-through
certificates ----------------- 50.3 63.6 -- -- -- --
Total guarantees ----------- $ 90.2 $133.5 $(1.8) -- $ (7.1) $ --
Certain subsidiaries of LNC have invested in real estate partnerships which
use industrial revenue bonds to finance their projects. LNC has guaranteed
the repayment of principal and interest on these bonds. Certain subsidiaries
of LNC are also involved in other real estate partnerships that use
conventional mortgage loans. In some cases, the terms of these arrangements
involve guarantees by each of the partners to indemnify the mortgagor in the
event a partner is unable to pay its principal and interest payments. In
addition, certain subsidiaries of LNC have sold commercial mortgage loans
through grantor trusts which issued pass-through certificates. These
subsidiaries have agreed to repurchase any mortgage loans which remain
delinquent for 90 days at a repurchase price substantially equal to the
outstanding principal balance plus accrued interest thereon to the date of
repurchase. It is management's opinion that the value of the properties
underlying these commitments is sufficient that in the event of default the
impact would not be material to LNC.
Derivatives
LNC has derivatives with off-balance-sheet risks whose notional or contract
amounts exceed the credit exposure. LNC has entered into derivative
transactions to reduce its exposure to fluctuations in interest rates, the
widening of bond yield spreads over comparable maturity U.S. Government
obligations, fluctuations in the FTSE index and foreign exchange risks. In
addition, LNC is subject to the risks associated with changes in the value of
its derivatives; however, such changes in the value generally are offset by
changes in the value of the items being hedged by such contracts. Outstanding
derivatives with off-balance-sheet risks, shown in notional or contract
amounts along with their carrying value and estimated fair values, are as
follows:
Assets (Liabilities)
Notional or Carrying Fair Carrying Fair
Contract Amounts Value Value Value Value
December 31 (in millions) 1996 1995 1996 1996 1995 1995
Interest rate derivatives:
Interest rate cap agreements -- $5,500.0 $5,110.0 $20.8 $8.2 $22.7 $ 5.3
Swaptions --------------------- 672.0 -- 10.6 10.6 -- --
Spread-lock agreements -------- -- 600.0 -- -- (.9) (.9)
Financial futures ------------- 147.7 106.7 (2.4) (2.4) 5.1 5.1
Interest rate swaps ----------- -- 5.0 -- -- .2 .2
Total interest rate
derivatives ---------------- 6,319.7 5,821.7 29.0 16.4 27.1 9.7
Equity indexed derivatives:
Call options ------------------ 14.7 13.3 10.5 10.5 8.0 8.0
Foreign currency derivatives:
Forward exchange forward contracts:
Foreign subsidiary ----------- -- 398.8 -- -- (5.4) (5.4)
Foreign investments ---------- 251.6 15.7 (.2) (.2) (.6) (.6)
Foreign currency options ------ 50.2 99.2 (.3) (.3) 1.9 1.4
Foreign currency swaps -------- 15.0 15.0 (2.1) (2.1) .4 .4
Total foreign currency
derivatives --------------- 316.8 528.7 (2.6) (2.6) (3.7) (4.2)
Total derivatives ---------- $6,651.2 $6,363.7 $36.9 $24.3 $31.4 $13.5
<PAGE> -60-
A reconciliation and discussion of the notional or contract amounts for the
significant programs using derivative agreements and contracts is as follows:
<TABLE>
Interest Spread-Lock
Rate Caps Swaptions Agreements
December 31
(in millions) 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
- -of-year -------------- $5,110.0 $4,400.0 $ -- $ -- $ 600.0 $1,300.0
New contracts --------- 1,183.0 710.0 1,161.1 -- 15.0 800.0
Terminations and
maturities ----------- (793.0) -- (489.1) -- (615.0) (1,500.0)
Balance at end-
of-year -------------- $5,500.0 $5,110.0 $ 672.0 $ -- $ -- $ 600.0
</TABLE>
<TABLE>
<CAPTION>
Financial Futures
Contracts Options Call Options
December 31
(in millions) 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
- -of-year ------------ $ 106.7 $ 382.5 $ -- $ -- $ 13.3 $ --
New contracts ------- 7,578.9 1,328.2 -- 181.6 -- 13.8
Terminations and
maturities ---------- (7,537.9) (1,604.0) -- (181.6) -- --
Foreign Exchange
Adjustment ---------- -- -- -- -- 1.4 (.5)
Balance at end-
of-year ------------- $ 147.7 $ 106.7 $ -- $ -- $ 14.7 $ 13.3
</TABLE>
<TABLE>
<CAPTION>
Foreign Currency Derivatives (Foreign Investments)
Forward Exchange Foreign Foreign
Forward Currency Currency
Contracts Options Swaps
December 31
(in millions) 1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
- -of-year ---------- $ 15.7 $ 21.2 $ 99.2 $ -- $15.0 $ --
New contracts ----- 406.7 131.1 1,168.6 356.6 -- 15.0
Terminations and
maturities ------- (170.8) (136.6) (1,217.6) (257.4) -- --
Balance at end-
of-year ---------- $251.6 $ 15.7 $ 50.2 $ 99.2 $15.0 $15.0
</TABLE>
<TABLE>
<CAPTION>
Foreign Exchange Forward
Contracts (Foreign Subsidiary)
December 31 (in millions) 1996 1995
<S> <C> <C>
Balance at beginning-of-year ------------------ $ 398.8 $ 138.3
New contracts --------------------------------- 255.5 709.2
Terminations and maturities ------------------- (654.3) (448.7)
Balance at end-of-year ---------------------- $ -- $ 398.8
</TABLE>
Interest Rate Caps. The interest rate cap agreements, which expire in 1997
through 2003, entitle LNC to receive payments from the counterparties on
specified future reset dates, contingent on future interest rates. For each
cap, the amount of such quarterly payments, if any, is determined by the
excess of a market interest rate over a specified cap rate multiplied by the
notional amount divided by four. The purpose of LNC's interest rate cap
agreement program is to protect its annuity line of business from the effect
of fluctuating interest rates. The premium paid for the interest rate caps is
included in other assets ($20,800,000 as of December 31, 1996) and is being
amortized over the terms of the agreements. This amortization is included in
net investment income.
Swaptions. Swaptions, which expire in 2002, entitle LNC to receive settlement
payments from the counterparties on specified expiration dates, contingent on
future interest rates. For each swaption, the amount of such settlement
payments, if any, is determined by the present value of the difference between
the fixed rate on a market rate swap and the strike rate multiplied by the
notional amount. The purpose of LNC's swaption program is to protect the
assets supporting its annuity line of business from the effect of fluctuating
interest rates. The premium paid for the swaptions is included in other
assets ($11,000,000 as of December 31, 1996) and is being amortized over the
terms of the agreements. This amortization is included in net investment
income.
Spread-Lock Agreements. Spread-lock agreements provide for a lump sum payment
to or by LNC, depending on whether the spread between the swap rate and a
specified U.S. Treasury note is larger or smaller than a contractually
specified spread. Cash payments are based on the product of the notional
amount, the spread between the swap rate and the yield of an equivalent
maturity U.S. Treasury security, and the price sensitivity of the swap at that
time. It is expressed in dollars-per-basis point. The purpose of LNC's
spread-lock program is to protect a portion of its fixed maturity securities
against widening spreads.
Financial Futures. LNC uses exchange-traded financial futures contracts and
options on those financial futures to hedge against interest rate risks and to
manage duration of a portion of its fixed maturity securities. Financial
futures contracts obligate LNC to buy or sell a financial instrument at a
<PAGE> -51-
specified future date for a specified price. They may be settled in cash or
through delivery of the financial instrument. Cash settlements on the change
in market values of financial futures contracts are made daily. Options on
financial futures give LNC the right, but not the obligation, to assume a long
or short position in the underlying futures at a specified price during a
specified time period.
Call Options. Call options which expire in 1997 through 2001, provide LNC
with settlement payments from the counterparties on specified expiration
dates. The payment, if any, is the percentage increase in the FTSE index over
the strike price defined in the contract, applied to a notional amount. The
purpose of LNC's call option program is to offset the cost of increases in the
liabilities of certain single premium investment contracts which are tied to
the FTSE index.
Foreign Currency Derivatives (Foreign Investments). LNC uses a combination of
foreign exchange forward contracts, foreign currency options and foreign
currency swaps, all of which are traded over-the-counter, to hedge some of the
foreign exchange risk of investments in fixed maturity securities denominated
in foreign currencies. The foreign currency forward contracts obligate LNC to
deliver a specified amount of currency at a future date at a specified
exchange rate. Foreign currency options give LNC the right, but not the
obligation, to buy or sell a foreign currency at a specified exchange rate
during a specified time period. A foreign currency swap is a contractual
agreement to exchange the currencies of two different countries pursuant to an
agreement to re-exchange the two currencies at the same rate of exchange at a
specified future date.
Foreign Exchange Forward Contracts (Foreign Subsidiary). LNC historically has
used foreign exchange forward contracts, which were traded over-the-counter,
to hedge the foreign exchange risk assumed with its investment in its U.K.
subsidiary, Lincoln National (UK). LNC hedged its exposure to sterling in
excess of $100,000,000 of its investment in Lincoln National (UK). The
foreign exchange forward contracts obligated LNC to deliver a specified amount
of currency at a future date at a specified exchange rate. LNC terminated
these contracts in the third quarter of 1996.
Additional Derivative Information. Expenses for the agreements and contracts
described above amounted to $8,000,000 and $9,100,000 in 1996 and 1995,
respectively. Deferred losses of $33,500,000 as of December 31, 1996, were
the result of: 1) terminated and expired spread-lock agreements and; 2)
financial futures contracts. These losses are included with the related fixed
maturity securities to which the hedge applied and are being amortized over
the life of such securities.
LNC is exposed to credit loss in the event of nonperformance by counterparties
on interest rate cap agreements, swaptions, spread-lock agreements, interest
rate swaps, call options, foreign exchange forward contracts, foreign currency
options and foreign currency swaps. However, LNC does not anticipate
nonperformance by any of the counterparties. The credit risk associated with
such agreements is minimized by purchasing such agreements from financial
institutions with long-standing, superior performance records. The amount of
such exposure is essentially the net replacement cost or market value for such
agreements with each counterparty if the net market value is in LNC's favor.
At December 31, 1996, the exposure was $28,000,000.
8. Fair Value of Financial Instruments
The following discussion outlines the methodologies and assumptions used to
determine the estimated fair value of LNC's financial instruments.
Considerable judgment is required to develop these fair values. Accordingly,
the estimates shown are not necessarily indicative of the amounts that would
be realized in a one-time, current market exchange of all of LNC's financial
instruments.
Fixed Maturity and Equity Securities. Fair values for fixed maturity
securities are based on quoted market prices, where available. For fixed
maturity securities not actively traded, fair values are estimated using
values obtained from independent pricing services. In the case of private
placements, fair values are estimated by discounting expected future cash
flows using a current market rate applicable to the coupon rate, credit
quality and maturity of the investments. The fair values for equity
securities are based on quoted market prices.
<PAGE> -62-
Mortgage Loans on Real Estate. The estimated fair value of mortgage loans on
real estate was established using a discounted cash flow method based on
credit rating, maturity and future income when compared to the expected yield
for mortgages having similar characteristics. The ratings for mortgages in
good standing are based on property type, location, market conditions,
occupancy, debt service coverage, loan to value, caliber of tenancy, borrower
and payment record. Fair values for impaired mortgage loans are based on: 1)
the present value of expected future cash flows discounted at the loan's
effective interest rate; 2) the loan's market price or; 3) the fair value of
the collateral if the loan is collateral dependent.
Policy Loans. The estimated fair value of investments in policy loans was
calculated on a composite discounted cash flow basis using Treasury interest
rates consistent with the maturity durations assumed. These durations were
based on historical experience.
Other Investments, and Cash and Invested Cash. The carrying value for assets
classified as other investments, and cash and invested cash in the
accompanying balance sheets approximates their fair value.
Investment Type Insurance Contracts. The balance sheet captions, "Future
Policy Benefits, Claims and Claim Expenses" and "Contractholder Funds,"
include investment type insurance contracts (i.e. deposit contracts and
guaranteed interest contracts). The fair values for the deposit contracts and
certain guaranteed interest contracts are based on their approximate surrender
values. The fair values for the remaining guaranteed interest and similar
contracts are estimated using discounted cash flow calculations. These
calculations are based on interest rates currently offered on similar
contracts with maturities that are consistent with those remaining for the
contracts being valued.
The remainder of the balance sheet captions "Future Policy Benefits, Claims
and Claim Expenses" and "Contractholder Funds" that do not fit the definition
of "investment type insurance contracts" are considered insurance contracts.
Fair value disclosures are not required for these insurance contracts and have
not been determined by LNC. It is LNC's position that the disclosure of the
fair value of these insurance contracts is important because readers of these
financial statements could draw inappropriate conclusions about LNC's
shareholders' equity determined on a fair value basis. It could be misleading
if only the fair value of assets and liabilities defined as financial
instruments are disclosed. LNC and other companies in the insurance industry
are monitoring the related actions of the various rule-making bodies and
attempting to determine an appropriate methodology for estimating and
disclosing the "fair value" of their insurance contract liabilities.
Short-term and Long-term Debt. Fair values for long-term debt issues are
estimated using discounted cash flow analysis based on LNC's current
incremental borrowing rate for similar types of borrowing arrangements. For
short-term debt, the carrying value approximates fair value.
Minority Interest - Preferred Securities of Subsidiary Companies. Fair values
for minority interest-preferred securities of subsidiary companies are based
on quoted market prices less the unamortized cost of issue.
Guarantees. LNC's guarantees include guarantees related to industrial revenue
bonds, real estate partnerships and mortgage loan pass-through certificates.
Based on historical performance where repurchases have been negligible and the
current status, which indicates none of the loans are delinquent, the fair
value liability for the guarantees related to the mortgage loan pass-through
certificates is insignificant.
Derivatives. LNC's derivatives include interest rate cap agreements,
swaptions, spread-lock agreements, foreign currency exchange contracts,
financial futures contracts, options on financial futures, interest rate
swaps, call options, foreign currency options and foreign currency swaps.
Fair values for these contracts are based on current settlement values. These
values are based on: 1) quoted market prices for the foreign currency exchange
contracts, financial futures contracts and options on financial futures and;
2) brokerage quotes that utilized pricing models or formulas using current
assumptions for all other swaps and agreements.
<PAGE> -63-
Investment Commitments. Fair values for commitments to make investments in
fixed maturity securities (primarily private placements), mortgage loans on
real estate and real estate are based on the difference between the value of
the committed investments as of the date of the accompanying balance sheets
and the commitment date. These estimates would take into account changes in
interest rates, the counterparties' credit standing and the remaining terms of
the commitments.
The carrying values and estimated fair values of LNC's financial instruments
are as follows:
Carrying Fair Carrying Fair
Value Value Value Value
December 31 (in millions) 1996 1996 1995 1995
Assets (liabilities/minority interests):
Fixed maturities securities -------- $27,906.4 $27,906.4 $25,834.5 $25,834.5
Equity securities ------------------ 992.7 992.7 1,164.8 1,164.8
Mortgage loans on real estate ------ 3,273.0 3,386.3 3,186.9 3,371.9
Policy loans ----------------------- 758.2 747.1 602.6 594.7
Other investments ------------------ 459.7 459.7 371.8 371.8
Cash and invested cash ------------- 1,231.7 1,231.7 1,572.9 1,572.9
Investment type insurance contracts:
Deposit contracts and certain
guaranteed interest contracts --- (18,710.5)(18,328.5)(15,620.2)(15,410.2)
Remaining guaranteed interest
and similar contracts ----------- (2,539.0) (2,508.7) (3,024.0) (3,125.1)
Short-term debt -------------------- (189.0) (189.0) (426.8) (426.8)
Long-term debt --------------------- (626.3) (622.7) (659.3) (713.4)
Minority interest-preferred
securities of subsidiary companies- (315.0) (315.7) -- --
Guarantees ------------------------- (1.8) -- (7.1) --
Derivatives ------------------------ 36.9 24.0 31.4 13.5
Investment commitments ------------- -- .3 -- .8
As of December 31, 1996 and 1995, the carrying value of the deposit contracts
and certain guaranteed contracts is net of deferred acquisition costs of
$176,000,000 and $336,000,000, respectively, excluding adjustments for
deferred acquisition costs applicable to changes in fair value of securities.
The carrying values of these contracts are stated net of deferred acquisition
costs so that they are comparable with the fair value basis.
9. Segment Information
LNC has four business segments: Life Insurance and Annuities, Reinsurance,
Property-Casualty and Investment Management. The Life Insurance and Annuities
segment offers annuities, universal life, pension products and other
individual coverages through a network of career agents, independent general
agencies, and insurance agencies located within a variety of financial
institutions. These products are sold throughout the United States. Similar
products are offered within the United Kingdom through sales representatives.
Reinsurance sells reinsurance products and services to insurance companies,
HMOs, self-funded employers and other primary risk accepting organizations in
the U.S. and economically attractive international markets. Effective in the
fourth quarter of 1995, operating results of the direct disability income
business previously included in the Life Insurance and Annuities segment, were
included in the Reinsurance segment. This direct disability income business,
which is no longer being sold, is now managed by the Reinsurance segment along
with its own disability income business. The Property-Casualty segment writes
both commercial and personal coverages throughout most of the United States
through a network of independent agencies. The Investment Management segment
offers a variety of asset management services to institutional and retail
customers primarily throughout the United States. Activity which is not
included in the major business segments is shown as "Other Operations."
"Other Operations" includes operations not directly related to the business
segments and unallocated corporate items (i.e., corporate investment income,
interest expense on corporate debt and unallocated overhead expenses). LNC's
other operations also included: 1) the equity in the earnings of a 29% owned
unconsolidated affiliate engaged in the life-health benefit business prior to
the sale of this interest in 1995 and, 2) the earnings of its investment
management companies prior to the formation of the Investment Management
<PAGE> -64-
segment in April 1995 with the acquisition of Delaware Management Holdings,
Inc. (see note 12 on page 67).
Financial data by segment for 1994 through 1996 is as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Revenue, excluding net investment income
and realized gain (loss) on investments/
affiliates/operating property:
Life Insurance and Annuities ----------- $1,124.2 $1,074.8 $1,133.4
Reinsurance ---------------------------- 1,279.2 1,181.9 1,070.9
Property-Casualty ---------------------- 1,617.2 1,688.7 1,710.6
Investment Management (Regular) -------- 210.7 142.8 --
Investment Management (at Cost --------- 61.6 42.8 --
Employee Life-Health Benefits ---------- -- -- 303.7
Other Operations (includes
consolidating adjustments) ------------ (65.6) (18.8) 48.5
Total -------------------------------- $4,227.3 $4,112.2 $4,267.1
Net Investment Income:
Life Insurance and Annuities ----------- $1,857.7 $1,859.5 $1,619.2
Reinsurance ---------------------------- 263.7 164.1 125.5
Property-Casualty ---------------------- 244.0 238.8 241.1
Investment Management ------------------ .9 .5 --
Employee Life-Health Benefits ---------- -- -- 10.8
Other Operations ----------------------- (.4) (11.6) (1.8)
Total -------------------------------- $2,365.9 $2,251.3 $1,994.8
Realized gain (loss) on investments/
affiliates/operating property:
Life Insurance and Annuities ----------- $ 66.4 $124.4 $(137.2)
Reinsurance ---------------------------- 18.1 16.4 1.0
Property-Casualty ---------------------- 34.4 27.4 19.7
Investment Management ------------------ 8.1 6.6 --
Employee Life-Health Benefits ---------- -- -- .4
Other Operations ----------------------- 1.1 95.0 34.1
Total -------------------------------- $128.1 $269.8 $ (82.0)
Income (loss) before income taxes and
minority interest:
Life Insurance and Annuities ----------- $470.3 $472.4 $106.7
Reinsurance ---------------------------- 131.1 (65.6) 102.9
Property-Casualty ---------------------- 187.6 190.4 177.2
Investment Management ------------------ 34.6 36.0 --
Employee Life-Health Benefits ---------- -- -- 22.9
Other Operations (includes interest
expense) ------------------------------ (111.3) (6.6) (33.4)
Total -------------------------------- $712.3 $626.6 $376.3
Income taxes (credits):
Life Insurance and Annuities ----------- $138.8 $138.3 $12.6
Reinsurance ---------------------------- 45.4 (23.6) 35.9
Property-Casualty ---------------------- 23.9 24.1 5.6
Investment Management ------------------ 17.7 17.0 --
Employee Life-Health Benefits ---------- -- -- 8.5
Other Operations ----------------------- (46.6) (11.4) (36.2)
Total -------------------------------- $179.2 $144.4 $26.4
Net income (loss):
Life Insurance and Annuities ----------- $329.9 $334.1 $ 94.1
Reinsurance ---------------------------- 85.7 (42.0) 67.1
Property-Casualty ---------------------- 144.3 166.3 171.6
Investment Management ------------------ 16.9 19.0 --
Employee Life-Health Benefits ---------- -- -- 14.4
Other Operations (includes interest
expense) ------------------------------ (63.2) 4.8 2.7
Total -------------------------------- $513.6 $482.2 $349.9
<PAGE> -65-
December 31 (in millions) 1996 1995 1994
Assets:
Life Insurance and Annuities ----------- $61,002.4 $52,465.8 $40,758.4
Reinsurance ---------------------------- 5,196.1 5,220.3 2,653.5
Property-Casualty ---------------------- 4,901.4 5,126.0 4,966.6
Investment Management ------------------ 640.0 632.4 --
Other Operations ----------------------- (26.5) (186.8) 486.3
Total -------------------------------- $71,713.4 $63,257.7 $48,864.8
Liabilities:
Life Insurance and Annuities ----------- $58,075.6 $49,485.4 $38,823.2
Reinsurance ---------------------------- 4,454.8 4,673.3 2,259.8
Property-Casualty ---------------------- 3,622.8 3,516.2 3,552.3
Investment Management ------------------ 106.6 59.4 --
Other Operations ----------------------- 668.6 1,145.3 1,187.4
Total -------------------------------- $66,928.4 $58,879.6 $45,822.7
Provisions for depreciation and capital additions were not material.
Acquisitions and dispositions of affiliated companies in 1994 and 1995 (see
note 12 on page 67) resulted in LNC's foreign operations being more
significant relative to LNC's consolidated totals. Substantially all of LNC's
foreign operations are conducted by Lincoln National (UK) plc, a United
Kingdom company. The data for this company included within the Life Insurance
and Annuities segment above is as follows:
Year Ended December 31 (in millions) 1996 1995 1994
Revenue -------------------------------- $393.2 $351.5 $409.1
Income before income taxes-------------- 101.5 72.5 29.1
Income taxes --------------------------- 35.5 26.8 10.6
Net income ----------------------------- 66.0 45.7 18.5
Year Ended December 31 (in millions) 1996 1995 1994
Assets --------------------------------- $7,331.8 $6,114.4 $1,788.4
Liabilities ---------------------------- 6,653.2 5,466.7 1,532.2
Foreign intracompany revenue is not significant. All earnings from LNC's U.K.
operations have been retained in the U.K.
10. Minority Interest - Preferred Securities of Subsidiary Companies
In May 1996, LNC filed a shelf registration with the Securities and Exchange
Commission that would allow LNC to offer and sell up to $500 million of
various forms of hybrid securities. These securities, which combine debt and
equity characteristics, utilize a series of three trusts (Lincoln National
Capital I, II and III). These trusts were formed solely for the purpose of
issuing preferred securities and lending the proceeds to LNC. The common
securities of these trusts are owned by LNC. The only assets of Lincoln
National Capital I, II and III are the notes receivable from LNC for such
loans. Distributions are paid by these trusts to the preferred
securityholders on a quarterly basis. The principal obligations of these
trusts are irrevocably guaranteed by LNC. Upon liquidation of these trusts
the holders of the preferred securities would be entitled to a fixed amount
per share plus accumulated and unpaid distributions. LNC reserves the right
to: 1) redeem the preferred securities at a fixed price plus accumulated and
unpaid distributions and; 2) extend the stated redemption date up to 19 years
if certain conditions are met.
In July 1996, Lincoln National Capital I issued 8,600,000 shares or
$215,000,000, 8.75% Quarterly Interest Preferred Securities ("QUIPS"). In
August 1996, Lincoln National Capital II issued 4,000,000 shares or
$100,000,000, 8.35% Trust Originated Preferred Securities ("TOPrS"). Both
issues mature in 2026 at $25 per share and are redeemable in whole or in part
at LNC's option any time after 2001. LNC may offer and sell up to an
additional $185,000,000 of securities under this shelf registration.
<PAGE> -66-
11. Shareholders' Equity
LNC's common and preferred stock is without par value.
All of the issued and outstanding series A preferred stock is $3 Cumulative
Convertible and is convertible at any time into shares of common stock. The
conversion rate is eight shares of common stock for each share of series A
preferred stock, subject to adjustment for certain events. The series A
preferred stock is redeemable at the option of LNC at $80 per share plus
accrued and unpaid dividends.
Outstanding series A preferred stock has full voting rights, subject to
adjustment if LNC is in default as to the payment of dividends. If LNC is
liquidated or dissolved, holders of series A preferred stock will be entitled
to payments of $80.00 per share. The difference between the aggregate
preference on liquidation value and the financial statement balance for the
series A preferred stock was $1,700,000 at December 31, 1996.
On June 30, 1995, Mutual Life Insurance Company, Dai-ichi the owner of LNC's
series E and F preferred stock which was 5 1/2% cumulative convertible
exchangeable, converted its entire holdings to LNC common stock. Based on a
conversion rate of two shares of common stock for each share of series E and F
preferred stock, 2,201,443 shares of series E and 2,216,454 shares of series F
were converted into 8,835,794 shares of common stock.
LNC has outstanding one common share purchase right ("Right") on each
outstanding share of LNC's common stock. A Right will also be issued with
each share of LNC's common stock that is issued before the Rights become
exercisable or expire. If a person or group announces an offer that would
result in beneficial ownership of 15% or more of LNC's common stock, the
Rights will become exercisable and each Right will entitle its holder to
purchase one share of LNC's common stock for $200. Upon the acquisition of
15% or more of LNC's common stock, each holder of a Right (other than the
person acquiring the 15% or more) will have the right to acquire the number of
shares of LNC common stock that have a market value of two times the exercise
price of the Right. If LNC is acquired in a business combination transaction
in which LNC does not survive, each holder of a Right (other than the
acquiring person) will have the right to acquire common stock of the acquiring
person having a market value of two times the exercise price of the Right.
LNC can redeem each Right for one cent at any time prior to the tenth day
after a person or group has acquired 15% or more of LNC's common stock. The
Rights expire on November 14, 2006. As of December 31, 1996, there were
103,658,575 Rights outstanding.
During November 1994 and the fourth quarter of 1996, LNC purchased and retired
500,000 and 694,582 shares, respectively, of its common stock at a total cost
of $18,400,000 and $35,000,000.
Earnings per share are computed based on the average number of common shares
outstanding during each year (1996 - 104,560,826; 1995 - 104,115,650; 1994 -
103,863,196) after assuming conversion of any outstanding series A, E and F
preferred stock. The dilutive effect of stock options is not material to the
computation of earnings per share.
Details underlying the balance sheet caption "Net Unrealized Gain (Loss) on
Securities Available-for-Sale," are as follows:
December 31 (in millions) 1996 1995
Fair value of securities available-for-sale ------------- $28,899.1 $26,999.3
Cost of securities available-for-sale ------------------- 27,627.9 24,871.6
Unrealized Gain (Loss) -------------------------------- 1,271.2 2,127.7
Adjustments to deferred acquisition costs --------------- (286.9) (515.3)
Amounts required to satisfy policyholder commitments ---- (339.0) (555.0)
Deferred income credits (taxes) ------------------------- (229.7) (359.2)
Net unrealized gain (loss) on securities
available-for-sale ----------------------------------- $ 415.6 $ 698.2
Adjustments to deferred acquisition costs and amounts required to satisfy
policyholder commitments are netted against the Deferred Acquisition Costs
asset account and included with the Future Policy Benefits, Claims and Claim
Expenses liability account on the balance sheet, respectively.
<PAGE> -67-
12. Acquisitions and Sales of Affiliates/Operating Property
In 1994, LNC completed the sale of 71% of EMPHESYS (parent company of
Employers Health Insurance Company, which comprised LNC's Employee Life-Health
Benefit segment) for $244,700,000 of cash, net of related expenses, and a
$50,000,000 promissory note. A gain on sale of $48,800,000 (also $48,800,000
after-tax) was recognized in 1994 in "Other Operations". EMPHESYS had revenue
and net income of $314,900,000 and $14,400,000, respectively, during the three
months of ownership in 1994. In October 1995, LNC completed the sale of its
remaining 29% ownership in EMPHESYS. As a result of this transaction, LNC
received cash of $186,900,000 and recorded pre-tax gain on sale of $89,700,000
($58,300,000 after-tax) in the "Other Operations" segment.
In January and April 1995, LNC completed the acquisitions of Liberty Life
Assurance Company and Laurentian Financial Group plc, respectively. These
companies provide unit-linked life and pension products in the United Kingdom.
The combined purchase price was $274,500,000 including the assumption of
$44,000,000 in debt. These acquisitions, which were accounted for using
purchase accounting, resulted in other intangible assets of $388,700,000. The
results of these operations are included in LNC's consolidated financial
statements from their respective purchase dates.
In April 1995, LNC completed the acquisition of Delaware Management Holdings,
Inc. ("Delaware"). Delaware provides a variety of asset management services
through its operating companies. The purchase price, including LNC's expenses
associated with the acquisition, was $305,000,000. This acquisition also
involved the assumption of $25,000,000 in short-term debt and $180,000,000
(face amount) in long-term debt. In May 1995, this debt was repaid from the
proceeds of an LNC debt offering of $200,000,000 plus available cash. This
acquisition, which was accounted for using purchase accounting, resulted in
goodwill of $339,900,000 and other intangible assets of $131,500,000. The
results of Delaware's operations are included in LNC's consolidated financial
statements from April 3, 1995. The Delaware acquisition agreement included a
provision for contingent payments of $22,500,000 based on the levels of future
investment management revenues. Any such additional payments would be
accounted for as goodwill. Based on a reassessment as of December 31, 1996,
these contingent payments are expected to be approximately one-half of the
$22,500,000.
In October 1995, LNC approved a realignment plan for its Property-Casualty
segment, that included the consolidation of field operations from 20
divisional offices to four regional offices. Certain of the locations were to
remain service offices. Those office buildings owned by LNC that were not to
be used as regional offices were to be sold. Management estimated that the
pre-tax costs of realignment and the loss on sale of office buildings would
approximate $21,000,000 and $28,400,000, respectively ($13,700,000 and
$18,500,000 after-tax, respectively). Accordingly, net income decreased by
$32,200,000 during the fourth quarter of 1995. The cost of the realignment
and the loss on sale of office buildings that occurred in 1996 did not differ
materially from the 1995 estimates.
In May 1996, 16.7% of American States Financial Corporation ("ASFC"), the
holding company of LNC's principal property-casualty subsidiary, was sold to
the public in the form of an initial public offering of its common stock.
ASFC received net proceeds of $215,200,000 from the sale of this 16.7%
minority interest and LNC recorded a non-taxable realized gain, net of
expenses directly in shareholders' equity of $15,000,000. LNC continues to
fully consolidate this operation within its financial statements and tax
reporting.
In October 1996, LNC purchased a block of group tax-qualified annuity business
from UNUM Corporation's affiliates. The bulk of the transaction was completed
in the form of a reinsurance transaction, which resulted in a ceding
commission of $71,800,000. The ceding commission, along with other expenses
of $67,000,000, represents the present value of business in-force and
accordingly has been classified as an intangible asset. LNC's assets and
policy liabilities and accruals increased $3.2 billion as a result of this
transaction.
<PAGE> -68-
13.Subsequent Event
In January 1997, LNC announced that it signed a definitive agreement to
acquire Voyageur Fund Managers, Inc. ("Voyageur"). The purchase will be
completed by issuing approximately $70,000,000 of LNC common stock to the
current owners of Voyageur. This transaction, which is expected to close in
the second quarter of 1997, will be accounted for using purchase accounting
and, accordingly, the results of Voyageur's operations will be included in
LNC's consolidated financial statements from the closing date.
Report of Ernst & Young LLP, Independent Auditors
Board of Directors
Lincoln National Corporation
We have audited the accompanying consolidated balance sheets of Lincoln
National Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. Our audits
also included the financial statement schedules listed in the Index at Item
14(a). These financial statements and schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Lincoln National
Corporation at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Fort Wayne, Indiana
February 6, 1997
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
There have been no disagreements with LNC's independent auditors which are
reportable pursuant to Item 304 of Regulation S-K.
<PAGE> -69-
PART III
Item 10. Directors and Executive Officers of the Registrant
Information for this item relating to directors of LNC is incorporated by
reference to the sections captioned "NOMINEES FOR DIRECTOR", "DIRECTORS
CONTINUING IN OFFICE" and "COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES AND
EXCHANGE ACT OF 1934", of LNC's Proxy Statement for the Annual Meeting
scheduled for May 15, 1997.
Executive Officers of the Registrant as of March 1, 1997 were as follows:
Name Position with LNC and Business Experience
(Age)** During the Past Five Years
Ian M. Rolland Chairman and Director, LNC (since 1992).
(64) President and Director, LNC (1975-1991).
Chief Executive Officer, LNC (since 1977).
Robert A. Anker Chairman and Chief Executive Officer,American
(55) States* (effective January 1, 1997).
President, Chief Operating Officer and
Director, LNC (1992-1996). President and
Chief Executive Officer, American States*
(1990-1991).
Jon A. Boscia Chief Executive Officer, Lincoln Life*(effective
(45) October 1996). President, Chief Operating
Officer, Lincoln Life* (1994-October
1996). Executive Vice President, LNC
(1991-1994). President, Lincoln National
Investments ("LNI")* (1991-1994).
George E. Davis Senior Vice President, LNC (since 1993).
(54) Vice President, Eastman Kodak Co. (1985-1993).
June E. Drewry Senior Vice President, LNC (since May 1996).
(47) President, Systematized Benefit
Administrators, Inc. (1995-May 1996).
Vice President, Aetna Life Insurance and
Annuity Co. (1991-May 1996).
Jack D. Hunter Executive Vice President, LNC (since 1986).
(60) General Counsel (since 1971).
Barbara S. Kowalczyk Senior Vice President, LNC (since 1994). Senior
(46) Vice President, LNI* (1992-1994). Vice
President LNI* (1985-1992).
F. Cedric McCurley Chairman and Chief Executive officer, American
(62) States*, (1995 until retirement January 1, 1997).
President and Chief Executive Officer, American
States* (1992-1995). Executive Vice President,
American States* (1986-1991).
H. Thomas McMeekin Executive Vice President, LNC (since
(44) 1994). President LNI* (1994-October 1996).
Senior Vice President, LNC (1992-1994).
Executive Vice President, LNIC*
February 1992-November 1992). Senior
Vice President, LNIC* (1987-1992).
Jeffrey J. Nick Chief Executive Officer, LNI* (effective
(44) October 1996). Managing Director, Lincoln
National (UK) plc* (1992-October 1996).
Senior Vice President, LNC (1990-1992).
Richard S. Robertson Executive Vice President, LNC (since
(55) 1986).
Lawrence T. Rowland President and Chief Executive Officer,
(45) Lincoln National Reinsurance companies*
("LNRC") (effective October 1996). Senior
Vice President, LNRC* (1995- October
1996). Vice President, LNRC* (1991-1994).
<PAGE> -70-
Gabriel L. Shaheen Managing Director, Lincoln National (UK) plc*
(43) (effective October 1996). President and Chief
Executive Officer, LNRC* (1994-October 1996).
Senior Vice President, Lincoln Life* (1991-1994).
Donald L. Van Wyngarden Second Vice President & Controller, LNC (since
(57) 1975).
Richard C. Vaughan Executive Vice President and Chief Financial
(47) Officer, LNC (since 1995). Senior Vice President
and Chief Financial Officer, LNC (1992-1994).
Senior Vice President, Lincoln Life* (1990-1992).
* Denotes a subsidiary of LNC
** Age shown is based on nearest birthdate to March 1, 1997.
There is no family relationship between any of the foregoing executive
officers, all of whom are elected annually.
Item 11. Executive Compensation
Information for this item is incorporated by reference to the section cap-
tioned "EXECUTIVE COMPENSATION" of LNC's Proxy Statement for the Annual
Meeting scheduled for May 15, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information for this item is incorporated by reference to the sections
captioned "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" and "SECURITY
OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS" of LNC's Proxy
Statement for the Annual Meeting scheduled for May 15, 1997.
Item 13. Certain Relationships and Related Transactions
Information for this item is incorporated by reference to the section cap-
tioned "TERMINATION OF EMPLOYMENT ARRANGEMENT" of LNC's Proxy Statement for
the Annual Meeting scheduled for May 15, 1997.
<PAGE> -71-
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
Item 14(a)(1) Financial Statements
The following consolidated financial statements of Lincoln National Corpora-
tion are included in Item 8:
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Years ended December 31, 1996, 1995 and
1994
Consolidated Statements of Shareholders' Equity - Years ended December 31,
1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995
and 1994
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
Item 14(a)(2) Financial Statement Schedules
The following consolidated financial statement schedules of Lincoln National
Corporation are included in Item 14(d):
I - Summary of Investments - Other than Investments in Related Parties
II - Condensed Financial Information of Registrant
III - Supplementary Insurance Information
IV - Reinsurance
V - Valuation and Qualifying Accounts
VI - Supplementary Information Concerning Property-Casualty Insurance
Operations
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions, are inapplicable, or the required information is
included in the consolidated financial statements, and therefore omitted.
<PAGE> -72-
Item 14(a)(3) Listing of Exhibits
The following exhibits of Lincoln National Corporation are included in Item
14(c) - Note: The numbers preceding the exhibits correspond to the specific
numbers within Item 601 of Regulation S-K.):
3(a) The Articles of Incorporation of LNC as last amended
effective May 12, 1994 are incorporated by reference to
LNC's Form S-3/A (File No. 33-55379) filed with the
Commission on September 15, 1994.
3(b) The Bylaws of LNC as last amended January 15, 1997.
4(a) Indenture of LNC dated as of January 15, 1987 (Commission
File No. 33-22658) is incorporated by references to
Exhibit 4(a) of LNC's Form 10-K for the year ended
December 31, 1994, filed with the Commission on March 27,
1995.
4(b) First Supplemental Indenture dated as of July 1, 1992, to
Indenture of LNC dated as of January 15, 1987.
4(c) Specimen Notes for 7 1/8% Notes due July 15, 1999
(Commission File No. 33-22658) and for 7 5/8% Notes due
July 15, 2002 (Commission File No. 33-22658).
4(d) Rights Agreement of LNC as last amended November 14, 1996
is incorporated by reference to LNC's Form 8-K filed with
the Commission on November 22, 1996.
4(e) Indenture of LNC dated as of September 15, 1994, between
LNC and The Bank of New York, as Trustee, is incorporated
by reference to Exhibit No. 4(c) LNC's S-3/A (Commission
File No. 33-55379), filed with the Commission on
September 15, 1994.
4(f) Form of Note is incorporated by reference to Exhibit No.
4(d) to LNC's Registration Statement on Form S-3/A
(Commission File No. 33-55379), filed with the
Commission on September 15, 1994.
4(g) Form of Zero Coupon Security is incorporated by reference
to Exhibit No. 4(f) of LNC's Registration Statement on Form
S-3/A (Commission File No. 33-55379), filed with the
Commission on September 15, 1994.
4(h) Specimen of LNC's 9 1/8% Debentures due October 1, 2024
(Commission File No. 33-55379) is incorporated by
reference to Schedule I of LNC's Form 8-K filed with the
Commission on September 29, 1994.
4(i) Specimen of LNC's 7 1/4% Debenture due May 15, 2005
(Commission File Nos. 33-55379 and 33-59785) is
incorporated by reference to Schedule III of LNC's Form
8-K filed with the Commission on May 17, 1995.
4(j) Junior Subordinated Indenture dated as of May 1, 1996
between Lincoln National Corporation and The First
National Bank of Chicago.
4(k) Guarantee Agreement for Lincoln National Capital I.
4(l) Guarantee Agreement for Lincoln National Capital II.
4(m) Form of Lincoln National Capital I 8.75% Cumulative
Quarterly Income Preferred Securities, Series A
(Commission File No. 333-04133).
4(n) Form of Lincoln National Capital II 8.35% Trust
Originated Preferred Securities, Series B (Commission
File No. 333-04133).
<PAGE> -73-
10(a)* The Lincoln National Corporation 1986 Stock Option
Incentive Plan (Commission File No. 33-13445 and
(33-62315) as last amended effective May 12, 1994 is
incorporated by reference to Exhibit No. 1 of LNC's
Proxy filed with the Commission on March 31, 1994.
10(b)* The Lincoln National Corporation 1982 Stock Option
Incentive Plan (Commission File No. 2-77599) as last
amended effective May 7, 1987 is incorporated by
reference to Exhibit 10(b) of LNC's Form 10-K for
the year ended December 31, 1993, filed with the
Commission on March 30, 1994.
10(c)* The Lincoln National Corporation Executives' Salary
Continuation Plan as last amended January 1, 1992 is
incorporated by reference to Exhibit 10(c) LNC's Form
10-K for the year ended December 31, 1992, filed with the
Commission on March 30, 1993.
10(d)* The Lincoln National Corporation Executive Value Sharing
Plan as Amended and Restated effective January 1, 1994
is incorporated by reference to Exhibit No. 4 of LNC's
Proxy filed with the Commission on March 31, 1994.
10(e)* Lincoln National Corporation Executives' Severance
Benefit Plan as Amended and Restated effective November
9, 1995 is incorporated by reference to Exhibit 10(e) of
LNC's Form 10-K for the year ended December 31, 1995,
filed with the Commission on March 27, 1996.
10(f)* The Lincoln National Corporation Outside Directors
Retirement Plan as last amended effective March 15, 1990
is incorporated by reference to Exhibit 10(f) of LNC's
Form 10-K for the year ended December 31, 1995, filed
with the Commission on March 27, 1996.
10(g)* The Lincoln National Corporation Outside Directors
Benefits Plan is incorporated by reference to Exhibit
10(h) of LNC's Form 10-K for the year ended December 31,
1992, filed with the Commission on March 30, 1993.
10(h)* Lincoln National Corporation Directors' Value Sharing
Plan as last amended effective November 14, 1996.
10(i)* Lincoln National Corporation Executive Deferred
Compensation Plan for Employees (Commission File No. 33-51721)
as last amended effective May 1, 1996.
10(j)* Lincoln National Corporation 1993 Stock Plan for Non-Employee
Directors (Commission File No. 33-58113) as last
amended effective November 14, 1996.
10(k)* Lincoln National Corporation Executives' Excess
Compensation Benefit Plan is incorporated by reference to
Exhibit 10(r) of LNC's Form 10-K for the year ended
December 31, 1993, filed with the Commission on March 30,
1994.
10(l)* American States Executives Salary Continuation Plan as
Amended and Restated effective May 2, 1995 is
incorporated by reference to Exhibit 10(k) of LNC's Form
10-K for the year ended December 31, 1995, filed with the
Commission on March 27, 1996.
10(m)* American States Financial Corporation Executive
Performance Incentive Compensation Plan.
10(n)* American States Financial Corporation Stock Option Plan.
10(o)* Descriptions of compensation arrangements with
Executive Officers.
10(p) Lease and Agreement dated August 1, 1984, with respect to
the American States' Home Office property are
incorporated by reference to Exhibit 10(l) of LNC's Form
10-K for the year ended December 31, 1995, filed with the
Commission on March 27, 1996.
10(q) Lease and Agreement dated August 1, 1984, with respect to
LNL's Home Office property located at Magnavox Way, Fort
Wayne, Indiana are incorporated by reference to Exhibit
10(m) of LNC's Form 10-K for the year ended December 31,
1995, filed with the Commission on March 27, 1996.
10(r) Lease and Agreement dated August 1, 1984, with respect to
LNL's Home Office properties located at Clinton Street
and Harrison Street, Fort Wayne, Indiana are incorporated
by reference to Exhibit 10(n) of LNC's Form 10-K for the
year ended December 31, 1995, filed with the Commission
on March 27, 1996.
10(s) Lease and Agreement dated December 1, 1994, with respect
to LNC's Corporate Office located at 200 East Berry
Street, Fort Wayne, Indiana, are incorporated by
reference to Exhibit 10(p) of LNC's Form 10-K for the
year ended December 31, 1994, filed with the Commission
on March 27, 1995.
*This exhibit is a management contract or compensatory plan or
arrangement required to be filed as an exhibit to this form
pursuant to Item 14(c) of this report.
11 Computation of Per Share Earnings.
12 Historical Ratio of Earnings to Fixed Charges.
21 List of Subsidiaries of LNC.
23 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule.
28 Information from Reports Furnished to State Insurance
Regulatory Authorities. (Data shown on this report is on
a "Combined" basis and does not include data for
subsidiaries sold.)
Item 14(b)
During the fourth quarter of 1996, a Form 8-K regarding an amendment to LNC's
Shareholder Rights Plan was filed with the Commission. This filing received a
filing date of November 22, 1996.
Item 14(c)
The exhibits of Lincoln National Corporation are listed in Item 14(a)(3)
above.
Item 14(d)
The financial statement schedules for Lincoln National Corporation follow on
pages 75 through 82.
<PAGE> -75-
LINCOLN NATIONAL CORPORATION
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS
IN RELATED PARTIES
December 31, 1996 (000's omitted)
Column A Column B Column C Column D
Amount at
Which Shown
in the
Type of Investment Cost Value Balance Sheet
Fixed maturity securities
available-for-sale:
Bonds:
United States Government
and government agencies
and authorities ------------- $ 1,512,342 $ 1,545,726 $ 1,545,726
States, municipalities and
political subdivisions ------ 2,200,526 2,333,278 2,333,278
Mortgage-backed securities --- 5,263,362 5,445,431 5,445,431
Foreign governments ---------- 1,671,242 1,789,080 1,789,080
Public utilities ------------- 2,770,413 2,854,640 2,854,640
Convertibles and bonds
with warrants attached ------ 215,264 229,399 229,399
All other corporate bonds ---- 12,948,547 13,454,236 13,454,236
Redeemable preferred stocks ---- 249 008 254,650 254,650
Total ----------------------- 26,830,704 27,906,440 27,906,440
Equity securities available-for-sale:
Common stocks:
Public utilities ------------- 18,460 22,045 22,045
Banks, trusts and
insurance companies --------- 44,075 65,325 65,325
Industrial, miscellaneous
and all other --------------- 489,630 642,084 642,084
Nonredeemable preferred stocks - 245,057 263,248 263,248
Total Equity Securities ----- 797,222 992,702 992,702
Mortgage loans on real estate ---- 3,285,365 3,272,980(A)
Real estate:
Investment properties ---------- 598,449 598,449
Acquired in
satisfaction of debt ---------- 56,575 56,575
Policy loans --------------------- 758,166 758,166
Other investments ---------------- 459,652 459,652
Total Investments ----------- $32,786,133 $34,044,964
(A) Investments deemed to have declines in value that are other than
temporary are written down or reserved for to reduce their
carrying value to their estimated realizable value.
<PAGE> -76-
LINCOLN NATIONAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
Lincoln National Corporation (Parent Company Only)
December 31 (000's omitted) 1996 1995
Assets:
Investments in subsidiaries* ------------------ $ 5,055,185 $ 5,086,708
Investments ----------------------------------- 227,234 20,344
Investment in unconsolidated affiliate -------- 16,041 --
Cash and invested cash ------------------------ 133,833 466,776
Property and equipment ------------------------ 10,543 11,464
Accrued investment income --------------------- 26,078 7,866
Receivable from subsidiaries* ----------------- 103,024 67,024
Dividends receivable from subsidiaries* ------- 285 --
Loans to subsidiaries* ------------------------ 446,968 143,462
Goodwill -------------------------------------- 5,747 338,346
Other intangible assets ----------------------- -- 76,052
Other assets ---------------------------------- 25,281 12,419
Total Assets -------------------------------- $ 6,050,219 $ 6,230,461
Liabilities and Shareholders' Equity
Liabilities:
Cash collateral on loaned securities ---------- $ 145,594 $ 199,000
Dividends payable ----------------------------- 50,651 47,726
Short-term debt ------------------------------- 69,711 248,744
Long-term debt -------------------------------- 596,052 595,490
Loans from subsidiaries* ---------------------- 586,120 557,896
Federal income taxes payable (recoverable) ---- (1,398) 69,328
Accrued expenses and other liabilities -------- 133,533 134,155
Total Liabilities --------------------------- 1,580,263 1,852,339
Shareholders' Equity
Series A preferred stock ---------------------- 1,212 1,335
Common stock ---------------------------------- 857,450 889,476
Retained earnings ----------------------------- 3,129,249 2,775,718
Foreign currency translation adjustment ------- 66,454 13,413
Net unrealized gain (loss) on
securities available-for-sale [including
unrealized gain (loss) of subsidiaries:
1996 - $397,154 1995 - $687,904] ------------ 415,591 698,180
Total Shareholders' Equity ----------------- 4,469,956 4,378,122
Total Liabilities and Shareholders' Equity - $ 6,050,219 $ 6,230,461
*Eliminated in consolidation.
These condensed financial statements should be read in conjunction with the
consolidated financial statements and accompanying footnotes of Lincoln
National Corporation (see pages 36 through 68).
<PAGE> -77-
LINCOLN NATIONAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Continued)
STATEMENTS OF INCOME
Lincoln National Corporation (Parent Company Only)
Year Ended December 31 (000's omitted) 1996 1995 1994
Revenue:
Dividends from subsidiaries* --------------- $601,701 $538,515 $309,460
Interest from subsidiaries* ---------------- 1,347 2,018 1,080
Equity in earnings of
unconsolidated affiliate ------------------ 1,428 5,075 13,119
Net investment income ---------------------- 39,388 29,260 20,376
Realized gain (loss) on investments -------- (432) 30,189 (20,016)
Gain on sale of affiliate/operating
property to subsidiary* ------------------- -- 74,284 --
Other -------------------------------------- 1,127 1,292 1,373
Total Revenue ---------------------------- 644,559 680,633 325,392
Expenses:
Operating and administrative --------------- 33,808 41,884 40,919
Interest-subsidiaries* --------------------- 23,529 32,864 23,815
Interest-other ----------------------------- 74,553 63,624 45,976
Total Expenses --------------------------- 131,890 138,372 110,710
Income before Federal Income Tax Expense
(Benefit), Equity in Income of
Subsidiaries, Less Dividends -------------- 512,669 542,261 214,682
Federal income tax expense (benefits) -------- (34,157) 37,780 (36,574)
Income Before Equity in
Income of Subsidiaries, Less Dividends -- 546,826 504,481 251,256
Equity in income of subsidiaries, less
dividends ----------------------------------- (33,268) (22,295) 98,642
Net Income ------------------------------- $513,558 $482,186 $349,898
*Eliminated in consolidation.
These condensed financial statements should be read in conjunction with the
consolidated financial statements and accompanying footnotes of Lincoln
National Corporation (see pages 36 through 68).
<PAGE> -78-
LINCOLN NATIONAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Continued)
STATEMENTS OF CASH FLOWS
Lincoln National Corporation (Parent Company Only)
Year Ended December 31 (000's omitted) 1996 1995 1994
Cash Flows from Operating Activities:
Net income ----------------------------------- $513,558 $482,186 $349,898
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Equity in income of subsidiaries
less than (greater than) distributions* -- (262,268) 86,889 (63,642)
Equity in undistributed earnings of
unconsolidated affiliate ----------------- (1,428) (5,075) (13,119)
Realized (gain) loss on investments ------- 432 (30,189) 20,016
Gain on sale of affiliate/
operating property ----------------------- -- (74,284) --
Other ------------------------------------- (81,276) 47,967 (32,757)
Net Adjustments ------------------------- (344,540) 25,308 (89,502)
Net Cash Provided by
Operating Activities ------------------- 169,018 507,494 260,396
Cash Flows from Investing Activities:
Net sales (purchases) of investments ------- 91,161 16,614 (22,106)
Cash collateral on loaned securities ------- (53,406) (4,531) 14,275
Net investment in subsidiaries* ------------ 217,844 (697,106) (2,744)
Sale of (investment in) unconsolidated
affiliate --------------------------------- (16,041) 193,975 (103,470)
Net (purchase) sale of property
and equipment ----------------------------- (790) (3,158) (5,109)
Other -------------------------------------- (26,883) 17,675 7,379
Net Cash Provided by (Used in)
Investing Activities -------------------- 211,885 (476,531) (111,775)
Cash Flows from Financing Activities:
Principal payments on long-term debt ------- -- -- (100,717)
Issuance of long-term debt ----------------- 561 197,785 200,000
Net increase (decrease) in short-term debt - (179,033) 19,300 (83,423)
Increase (decrease) in loans from
subsidiaries* ----------------------------- 28,224 (42,413) 271,841
Decrease (increase) in loans to
subsidiaries* ----------------------------- (303,506) (106,982) (20,455)
Increase in receivables from subsidiaries* - (36,000) (300) (3,889)
Common stock issued for benefit plans ------ (153) 24,096 29,985
Retirement of common stock ----------------- (32,716) -- (18,395)
Dividends paid to shareholders ------------- (191,223) (178,805) (172,157)
Net Cash Provided by (Used in)
Financing Activities -------------------- (713,846) (87,319) 102,790
Net Increase (Decrease) in Cash ---------- (332,943) (56,356) 251,411
Cash at beginning-of-year -------------------- 466,776 523,132 271,721
Cash at End-of-Year ---------------------- $133,833 $466,776 $523,132
*Eliminated in consolidation.
These condensed financial statements should be read in conjunction with the
consolidated financial statements and accompanying footnotes of Lincoln
National Corporation (see pages 36 through 68).
<PAGE> -79-
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
Column A Column B Column C Column D
Future Policy
Deferred Benefits, Claims
Acquisition and Claim Unearned
Segment Costs Expenses Premiums
------------(000's Omitted)-------------
<S> <C> <C> <C>
Year Ended December 31, 1996
Life Insurance and Annuities - $1,432,347 $ 7,873,148 $ 1,374
Reinsurance ------------------ 322,709 3,092,064 52,721
Property-Casualty ------------ 136,893 2,485,596 712,380
Investment Management --------
Other (incl. consol. adj's.) - (119,710) (425)
Total ---------------------- $1,891,949 $13,331,098 $766,050
Year Ended December 31, 1995
Life Insurance and Annuities - $ 901,825 $ 7,408,160 $ 1,187
Reinsurance ------------------ 396,588 3,009,057 93,189
Property-Casualty ------------ 138,272 2,595,328 720,262
Investment Management (C) ----
Other (incl. consol. adj's.) - (89,998) (1,258)
Total ---------------------- $1,436,685 $12,922,547 $813,380
Year Ended December 31, 1994
Life Insurance and Annuities - $1,600,811 $ 6,357,449 $ 11,201
Reinsurance ------------------ 329,042 1,542,857 63,202
Property-Casualty ------------ 140,122 2,702,537 732,101
Employee Life-Health Benefits(D) -- -- --
Other (incl. consol. adj's.) - (66,331) (1,517)
Total ---------------------- $2,069,975 $10,536,512 $804,987
</TABLE>
<TABLE>
Column A Column E Column F Column G
Other Policy
Claims and Net
Benefits Premium Investment
Segment Payable Revenue (A) Income (B)
-------------(0's Omitted)---------------
<S> <C> <C> <C>
Year Ended December 31, 1996
Life Insurance and Annuities - $ $ 950,916 $1,857,579
Reinsurance ------------------ 1,250,403 263,870
Property-Casualty------------- 1,608,861 244,001
Investment Management--------- 792
Other (incl. consol. adj's.)-- (320)
Total----------------------- -- $3,810,180 $2,365,922
Year Ended December 31, 1995
Life Insurance and Annuities - $ $ 926,995 $1,859,359
Reinsurance ------------------ 1,171,165 164,105
Property-Casualty ------------ 1,678,910 238,808
Investment Management (C)----- 584
Other (incl. consol. adj's.)-- (11,575)
Total----------------------- -- $3,777,070 $2,251,281
Year Ended December 31, 1994
Life Insurance and Annuities- $ $1,030,010 $1,619,191
Reinsurance ----------------- 1,034,380 125,447
Property-Casualty ----------- 1,710,563 241,096
Employee Life-Health Benefits(D) 299,338 10,838
Other (incl. consol. adj's.)-- (1,921)
Total----------------------- -- $4,074,291 $1,994,651
</TABLE>
<TABLE>
<CAPTION>
Column A Column H Column I Column J Column K
Benefits, Amortization of
Claims, Deferred Policy Other
and Claim Acquisition Operating Premiums
Segment Expenses Costs Expenses (B) Written
-------------------(000's Omitted)--------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Life Insurance and Annuities - $1,705,018 $274,634 $ 598,486
Reinsurance ------------------ 1,013,867 162,150 253,880
Property-Casualty ------------ 1,202,393 329,721 175,955 $1,600,887
Investment Management -------- 246,662
Other (incl. consol. adj's.) - 46,239
Total ---------------------- $3,921,278 $766,505 $1,321,222 $1,600,887
Year Ended December 31, 1995
Life Insurance and Annuities - $1,815,242 $274,886 $ 499,897
Reinsurance ------------------ 1,088,438 59,910 279,724
Property-Casualty ------------ 1,209,463 352,503 198,758 $1,671,889
Investment Management (C) ---- 156,665
Other (incl. consol. adj's.) - 71,195
Total ---------------------- $4,113,143 $687,299 $1,206,239 $1,671,889
Year Ended December 31, 1994
Life Insurance and Annuities - $1,904,352 $ 89,916 $ 514,384
Reinsurance ------------------ 809,819 147,226 138,988
Property-Casualty ------------ 1,262,400 361,195 169,049 $1,664,483
Employee Life-Health Benefits(D) 218,672 73,355
Other (incl. consol. adj's.) - 114,213
Total ---------------------- $4,195,243 $598,337 $1,009,989 $1,664,483
<FN>
<F1>
(A) Includes insurance fees on universal life and other interest sensitive
products.
<F2>
(B)The allocation of expenses between investments and other operations are
based on a number of assumptions and estimates. Results would change if
different methods were applied.
<F3>
(C) Includes data from the April 1, 1995 date when Investment Management
segment was initiated because of the purchase of Delaware Management
Holdings, Inc.
<F4>
(D) Includes data through the March 21, 1994 date of sale of the direct
writer of employee life-health coverages.
</FN>
</TABLE>
<PAGE> -80-
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
SCHEDULE IV - REINSURANCE (A)
Column A Column B Column C Column D
Ceded Assumed
Gross to Other from Other
Amount Companies Companies
-------------------(000's Omitted)---------
Year Ended December 31, 1996
<S> <C> <C> <C>
Individual life insurance in force - $127,900,000 $39,400,000 $130,400,000
Premiums:
Life insurance (B) -------------- $1,001,966 $113,645 $ 519,536
Health insurance ---------------- 169,038 214,374 838,798
Property-casualty insurance ----- 1,641,822 48,603 15,642
Total ------------------------- $2,812,826 $376,622 $1,373,976
Year Ended December 31, 1995
Individual life insurance in force - $109,817,000 $34,292,000 $118,875,000
Premiums:
Life insurance (B) -------------- $ 934,121 $182,519 $ 536,400
Health insurance ---------------- 308,189 212,472 714,441
Property-casualty insurance ----- 1,685,815 53,695 46,790
Total ------------------------- $2,928,125 $448,686 $1,297,631
Year Ended December 31, 1994
Individual life insurance in force - $93,505,000 $35,366,000 $106,161,000
Premiums:
Life insurance (B) -------------- $1,040,134 $ 47,022 $ 365,364
Health insurance ---------------- 668,091 357,536 694,697
Property-casualty insurance ----- 1,689,070 78,381 99,874
Total ------------------------- $3,397,295 $482,939 $1,159,935
</TABLE>
<TABLE>
Column A Column E Column F
Percentage of
Net Amount Assumed
Amount to Net
------------(0's Omitted)-------------
Year Ended December 31, 1996
<S> <C> <C>
Individual life insurance in force- $218,900,000 59.6%
Premiums:
Life insurance (B)--------------- $1,407,857 36.9%
Health insurance ---------------- 793,462 105.7
Property-casualty insurance ----- 1,608,861 1.0
Total ------------------------- $3,810,180
Year Ended December 31, 1995
Individual life insurance in force-$194,400,000 61.1%
Premiums:
Life insurance (B)-------------- $1,288,002 41.6%
Health insurance --------------- 810,158 88.2
Property-casualty insurance ---- 1,678,910 2.8
Total ------------------------ 3,777,070
Year Ended December 31, 1994
Individual life insurance in force-$164,300,000 64.7%
Premiums:
Life insurance (B)-------------- $1,358,476 26.9%
Health insurance --------------- 1,005,252 69.1
Property-casualty insurance ---- 1,710,563 5.8
Total ------------------------ $4,074,291
*
<FN>
<F1>
(A) Special-purpose bulk reinsurance transactions have been excluded.
<F2>
(B) Includes insurance fees on universal life and other interest
sensitive products.
</FN>
</TABLE>
<PAGE> -81-
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
Column A Column Column Column Column
B C D E
Balance (1) (2) Balance at
Additions
at Charged Charged Deductions- End of
Beginning to Costs to Other Describe(C) Period
of Period Expenses Accounts-
(A) Describe(B)
------------------(0's Omitted)----------------------
Year Ended December 31, 1996
<S> <C> <C> <C> <C> <C>
Deducted from Asset Accounts:
Reserve for Mortgage Loans
on Real Estate ------------- $29,592 $3,136 $(20,343) $12,385
Reserve for Real Estate ----- 58,029 3,000 $(51,517) (6,512) 3,000
Reserve for Other Long-term,
Investments ----------------- 13,644 (388) (12,971) (285) --
Reserve for Property and
Equipment Held-for-Sale----- 28,350 (1,434) 26,916
Included in Other Liabilities:
Investment Guarantees ------- 7,099 (886) (4,438) 1,775
Year Ended December 31, 1995
Deducted from Asset Accounts:
Reserve for Mortgage Loans
on Real Estate ------------- $ 62,675 $ 2,288 $(35,371) $29,592
Reserve for Real Estate ----- 78,638 (9,203) (11,406) 58,029
Reserve for Other Long-term
Investments ---------------- 23,776 (2,415) (7,717) 13,644
Reserve for Property and
Equipment Held-for-Sale----- -- 28,350 28,350
Included in Other Liabilities:
Investment Guarantees ------- 13,076 (2,617) (3,360) 7,099
Year Ended December 31, 1994
Deducted from Asset Accounts:
Reserve for Mortgage Loans
on Real Estate ------------- $226,639 $18,232 $(182,196) $62,675
Reserve for Real Estate ----- 121,427 14,861 (57,650) 78,638
Reserve for Other Long-term
Investments --------------- 27,196 1,726 (5,146) 23,776
Included in Other Liabilities:
Investment Guarantees ------- 18,535 2,480 (7,939) 13,076
<FN>
<F1>
(A) Excludes charges for the direct write-offs of assets.
The negative amounts shown in the additions columns represent
improvements in the underlying assets and guarantees for which valuation
accounts had previously been established.
<F2>
(B) Amounts previously shown as reserves have been reclassified as
direct write-downs of the related assets.
<F3>
(C) Deductions reflect sales or foreclosures of the underlying holdings.
</FN>
</TABLE>
<PAGE> -82-
<TABLE>
<CAPTION>
LINCOLN NATIONAL CORPORATION
SCHEDULE VI - SUPPLEMENTARY INFORMATION CONCERNING PROPERTY-CASUALTY
INSURANCE OPERATIONS
Column A Column B Column C Column D
Deferred Reserves for Discount,
Affiliation Policy Unpaid Claims if any
with Acquisition and Claim Deducted in
Registrant Costs Expenses Column C
----------(000's Omitted)------------------
Consolidated subsidiaries:
<S> <C> <C> <C>
Year Ended December 31, 1996 $136,893 $2,485,596 $ --
Year Ended December 31, 1995 $138,272 $2,595,328 $ --
Year Ended December 31, 1994 $140,122 $2,702,537 $ --
</TABLE>
<TABLE>
Column A Column E Column F Column G
Affiliation Net
with Unearned Earned Investment
Registrant Premiums Premium Income
------------(0's Omitted)--------------
Consolidated subsidiaries:
<S> <C> <C> <C>
Year Ended December 31, 1996 $712,380 $1,608,861 $244,001
Year Ended December 31, 1995 $720,262 $2,678,910 $238,808
Year Ended December 31, 1994 $732,101 $1,710,563 $241,096
</TABLE>
<TABLE>
<CAPTION>
Column A Column H Column I
Claims and Claim
Expenses (Credits) Amortization
Incurred Related to of Deferred
Affiliation (1) (2) Policy
with Current Prior Acquisition
Registrant Year Years Costs
------------------(000's omitted)----
Consolidated subsidiaries:
<S> <C> <C> <C>
Year Ended December 31, 1996 $1,245,593 $(43,200) $329,721
Year Ended December 31, 1995 $1,234,000 $(24,500) $352,503
Year Ended December 31, 1994 $1,340,600 $(78,200) $361,195
</TABLE>
<TABLE>
Column A Column J Column K
Affiliation Paid
with Claims
Registrant and Claim Premium
Expenses Written
___________(0's Omitted)-----
Consolidated Subsidiaries:
<S> <C> <C>
Year Ended December 31, 1996 $1,302,900 $1,600,887
Year Ended December 31, 1995 $1,302,600 $1,671,889
Year Ended December 31, 1994 $1,347,600 $1,664,483
</TABLE>
<PAGE> -83-
LINCOLN NATIONAL CORPORATION
EXHIBIT INDEX FOR THE ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1996
Exhibit
Number Page
3(a) Articles of Incorporation dated as of May 12, 1994.*
3(b) Bylaws of LNC as last amended January 15, 1997. 85
4(a) Indenture of LNC dated as of January 15, 1987.*
4(b) LNC First Supplemental Indenture dated July 1, 1992, to
Indenture of LNC dated as of January 15, 1987. 95
4(c) Specimen Notes for 7 1/8% Notes due July 15, 1999 and
7 5/8% Notes due July 15, 2002. 98
4(d) Rights Agreement dated November 14, 1996.*
4(e) Indenture of LNC dated as of September 15, 1994.*
4(f) Form of Note dated as of September 15, 1994.*
4(g) Form of Zero Coupon Security dated as of September 15, 1994.*
4(h) Specimen Debenture for 9 1/8% Notes due October 1, 2024.*
4(i) Specimen of 7 1/4% Debenture due May 15, 2005.*
4(j) Junior Subordinated Indenture of LNC as of May 1, 1996. 111
4(k) Guarantee Agreement for Lincoln National Capital I. 175
4(l) Guarantee Agreement for Lincoln National Capital II. 189
4(m) Form of Lincoln National Capital I Preferred Securities,
Series A. 203
4(n) Form of Lincoln National Capital II Preferred Securities,
Series B. 205
10(a) LNC 1986 Stock Option Incentive Plan.*
10(b) LNC 1982 Stock Option Incentive Plan.*
10(c) The LNC Executives' Salary Continuation Plan.*
10(d) The LNC Executive Value Sharing Plan.*
10(e) LNC Executives' Severance Benefit Plan.*
10(f) The LNC Outside Directors Retirement Plan.*
10(g) The LNC Outside Directors Benefits Plan.*
10(h) LNC Directors' Value Sharing Plan. 207
10(i) The LNC Executive Deferred Compensation Plan for Employees. 213
10(j) LNC 1993 Stock Plan for Non-Employee Directors. 226
10(k) LNC Executives' Excess Compensation Benefit Plan.*
10(l) American States Executives' Salary Continuation Plan.*
10(m) American States Financial Corporation Executive Performance
Incentive Compensation Plan. 232
10(n) American States Financial Corporation Stock Option Plan. 238
10(o) Description of compensation arrangements with Executive Officers. 253
10(p) Lease and Agreement dated August 1, 1984, with respect
to the American States' home office property.*
10(q) Lease and Agreement dated August 1, 1984, with respect
to LNL's home office property.*
10(r) Lease and Agreement dated August 1, 1984, with respect
to additional LNL home office property.*
10(s) Lease dated December 1, 1994, with respect to LNC's
Corporate Offices.*
11 Computation of Per Share Earnings. 272
12 Historical Ratio of Earnings to Fixed Charges 273
21 List of Subsidiaries of LNC. 274
23 Consent of Ernst & Young LLP, Independent Auditors. 285
27 Financial Data Schedule. 286
28 Information from Reports Furnished to State Insurance
Regulatory Authorities. [Data shown on this report is on 287
a "Combined" basis and does not include data for
subsidiaries sold.]
*Incorporated by Reference
<PAGE> -85-
Signature Page
LINCOLN NATIONAL CORPORATION
Pursuant to the requirements
of Section 13 or 15(d) of
the Securities Exchange Act By /s/ Ian M. Rolland March 13, 1997
of 1934, LNC has duly caused Ian M. Rolland,
this report to be signed on (Chairman, Chief Executive Officer and
its behalf by the under- Director)
signed, thereunto duly
authorized. By /s/ Richard C. Vaughan March 13, 1997
Richard C. Vaughan,
(Executive Vice President and Chief
Financial Officer)
By /s/ Donald L. Van Wyngarden March 13, 1997
Donald L. Van Wyngarden
(Second Vice President and Controller)
Pursuant to the requirements By /s/ J. Patrick Barrett March 13, 1997
of the Securities Exchange J. Patrick Barrett
Act of 1934, this report
has been signed below by By /s/ Thomas D. Bell, Jr. March 13, 1997
the following Directors Thomas D. Bell, Jr
of LNC on the date indicated.
By /s/ Daniel R. Efroymson March 13, 1997
Daniel R. Efroymson
By /s/ Harry L. Kavetas March 13, 1997
Harry L. Kavetas
By /s/ M. Leanne Lachman March 13, 1997
M. Leanne Lachman
By /s/ Earl L. Neal March 13, 1997
Earl L. Neal
By /s/ Roel Pieper March 13, 1997
Roel Pieper
By /s/ John M. Pietruski March 13, 1997
John M. Pietruski
By /s/ Jill S. Ruckelshaus March 13, 1997
Jill S. Ruckelshaus
By /s/ Gordon A. Walker March 13, 1997
Gordon A. Walker
By /s/ Gilbert R. Whitaker,Jr. March 13, 1997
Gilbert R. Whitaker,Jr.
Exhibit 3(b)
-85-
Adopted January 17, 1968; as Last Amended January 15,
1997
BYLAWS
OF
LINCOLN NATIONAL CORPORATION
ARTICLE I
Shareholders
Section 1. Annual Meeting. An annual meeting of the
shareholders shall be held at such hour and on such date
as the board of directors may select in each year for the
purpose of electing directors for the terms hereinafter
provided and for the transaction of such other business
as may properly come before the meeting. (Amended January
9, 1991)
Section 2. Special Meetings. Special meetings of
the shareholders may be called by the chief executive
officer, by the board of directors, or by the holders of
shares representing not less than a majority of all votes
entitled to be cast on any issue to be considered at the
special meeting; provided, that the shares comprising any
such majority must have been beneficially owned by the
shareholders calling the meeting for at least two years.
Shareholders intending to call a special meeting must
sign, date and deliver to the secretary of the
corporation one or more written demands for the meeting
describing the purpose or purposes for which it is to be
held. Only business within the purpose or purposes
described in the meeting notice may be conducted at a
special shareholders meeting. (Last amended August 8,
1996)
Section 3. Place of Meetings. All meetings of
shareholders shall be held at the principal office of the
corporation in Fort Wayne, Indiana, or at such other
place, either within or without the State of Indiana, as
may be designated by the board of directors. (Amended
November 6, 1986)
Section 4. Notice of Meetings. A written or printed
notice, stating the place, day and hour of the meeting,
and in the case of a special meeting or when required by
law or by the articles of incorporation or these bylaws,
the purpose or purposes for which the meeting is called,
shall be delivered or mailed by or at the direction of
the secretary no fewer than ten nor more than sixty days
before the date of the meeting, to each shareholder of
record entitled to vote at such meeting at such address
as appears upon the stock records of the corporation.
(Last amended August 10, 1989)
Section 5. Quorum. Unless otherwise provided by the
articles of incorporation or these bylaws, at any meeting
of shareholders the majority of the outstanding shares
entitled to vote at such meeting, represented in person
or by proxy, shall constitute a quorum. If less than a
majority of such shares are represented at a meeting, a
majority of the shares so represented may adjourn the
meeting from time to time. The shareholders present at a
duly organized meeting may continue to transact business
until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. (Amended
November 6, 1986)
Section 6. Adjourned Meetings. At any adjourned
meeting at which a quorum shall be represented any
business may be transacted as might have been transacted
at the meeting as originally notified. If a new record
date is or must be established pursuant to law, notice of
the adjourned meeting must be given to persons who are
shareholders as of the new record date. (Added November
6, 1986)
Section 7. Proxies. At all meetings of
shareholders, a shareholder may vote either in person or
by proxy executed in writing by the shareholder or a duly
authorized attorney in fact. No proxy shall be valid
after eleven months from the date of its execution,
unless otherwise provided in the proxy.
Section 8. Voting of Shares. Except as otherwise
provided by law, by the articles of incorporation, or by
these bylaws, every shareholder shall have the right at
every shareholders' meeting to one vote for each share
standing in his name on the books of the corporation on
the date established by the board of directors as the
record date for determination of shareholders entitled to
vote at such meeting. (Amended May 7, 1987)
Section 9. Order of Business. The order of business
at each shareholders' meeting shall be established by the
person presiding at the meeting. (Amended March 16, 1972)
Section 10. Notice of Shareholder Business. At any
meeting of the shareholders, only such business may be
conducted as shall have been properly brought before the
meeting, and as shall have been determined to be lawful
and appropriate for consideration by shareholders at the
meeting. To be properly brought before a meeting business
must be (a) specified in the notice of meeting given in
accordance with Section 4 of this Article I, (b)
otherwise properly brought before the meeting by or at
the direction of the board of directors or the chief
executive officer, or (c) otherwise properly brought
before the meeting by a shareholder. For business to be
properly brought before a meeting by a shareholder
pursuant to clause (c) above, the shareholder must have
given timely notice thereof in writing to the secretary
of the corporation. To be timely, a shareholder's notice
must be delivered to or mailed and received at the
principal office of the corporation, not less than fifty
days nor 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. A shareholder's notice
to the secretary shall set forth as to each matter the
shareholder proposes to bring before the meeting (a) a
brief description of the business desired to be brought
before the meeting, (b) the name and address, as they
appear on the corporation's stock records, of the
shareholder proposing such business, (c) the class and
number of shares of the corporation which are
beneficially owned by the shareholder, and (d) any
interest of the shareholder in such business.
Notwithstanding anything in these bylaws to the contrary,
no business shall be conducted at a meeting except in
accordance with the procedures set forth in this Section
10. The person presiding at the meeting shall, if the
facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in
accordance with the bylaws, or that business was not
lawful or appropriate for consideration by shareholders
at the meeting, and if he should so determine, he shall
so declare to the meeting and any such business shall not
be transacted. (Last amended January 11, 1987)
Section 11. Notice of Shareholder Nominees.
Nominations of persons for election to the board of
directors of the corporation may be made at any meeting
of shareholders by or at the direction of the board of
directors or by any shareholder of the corporation
entitled to vote for the election of directors at the
meeting. Shareholder nominations shall be made pursuant
to timely notice given in writing to the secretary of the
corporation in accordance with Section 10 of this Article
I. Such shareholder's notice shall set forth, in addition
to the information required by Section 10, 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. No
shareholder nomination shall be effective unless made in
accordance with the procedures set forth in this Section
11. The person presiding at the meeting shall, if the
facts warrant, determine and declare to the meeting that
a shareholder nomination was not made in accordance with
the bylaws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall
be disregarded. (Last amended January 11, 1987)
Section 12. Control Share Acquisitions. As used in
this Section 12, the terms "control shares" and "control
share acquisition" shall have the same meanings as set
forth in Indiana Code Section 23-1-42-1 et seq. (the
"Act"). Control shares of the corporation acquired in a
control share acquisition shall have only such voting
rights as are conferred by the Act. Control shares of the
corporation acquired in a control share acquisition with
respect to which the acquiring person has not filed with
the corporation the statement required by the Act may, at
any time during the period ending sixty days after the
last acquisition of control shares by the acquiring
person, be redeemed by the corporation at the fair value
thereof pursuant to procedures authorized by a resolution
of the board of directors. Such authority may be general
or confined to specific instances. (Added May 7, 1987)
Section 13. Voting Procedures on Change of Control.
In addition to any other authority granted under Indiana
law for the corporation to enter into any arrangement,
agreement or understanding with respect to the voting of
voting shares, pursuant to the authority granted in
Indiana Code Section 23-1-22-4, the corporation shall
have the power to enter into any arrangement, agreement
or understanding of any nature whatsoever and for any
duration whereby the board of directors or any group of
directors of the corporation can specify or direct the
voting by any other person of any shares of any class or
series beneficially owned by such person, or as to which
such person has the direct or indirect power to direct
the voting, in connection with a change of control of the
corporation. As used in this Section 13, the term
"control" shall have the same meaning as set forth in
Indiana Code Section 23-1-22-4.
In the event that an arrangement, agreement or
understanding is in effect, and the voting shares of the
corporation are not voted in accordance with any such
arrangement, agreement or understanding, neither such
voting shares nor such votes shall be counted in
connection with any vote of the corporation's
shareholders relating to any aspect of a change of
control. (Added June 25, 1990)
ARTICLE II
Board of Directors
Section 1. General Powers, Number, Classes and
Tenure. The business of the corporation shall be managed
by a board of directors. The number of directors which
shall constitute the whole board of directors of the
corporation shall be twelve. The number of directors may
be increased or decreased from time to time by amendment
of these bylaws, but no decrease shall have the effect of
shortening the term of any incumbent director. The
directors shall be divided into three classes, each class
to consist, as nearly as may be, of one-third of the
number of directors then constituting the whole board of
directors, with one class to be elected annually by
shareholders for a term of three years, to hold office
until their respective successors are elected and
qualified; except that
(Last amended effective January 15, 1997)
(1) the terms of office of directors initially
elected shall be staggered so that the term of
office of one class shall expire in each year;
(2) the term of office of a director who is elected
by either the directors or shareholders to fill
a vacancy in the board of directors shall
expire at the end of the term of office of the
succeeded director's class or at the end of the
term of office of such other class as
determined by the board of directors to be
necessary or desirable in order to equalize the
number of directors among the classes;
(3) the board of directors may adopt a policy
limiting the time beyond which certain
directors are not to continue to serve, the
effect of which may be to produce classes of
unequal size or to cause certain directors
either to be nominated for election for a term
of less than three years or to cease to be a
director before expiration of the term of the
director's class.
In case of any increase in the number of directors, the
additional directors shall be distributed among the
several classes to make the size of the classes as equal
as possible. (Last amended January 1, 1992)
Section 2. Regular Meetings. A regular meeting of
the board of directors shall be held without other notice
than this bylaw immediately after, and at the same place
as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place,
either within or without the State of Indiana, for the
holding of additional regular meetings without other
notice than such resolution.
Section 3. Special Meetings. Special meetings of the
board of directors may be called by the chief executive
officer. The secretary shall call special meetings of the
board of directors when requested in writing to do so by
a majority of the members thereof. Special meetings of
the board of directors may be held either within or
without the State of Indiana. (Last amended August 10,
1989)
Section 4. Notice of Meetings. Except as otherwise
provided in these bylaws, notice of any meeting of the
board of directors shall be given, not less than two days
before the date fixed for such meeting, by oral,
telegraphic, telephonic, electronic or written
communication stating the time and place thereof and
delivered personally to each member of the board of
directors or telegraphed or mailed to him at his business
address as it appears on the books of the corporation;
provided, that in lieu of such notice, a director may
sign a written waiver of notice either before the time of
the meeting, at the time of the meeting or after the time
of the meeting. (Last amended November 6, 1986)
Section 5. Quorum. A majority of the whole board of
directors shall be necessary to constitute a quorum for
the transaction of any business except the filling of
vacancies, but if less than such majority is present at a
meeting, a majority of the directors present may adjourn
the meeting from time to time without further notice.
Section 6. Manner of Acting. The act of a majority
of the directors present at any meeting at which a quorum
is present shall be the act of the board of directors,
unless the act of a greater number is required by law or
by the articles of incorporation or these bylaws. Unless
otherwise provided by the articles of incorporation, any
action required or permitted to be taken at any meeting
of the board of directors may be taken without a meeting,
if a written consent to such action is signed by all
members of the board of directors and such written
consent is filed with the minutes of proceedings of the
board of directors. Unless otherwise provided by the
articles of incorporation, any or all members of the
board of directors may participate in a meeting of the
board of directors by means of a conference telephone or
similar communications equipment by which all persons
participating in the meeting can communicate with each
other, and participation in this manner constitutes
presence in person at the meeting. (Last amended
effective March 14, 1991)
Section 7. Vacancies. Except as otherwise provided
in the articles of incorporation, any vacancy occurring
in the board of directors may be filled by a majority
vote of the remaining directors, though less than a
quorum of the board of directors, or, at the discretion
of the board of directors, any vacancy may be filled by a
vote of the shareholders. (Amended November 6, 1986)
Section 8. Notice to Shareholders. Shareholders
shall be notified of any increase in the number of
directors and the name, address, principal occupation and
other pertinent information about any director elected by
the board of directors to fill any vacancy. Such notice
shall be given in the next mailing sent to shareholders
following any such increase or election, or both, as the
case may be.
ARTICLE III
Officers
Section 1. Elected Officers. The elected officers of
the corporation shall be a president, a secretary, and a
treasurer, and may also include a chairman of the board,
one or more vice presidents of a class or classes as the
board of directors may determine, and such other officers
as the board of directors may determine. The chairman of
the board and the president shall be chosen from among
the directors. Any two or more offices may be held by the
same person. (Last amended November 6, 1986)
Section 2. Appointed Officers. The appointed
officers of the corporation shall be one or more second
vice presidents, assistant vice presidents, assistant
treasurers, and assistant secretaries. (Added November 6,
1986)
Section 3. Election or Appointment and Term of
Office. The elected officers of the corporation shall be
elected annually by the board of directors at the first
meeting of the board of directors held after each annual
meeting of the shareholders. The appointed officers of
the corporation shall be appointed annually by the chief
executive officer immediately following the first meeting
of the board of directors held after each annual meeting
of the shareholders. Additional elected officers may be
elected at any regular or special meeting of the board of
directors, to serve until the regular meeting of the
board held after the next annual meeting of shareholders,
and additional appointed officers may be appointed by the
chief executive officer at any time to serve until the
next annual appointment of officers. Each officer shall
hold office until his successor shall have been duly
elected or appointed and shall have qualified or until
his death or until he shall resign or retire or shall
have been removed. (Amended November 6, 1986)
Section 4. Removal. Any officer may be removed by
the board of directors and any appointed officer may be
removed by the chief executive officer, whenever in their
judgment the best interests of the corporation will be
served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person
so removed. (Last amended August 13, 1987)
Section 5. Vacancies. A vacancy in the office of
president or secretary or treasurer because of death,
resignation, retirement, removal or otherwise, shall be
filled by the board of directors, and a vacancy in any
other elected office may be filled by the board of
directors.
Section 6. Chief Executive Officer. If the elected
officers of the corporation include both a chairman of
the board and a president, the board of directors shall
designate one of such officers to be the chief executive
officer of the corporation. If the office of chairman of
the board be vacant, the president shall be the chief
executive officer of the corporation. The chief executive
officer of the corporation shall be, subject to the board
of directors, in general charge of the affairs of the
corporation. (Amended March 7, 1968)
Section 7. Chairman of the Board. The chairman of
the board shall preside at all meetings of the
shareholders and of the board of directors at which he
may be present and shall have such other powers and
duties as may be determined by the board of directors.
Section 8. President. The president shall have such
powers and duties as may be determined by the board of
directors. In the absence of the chairman of the board,
or if such office be vacant, the president shall have all
the powers of the chairman of the board and shall perform
all his duties.
Section 9. Vice Presidents. A vice president shall
perform such duties as may be assigned by the chief
executive officer or the board of directors. In the
absence of the president and in accordance with such
order of priority as may be established by the board of
directors, he may perform the duties of the president,
and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president.
(Amended September 14, 1972)
Section 10. Second Vice Presidents and Assistant
Vice Presidents. A second vice president and an assistant
vice president shall perform such duties as may be
assigned by the chief executive officer or the board of
directors. (Added November 6, 1986)
Section 11. Secretary. The secretary shall (a) keep
the minutes of the shareholders' and board of directors'
meetings in one or more books provided for that purpose,
(b) see that all notices are duly given in accordance
with the provisions of these bylaws or as required by
law, (c) be custodian of the corporate records and of the
seal of the corporation and see that the seal of the
corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly
authorized, and (d) in general perform all duties
incident to the office of secretary and such other duties
as may be assigned by the chief executive officer or the
board of directors. (Amended September 14, 1972)
Section 12. Assistant Secretaries. In the absence of
the secretary, an assistant secretary shall have the
power to perform his duties including the certification,
execution and attestation of corporate records and
corporate instruments. Assistant secretaries shall
perform such other duties as may be assigned to them by
the chief executive officer or the board of directors.
(Last amended November 6, 1986)
Section 13. Treasurer. The treasurer shall (a) have
charge and custody of all funds and securities of the
corporation, (b) receive and give receipts for monies due
and payable to the corporation from any source
whatsoever, (c) deposit all such monies in the name of
the corporation in such depositories as are selected by
the board of directors, and (d) in general perform all
duties incident to the office of treasurer and such other
duties as may be assigned by the chief executive officer
or the board of directors. If required by the board of
directors, the treasurer shall give a bond for the
faithful discharge of his duties in such form and with
such surety or sureties as the board of directors shall
determine. (Amended September 14, 1972)
Section 14. Assistant Treasurers. In the absence of
the treasurer, an assistant treasurer shall have the
power to perform his duties. Assistant treasurers shall
perform such other duties as may be assigned to them by
the chief executive officer or the board of directors.
(Last amended November 6, 1986)
ARTICLE IV
Committees
Section 1. Board Committees. The board of directors
may, by resolution adopted by a majority of the whole
board of directors, from time to time designate from
among its members one or more committees each of which,
to the extent provided in such resolution and except as
otherwise provided by law, shall have and exercise all
the authority of the board of directors. Each such
committee shall serve at the pleasure of the board of
directors. The designation of any such committee and the
delegation thereto of authority shall not operate to
relieve the board of directors, or any member thereof, of
any responsibility imposed by law. Each such committee
shall keep a record of its proceedings and shall adopt
its own rules of procedure. It shall make such reports to
the board of directors of its actions as may be required
by the board. (Amended March 16, 1972)
Section 2. Advisory Committees. The board of
directors may, by resolution adopted by a majority of the
whole board of directors, from time to time designate one
or more advisory committees, a majority of whose members
shall be directors. An advisory committee shall serve at
the pleasure of the board of directors, keep a record of
its proceedings and adopt its own rules of procedure. It
shall make such reports to the board of directors of its
actions as may be required by the board. (Amended March
16, 1972)
Section 3. Manner of Acting. Unless otherwise
provided by the articles of incorporation, any action
required or permitted to be taken at any meeting of a
committee established under this Article IV may be taken
without a meeting, if a written consent to such action is
signed by all members of the committee and such written
consent is filed with the minutes of proceedings of the
committee. Unless otherwise provided by the articles of
incorporation, any or all members of such committee may
participate in a meeting of the committee by means of a
conference telephone or similar communications equipment
by which all persons participating in the meeting can
communicate with each other, and participation in this
manner constitutes presence in person at the meeting.
(Last amended effective March 14, 1991)
ARTICLE V
Corporate Instruments and Loans
Section 1. Corporate Instruments. The board of
directors may authorize any officer or officers to
execute and deliver any instrument in the name of or on
behalf of the corporation, and such authority may be
general or confined to specific instances. (Amended
September 14, 1972)
Section 2. Loans. No loans shall be contracted on
behalf of the corporation and no evidences of
indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors.
Such authority may be general or confined to specific
instances.
ARTICLE VI
Stock Certificates, Transfer of Shares, Stock Records
Section 1. Certificates for Shares. Each shareholder
shall be entitled to a certificate, signed by the
president or a vice president and the secretary or any
assistant secretary of the corporation, certifying the
number of shares owned by him in the corporation. If such
certificate is countersigned by the written signature of
a transfer agent other than the corporation or its
employee, the signatures of the officers of the
corporation may be facsimiles. If such certificate is
countersigned by the written signature of a registrar
other than the corporation or its employee, the
signatures of the transfer agent and the officers of the
corporation may be facsimiles. In case any officer,
transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be
issued by the corporation with the same effect as if he
weresuch officer, transfer agent, or registrar at the
date of its issue. Certificates representing shares of
the corporation shall be in such form consistent with the
laws of the State of Indiana as shall be determined by
the board of directors. All certificates for shares shall
be consecutively numbered or otherwise identified. The
name and address of the person to whom the shares
represented thereby are issued, with the number of shares
and date of issue, shall be entered on the stock transfer
records of the corporation. (Amended May 28, 1969)
Section 2. Transfer of Shares. Transfer of shares of
the corporation shall be made on the stock transfer
records of the corporation by the holder of record
thereof or by his legal representative, who shall furnish
proper evidence of authority to transfer, or by his
attorney thereunto authorized by power of attorney duly
executed and filed with the corporation, and, except as
otherwise provided in these bylaws, on surrender for
cancellation of the certificates for such shares.
(Amended May 28, 1969)
Section 3. Lost, Destroyed or Wrongfully Taken
Certificates. Any person claiming a certificate of stock
to have been lost, destroyed or wrongfully taken, and who
requests the issuance of a new certificate before the
corporation has notice that the certificate alleged to
have been lost, destroyed or wrongfully taken has been
acquired by a bona fide purchaser, shall make an
affidavit of that fact and shall give the corporation and
its transfer agents and registrars a bond of indemnity
with unlimited liability, in form and with one or more
corporate sureties satisfactory to the chief executive
officer or treasurer of the corporation (except that the
chief executive officer or treasurer may authorize the
acceptance of a bond of different amount, or a bond with
personal surety thereon, or a personal agreement of
indemnity), whereupon in the discretion of the chief
executive officer or the treasurer and except as
otherwise provided by law a new certificate may be issued
of the same tenor and for the same number of shares as
the one alleged to have been lost, destroyed or
wrongfully taken. In lieu of a separate bond of indemnity
in each case, the chief executive officer of the
corporation may accept an assumption of liability under a
blanket bond issued in favor of the corporation and its
transfer agents and registrars by one or more corporate
sureties satisfactory to him. (Amended September 14,
1972)
Section 4. Transfer Agent and Registrars. The board
of directors by resolution may appoint a transfer agent
or agents or a registrar or registrars of transfer, or
both. All such appointments shall confer such powers,
rights, duties and obligations consistent with the laws
of the State of Indiana as the board of directors shall
determine. The board of directors may appoint the
treasurer of the corporation and one or more assistant
treasurers to serve as transfer agent or agents. (Amended
May 28, 1969)
Section 5. Record Date. For the purposes of
determining shareholders entitled to vote at any meeting
of shareholders or any adjournment thereof, or
shareholders entitled to receive payment of any dividend,
or in order to make a determination of shareholders for
any other proper purpose, the board of directors shall
fix in advance a date as a record date for any such
determination of shareholders, such date in any case to
be not more than seventy days before the meeting or
action requiring a determination of shareholders.
(Amended November 6, 1986)
ARTICLE VII
Liability
No person or his personal representatives shall be
liable to the corporation for any loss or damage suffered
by it on account of any action taken or omitted to be
taken by such person in good faith as an officer or
employee of the corporation, or as a director, officer,
partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise,
whether for profit or not, which he serves or served at
the request of the corporation, if such person (a)
exercised and used the same degree of care and skill as a
prudent man would have exercised and used under like
circumstances, charged with a like duty, or (b) took or
omitted to take such action in reliance upon advice of
counsel for the corporation or such enterprise or upon
statements made or information furnished by persons
employed or retained by the corporation or such
enterprise upon which he had reasonable grounds to rely.
The foregoing shall not be exclusive of other rights and
defenses to which such person or his personal
representatives may be entitled under law. (Last amended
November 6, 1986)
ARTICLE VIII
Indemnification
Section 1. Actions by a Third Party. The corporation
shall indemnify any person who is or was a party, or is
threatened to be made a defendant or respondent, to a
proceeding, including any threatened, pending or
completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than
actions by or in the right of the corporation), and
whether formal or informal, who is or was a director,
officer, or employee of the corporation or who, while a
director, officer, or employee of the corporation, is or
was serving at the corporation's request as a director,
officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan, or other
enterprise, whether for profit or not, against:
(a) any reasonable expenses (including attorneys'
fees) incurred with respect to a proceeding, if such
person is wholly successful on the merits or
otherwise in the defense of such proceeding, or
(b) judgments, settlements, penalties, fines
(including excise taxes assessed with respect to
employee benefit plans) and reasonable expenses
(including attorneys' fees) incurred with respect to
a proceeding where such person is not wholly
successful on the merits or otherwise in the defense
of the proceeding if:
(i) the individual's conduct was in good faith;
and
(ii) the individual reasonably believed:
(A) in the case of conduct in the
individual's capacity as a director,
officer or employee of the corporation,
that the individual's conduct was in the
corporation's best interests; and
(B) in all other cases, that the
individual's conduct was at least not
opposed to the corporation's best
interests; and
(iii) in the case of any criminal proceeding,
the individual either:
(A) had reasonable cause to believe the
individual's conduct was lawful; or
(B) had no reasonable cause to believe the
individual's conduct was unlawful.
The termination of a proceeding by a judgment, order,
settlement, conviction, or upon a plea of nolo contendere
or its equivalent is not, of itself, determinative that
the director, officer, or employee did not meet the
standard of conduct described in this section. (Last
amended November 6, 1986)
Section 2. Actions by or in the Right of the
Corporation. The corporation shall indemnify any person
who is or was a party or is threatened to be made a
defendant or respondent, to a proceeding, including any
threatened, pending or completed action, suit or
proceeding, by or in the right of the corporation to
procure a judgment in its favor, by reason of the fact
that such person is or was a director, officer, or
employee of the corporation or is or was serving at the
request of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture,
trust, employee benefit plan, or other enterprise,
whether for profit or not, against any reasonable
expenses (including attorneys' fees):
(a) if such person is wholly successful on the
merits or otherwise in the defense of such
proceeding, or
(b) if not wholly successful:
(i) the individual's conduct was in good faith;
and
(ii) the individual reasonably believed:
(A) in the case of conduct in the
individual's capacity as a director,
officer, or employee of the corporation,
that the individual's conduct was in the
corporation's best interests; and
(B) in all other cases, that the
individual's conduct was at least not
opposed to the corporation's best
interests,
except that no indemnification shall be made in respect
of any claim, issue, or matter as to which such person
shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which
such action or suit was brought shall determine upon
application, that despite the adjudication of liability
but in view of all circumstances of the case, such person
is fairly and reasonably entitled to indemnification for
such expenses which such court shall deem proper. (Last
amended November 6, 1986)
Section 3. Methods of Determining Whether Standards
for Indemnification Have Been Met. Any indemnification
under Sections 1 or 2 of this Article (unless ordered by
a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, or employee is
proper in the circumstances because he has met the
applicable standards of conduct set forth in Section 1 or
2. In the case of directors of the corporation such
determination shall be made by any one of the following
procedures:
(a) by the board of directors by a majority vote of
a quorum consisting of directors not at the time
parties to the proceeding;
(b) if a quorum cannot be obtained under (a), by
majority vote of a committee duly designated by the
board of directors (in which designation directors
who are parties may participate), consisting solely
of two or more directors not at the time parties to
the proceeding;
(c) by special legal counsel:
(i) selected by the board of directors or a
committee thereof in the manner prescribed in
(a) or (b); or
(ii) if a quorum of the board of directors
cannot be obtained under (a) and a committee
cannot be designated under (b), selected by a
majority vote of the full board of directors
(in which selection directors who are parties
may participate).
In the case of persons who are not directors of the
corporation, such determination shall be made (a) by the
chief executive officer of the corporation or (b) if the
chief executive officer so directs or in his absence, in
the manner such determination would be made if the person
were a director of the corporation. (Last amended
November 6, 1986)
Section 4. Advancement of Defense Expenses. The
corporation may pay for or reimburse the reasonable
expenses incurred by a director, officer, or employee who
is a party to a proceeding described in Section 1 or 2 of
this Article in advance of the final disposition of said
proceeding if:
(a) the director, officer, or employee furnishes the
corporation a written affirmation of his good faith
belief that he has met the standard of conduct
described in Section 1 or 2; and
(b) the director, officer, or employee furnishes the
corporation a written undertaking, executed
personally or on his behalf, to repay the advance if
it is ultimately determined that the director,
officer or employee did not meet the standard of
conduct; and
(c) a determination is made that the facts then
known to those making the determination would not
preclude indemnification under Section 1 or 2.
The undertaking required by this Section must be an
unlimited general obligation of the director, officer, or
employee but need not be secured and may be accepted by
the corporation without reference to the financial
ability of such person to make repayment. (Last amended
November 6, 1986)
Section 5. Non-Exclusiveness of Indemnification. The
indemnification and advancement of expenses provided for
or authorized by this Article does not exclude any other
rights to indemnification or advancement of expenses that
a person may have under:
(a) the corporation's articles of incorporation or
bylaws;
(b) any resolution of the board of directors or the
shareholders of the corporation;
(c) any other authorization adopted by the
shareholders; or
(d) otherwise as provided by law, both as to such
person's actions in his capacity as a director,
officer, or employee of the corporation and as to
actions in another capacity while holding such
office.
Such indemnification shall continue as to a person who
has ceased to be a director, officer, or employee, and
shall inure to the benefit of the heirs and personal
representatives of such person. (Last amended November 6,
1986)
ARTICLE IX
Amendments
These bylaws may be altered, amended or repealed and
new bylaws may be made by a majority of the whole board
of directors at any regular or special meeting of the
board of directors. (Amended effectiveMay 11, 1978)
PC DOC No. 45237
Exhibit 4(b)
-95-
LINCOLN NATIONAL CORPORATION
Debt Securities
FIRST SUPPLEMENTAL INDENTURE
Dated as of July 1, 1992
to the Indenture dated as of January 15, 1987
Morgan Guaranty Trust Company of New York, Trustee
First Supplemental Indenture, dated as of July 1, 1992,
between Lincoln National Corporation, an Indiana corpo-
ration ("Company"), and Morgan Guaranty Trust Company of New
York, a New York trust company. as Trustee under the Original
Indenture, as hereinafter defined ("Trustee").
WITNESSETH:
WHEREAS, the Company heretofore has executed and
delivered to the Trustee its Indenture dated as of January 15,
1987 (herein referred to as the "Original Indenture");
WHEREAS, Section 2.01 of the Original Indenture
provides that Securities may be issued thereunder in one or
more series, each series to contain or be subject to all terms,
and to be in such form or forms, as shall be approved by or
pursuant to a Board Resolution or in one or- more supplements to
this Indenture;
WHEREAS, the Company is desirous of providing for the
creation under the Indenture of a new series of Securities des-
ignated as 7 1/8% Notes due July 15, 1999 (herein referred to
as the 1999 Notes"), the Securities of said series to be sub-
stantially in the form and of the tenor following, to-wit:
[FORM OF FACE OF THE 1999 NOTES]
Lincoln National Corporation
7 1/8% Note due July 15, 1999
[Registered] CUSIP
No__________________ [SPECIFY AMOUNT AND CURRENCY]
Lincoln National Corporation, a corporation organized and
existing under the laws of the State of Indiana (hereinafter
called the "Company", which term includes any successor corpo-
ration under the Indenture hereinafter referred to), for value
received, hereby promises to pay to _____________ or registered
assigns, the principal sum of One Hundred Million Dollars
($100,000,000) on July 15, 1999 and to pay interest thereon
from July 15, 1992 or from the most recent interest payment
date to which interest has been paid or duly provided for,
semi-annually on January 15 and July 15, in each year, commenc-
ing January 15, 1993, at the rate of 7 1/8% per annum until the
principal hereof is paid or such payment is duly provided for.
The interest so payable and punctually paid or duly provided
for on any interest payment date will, as provided in said
Indenture, be paid .to the person in whose name this Note (or
one or more predecessor Notes) is registered at the Close Of
business on the record date for such interest, which shall be
the first day, whether or not a business day, of the calendar
month of such interest payment date. Payment of the principal
of and interest on this Note will be made at the designated
office or agency of the Company maintained for such purpose in
the City of New York, New York, in such coin or currency of the
United States of America as at the time of payment is legal
tender for payment of public and private debt or, at the option
of the Company interest so payable may be paid by check to the
order of said Holder mailed to his address appearing on the
Security register. Any interest not so punctually paid or duly
provided for shall be payable as provided in the Indenture.
Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth in
this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by
manual signature, this Note shall not be entitled to any bene-
fit under the Indenture or be valid or obligatory for any pur-
pose.
IN WITNESS WHEREOF, Lincoln National Corporation has caused
this Instrument to be signed in its corporate name by its
Chairman or its President or one of its Vice Presidents
manually or in facsimile and a facsimile of its corporate seal
to be imprinted hereon and attested by the manual or facsimile
signature of its Secretary or one of its Assistant Secretaries.
Dated:
LINCOLN NATIONAL CORPORATION
Attest:
Certificate of Authentication
This is one of the Securities of the series designated
herein referred to in the within mentioned Indenture.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Trustee
By
Authorized Officer
[FORM OF REVERSE OF THE 1999 NOTES]
This Note is one of a duly authorized issue of Securities
of the Company of a series hereinafter specified, all issued
and to be issued under an Indenture dated as of January 15,
1987 and supplemented as of July 1, 1992 (herein called the
- -Indenture"), between the Company and Morgan Guaranty Trust
Company of New York, as Trustee (herein called the "Trustee",
which term includes any successor Trustee under the Indenture),
to which Indenture and all indentures supplemental thereto ref-
erence is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the
Company, the Trustee and the Holders of the Securities and the
terms upon which the Securities are, and are to be,
authenticated and delivered. The Securities may be issued in
one or more series, which different series may vary as provided
in the Indenture. This Note is one of a series of the
Securities of the Company designated as its 7 1/8% Notes due
July 15, 1999 (herein called the "Notes"), limited in aggregate
principal amount to $100,000,000, except as otherwise provided
in the Indenture.
The Notes are not redeemable prior to maturity and are not
entitled to any sinking fund. If an Event of Default shall
occur with respect to the Notes, the principal of the Notes may
be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any
time of the Notes, upon which the Company, at its option, shall
be deemed to have been Discharged from its obligations with
respect to the Notes or shall cease to be under any obligation
to comply with certain restrictive covenants of the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the
rights and obligations of the company and the rights of the
Holders of the Securities of any series under the Indenture at
any time by the Company with the consent of the Holders of
66-2/3% in aggregate principal amount of the Securities of each
series affected at the time outstanding. The Indenture also
contains provisions permitting the Holders of a majority in
aggregate principal amount of the Securities of each series
affected at the time outstanding on behalf of the Holders of
all Securities of such series, to waive compliance by the
Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any
such consent or waiver by the Holder of this Note shall be con-
clusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Note or
upon any Note issued upon the transfer hereof or in exchange
herefor or in lieu hereof.
No reference herein to the Indenture and no provision of
this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and interest on this Note at the times,
place, and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, this Note is transferable on the
Security register of the Company, upon surrender of this Note
for transfer at the office or agency of the Company in the City
of New York, New York, duly endorsed by. or accompanied by a
written instrument of transfer in form satisfactory to the
Company and the Registrar, duly executed by the Holder hereof
or his attorney duly authorized in writing, and thereupon one
or more new Notes. of authorized denominations and for the same
aggregate principal amount, will be issued to the designated
transferee or transferees.
The Notes are issuable in denominations of $1,000 and inte-
gral multiples thereof. As provided in the Indenture and
subject to certain limitations therein set forth, this Note is
exchangeable for a like aggregate principal amount of Notes of
different authorized denominations as requested by the Holder
surrendering the same.
No service charge will be made for any such transfer or
exchange, but tile Company may require payment of a sum suffi-
cient to cover any tax or other governmental charge payable in
connection therewith.
The Company, the Trustee and any agent of the Company or
the Trustee may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes whether
or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the
contrary.
No recourse shall be had for the payment of the principal
of or the interest on this Note or for any claim based hereon
or otherwise in any manner in respect hereof, or in respect of
the Indenture, against any incorporator, stockholder, officer
or director, as such, past, present or future, of the Company
or of any predecessor or successor corporation, whether by vir-
tue of any constitutional provision or statute or .rule of law,
or by the enforcement of any assessment or penalty or in any
other manner, all. such liability being expressly waived and
released by the acceptance hereof and as part Of the Consider-
ation for the issue hereof.
All terms used in this Note which are defined in the
Indenture shall have the meanings assigned to them in the
Indenture.
-98-
Exhibit 4(c)
WHEREAS, the Company is desirous of providing for the cre-
ation under the Indenture of a new series of Securities desig-
nated as 7 5/8% Notes due July 15, 2002 (herein referred to as
the "2002 Notes" and collectively with the 1999 Notes, the
"Notes"), the Securities of said series to be substantially in
the form and of the tenor following, to wit:
[FORM OF FACE OF THE 2002 NOTES]
Lincoln National Corporation
7 5/8% Note due July 15, 2002
[Registered] CUSIP___________
No [SPECIFY AMOUNT AND CURRENCY]
Lincoln National Corporation, a corporation organized and
existing under the laws of the State of Indiana (hereinafter
called the "Company", which term includes any successor corpo-
ration under the Indenture hereinafter referred to), for value
received, hereby promises to pay to____________or registered
assigns, the principal sum of One Hundred Million Dollars
($100,000,000) on July 15, 2002 and to pay interest thereon
from July 15, 1992 or from the most recent interest payment
date to which interest has been paid or duly provided for,
semi-annually on January 15 and July 15, in each year, commenc-
ing January 15, 1993, at the rate of 7 5/8% per annum until the
principal hereof is paid or such payment is duly provided for.
The interest so payable and punctually paid or duly provided
for, on any interest payment date will, as provided in said
Indenture, be paid to the person in whose name this Note (or
one or more predecessor Notes) is registered at the close of
business on the record date for such interest, which shall be
the first day, whether or not a business day, of the calendar
month of such interest payment date. Payment of the principal
of and interest on this Note will be made at the designated
office or agency of the Company maintained for such purpose in
the City of New York, New York, in such coin or currency of the
United States of America as at the time of payment is legal
tender for payment of public and private debt or, at the option
of the Company interest so payable may be paid by check to the
order of said Holder mailed to his address appearing on the
Security register. Any interest not so punctually paid or duly
provided for shall be payable as provided in the Indenture.
Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth in
this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by
manual signature, this Note shall not be entitled to any bene-
fit under the Indenture or be valid or obligatory for any pur-
pose.
IN WITNESS WHEREOF, Lincoln National Corporation has caused
this Instrument to be signed in its corporate name by its
Chairman or its President or one of its Vice Presidents
manually or in facsimile and a facsimile of its corporate seal
to be imprinted hereon and attested by the manual or facsimile
signature of its Secretary or one of its Assistant Secretaries
Dated: LINCOLN NATIONAL CORPORATION
Attest:
Certificate of Authentication
This is one of the Securities of the series designated
herein referred to in the within mentioned Indenture.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Trustee
By
Authorized Officer
[FORM OF REVERSE QF THE 2002 NOTES]
This Note is one of a duly authorized issue of Securities
of the Company of a series hereinafter specified, all issued
and to. be issued under an Indenture dated as of January 15,
1987 and supplemented as of July 1, 1992 (herein called the
"Indenture"), between the Company and Morgan Guaranty Trust
Company of New York, as Trustee (herein .called the "Trustee",
which term includes any successor Trustee under the Indenture),
to which Indenture and all indentures supplemental thereto ref-
erence is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the
Company, the Trustee and the Holders of the Securities and the
terms upon which the Securities are, and are to be,
authenticated and delivered. The Securities may be issued in
one or more series, which different series may vary as provided
in the Indenture. This Note is one of a series of the
Securities of the Company designated as its 7 5/8% Notes due
July 15, 2002 (herein .called the "Notes"), limited in aggregate
principal amount to $100,000,000, except as otherwise provided
in the Indenture.
The Notes are not redeemable prior to maturity and are not
entitled to any sinking fund. If an Event of Default shall
occur with respect to the Notes, .the principal of the Notes may
be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any
time of the Notes, upon which the Company, at its option, shall
be deemed to have been Discharged from its obligations with
respect to the Notes or shall cease to be under any obligation
to comply with certain restrictive covenants of the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the
rights and obligations of the Company and the rights of the
Holders of the Securities of any series under the Indenture at
any time by the Company with the consent of the Holders of
66-2/3% in aggregate principal amount of the Securities of each
series affected at the time outstanding. The Indenture also
contains provisions permitting the Holders of a majority in
aggregate principal amount of the Securities of each series
affected at the time outstanding on behalf of the Holders of
all the Securities of such series, to waive compliance by the
Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences Any
such consent or waiver by the Holder of this Note shall be con-
clusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the transfer
hereof or in exchange herefor or in lieu hereof whether or not
notation of such consent or waiver is made upon this Note or
upon any Note issued upon the transfer hereof or in exchange
herefor or in lieu hereof.
No reference herein to the Indenture and no provision of
this Note or of the Indenture shall alter or .impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and interest on this Note at the times,
place, and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, this Note is transferable on the
Security register of the Company, upon surrender of this Note
for transfer at the office or agency of the Company in the City
of New York, New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the
Company and the Registrar, duly executed by the Holder hereof
or his attorney duly authorized in writing, and thereupon one
or more new Notes. of authorized denominations and for the same
aggregate principal amount, will be issued to the designated
transferee or transferees.
The Notes are issuable in denominations of $1,000 and inte-
gral multiples thereof. As provided in the Indenture and
subject to certain limitations therein set forth, this Note is
exchangeable for a like aggregate principal amount of Notes of
different authorized denominations as requested by the Holder
surrendering the same.
No service charge will be made for any such transfer or
exchange, but the Company may require payment of a sum suffi-
cient to cover any tax or other governmental charge payable in
connection therewith.
The Company, the Trustee and any agent of the Company or
the Trustee may treat the person in whose name this Note is
registered as the owner hereof for the purpose of . receiving
payment as herein provided and for all other purposes whether
or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the
contrary.
No recourse shall be had for the payment of the principal
of or the interest on this Note or for any claim based hereon
or otherwise in any manner in respect hereof, or in respect of
the Indenture, against any incorporator, stockholder, officer
or director, as such, past, present or future, of the Company
or of any predecessor or successor corporation, whether by vir-
tue of any constitutional provision or statute or rule of law,
or by the enforcement of any assessment or penalty or in any
other manner, all such liability being expressly waived and
released by the acceptance hereof and as part of the consider-
ation for the issue hereof.
All terms. used in this Note which are defined in the
Indenture shall have the meanings assigned to them in the
Indenture.
WHEREAS, the Company wishes to amend or supplement
Section 2.03 of the Original Indenture to appoint therein a
Registrar and Paying Agent other than the Trustee with respect
to the Notes pursuant to Sections Z.03 and 9.01 of the Original
Indenture; and
WHEREAS, the execution and delivery of this First
Supplemental Indenture has been duly authorized by the Board of
Directors of the Company; and the Company has requested and
does hereby request the Trustee to join with the Company in the
execution and delivery of this First Supplemental Indenture;
The Company and the Trustee hereby further covenant
and agree as follows, to-wit:
ARTICLE I.
REGISTRAR AND PAYING AGENT WITH RESPECT TO THE NOTES
Section 1.01 The third paragraph of Section 2.03 of the
Original Indenture is amended by adding after the word
"demands" the words "with respect to all of the Securities
except the 7 1/8% Notes due July 15, 1999 and the 7 5/8% Notes
due July 15, 2002, with respect to which the Company initially
appoints The Bank of New York, a_________________,to be the
Registrar and Paying Agent.
ARTICLE II.
FORM AND EXECUTION OF SECURITIES OF SERIES DUE JULY 15, 1999
AND JULY 15, 2002
Section 2.01 (a) There is hereby created, for
issuance under the Indenture, a series of Securities designated
the "1999 Notes", each of which shall bear the descriptive
title "7 1/8% Notes due July 15, 1999" and the form thereof
shall be as set forth in the preambles to this First
Supplemental Indenture. The 1999 Notes shall mature July 15,
1999, and shall be issued as registered notes without coupons
in denominations of integral multiples Of $1,000. The
Securities of said series shall bear interest at the rate of
7 1/8% per annum payable semi-annually on January 15 and
July 15 of each year, and the principal shall be payable at the
office of the Paying Agent in New York, New York, in lawful
money of the United States of America, and the interest shall
he payable in like money at the option of the person entitled
to such interest at said office of the Paying Agent in New
York, New York, provided that at the option of the Company pay-
ment of interest may be made by wire transfer to the person
entitled thereto if such person has provided proper wire
transfer instructions or by check mailed to the address of such
person as such address shall appear in the records maintained
by the Registrar. The 1999 Notes shall not be redeemable prior
to maturity and shall not he entitled to any sinking fund.
(b) There is hereby created, for issuance under the
Indenture, a series of Securities designated the "2002 Notes",
each of which shall bear the descriptive title "7 5/8% Notes
due July 15, 2002" and the form thereof shall contain suitable
provisions with respect to the matters hereinafter specified in
this Section. The 2002 Notes shall mature July 15, 2002 and
shall be issued as registered notes without coupons in
denominations of integral multiples of $1,000. The Securities
of said series shall bear interest at the rate of 7 5/8% per
annum payable semi-annually on January 15 and July 15 of each
year, and the principal shall be payable at the office of the
Paying Agent in New York, New York, in lawful money of the
United States of America, and the interest shall be payable in
like money at the option at' the person entitled to such inter-
est at said office of the Paying Agent in New York, New York,
provided that at the option of the Company payment of interest
may be made by wire transfer to the person entitled thereto if
such person has provided proper wire transfer instructions or
by check mailed to the address of such person as such address
shall appear in the records maintained by the Registrar. The
2002 Notes shall not be redeemable prior to maturity and shall
not be entitled to any sinking fund.
Section 2.02 The Holder of any of the 1999 Notes or
the 2002 Notes (collectively, the Notes"), at his option may
surrender the same at the office of the Registrar in New York,
New York, or elsewhere if authorized by the Company, for can-
cellation, in exchange for other Registered Securities of the
said series of the same aggregate principal amount, bearing
interest as provided in Section 2.01 hereof, as the case may
be, thereupon, and upon receipt of any payment required under
the provisions of Section 2.03 hereof, the Company shall
execute and deliver to the Trustee and the Trustee shall
authenticate and deliver such other Registered Securities to
such Holder at its office or at any other place specified as
aforesaid.
Section 2.03 No charge shall be made by the Company
for any exchange or transfer of the Notes, other than for taxes
or other governmental charges, if any, that may be imposed in
relation thereto.
Section 2.04(a) Except as provided in
Section 2.04(c) below, the Holder of all of the Notes shall be
The Depository Trust Company ("DTC") and the Notes shall be
registered in the name of Cede & Co., as nominee for DTC.
Payment of principal of, and interest on, the Notes registered
in the name of Cede & Co. sha11 be made by transfer of immedi-
ately available funds with respect to the Notes to the account
of Cede K Co. on each such payment date for the Notes at the
address indicated for Cede a Co. in the records kept by the
Registrar
(b) Each of the series of Securities referred to
herein as the 1999 Notes and the 2002 Notes shall be initially
issued in the form of a separate single authenticated fully-
registered note (collectively, the Book-Entry Notes") in the
aggregate principal amount of the 1999 Notes and the 2002
Notes, respectively. Upon initial issuance, the ownership of
the Notes shall be registered in the records kept by the
Registrar in the name of Cede & Co., as nominee of DTC. The
Trustee and the Company may treat DTC (or its nominee) as the
sole and exclusive Holder of the Notes registered in its name
for the purposes of payment of the principal of, and interest
on the Notes and of giving any notice permitted or required to
be given to Holders under the Indenture, except as provided in
Section 2.04(c) below; and neither the Trustee nor the Company
shall be affected by any notice to the contrary. Neither the
Trustee nor the Company shall have any responsibility or
obligation to any of DTC's participants (each a "Participant"),
any person Claiming a beneficial ownership in the Hates. under
or through DTC or any Participant (each a "Beneficial .Owner"),
or any other person which is not shown in the records main-
tained by the Registrar as being a Holder, with respect to the
accuracy of any records maintained by DTC or any Participant;
the payment of DTC or any Participant of any amount in respect
of the principal of, or interest on the Notes; any notice which
is permitted or required to he given to Holders under the
Indenture of the Notes, or any consent given or other action
taken by DTC as Securityholder. The Paying Agent shall pay all
principal of. and interest on the Notes registered in the name
of Cede & Co. only to or upon the order of" DTC, and all such
payments shall be valid and effective to fully satisfy and dis-
charge the Company's obligations with respect to the principal
of, and interest on the Notes to the extent of the sum or sums
so paid. Except as otherwise provided in Section 2.04(c)
below, no person other than DTC shall receive authenticated
certificates evidencing the obligation of the Company to make
payments of principal of, and interest on the Notes. Upon de-
livery by DTC to the Trustee of written notice to the effect
that DTC has determined to substitute a new nominee in place of
Cede b Co., and subject to the provisions of the Indenture with
respect to transfers of Securities, the word "Cede & Co." in
this First Supplemental Indenture shall refer to such new
nominee of DTC
(c) With regard to either the 1999 Notes or the 2002
Notes. if DTC notifies the Company that it is at any time
unwilling or unable to continue as depository or if at any time
DTC shall no longer be eligible to continue as depository, the
Company shall appoint a successor depository. If (i) a succes-
sor depository is not appointed by the Company within ninety
days of such notice or after the Company becomes aware of such
ineligibility, (ii) the Company executes and delivers an
Officers' Certificate to the Trustee to the effect that the
respective Book-Entry Note shall be exchangeable, or (iii) an
Event of Default has occurred and is continuing with regard to
such Notes, the Company and the Trustee shall deliver certifi-
cates as described in this First Supplemental Indenture for the
1999 Notes or the 2002 Notes, as the case may be, in exchange
for the respective Book-Entry Note in an aggregate principal
amount equal to the principal amount of such Book-Entry Note.
In such event, the Trustee shall issue, transfer and exchange
certificates as requested by DTC in appropriate amounts pursu-
ant to Section 2.06 of the Original Indenture and Section 2.02
of this First Supplemental Indenture. If certificates are
issued, the provisions of the Indenture shall apply to, among
other things, the transfer and exchange of such certificates
and the method of payment and principal of, and interest on
such certificates. If a successor depository is appointed by
the Company with regard to the 1999 Notes or the 2002 Notes,
the Trustee (at the sole cost and expense of the Company) shall
cooperate in arranging for such other book-entry depository to
maintain custody of the 1999 Notes or the 2002 Notes, as the
case may be. Any successor book-entry depository must be a
clearing agency registered with the* Securities and Exchange
Commission pursuant to Section 17A of the Securities Exchange
Act of 1934 and must enter into an agreement with the Company
and the Trustee agreeing to act as the depository and clearing
agency for the 1999 Notes or the 2002 Notes, as the case may
be. After such agreement has become effective, DTC shall
present the 1999 Notes or the 2002 Notes, as the case may be,
for registration of transfer in accordance with Section 2.06 of
the Original Indenture, and the Registrar shall register them
in the name of the successor book-entry depository or its
nominee. If a successor book -- entry depository has not accepted
such position before the effective date of DTC's termination of
its services, the book-entry system shall automatically termi-
nate and may not be reinstated without the consent of all of
the Holders of the 1999 Notes or the 2002 Notes, as the case
may be.
(d) Notwithstanding any other provision of this First
Supplemental Indenture to the contrary, so long as any of the
Notes are registered in the name of Cede & Co., as nominee of
DTC, all payments with respect to the principal of, and inter-
est on such Notes, and all notices with respect to such Notes
shall be made and given, respectively, to DTC as provided in
the representation letter dated as of the date of delivery of
the Notes among DTC and the Company. The Trustee is hereby
authorized and directed to comply with all terms of the repre-
sentation letter.
(e) In connection with any notice or other communica-
tion to be provided pursuant to the Indenture for the 1999
Notes or the 2002 Notes by the Company or the Trustee with re-
spect to any consent or other action to be taken by the Holders
of such Notes, the Company or the Trustee, as the case may be,
shall seek to establish a record date for such consent or other
action and give DTC notice of such record date not less than
fifteen (15) calendar days in advance of such record date to
the extent possible. Such notice to DTC shall be given only
when DTC is the sole Holder of the 1999 Notes or the 2002
Notes, as the case may be.
(f) NEITHER THE COMPANY NOR THE TRUSTEE WILL HAVE ANY
RESPONSIBILITY OR OBLIGATIONS TO THE PARTICIPANTS OR THE
BENEFICIAL OWNERS WITH RESPECT TO (1) THE ACCURACY OF ANY
RECORDS MAINTAINED BY DTC OR ANY PARTICIPANT; (2) THE PAYMENT
BY DTC OR ANY PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL
OWNER IN RESPECT OF THE PRINCIPAL OF OR INTEREST ON THE NOTES;
(3) THE DELIVERY BY DTC OR ANY PARTICIPANT OF ANY NOTICE TO ANY
BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS
OF THE INDENTURE TO .BE GIVEN TO HOLDERS; OR (4) ANY CONSENT
GIVEN OR OTHER ACTION TAKEN BY DTC AS A HOLDER.
SO LONG AS CEDE& CO. IS THE REGISTERED HOLDER OF THE NOTES
AS NOMINEE OF DTC, REFERENCES HEREIN TO THE NOTES OR REGISTERED
HOLDERS OF THE NOTES SHALL MEAN CEDE b CO. AND SHALL NOT MEAN
THE BENEFICIAL OWNERS OF THE NOTES NOR DTC PARTICIPANTS.
(g) Upon the termination of the services of DTC with respect
to the 1999 Notes of the 2002 Notes pursuant to subsection (c) of this
Section 2.04 after which no substitute book-entry depository is
appointed, the 1999 Notes or the 2002 Notes, as the case may be, shall be
registered in whatever name or names Holders transferring or exchanging
such Notes shall designate in accordance with the provisions of the
Indenture.
ARTICLE III.
MISCELLANEOUS
Section 3.01 This First Supplemental Indenture shall
be construed in connection with and as part of the Original
Indenture.
Section 3.02 (a) If any provision of this First
Supplemental Indenture limits, qualifies, or conflicts with
another provision of the Indenture required to be included in
indentures qualified under the Trust Indenture Act of 1939 (as
enacted prior to the date of this First Supplemental Indenture)
by any of the provisions of Sections 310 to 317, inclusive, of
the said Act, such required provisions shall control.
(b) In case any one or more of the provisions con-
tained in this First Supplemental Indenture or in the Notes
issued hereunder. should be invalid, illegal, or unenforceable
in any respect, the validity. legality, and enforceability of
the remaining provisions contained herein and therein shall not
in any way he affected, impaired, prejudiced, or disturbed
thereby.
Section 3.03 Wherever in this First Supplemental
Indenture the word "Indenture" is used without the prefix
"Original" or "First Supplemental" such word was used
intentionally to include in its meaning both the Original
Indenture and all indentures supplemental thereto.
Section 3.04 Wherever in this First Supplemental
Indenture either of the parties hereto is named or referred to,
this shall be deemed to include the successors or assigns of
such party, and all the covenants and agreements in this First
Supplemental Indenture contained by or on behalf of the Company
or by or on behalf of the Trustee shall bind and inure to the
benefit of the respective successors and assigns of such
parties, whether so expressed or not.
Section 3.05 (a) This First Supplemental Indenture
may be simultaneously executed in several counterparts, and all
said counterparts executed and delivered, each as an original,
shall constitute but one and the same instrument.
(b) The descriptive headings of the several Articles
of this First Supplemental Indenture were formulated, used and
inserted in this First Supplemental Indenture for convenience
only and shall not be deemed to affect the meaning or construc-
tion of any of the provisions hereof.
SIGNATURES
Dated: as of July 1, 1992 LINCOLN NATIONAL CORPORATION
By:
[Vice] President
Attest:
(SEAL)
[Assistant] Secretary
Dated: as of July 1, 1992 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as TRUSTEE
Attest:
By: Vice President
(SEAL)
Assistant Secretary
3275K
[FORM OF FACE OF THE 1999 NOTES]
Lincoln National Corporation
7 1/8% Note due July 15, 1999
[Registered] CUSIP
No [SPECIFY AMOUNT AND CURRENCY]
Lincoln National Corporation, a corporation organized and
existing under the law* of the State of Indiana (hereinafter
called the "Company , which term includes any successor corpo-
ration under the Indenture hereinafter referred to), for value
received, hereby promises to pay to______________or registered
assigns, the principal sum of One Hundred Million. Dollars
($100,000,000) on July 15, 1999 and to pay interest thereon
from July 15, 1992 or from the most recent interest payment
date to which interest has been paid or duly provided for,
semi-annually on January 15 and July 15, in each year, commenc-
ing January 15, 1993, at the rate of 7 1/8% per annum until the
principal hereof is paid or such payment is duly provided for.
The interest so payable and punctually paid or duly provided
for on any interest payment date will, as provided in said
Indenture, be paid to the person in whose name this Note (or
one or more predecessor Notes) is registered at the close of
business on the record date for such interest, which shall be
the first day, whether or not a business day, of the calendar
month of such interest payment date. Payment of the principal
of and interest on this Note will be made at the designated
office or agency of the Company maintained for such purpose in
the City of New York, New York. in such coin or currency of the
United States of America as at the time of payment is legal
tender for payment of public and private debt or, at the option
of the Company interest so payable may be paid by check to the
order of said Holder mailed to his address appearing on the
Security register. Any interest not so punctually paid or duly
provided for shall be payable as provided in the Indenture.
Interest will be computed on the basis of a 360-day year of
twelve 30-day months
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth in
this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by
manual signature, this Note shall not be entitled to any bene-
fit under the Indenture or be valid or obligatory for any pur-
pose.
IN WITNESS WHEREOF, Lincoln National Corporation has caused
this Instrument to be signed in its corporate name by its
Chairman or its President or one of its Vice Presidents
manually or in facsimile and a facsimile of its corporate seal
to be imprinted hereon and attested by the manual or facsimile
signature of its Secretary or one of its Assistant Secretaries.
Dated: LINCOLN NATIONAL CORPORATION
Attest:
Certificate of Authentication
This is one of the Securities of the series designated
herein referred to in the within mentioned Indenture.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Trustee
By
Authorized Officer
[FORM OF REVERSE OF THE 1999 NOTES)
This Note is one of a duly authorized issue of Securities
of the Company of a series hereinafter specified, all issued
and to be issued under an Indenture dated as of January 15,
1987 and supplemented as of July 1, 1992 (herein called the
"Indenture"), between the Company and Morgan Guaranty Trust
Company of New York, as Trustee (herein called the "Trustee",
which term includes any successor Trustee under the Indenture),
to which Indenture and all indentures supplemental thereto ref-
erence is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the
Company, the Trustee and the Holders of the Securities and the
terms upon which the Securities are, and are to he.
authenticated and delivered. The Securities may be issued in
one or more series, which different series may vary as provided
in the Indenture. This Note is one of a series of the
Securities of the Company designated as its 7 1/8% Notes due
July 15, 1999 (herein called the "Notes"), limited in aggregate
principal amount to $100,000,000, except as otherwise provided
in the Indenture.
The Notes are not redeemable prior to maturity and are not
entitled to any sinking fund. If an Event of Default shall
occur with respect to the Notes, the principal of the Notes may
be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any
time of the Notes, upon which the Company, at its option, shall
be deemed to have been Discharged from its obligations with
respect to the Notes or shall cease to be under any obligation
to comply with certain restrictive covenants of the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the
rights and obligations of the Company and the rights of the
Holders of the Securities of any series under the Indenture at
any time by the Company with the consent of the Holders of
66-2/3% in aggregate principal amount of the Securities of each
series affected at the time outstanding. The Indenture also
contains provisions permitting the Holders of a majority in
aggregate principal amount of the Securities of each series
affected at the time outstanding on behalf of the Holders of
all Securities of such series, to waive compliance by the
Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any
such consent or waiver .by the Holder of this Note shall be con-
clusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the transfer
hereof or in exchange Hereford or in lieu hereof whether or not
notation of such consent or waiver is made upon this Note or
upon any Note issued upon the transfer hereof or in exchange
Hereford or in lieu hereof.
No reference herein to the Indenture and no provision of
this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and interest on this Note at the times,
place, and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, this Note is transferable on the
Security register of the Company, upon surrender of this Note
for transfer at the office or agency of the Company in the City
of New York, New York, .duly endorsed by. or accompanied by a
written instrument of transfer in form satisfactory to the
Company and the Registrar. duly executed by the Holder hereof
or his attorney duly authorized in writing, and thereupon one
or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated
transferee or transferees.
The Notes ate issuable in denominations of $1,000 and inte-
gral multiples thereof. As provided in the Indenture and
subject to certain limitations therein set forth, this Note is
exchangeable for a like aggregate principal amount of Notes of
different authorized denominations as requested by the Holder
surrendering the same.
No service charge will be made for any such transfer or
exchange, but the Company may require payment of a .sum suffi-
cient to cover any tax or other governmental charge payable in
connection therewith.
The Company, the Trustee and any agent of the Company or
the Trustee may treat the person in whose name this Note is
registered as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes whether
or not this Note be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the
contrary.
No recourse shall be had for the payment of the principal
of or the interest on this Note or for any claim based hereon
or otherwise in any manner in respect hereof, or in respect of
the Indenture, against any incorporator, stockholder, officer
or director, as such, past, present or future, of the Company
or of any predecessor or successor corporation, whether by vir-
tue of any constitutional provision or statute or rule of law,
or by tile enforcement of any assessment or penalty or in any
other manner, all such liability being expressly waived and
released by the acceptance hereof and as part of the consider-
ation for the issue hereof.
All terms used in this Note which are defined in the
Indenture shall haec the meanings assigned to them in the
Indenture.
3301K
[FORM OF FACE OF THE 2002 NOTES]
Lincoln National Corporation
7 5/8% Note due July 15, 2002
[Registered] CUSIP
No [SPECIFY AMOUNT AND CURRENCY)
Lincoln National Corporation, a Corporation organized and
existing under the laws of the State of Indiana (hereinafter
called the "Company", which term includes any successor corpo-
ration under the Indenture hereinafter referred to), for value
received, hereby promises to pay to_________________or registered
assigns, the principal sum of One Hundred Million Dollars
($100,000,000) on July 15, 2002 and to pay interest thereon
from July 15, 1992 or from the most recent interest payment
date to which interest has been paid or duly provided for,
semi-annually on January 15 and July 15, in each year, commenc-
ing January 15, 1993, at the rate of 7 5/8% per annum until the
principal hereof is paid or such payment is duly provided for.
The interest so payable arid punctually paid or duly provided
for, on any interest payment date will, as provided in said
Indenture, be paid to the person in whose name this Note (or
one or more predecessor Notes) is registered at the close of
business on the record date for such interest, which shall be
the first day, whether or not a business day, of the calendar
month of such interest payment date. Payment of the principal
of and interest on this Note will be made at the designated
office or agency of the Company maintained for such purpose in
the City of New York, New York, in such coin or currency of the
United States of America as at the time of payment is legal
tender for payment of public and private debt or, at the option
of the Company interest so payable may be paid by check to the
order of said Holder mailed to his address appearing on the
Security register. Any interest not so punctually paid or duly
provided for shall be payable as provided in the Indenture.
Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth in
this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by
manual signature, this Note shall not be entitled to any bene-
fit under the Indenture or be valid or obligatory Ear any pur-
pose.
IN WITNESS WHEREOF, Lincoln National Corporation has caused
this Instrument to be signed in its corporate name by its
Chairman or its President or one of its Vice Presidents
manually or in facsimile and a facsimile of its corporate seal
to be imprinted hereon and attested by the manual or facsimile
signature of its Secretary or one of its Assistant Secretaries.
Dated: LINCOLN NATIONAL CORPORATION
Attest:
Certificate of Authentication
This is one of the Securities of the series designated
herein referred to in the within mentioned Indenture.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Trustee
By
Authorized Officer
[FORM OF REVERSE OF THE 2002 NOTES]
This Note is one of a duly authorized issue of Securities
of the Company of a series hereinafter specified, all issued
and to be issued under an Indenture dated as of January 15,
1987 and supplemented as of July 1, 1992 (herein called the
"Indenture"), between the Company and Morgan Guaranty Trust
Company of New York, as Trustee (herein called the "Trustee",
which term includes any successor Trustee under the Indenture),
to which Indenture and all indentures supplemental thereto ref-
erence is hereby made for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the
Company, the Trustee and the Holders of the Securities and the
terms upon which the Securities are, and are to be,
authenticated and delivered. The Securities may be issued in
one or more series, which different series may vary as provided
in the Indenture. This Note is one of a series of the
Securities of the Company designated as its 7 5/8% Notes due
July 15, 2002 (herein called the "Note* ), limited in aggregate
principal amount to $100,000,000, except as otherwise provided
in the Indenture.
The Notes are not redeemable prior to maturity and are not
entitled to any .sinking fund. If an Event of Default shall
occur with respect to the Notes, the principal of the Notes may
be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any
time of the Notes, upon which the Company, at its option, shall
be deemed to have been Discharged from its obligations with
respect to the Notes or shall cease to be under any obligation
to comply with certain restrictive covenants of the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the
rights and obligations of the Company and the rights of the
Holders of the Securities of any series under the Indenture at
any time by the Company with the consent of the Holders of
66-2/3% in aggregate principal amount of the Securities of each
series affected at the time outstanding. The Indenture also
contains provisions permitting the Holders of a majority in
aggregate principal amount of the Securities of each series
affected at the time outstanding on behalf of the Holders of
all the Securities of such series, to waive compliance by the
Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences Any
such consent or waiver by the Holder of this Note shall be con-.
elusive and binding upon such Holder and upon all future
Holders of this Note and of any Note issued upon the transfer
hereof or in exchange Hereford or in lieu hereof whether or not
notation of such consent or waiver is made upon this Note or
upon any Note issued upon the transfer hereof or in exchange
Hereford or in lieu hereof.
No reference herein to the Indenture and no provision of
this Note or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and interest on this Note at the times,
place, and rate, and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, this Note is transferable on the
Security register of the Company, upon surrender of this Note
for transfer at the office or agency of the Company in the city
of New York. New York, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the
Company and the Registrar, duly executed by the Holder hereof
or his attorney duly authorized in writing, and thereupon one
or more new Notes, of authorized denominations and for the same
aggregate principal amount, will he issued to the designated
transferee or transferees.
The Notes are issuable in denominations of $1,000 and inte-
gral multiples thereof. As provided in the Indenture and
subject to certain limitations therein set forth, this Note is
exchangeable for a like aggregate principal amount of Notes of
different authorized denominations as requested by the Holder
surrendering the same.
No service charge will be made for any such transfer or
exchange, but the Company may require payment of a sum suffi-
cient to cover any tax or other governmental charge payable in
connection therewith.
The Company, the Trustee and any agent of the Company or
the Trustee may treat the person in *hose name this Note is
registered as the owner hereof for the purpose of receiving
payment as herein provided and for all other purposes whether
or not this Note be overdue, and neither the Company, the.
Trustee nor any such agent shall be affected by notice to the
contrary.
No recourse shall be had for the payment of the principal
of or the interest on. this Note or for any claim based hereon
or otherwise in any manner in respect hereof. or in respect of
the Indenture, against any incorporator, stockholder, officer.
or director, as such, past, present or future, of the Company
or of any predecessor or successor corporation, whether by vir-
tue of any constitutional provision or statute or rule of law,
or by the enforcement of any assessment or penalty or in any
other manner, all such liability being expressly waived and
released by the acceptance hereof and as part of the consider-
ation for the issue hereof.
All terms used in this Note which are defined in the
Indenture shall have the meanings assigned to them in the
Indenture.
3302K
Exhibit 4(j)
-111-
LINCOLN NATIONAL CORPORATION
to
THE FIRST NATIONAL BANK OF CHICAGO
Trustee
JUNIOR SUBORDINATED INDENTURE
Dated as of May 1, 1996
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 1
Section 1.1 Definitions ............................................. 1
Section 1.2 Compliance Certificate and Opinions.......................7
Section 1.3 Forms of Documents Delivered to Trustee...................7
Section 1.4 Acts of Holders . .. . . . ...............................7
Section 1.5 Notices, Etc. to Trustee and Company......................8
Section 1.6 Notice to Holders; Waiver ................................8
Section 1.7 Conflict with Trust Indenture Act ........................9
Section 1.8 Effect of Headings and Table of Contents..................9
Section 1.9 Successors and Assigns. . . ..............................9
Section 1.10 Separability Clause. . . ................................9
Section 1.11 Benefits of Indenture. . . ...............................9
Section 1.12 Governing Law. . . . . . . ...............................9
Section 1.13 Non-Business Days. . . . . ...............................9
ARTICLE II. SECURITY FORMS . ........................................9
Section 2.1 Forms Generally . . . . . . .............................10
Section 2.2 Form of Face of Security. . .............................10
Section 2.3 Form of Reverse of Security .............................12
Section 2.4 Additional Provisions Required in Global Security........14
Section 2.5 Form of Trustee's Certificate of Authentication .........15
ARTICLE III. THE SECURITIES.15
Section 3.1Title and Terms . . . . . . ...............................15
Section 3.2 Denominations . . . . . . . .............................16
Section 3.3 Execution, Authentication, Delivery and Dating. .........16
Section 3.4 Temporary Securities. . . . .............................18
Section 3.5 Registration, Transfer and Exchange . ...................18
Section 3.6 Mutilated, Destroyed, Lost and Stolen Securities.........19
Section 3.7 Payment of Interest; Interest Rights Preserved. .........19
Section 3.8 Persons Deemed Owners . . . .............................20
Section 3.9 Cancellation. . . . . . . . .............................21
Section 3.10 Computation of Interest. . ..............................21
Section 3.11 Deferrals of Interest Payment Dates. ....................21
Section 3.12 Right of Set-Off . . . . . ..............................22
Section 3.13 Agreed Tax Treatment . . . ..............................22
Section 3.14 Extension of Stated Maturity;
Adjustment of Stated Maturity Upon an Exchange...........22
Section 3.15 CUSIP Numbers. . . . . . . ..............................22
ARTICLE IV. SATISFACTION AND DISCHARGE...............................22
Section 4.1 Satisfaction and Discharge of Indenture..................22
Section 4.2 Application of Trust Money. .............................23
Section 4.3 Satisfaction, Discharge and Defeasance of
Securities of Any Series. ..............................23
ARTICLE V. REMEDIES. . .............................................24
Section 5.1 Events of Default . . . . . .............................24
Section 5.2 Acceleration of Maturity; Rescission and Annulment. . ...25
Section 5.3 Collection of Indebtedness and Suits for
Enforcement by Trustee ..................................26
Section 5.4 Trustee May File Proofs of Claim.........................26
Section 5.5 Trustee May Enforce Claim Without
Possession of Securities.................................27
Section 5.6 Application of Money Collected...........................27
Section 5.7 Limitation on Suits . . . ...............................27
Section 5.8 Unconditional Right of Holders to Receive Principal,
Premium and Interest . . . . . . . . . . . . . . . ......28
Section 5.9 Restoration of Rights and Remedies. .....................28
Section 5.10 Rights and Remedies Cumulative...........................28
Section 5.11 Delay or Omission Not Waiver.............................28
Section 5.12 Control by Holders . . . ................................29
Section 5.13 Waiver of Past Defaults. ................................29
Section 5.14 Undertaking for Costs. . ................................29
Section 5.15 Waiver of Stay or Extension Laws . ......................30
ARTICLE VI. THE TRUSTEE. ...........................................30
Section 6.1 Certain Duties and Responsibilities .....................30
Section 6.2 Notice of Defaults. . . . ...............................30
Section 6.3 Certain Rights of Trustee ...............................31
Section 6.4 Not Responsible for Recitals or Issuance of Securities...31
Section 6.5 May Hold Securities . . . ...............................31
Section 6.6 Money Held in Trust . . . ...............................32
Section 6.7 Compensation and Reimbursement...........................32
Section 6.8 Disqualification; Conflicting Interests .................32
Section 6.9 Corporate Trustee Required; Eligibility .................32
Section 6.10 Resignation and Removal; Appointment of Successor........33
Section 6.11 Acceptance of Appointment by Successor ..................34
Section 6.12 Merger, Conversion, Consolidation or
Succession to Business...................................34
Section 6.13 Preferential Collection of Claims Against Company........35
Section 6.14 Appointment of Authenticating Agent......................35
ARTICLE VII. HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY ......36
Section 7.1 Company to Furnish Trustee Names and
Addresses of Holders . ..................................36
Section 7.2 Preservation of Information,
Communications to Holders ..............................36
Section 7.3 Reports by Trustee. . . . ...............................36
Section 7.4 Reports by Company. . . . ...............................37
ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE .37
Section 8.1 Company May Consolidate, Etc., Only on Certain Terms.....37
Section 8.2 Successor Corporation Substituted . .....................37
ARTICLE IX. SUPPLEMENTAL INDENTURES.................................38
Section 9.1 Supplemental Indentures without Consent of Holders........38
Section 9.2 Supplemental Indentures with Consent of Holders . ........39
Section 9.3 Execution of Supplemental Indentures......................39
Section 9.4 Effect of Supplemental Indentures ........................40
Section 9.5 Conformity with Trust Indenture Act ......................40
Section 9.6 Reference in Securities to Supplemental Indentures........40
ARTICLE X. COVENANTS . . ...........................................40
Section 10.1 Payment of Principal, Premium and Interest ..............40
Section 10.2 Maintenance of Office or Agency. ........................40
Section 10.3 Money for Security Payments to be Held in Trust. ........40
Section 10.4 Payment of Taxes and Other Claims........................41
Section 10.5 Statement as to Compliance...............................42
Section 10.6 Waiver of Certain Covenants..............................42
Section 10.7 Additional Sums. . . . . ................................42
Page
ARTICLE XI. REDEMPTION OF SECURITIES................................43
Section 11.1 Applicability of This Article............................43
Section 11.2 Election to Redeem; Notice to Trustee. . ................43
Section 11.3 Selection of Securities to be Redeemed . ................43
Section 11.4 Notice of Redemption . . ................................43
Section 11.5 Deposit of Redemption Price..............................44
Section 11.6 Payment of Securities Called for Redemption. ............44
Section 11.7 Company's Right of Redemption............................44
ARTICLE XII. SINKING FUNDS45
Section 12.2 Satisfaction of Sinking Fund Payments with Securities...45
Section 12.3 Redemption of Securities for Sinking Fund...............45
ARTICLE XIII. SUBORDINATION OF SECURITIES...........................46
Section 13.1 Securities Subordinate to Senior Debt. .................46
Section 13.2 Payment Over of Proceeds Upon Dissolution, Etc. ........47
Section 13.3 Prior Payment to Senior Debt Upon
Acceleration of Securities .............................47
Section 13.4 No Payment When Senior Debt in Default .................48
Section 13.5 Payment Permitted If No Default.........................48
Section 13.6 Subrogation to Rights of Holders of Senior Debt. .......49
Section 13.7 Provisions Solely to Define Relative Rights.............49
Section 13.8 Trustee to Effectuate Subordination.....................49
Section 13.9 No Waiver of Subordination Provisions. .................49
Section 13.10 Notice to Trustee . . . ................................49
Section 13.11 Reliance on Judicial Order or
Certificate of Liquidating Agent........................50
Section 13.13 Rights of Trustee as Holder of
Senior Debt; Preservation of Trustee's Rights...........50
Section 13.14 Article Applicable to Paying Agents.....................50
Section 13.15 Certain Conversions or Exchanges Deemed Payment.........50
LINCOLN NATIONAL CORPORATION
Reconciliation and tie between the Trust Indenture Act of 1939 (including
cross-references to provisions of Sections 310 to and including 317 which,
pursuant to Section 318(c) of the Trust Indenture Act of 1939, as amended by
the Trust Reform Act of 1990, are a part of and govern the Indenture whether
or not physically contained therein) and the Junior Subordinated Indenture,
dated as of May 1, 1996.
Trust Indenture
Act Section Indenture
Section
310 (a) (1), (2) and (5).6.9
(a) (3).Not Applicable
(a) (4).Not Applicable
(b).6.8. 6.10
(c).Not Applicable
311 (a).6.13(a)
(b).6.13(b)
(b) (2).7.3(a) (2)
7.3(a) (2)
312 (a).7.1
.7.2(a)
(b).7.2(b)
(c).7.2(c)
313 (a).7.3(a)
(b). 7.3(b)
(c).7.3(a),7.3(b)
(d).7.3(c)
314 (a) (1), (2) and (3).7.4
(a) (4).10.5
(b).Not Applicable
(c) (1).1.2
(c) (2).1.2
(c) (3).Not Applicable
(d).Not Applicable
(e).1.2
(f).Not Applicable
315 (a).6.1(a)
(b).6.2
.7.3(a) (6)
(c).6.1(b)
(d).6.1(c)
(d) (1).6.1(a) (1)
(d) (2).6.1(c) (2)
(d) (3).6.1(c) (3)
(e).5.14
316 (a).1.1
(a) (1) (A).5.12
(a) (1) (B).5.13
(a) (2).Not Applicable
(b).5.8
(c).1.4(f)
317 (a) (1).5.3
(a) (2).5.4
(b).10.3
318 (a).1.7
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Junior Subordinated Indenture.
JUNIOR SUBORDINATED INDENTURE, dated as of May 1, 1996, between LINCOLN
NATIONAL CORPORATION, an Indiana corporation (hereinafter called the
''Company'') having its principal office at 200 East Berry Street, Fort Wayne,
Indiana 46802-2706, and The First National Bank of Chicago, a national banking
corporation, as Trustee (hereinafter called the ''Trustee'').
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
junior subordinated debt securities in series (hereinafter called the
''Securities'') of substantially the tenor hereinafter provided, including,
without limitation, Securities issued to evidence loans made to the Company of
the proceeds from the issuance from time to time by one or more business
trusts (each a ''Lincoln Trust,'' and, collectively, the ''Lincoln Trusts'')
of preferred trust interests in such Trusts (the ''Preferred Securities'') and
common interests in such Trusts (the ''Common Securities''and, collectively
with the Preferred Securities, the ''Trust Securities''), and to provide the
terms and conditions upon which the Securities are to be authenticated, issued
and delivered.
All things necessary to make the Securities, when executed by the Company
and authenticated and delivered hereunder and duly issued by the Company, the
valid obligations of the Company, and to make this Indenture a valid agreement
of the Company, in accordance with their and its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the
premises and the purchase of the Securities by the Holders thereof, it is
mutually covenanted and agreed, for the equal and proportionate benefit of all
Holders of the Securities or of any series thereof, as follows:
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.1. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) The terms defined in this Article have the meanings assigned to them
in this Article, and include the plural as well as the singular;
(2) All other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to
them therein;
(3) All accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles,
and the term ''generally accepted accounting principles'' with respect to any
computation required or permitted hereunder shall mean such accounting
principles which are generally accepted at the date or time of such
computation; provided, that when two or more principles are so generally
accepted, it shall mean that set of principles consistent with those in use by
the Company; and
(4) The words ''herein,'' ''hereof'' and ''hereunder'' and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
''Act'' when used with respect to any Holder has the meaning specified in
Section 1.4.
''Additional Interest'' means the interest, if any, that shall accrue on
any interest on the Securities of any series the payment of which has not been
made on the applicable Interest Payment Date and which shall accrue at the
rate per annum specified or determined as specified in such Security.
''Additional Sums'' has the meaning specified in Section 10.6.
''Additional Taxes'' means the sum of any additional taxes, duties and
other governmental charges to which a Lincoln Trust has become subject from
time to time as a result of a Tax Event.
''Affiliate'' of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person; provided, however, that an Affiliate of
the Company shall not be deemed to include any Lincoln Trust to which
Securities have been issued. For the purposes of this definition, ''control''
when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms ''controlling'' and ''controlled'' have meanings correlative to the
foregoing.
''Authenticating Agent'' means any Person authorized by the Trustee
pursuant to Section 6.14 to act on behalf of the Trustee to authenticate
Securities of one or more series.
''Board of Directors'' means either the board of directors of the Company
or any committee of that board duly authorized to act hereunder.
''Board Resolution'' means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors, or such committee of the Board of Directors or
officers of the Company to which authority to act on behalf of the Board of
Directors has been delegated, and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
''Business Day'' means any day other than (i) a Saturday or Sunday, (ii) a
day on which banking institutions in the City of New York are authorized or
required by law or executive order to remain closed or (iii) a day on which
the Corporate Trust Office of the Trustee, or, with respect to the Securities
of a series issued to a Lincoln Trust, the principal office of the Property
Trustee under the related Trust Agreement, is closed for business.
''Commission'' means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, or if
at any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties on such date.
''Common Securities'' has the meaning specified in the first recital of
this Indenture.
''Common Stock'' means the common stock, without par value, of the
Company.
''Company'' means the Person named as the ''Company'' in the first
paragraph of this instrument until a successor corporation shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
''Company'' shall mean such successor corporation.
''Company Request'' and ''Company Order'' mean, respectively, the written
request or order signed in the name of the Company by the Chairman, Chief
Executive Officer, President or a Vice President, and by the Treasurer, and
Assistant Treasurer, the Controller, the Secretary or an Assistant Secretary
of the Company, and delivered to the Trustee.
''Corporate Trust Office'' means the principal office of the Trustee at
which at any particular time its corporate trust business shall be
administered.
''corporation'' includes a corporation, association, company, joint-stock
company or business trust.
''Current Value'' has the meaning specified in Section 11.7.
''Debt'' means, with respect to any Person, whether recourse is to all or
a portion of the assets of such Person and whether or not contingent, (i)
every obligation of such Person for money borrowed; (ii) every obligation of
such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses; (iii) every reimbursement obligation of
such Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person; (iv) every obligation of
such Person issued or assumed as the deferred purchase price of property or
services (but excluding trade accounts payable or accrued liabilities arising
in the ordinary course of business); (v) every capital lease obligation of
such Person; and (vi) every obligation of the type referred to in clauses (i)
through (v) of another Person and all dividends of another Person the payment
of which, in either case, such Person has guaranteed or is responsible or
liable for, directly or indirectly, as obligor or otherwise.
''Defaulted Interest'' has the meaning specified in Section 3.7.
''Depository'' means, with respect to the Securities of any series
issuable or issued in whole or in part in the form of one or more Global
Securities, the Person designated as Depository by the Company pursuant to
Section 3.1 with respect to such series (or any successor thereto).
''Discount Security'' means any security which provides for an amount less
than the principal amount thereof to be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 5.2.
''Dollar'' means the currency of the United States of America that, as at
the time of payment, is legal tender for the payment of public and private
debts.
''Event of Default'' unless otherwise specified in the supplemental
indenture creating a series of Securities has the meaning specified in Article
Five.
''Extension Period'' has the meaning specified in Section 3.11.
''Foreign Currency'' means any currency issued by the government of one or
more countries other than the United States of America or by any recognized
confederation or association of such governments.
''Global Security'' means a Security in the form prescribed in Section 2.4
evidencing all or part of a series of Securities, issued to the Depository or
its nominee for such series, and registered in the name of such Depository or
its nominee.
''Government Obligations'' means, with respect to the Securities of any
series, securities which are (i) direct obligations of the United States of
America or (ii) obligations of a Person controlled or supervised by and acting
as an agency or instrumentality of the United States of America the payment of
which is unconditionally guaranteed by the United States of America and which,
in either case, are full faith and credit obligations of the United States of
America and are not callable or redeemable at the option of the issuer thereof
and shall also include a depository receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act of 1933, as amended) as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of such depository receipt; provided that (except as
required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the Government Obligation or the
specific payment of interest on or principal of the Government Obligation
evidenced by such depository receipt.
''Holder'' means a Person in whose name a Security is registered in the
Securities Register.
''Junior Subordinated Payment'' has the meaning specified in Section 13.2.
''Indenture'' means this instrument as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof
and shall include the terms of each particular series of Securities
established as contemplated by
Section 3.1.
''Interest Payment Date'' means as to each series of Securities the Stated
Maturity of an installment of interest on such Securities.
''Interest Rate'' means the rate of interest specified or determined as
specified in each Security as being the rate of interest payable on such
Security.
''Investment Company Event'' means, in respect of a Lincoln Trust, the
receipt by a Lincoln Trust of an Opinion of Counsel, rendered by a law firm
experienced in such matters, to the effect that, as a result of the occurrence
of a change in law or regulation or a change in interpretation or application
of law or regulation by any legislative body, court, governmental agency or
regulatory authority (a ''Change in 1940 Act Law'') such Lincoln Trust is or
will be considered an investment company that is required to be registered
under the 1940 Act, which Change in 1940 Act Law becomes effective on or after
the date of original issuance of the Preferred Securities of such Lincoln
Trust.
''Lien'' means any mortgage, pledge, lien, security interest or other
encumbrance.
''Lincoln Guarantee'' means the guarantee by the Company of distributions
on the Preferred Securities of a Lincoln Trust to the extent provided in the
Guarantee Agreement, substantially in the form attached hereto as Annex C, or
substantially in such form as may be specified as contemplated by Section 3.1
with respect to the Securities of any series, in each case as amended from
time to time.
''Lincoln Trust'' has the meaning specified in the first recital of this
Indenture.
''Maturity'' when used with respect to any Security means the date on
which the principal of such Security becomes due and payable as therein or
herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise.
''1940 Act'' means the Investment Company Act of 1940, as amended.
''Notice of Default'' has the meaning specified in Section 5.1(3).
''Officers' Certificate'' means a certificate signed by the Chairman and
Chief Executive Officer, President or a Vice President, and by the Treasurer,
an Assistant Treasurer, the Controller, the Secretary or an Assistant
Secretary of the Company, and delivered to the Trustee.
''Opinion of Counsel'' means a written opinion of counsel, who may be
counsel for the Company.
''Original Issue Date'' means the date of issuance specified as such in
each Security.
''Outstanding'' means, when used in reference to any Securities, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Securities for whose payment money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent in trust for the
Holders of such Securities; and
(iii) Securities in substitution for or in lieu of which other Securities
have been authenticated and delivered or which have been paid pursuant to
Section 3.6, unless proof satisfactory to the Trustee is presented that any
such Securities are held by Holders in whose hands such Securities are valid,
binding and legal obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities
owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Securities which the Trustee knows to be so
owned shall be so disregarded. Securities so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Company or any other obligor upon
the Securities or any Affiliate of the Company or such other obligor. Upon the
written request of the Trustee, the Company shall furnish to the Trustee
promptly an Officers' Certificate listing and identifying all Securities, if
any, known by the Company to be owned or held by or for the account of the
Company, or any other obligor on the Securities or any Affiliate of the
Company or such obligor, and, subject to the provisions of Section 6.1, the
Trustee shall be entitled to accept such Officers' Certificate as conclusive
evidence of the facts therein set forth and of the fact that all Securities
not listed therein are Outstanding for the purpose of any such determination.
''Paying Agent'' means the Trustee or any Person authorized by the Company
to pay the principal of or interest on any Securities on behalf of the
Company.
''Person'' means any individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or government or any agency or
political subdivision thereof.
''Place of Payment'' means, with respect to the Securities of any series,
the place or places where the principal of (and premium, if any) and interest
on the Securities of such series are payable pursuant to Sections 3.1 and
3.11.
''Predecessor Security'' of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by
such particular Security; and, for the purposes of this definition, any
security authenticated and delivered under Section 3.6 in lieu of a lost,
destroyed or stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
''Preferred Securities'' has the meaning specified in the first recital of
this Indenture.
''Proceeding'' has the meaning specified in Section 13.2.
''Property Trustee'' means, in respect of any Lincoln Trust, the
commercial bank or trust company identified as the ''Property Trustee'' in the
related Trust Agreement, solely in its capacity as Property Trustee of such
Lincoln Trust under such Trust Agreement and not in its individual capacity,
or its successor in interest in such capacity, or any successor property
trustee appointed as therein provided.
''Redemption Date,'' when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
''Regular Record Date'' for the interest payable on any Interest Payment
Date with respect to the Securities of a series means, unless otherwise
provided pursuant to Section 3.1 with respect to Securities of a series, the
date which is fifteen days next preceding such Interest Payment Date (whether
or not a Business Day).
''Responsible Officer'' when used with respect to the Trustee means any
officer of the Trustee assigned by the Trustee from time to time to administer
its corporate trust matters.
''Securities'' or ''Security'' means any debt securities or debt security,
as the case may be, authenticated and delivered under this Indenture.
''Securities Register'' and ''Securities Registrar'' have the respective
meanings specified in Section 3.5.
''Senior Debt'' means the principal of (and premium, if any) and interest,
if any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of this Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Securities or to other
Debt which is pari passu with, or subordinated to, the Securities, provided,
however, that Senior Debt shall not be deemed to include (a) any Debt of the
Company which, when incurred and without respect to any election under Section
1111(b) of the Bankruptcy Reform Act of 1978, was without recourse to the
Company, (b) any Debt of the Company to any of its Subsidiaries, (c) Debt to
any employee of the Company, (d) any liability for taxes, (e) Debt or other
monetary obligations to trade creditors created or assumed by the Company or
any of these Subsidiaries in the ordinary course of business in connection
with the obtaining of goods, materials or services and (f) the Securities.
''Special Event'' means a Tax Event or an Investment Company Event.
''Special Record Date'' for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 3.7.
''Stated Maturity'' when used with respect to any Security or any
installment of principal thereof or interest thereon means the date specified
pursuant to the terms of such Security as the date on which the principal of
such Security or such installment of interest is due and payable.
''Subsidiary'' means a corporation more than 50% of the outstanding voting
stock of which is owned, directly or indirectly, by the Company or by one or
more other Subsidiaries, or by the Company and one or more other Subsidiaries.
For purposes of this definition, ''voting stock'' means stock which ordinarily
has voting power for the election of directors, whether at all times or only
so long as no senior class of stock has such voting power by reason of any
contingency.
''Tax Event'' means the receipt by a Lincoln Trust of an Opinion of
Counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance
of the Preferred Securities of such Lincoln Trust, there is more than an
insubstantial risk that (i) the Lincoln Trust is, or will be within 90 days of
the date of such Opinion of Counsel, subject to United States Federal income
tax with respect to income received or accrued on the corresponding series of
Securities, (ii) interest payable by the Company on the corresponding series
of Securities is not, or within 90 days of the date of such Opinion of
Counsel, will not be, deductible, in whole or in part, for United States
Federal income tax purposes or (iii) the Lincoln Trust is, or will be within
90 days of the date of such Opinion of Counsel, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
''Trust Agreement'' means the Trust Agreement substantially in the form
attached hereto as Annex A, as amended by the form of Amended and Restated
Trust Agreement substantially in the form attached hereto as Annex B, or
substantially in such form as may be specified as contemplated by Section 3.1
with respect to the Securities of any series, in each case as amended from
time to time.
''Trustee'' means the Person named as the ''Trustee'' in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
''Trustee'' shall mean or include each Person who is then a Trustee hereunder
and, if at any time there is more than one such Person, ''Trustee'' as used
with respect to the Securities of any series shall mean the Trustee with
respect to Securities of that series.
''Trust Indenture Act'' means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbb), as amended and as in effect on the date as of this
Indenture, except as provided in Section 9.5.
''Trust Securities'' has the meaning specified in the first recital of
this Indenture.
''Vice President'' when used with respect to the Company, means any duly
appointed vice president, whether or not designated by a number or a word or
words added before or after the title ''vice president.''
Section 1.2. Compliance Certificate and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, the Company shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent
(including covenants, compliance with which constitutes a condition
precedent), if any, provided for in this Indenture relating to the proposed
action have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent (including covenants
compliance with which constitute a condition precedent), if any, have been
complied with, except that in the case of any such application or request as
to which the furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than the certificates
provided pursuant to Section 10.5) shall include:
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 1.3. Forms of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such Person may
certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or
representations with respect to matters upon which his certificate or opinion
is based are erroneous. Any such certificate or Opinion of Counsel may be
based, insofar as it relates to factual matters, upon a certificate or opinion
of, or representations by, an officer or officers of the Company stating that
the information with respect to such factual matters is in the possession of
the Company, unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect
to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions, or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given to or taken by Holders
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Holders in person or by an agent duly appointed
in writing; and, except as herein otherwise expressly provided, such action
shall become effective when such instrument or instruments is or are delivered
to the Trustee, and, where it is hereby expressly required, to the Company.
Such instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the ''Act'' of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for
any purpose of this Indenture and (subject to Section 6.1) conclusive in favor
of the Trustee and the Company, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the
execution thereof. Where such execution is by a Person acting in other than
his individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority.
(c) The fact and date of the execution by any Person of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any other manner which the Trustee deems sufficient and in
accordance with such reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the Securities
Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other action by the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof in respect of anything done
or suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Security.
(f) The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to take any action under this
Indenture by vote or consent. Except as otherwise provided herein, such record
date shall be the later of 30 days prior to the first solicitation of such
consent or vote or the date of the most recent list of Securityholders
furnished to the Trustee pursuant to Section 7.1 prior to such solicitation.
If a record date is fixed, those persons who were Securityholders at such
record date (or their duly designated proxies), and only those persons, shall
be entitled to take such action by vote or consent or to revoke any vote or
consent previously given, whether or not such persons continue to be Holders
after such record date, provided, however, that unless such vote or consent is
obtained from the Holders (or their duly designated proxies) of the requisite
principal amount of Outstanding Securities prior to the date which is the
120th day after such record date, any such vote or consent previously given
shall automatically and without further action by any Holder be cancelled and
of no further effect.
Section 1.5. Notices, Etc. to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust office, or
(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose (except as otherwise provided in Section 5.1 hereof) hereunder
if in writing and mailed, first class, postage prepaid, to the Company
addressed to it at the address of its principal office specified in the first
paragraph of this instrument or at any other address previously furnished in
writing to the Trustee by the Company.
Section 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first class postage prepaid, to each
Holder affected by such event, at the address of such Holder as it appears in
the Securities Register, not later than the latest date, and not earlier than
the earliest date, prescribed for the giving of such notice. In any case where
notice to Holders is given by mail, neither the failure to mail such notice,
nor any defect in any notice so mailed, to any particular Holder shall affect
the sufficiency of such notice with respect to other Holders. Where this
Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not
be a condition precedent to the validity of any action taken in reliance upon
such waiver.
Section 1.7. Conflict with Trust Indenture Act.
If any provision of this Indenture limits, qualifies or conflicts with the
duties imposed by any of Sections 310 to 317, inclusive, of the Trust
Indenture Act through operation of Section 318(c) thereof, such imposed duties
shall control.
Section 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
Section 1.11 Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent and their
successors and assigns, the holders of Senior Debt and the Holders of the
Securities, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
Section 1.12. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York.
Section 1.13. Non-Business Days.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day, then (notwithstanding
any other provision of this Indenture or the Securities) payment of interest
or principal need not be made on such date, but may be made on the next
succeeding Business Day (and no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be, until such next succeeding Business Day except that, if such
Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day (in each case with the same
force and effect as if made on the Interest Payment Date or Redemption Date or
at the Stated Maturity).
ARTICLE II. SECURITY FORMS
Section 2.1. Forms Generally.
The Securities of each series and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, or in such other
form or forms as shall be established by or pursuant to a Board Resolution or in
one or more indentures supplemental hereto, in each case with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or other marks of
identification and such legends or endorsements placed thereon as may be re-
quired to comply with applicable tax laws or the rules of any securities
exchange or as may, consistently herewith, be determined by the officers
executing such securities, as evidenced by their execution of the Securities.
If the form of Securities of any series is established by action taken
pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the
Company Order contemplated by Section 3.3 with respect to the authentication
and delivery of such Securities.
The Trustee's certificates of authentication shall be substantially in the
form set forth in this Article.
The definitive Securities shall be printed, lithographed or engraved or
produced by any combination of these methods, if required by any securities
exchange on which the Securities may be listed, on a steel engraved border or
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such securities.
Section 2.2. Form of Face of Security.
[If the Security is a Global Security, insert This Security is a Global
Security within the meaning of the Indenture hereinafter referred to and is
registered in the name of The Depository Trust Company (the ''Depository'') or
a nominee of the Depository. This Security is exchangeable for Securities
registered in the name of a person other than the Depository or its nominee
only in the limited circumstances described in the Indenture and no transfer
of this Security (other than a transfer of this Security as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository) may be registered except
in limited circumstances.
Unless this Security is presented by an authorized representative of The
Depository Trust Company (55 Water Street, New York) to Lincoln National
Corporation or its agent for registration of transfer, exchange or payment,
and any Security issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of The Depository Trust
Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co., has an interest herein.]
LINCOLN NATIONAL CORPORATION
(Title of Security)
No. $
LINCOLN NATIONAL CORPORATION, a corporation organized and existing under
the laws of Indiana (hereinafter called the ''Company'', which term includes
any successor corporation under the Indenture hereinafter referred to), for
value received, hereby promises to pay to , or registered
assigns, the principal sum of Dollars on , [;
provided that the Company may (i) change the maturity date upon the occurrence
of an exchange of the Securities for the Trust Securities subject to certain
conditions set forth in Section 3.14 of the Indenture, which changed maturity
date shall in no case be earlier than , or later than
, and (ii) extend the maturity date subject to certain
conditions specified in Section 3.14 of the Indenture, which extended maturity
date shall in no case be later than , ]. The Company
further promises to pay interest on said principal sum from ,
or from the most recent interest payment date (each such date, an
''Interest Payment Date'') on which interest has been paid or duly provided
for, [monthly] [quarterly] [semi-annually] [if applicable, insert (subject to
deferral as set forth herein)] in arrears on [insert applicable Interest
Payment Dates] of each year, commencing , , at the
rate of % per annum, until the principal hereof shall have become due and
payable, [if applicable, insert plus Additional Interest, if any,] until the
principal hereof is paid or duly provided for or made available for payment
[if applicable, insert and on any overdue principal and (without duplication
and to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest at the rate of % per
annum, compounded [monthly] [quarterly] [semi-annually] [annually]. The amount
of interest payable for any period shall be computed on the basis of twelve
30-day months and a 360-day year. The amount of interest payable for any
partial period shall be computed on the basis of the number of days elapsed in
a 360-day year of twelve 30-day months. In the event that any date on which
interest is payable on this Security is not a Business Day, then a payment of
the interest payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other payment in respect
of any such delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on the date the payment was originally payable. A ''Business Day'' shall mean
any day other than (i) a Saturday or Sunday, (ii) a day on which banking
institutions in the City of New York are authorized or required by law or
executive order to remain closed or (iii) a day on which the Corporate Trust
Office of the Trustee [if applicable, insert , or the principal office of the
Property Trustee under the Trust Agreement hereinafter referred to for
[Lincoln Capital ,]] is closed for business. The interest installment so
payable, and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in the Indenture, be paid to the Person in whose name
this Security (or one or more Predecessor Securities, as defined in the
Indenture) is registered at the close of business on the Regular Record Date
for such interest installment, which shall be the [[insert definition of
Regular Record Dates]. Any such interest installment not so punctually paid or
duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest
to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in said Indenture.
[If applicable, insert The Company shall have the right at any time during
the term of this Security, from time to time, to defer payment of interest on
such Security for up to consecutive [monthly] [quarterly] [semi-annual]
interest payment periods with respect to each deferral period (each an
''Extension Period''), during which Extension Periods the Company shall have
the right to make partial payments of interest on any Interest Payment Date,
and at the end of which the Company shall pay all interest then accrued and
unpaid (together with Additional Interest thereon to the extent permitted by
applicable law); provided that during any such Extension Period, the Company
will not, and will not permit any Subsidiary of the Company to, (i) declare or
pay any dividends or distributions or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's outstanding capital
stock or (ii) make any payment of principal of, interest or premium, if any,
on or repay, repurchase or redeem any debt security of the Company that ranks
pari passu with or junior in interest to this Security or make any guarantee
payments with respect to any guarantee by the Company of the debt securities
of any subsidiaries of the Company if such guarantee ranks pari passu or
junior in interest to this Security (other than (a) dividends or distributions
in Common Stock of the Company, (b) redemptions or purchases of any rights
pursuant to the Company's Rights Plan, or any successor to such Rights Plan,
and the declaration of a dividend of such rights or the issuance of Stock
under such plans in the future, (c) payments under any Lincoln Guarantee (as
defined in the Indenture), and (d) purchases of Common Stock related to the
issuance of Common Stock under any of the Company's benefit plans for its
directors, officers or employees. Prior to the termination of any such
Extension Period, the Company may further extend the interest payment period,
provided that no Extension Period shall exceed consecutive [months]
[quarters] [semi-annual periods] or extend beyond the Maturity of this
Security. Upon the termination of any such Extension Period and upon the
payment of all accrued and unpaid interest and any Additional Interest then
due, the Company may elect to begin a new Extension Period, subject to the
above requirements. No interest shall be due and payable during an Extension
Period except at the end thereof. The Company shall give the Holder of this
Security and the Trustee notice of its election to begin any Extension Period
at least one Business Day prior to the Interest Payment Date [if applicable,
insert or, with respect to the Securities issued to a Lincoln Trust, prior to
the earlier of (i) the date the Distributions on the Preferred Securities are
payable or (ii) the date the Administrative Trustees are required to give
notice to any securities exchange or other applicable self-regulatory
organization or to holders of such Preferred Securities of the record date or
the date such Distributions are payable, but in any event not less than one
Business Day prior to such record date].
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for
that purpose in the United States, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts [if applicable, insert ; provided, however, that at
the option of the Company payment of interest may be made (i) by check mailed
to the address of the Person entitled thereto as such address shall appear in
the Securities Register or (ii) by wire transfer in immediately available
funds at such place and to such account as may be designated by the Person
entitled thereto as specified in the Securities Register].
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payments to the prior
payment in full of all Senior Debt, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound by such
provisions, (b) authorizes and directs the Trustee on his behalf to take such
actions as may be necessary or appropriate to effectuate the subordination so
provided and (c) appoints the Trustee his attorney-in-fact for any and all
such purposes. Each Holder hereof, by his acceptance hereof, waives all notice
of the acceptance of the subordination provisions contained herein and in the
Indenture by each holder of Senior Debt, whether now outstanding or hereafter
incurred, and waives reliance by each such holder upon said provisions.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
Lincoln National Corporation
By:
[Chairman and Chief Executive Officer, President or Vice President]
Attest:
[Secretary or Assistant Secretary ]
Section 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company (herein called the ''Securities''), issued and to be issued in one or
more series under a Junior Subordinated Indenture, dated as of May 1, 1996
(herein called the ''Indenture''), between the Company and The First National
Bank of Chicago, as Trustee (herein called the ''Trustee'', which term
includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement
of the respective rights, limitations of rights, duties and immunities
thereunder of the Trustee, the Company and the Holders of the Securities, and
of the terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof,
[limited in aggregate principal amount to $ ].
All terms used in this Security that are defined in the Indenture [if
applicable, insert and in the Trust Agreement, dated as of May 1, 1996, as
amended (the ''Trust Agreement''), for [Lincoln Capital ,] among
Lincoln National Corporation, as Depositor, and the Trustees named therein,
shall have the meanings assigned to them in the Indenture [if applicable,
insert or the Trust Agreement, as the case may be].
[If applicable, insert On or after , , the Company may at any
time, at its option, subject to the terms and conditions of Article Eleven of
the Indenture, redeem this Security in whole at any time or in part from time
to time, without premium or penalty, at a redemption price equal to 100% of
the principal amount thereof plus the accrued and unpaid interest [if
applicable, insert including Additional Interest, if any] to the date fixed
for redemption.]
[If applicable, insert If a Special Event in respect of a Lincoln Trust
shall occur and be continuing, the Company may, at its option, redeem this
Security within 90 days of the occurrence of such Special Event, in whole but
not in part, subject to the provisions of Section 11.7 and the other
provisions of Article Eleven of the Indenture, at a redemption price equal to
100% of the principal amount thereof plus accrued and unpaid interest,
including Additional Interest, if any, to the date fixed for redemption.]
In the event of redemption of this Security in part only, a new Security
or Securities of this series for the unredeemed portion hereof will be issued
in the name of the Holder hereof upon the cancellation hereof.
[If the Security is not a Discount Security, If an Event of Default with
respect to Securities of this series shall occur and be continuing, the
principal of this Security may be declared due and payable in the manner, with
the effect and subject to the conditions provided in the Indenture.]
[If the Security is a Discount Security, If an Event of Default with
respect to Securities of this series shall occur and be continuing, an amount
of principal of this Security may be declared due and payable in the manner,
with the effect and subject to the conditions provided in the Indenture. Such
amount shall be equal to [ insert formula for determining the amount]. Upon
payment (i) of the amount of principal so declared due and payable and (ii) of
interest on any overdue principal and overdue interest (in each case to the
extent that the payment of such interest shall be legally enforceable), all of
the Company's obligations in respect of the payment of the principal of and
interest, if any, on this Security shall terminate.]
The Indenture contains provisions for satisfaction, discharge and
defeasance at any time of the entire indebtedness of this Security upon
compliance by the Company with certain conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as therein provided, the
Company and the Trustee at any time to enter into a supplemental indenture or
indentures for the purpose of modifying in any manner the rights and
obligations of the Company and of the Holders of the Securities, with the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities of each series to be affected by such supplemental
indenture. The Indenture also contains provisions permitting Holders of
specified percentages in principal amount of the Securities of each series at
the time Outstanding, on behalf of the Holders of all Securities of such
series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their
consequences. Any such consent or waiver by the Holder of this Security shall
be conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof
or in exchange herefor or in lieu hereof, whether or not notation of such
consent or waiver is made upon this Security.
[If the Security is not a Discount Security, As provided in and subject to
the provisions of the Indenture, if an Event of Default with respect to the
Securities of this series at the time Outstanding occurs and is continuing,
then and in every such case the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities of this series may declare the
principal amount of all the Securities of this series to be due and payable
immediately, by a notice in writing to the Company (and to the Trustee if
given by Holders), provided that, in the case of the Securities of this series
issued to a Lincoln Trust, if upon an Event of Default, the Trustee or the
Holders of not less than 25% in principal amount of the Outstanding Securities
of this series fails to declare the principal of all the Securities of this
series to be immediately due and payable, the holders of at least 25% in
aggregate liquidation amount of the corresponding series of Preferred
Securities then outstanding shall have such right by a notice in writing to
the Company and the Trustee; and upon any such declaration such specified
amount of and the accrued interest (including any Additional Interest) on all
the Securities of this series shall become immediately due and payable,
provided that the payment of principal and interest (including any Additional
Interest) on such Securities shall remain subordinated to the extend provided
that the payment of principal and interest (including any Additional Interest)
on such Securities shall remain subordinated to the extent provided in Article
13 of the Indenture.]
[If the Security is a Discount Security, As provided in and subject to the
provisions of the Indenture, if an Event of Default with respect to the
Securities of this series at the time Outstanding occurs and is continuing,
then and in every such case the Trustee or the Holders of not less than such
portion of the principal amount as may be specified in the terms of this
series of all the Securities of this series to be due and payable immediately,
by a notice in writing to the Company (and to the Trustee if given by
Holders), provided that, in the case of the Securities of this series issued
to a Lincoln Trust, if upon an Event of Default, the Trustee or the Holders of
not less than 25% in principal amount of the Outstanding Securities of this
series fails to declare the principal of all the Securities of this series to
be immediately due and payable, the holders of at least 25% in aggregate
liquidation amount of the corresponding series of Preferred Securities then
outstanding shall have such right by a notice in writing to the Company and
the Trustee; and upon any such declaration such specified amount of and the
accrued interest (including any Additional Interest) on all the Securities of
this series shall become immediately due and payable, provided that the
payment of principal and interest (including any Additional Interest) on such
Securities shall remain subordinated to the extent provided in Article
Thirteen of the Indenture.]
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Securities
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company maintained under Section 10.2 of the Indenture
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Securities Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Securities of this series, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee
or transferees. No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for
all purposes, whether or not this Security be overdue, and neither the
Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
The Securities of this series are issuable only in registered form without
coupons in denominations of $ and any integral multiple thereof.
As provided in the Indenture and subject to certain limitations therein set
forth, Securities of this series are exchangeable for a like aggregate
principal amount of Securities of such series of a different authorized
denomination, as requested by the Holder surrendering the same.
The Company and, by its acceptance of this Security or a beneficial
interest therein, the Holder of, and any Person that acquires a beneficial
interest in, this Security agree that for United States Federal, state and
local tax purposes it is intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES THEREOF.
Section 2.4. Additional Provisions Required in Global Security.
Any Global Security issued hereunder shall, in addition to the provisions
contained in Sections 2.2 and 2.3, bear a legend in substantially the
following form:
''This Security is a Global Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Depositary or a
nominee of a Depositary. This Security is exchangeable for Securities
registered in the name of a person other than the Depositary or its nominee
only in the limited circumstances described in the Indenture and may not be
transferred except as a whole by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary.''
Section 2.5. Form of Trustee's Certificate of Authentication.
This is one of the Securities referred to in the within mentioned
Indenture.
as Trustee
By:
Authorized officer
ARTICLE III. THE SECURITIES
Section 3.1. Title and Terms.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution, and set forth in an
Officers' Certificate, or established in one or more indentures supplemental
hereto, prior to the issuance of Securities of a series:
(a) the title of the securities of such series, which shall distinguish
the Securities of the series from all other Securities;
(b) the limit, if any, upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered under this
Indenture (except for Securities authenticated and delivered upon registration
of transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 3.4, 3.5, 3.6, 9.6 or 11.6); provided, however,
that the authorized aggregate principal amount of such series may be increased
above such amount by a Board Resolution to such effect;
(c) the Stated Maturity or Maturities on which the principal of the
Securities of such series is payable or the method of determination thereof;
(d) the rate or rates, if any, at which the Securities of such series
shall bear interest, if any, the rate or rates and extent to which Additional
Interest, if any, shall be payable in respect of any Securities of such
series, the Interest Payment Dates on which such interest shall be payable,
the right, pursuant to Section 3.11 or as otherwise set forth therein, of the
Company to defer or extend an Interest Payment Date, and the Regular Record
Date for the interest payable on any Interest Payment Date or the method by
which any of the foregoing shall be determined;
(e) the place or places where the principal of (and premium, if any) and
interest on the Securities of such series shall be payable, the place or
places where the Securities of such series may be presented for registration
of transfer or exchange, and the place or places where notices and demands to
or upon the Company in respect of the Securities of such series may be made;
(f) the period or periods within or the date or dates on which, if any,
the price or prices at which and the terms and conditions upon which the
Securities of such series may be redeemed, in whole or in part, at the option
of the Company;
(g) the obligation or the right, if any, of the Company to redeem, repay
or purchase the Securities of such series pursuant to any sinking fund,
amortization or analogous provisions, or at the option of a Holder thereof,
and the period or periods within which, the price or prices at which, the
currency or currencies (including currency unit or units) in which and the
other terms and conditions upon which Securities of the series shall be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(h) the denominations in which any Securities of such series shall be
issuable, if other than denominations of $25 and any integral multiple
thereof;
(i) if other than Dollars, the currency or currencies (including currency
unit or units) in which the principal of (and premium, if any) and interest,
if any, on the Securities of the series shall be payable, or in which the
Securities of the series shall be denominated;
(j) the additions, modifications or deletions, if any, in the Events of
Default or covenants of the Company set forth herein with respect to the
Securities of such series;
(k) if other than the principal amount thereof, the portion of the
principal amount of Securities of such series that shall be payable upon
declaration of acceleration of the Maturity thereof;
(l) the additions or changes, if any, to this Indenture with respect to
the Securities of such series as shall be necessary to permit or facilitate
the issuance of the Securities of such series in bearer form, registrable or
not registrable as to principal, and with or without interest coupons;
(m) any index or indices used to determine the amount of payments of
principal of and premium, if any, on the Securities of such series or the
manner in which such amounts will be determined;
(n) the issuance of a temporary Global Security representing all of the
Securities of such series and exchange of such temporary Global Security for
definitive Securities of such series;
(o) whether the Securities of the series shall be issued in whole or in
part in the form of one or more Global Securities and, in such case, the
Depositary for such Global Securities, which Depositary shall be a clearing
agency registered under the Securities Exchange Act of 1934, as amended;
(p) the appointment of any Paying Agent or Agents for the Securities of
such series;
(q) the terms of any right to convert or exchange Securities of such
series into any other securities or property of the Company, and the additions
or changes, if any, to this Indenture with respect to the Securities of such
series to permit or facilitate such conversion or exchange;
(r) the form or forms of the Trust Agreement, Amended and Restated Trust
Agreement and Guarantee Agreement, if different from the forms attached hereto
as Annexes A, B and C, respectively;
(s) the relative degree, if any, to which the Securities of the series
shall be senior to or be subordinated to other series of Securities in right
of payment, whether such other series of Securities are Outstanding or not;
and
(t) any other terms of the Securities of such series (which terms shall
not be inconsistent with the provisions of this Indenture).
All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided herein or in or
pursuant to such Board Resolution and set forth in such Officers' Certificate
or in any such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
Section 3.2. Denominations.
The Securities of each series shall be in registered form without coupons
and shall be issuable in denominations of $25 and any integral multiple
thereof, unless otherwise specified as contemplated by Section 3.1.
Section 3.3. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its President
or one of its Vice Presidents under its corporate seal reproduced or impressed
thereon and attested by its Secretary or one of its Assistant Secretaries. The
signature of any of these officers on the Securities may be manual or
facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities. At any time and from time to
time after the execution and delivery of this Indenture, the Company may
deliver Securities executed by the Company to the Trustee for authentication.
Securities may be authenticated on original issuance from time to time and
delivered pursuant to such procedures acceptable to the Trustee
(''Procedures'') as may be specified from time to time by Company Order.
Procedures may authorize authentication and delivery pursuant to oral
instructions of the Company or a duly authorized agent, which instructions
shall be promptly confirmed in writing.
Prior to the delivery of a Security in any such form to the Trustee for
authentication, the Company shall deliver to the Trustee the following:
(a) A Company Order requesting the Trustee's authentication and delivery
of all or a portion of the Securities of such series, and if less than all,
setting forth procedures for such authentication;
(b) The Board Resolution by or pursuant to which such form of Security has
been approved, and the Board Resolution, if any, by or pursuant to which the
terms of the Securities of such series have been approved, and, if pursuant to
a Board Resolution, an Officers' Certificate describing the action taken;
(c) An Officers' Certificate dated the date such certificate is delivered
to the Trustee, stating that all conditions precedent provided for in this
Indenture relating to the authentication and delivery of Securities in such
form and with such terms have been complied with; and
(d) An Opinion of Counsel stating that (i) the form of such Securities has
been duly authorized and approved in conformity with the provisions of this
Indenture; (ii) the terms of such Securities have been duly authorized and
determined in conformity with the provisions of this Indenture, or, if such
terms are to be determined pursuant to Procedures, as defined above, when so
determined such terms shall have been duly authorized and determined in
conformity with the provisions of this Indenture; and (iii) Securities in such
form when completed by appropriate insertions and executed and delivered by
the Company to the Trustee for authentication in accordance with this
Indenture, authenticated and delivered by the Trustee in accordance with this
Indenture within the authorization as to aggregate principal amount
established from time to time by the Board of Directors and sold in the manner
specified in such Opinion of Counsel, will be the legal, valid and binding
obligations of the Company entitled to the benefits of this Indenture, subject
to applicable bankruptcy, reorganization, insolvency and similar laws
generally affecting creditors' rights, to general equitable principles and
except as enforcement thereof may be limited by (A) requirements that a claim
with respect to any Securities denominated other than in Dollars (or a Foreign
Currency or currency unit judgment in respect of such claim) be converted into
Dollars at a rate of exchange prevailing on a date determined pursuant to
applicable law or (B) governmental authority to limit, delay or prohibit the
making of payments in Foreign Currencies or currency units or payments outside
the United States, and subject to such other qualifications as such counsel
shall conclude do not materially affect the rights of Holders of such
Securities;
provided, however, that the Trustee shall be entitled to receive the documents
referred to in Clauses (b), (c) and (d) above only at or prior to the first
request of the Company to the Trustee to authenticate Securities of such
series.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by the manual signature of one of its authorized
officers, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder.
Section 3.4. Temporary Securities.
Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any denomination, substantially of the
tenor of the definitive Securities of such series in lieu of which they are
issued and with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities may determine, as
evidenced by their execution of such Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of such series to be prepared without unreasonable
delay. After the preparation of definitive Securities, the temporary
Securities shall be exchangeable for definitive Securities upon surrender of
the temporary Securities at the office or agency of the Company designated for
that purpose without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Securities, the Company shall execute and the
Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Securities of the same series of authorized denominations
having the same Original Issue Date and Stated Maturity and having the same
terms as such temporary Securities. Until so exchanged, the temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
Section 3.5. Registration, Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register in which, subject to such reasonable regulations as it may
prescribe, the Company shall provide for the registration of Securities and of
transfers of Securities. Such register is herein sometimes referred to as the
''Securities Register.'' The Trustee is hereby appointed ''Securities
Registrar'' for the purpose of registering Securities and transfers of
Securities as herein provided.
Upon surrender for registration of transfer of any Security at the office
or agency of the Company designated for that purpose the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of the same
series of any authorized denominations, of a like aggregate principal amount,
of the same Original Issue Date and Stated Maturity and having the same terms.
At the option of the Holder, Securities may be exchanged for other
Securities of the same series of any authorized denominations, of a like
aggregate principal amount, of the same Original Issue Date and Stated
Maturity and having the same terms, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any securities are so surrendered
for exchange, the Company shall execute, and the Trustee shall authenticate
and deliver, the Securities which the Holder making the exchange is entitled
to receive.
All Securities issued upon any transfer or exchange of Securities shall be
the valid obligations of the Company, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Securities surrendered upon
such transfer or exchange.
Every Security presented or surrendered for transfer or exchange shall (if
so required by the Company or the Securities Registrar) be duly endorsed, or
be accompanied by a written instrument of transfer in form satisfactory to the
Company and the Securities Registrar, duly executed by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made to a Holder for any transfer or exchange
of Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any transfer or exchange of Securities.
Notwithstanding any of the foregoing, any Global Security of a series
shall be exchangeable pursuant to this Section 3.5 for Securities registered
in the names of Persons other than the Depositary for such Security or its
nominee only if (i) such Depositary notifies the Company that it is unwilling
or unable to continue as Depositary for such Global Security or if at any time
such Depositary ceases to be a clearing agency registered under the Securities
Exchange Act of 1934, as amended, (ii) the Company executes and delivers to
the Trustee a Company Order that such Global Security shall be so exchangeable
or (iii) there shall have occurred and be continuing an Event of Default with
respect to the Securities of such series. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be exchangeable for
Securities registered in such names as such Depositary shall direct.
Notwithstanding any other provision in this Indenture, a Global Security
may not be transferred except as a whole by the Depositary with respect to
such Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary.
Neither the Company nor the Trustee shall be required, pursuant to the
provisions of this Section, (a) to issue, transfer or exchange any Security of
any series during a period beginning at the opening of business 15 days before
the day of selection for redemption of Securities pursuant to Article Eleven
and ending at the close of business on the day of mailing of notice of
redemption or (b) to transfer or exchange any Security so selected for
redemption in whole or in part, except, in the case of any Security to be
redeemed in part, any portion thereof not to be redeemed.
Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee together with such
security or indemnity as may be required by the Company or the Trustee to save
each of them harmless, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a new Security of the same issue
and series of like tenor and principal amount, having the same Original Issue
Date and Stated Maturity and bearing the same Interest Rate as such mutilated
Security, and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and to the Trustee (i) evidence
to their satisfaction of the destruction, loss or theft of any Security, and
(ii) such security or indemnity as may be required by them to save each of
them harmless, then, in the absence of notice to the Company or the Trustee
that such Security has been acquired by a bona fide purchaser, the issuing
Company shall execute and upon its request the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new
Security of the same issue and series of like tenor and principal amount,
having the same Original Issue Date and Stated Maturity and bearing the same
Interest Rate as such destroyed, lost or stolen Security, and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses
(including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately
with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 3.7. Payment of Interest; Interest Rights Preserved.
Interest on any Security of any series which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date, shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest in respect of Securities of such series, except that, unless
otherwise provided in the Securities of such series, interest payable on the
Stated Maturity of a Security shall be paid to the Person to whom principal is
paid. The initial payment of interest on any Security of any series which is
issued between a Regular Record Date and the related Interest Payment Date
shall be payable as provided in such Security or in the Board Resolution
pursuant to Section 3.1 with respect to the related series of Securities.
Any interest on any Security which is payable, but is not timely paid or
duly provided for, on any Interest Payment Date for Securities of such series
(herein called ''Defaulted Interest''), shall forthwith cease to be payable to
the registered Holder on the relevant Regular Record Date by virtue of having
been such Holder, and such Defaulted Interest may be paid by the Company, at
its election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series in respect of which
interest is in default (or their respective Predecessor Securities) are
registered at the close of business on a Special Record Date for the payment
of such Defaulted Interest, which shall be fixed in the following manner. The
Company shall notify the Trustee in writing of the amount of Defaulted
Interest proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the Trustee an
amount of money equal to the aggregate amount proposed to be paid in respect
of such Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this Clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed, first
class, postage prepaid, to each Holder of a Security of such series at the
address of such Holder as it appears in the Securities Register not less than
10 days prior to such Special Record Date. The Trustee may, in its discretion,
in the name and at the expense of the Company, cause a similar notice to be
published at least once in a newspaper, customarily published in the English
language on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, but such publication shall not be a condition
precedent to the establishment of such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been mailed as aforesaid, such Defaulted Interest shall be
paid to the Persons in whose names the Securities of such series (or their
respective Predecessor Securities) are registered on such Special Record Date
and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other
lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities of the series in respect of which interest is
in default may be listed and, upon such notice as may be required by such
exchange (or by the Trustee if the Securities are not listed), if, after
notice given by the Company to the Trustee of the proposed payment pursuant to
this Clause, such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon transfer of or in exchange for or in lieu
of any other Security shall carry the rights to interest accrued and unpaid,
and to accrue, which were carried by such other Security.
Section 3.8. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name any Security is registered as the owner of such
Security for the purpose of receiving payment of principal of and (subject to
Section 3.7) interest on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company, the Trustee
nor any agent of the Company or the Trustee shall be affected by notice to the
contrary.
Section 3.9. Cancellation.
All Securities surrendered for payment, redemption, transfer or exchange
shall, if surrendered to any Person other than the Trustee, be delivered to
the Trustee, and any such Securities and Securities surrendered directly to
the Trustee for any such purpose shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and all Securities so delivered shall be
promptly canceled by the Trustee. No Securities shall be authenticated in lieu
of or in exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled Securities shall
be destroyed by the Trustee and the Trustee shall deliver to the Company a
certificate of such destruction.
Section 3.10. Computation of Interest.
Except as otherwise specified as contemplated by Section 3.1 for
Securities of any series, interest on the Securities of each series for any
period shall be computed on the basis of a 360-day year of twelve 30-day
months and interest on the Securities of each series for any partial period
shall be computed on the basis of the number of days elapsed in a 360-day year
of twelve 30-day months.
Section 3.11. Deferrals of Interest Payment Dates.
If specified as contemplated by Section 3.1 with respect to the Securities
of a particular series, the Company shall have the right, at any time during
the term of such series, from time to time to defer the payment of interest on
such Securities for such period or periods as may be specified as contemplated
by Section 3.1 (each, an ''Extension Period'') during which Extension Periods
the Company shall have the right to make partial payments of interest on any
Interest Payment Date. No Extension Period shall end on a date other than an
Interest Payment Date. At the end of any such Extension Period the Company
shall pay all interest then accrued and unpaid on the Securities (together
with Additional Interest thereon, if any, at the rate specified for the
Securities of such series to the extent permitted by applicable law),
provided, however, that during any such Extension Period, the Company shall
not, and shall cause any Subsidiary not to, (i) declare or pay any dividends
or distributions on, or redeem, purchase, acquire or make a liquidation
payment with respect to, any of the Company's capital stock, or (ii) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company that rank pari passu with or junior
in interest to the Securities of such series or make any guarantee payments
with respect to any Guarantee by the Company of the debt securities of any
Subsidiary of the Company that by their terms rank pari passu or junior in
interest to the securities of such series (other than (a) dividends or
distributions in common stock of the Company (b) redemptions or purchases of
any rights pursuant to the Company's Rights Plan, or any successor to such
Rights Plan, and the declaration of a dividend of such rights or the issuance
of stock under such plans in the future, (c) payments under any Lincoln
Guarantee), and (d) purchases of Common Stock related to the issuance of
Common Stock under any of the Company's benefit plans for its directors,
officers or employees. Prior to the termination of any such Extension Period,
the Company may further extend the interest payment period, provided that no
Extension Period shall exceed the period or periods specified in such
Securities or extend beyond the Maturity of such Securities. Upon termination
of any Extension Period and upon the payment of all accrued and unpaid
interest and any Additional Interest then due on any Interest Payment Date,
the Company may elect to begin a new Extension Period, subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company shall give the Holders of the
Securities of such series and the Trustee notice of its election to begin any
such Extension Period at least one Business Day prior to the Interest Payment
Date or, with respect to the Securities of a series issued to a Lincoln Trust,
prior to the earlier of (i) the date the Distributions on the Preferred
Securities of such Lincoln Trust are payable or (ii) the date the
Administrative Trustees of such Lincoln Trust are required to give notice to
any securities exchange or other applicable self-regulatory organization or to
holders of such Preferred Securities of the record date or the date such
Distributions are payable, but in any event not less than one Business Day
prior to such record date.
The Trustee shall promptly give notice of the Company's election to begin
any such Extension Period to the Holders of the outstanding Securities of such
series.
Section 3.12. Right of Set-Off.
With respect to the Securities of a series issued to a Lincoln Trust,
notwithstanding anything to the contrary in the Indenture, the Company shall
have the right to set-off any payment it is otherwise required to make
thereunder in respect of any such Security to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Lincoln Guarantee relating to such Security or under Section
5.8 of the Indenture.
Section 3.13. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the Company and, by its
acceptance of a Security or a beneficial interest therein, the Holder of, and
any Person that acquires a beneficial interest in, such Security agree that
for United States Federal, state and local tax purposes it is intended that
such Security constitute indebtedness.
Section 3.14. Extension of Stated Maturity; Adjustment of Stated Maturity
Upon an Exchange.
If specified as contemplated by Section 3.1 with respect to the Securities
of a particular series, the Company shall have the right to (a) change the
Maturity Date of the Securities of such series upon the liquidation of a
Lincoln Trust and the exchange of such Securities for the Preferred Securities
of such Lincoln Trust and (b) extend the Stated Maturity for the Securities of
such series; provided, that at time any election to extend the Maturity Date
is made and at the time of such extension, (i) the Company is not in
bankruptcy, otherwise insolvent or in liquidation, (ii) the Company is not in
default in the payment of any interest or principal on the Securities of such
series and no deferred interest payments thereon have accrued, (iii) the
applicable Lincoln Trust is not in arrears on payments of Distributions on its
Preferred Securities and no deferred Distributions thereon are accumulated,
(iv) the Securities are rated not less than BBB- by Standard & Poor's Ratings
Services or Baa3 by Moody's Investors Service, Inc. or the equivalent by any
other naturally recognized statistical rating organization and (v) the
extended Stated Maturity in no later than the 49th anniversary of the initial
issuance of the Preferred Securities of the applicable Lincoln Trust;
provided, further, that, if the Company exercises its right to liquidate the
Lincoln Trust and exchange the Securities of such series for the Preferred
Securities of such Lincoln Trust as specified in clause (a) above, any changed
Stated Maturity of the Securities of such series shall be no earlier than the
date that is five years after the issuance of the Preferred Securities and no
later than the date 30 years (plus an extended term of up to an additional 19
years if the above-referenced conditions are satisfied) after the date of the
initial issuance of the Preferred Securities of the applicable Lincoln Trust.
Section 3.15. CUSIP Numbers.
The Company in issuing the Securities may use ''CUSIP'' numbers (if then
generally in use), and, if so, the Trustee shall use ''CUSIP'' numbers in
notices of redemption as a convenience to Holders; provided that any such
notice may state that no representation is made as to the correctness of such
numbers either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers.
ARTICLE IV. SATISFACTION AND DISCHARGE
Section 4.1. Satisfaction and Discharge of Indentu re.
This Indenture shall cease to be of further effect (except as to (i) any
surviving rights of transfer, substitution and exchange of Securities, (ii)
rights hereunder of Holders to receive payments of principal of (and premium, if
any) and interest on the Securities and other rights, duties and obligations of
the Holders as beneficiaries hereof with respect to the amounts, if any,
deposited with the Trustee pursuant to this Article IV and (iii) the rights and
obligations of the Trustee hereunder), and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered (other than (i)
Securities which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 3.6 and (ii) Securities for whose
payment money has theretofore been deposited in trust or segregated and held
in trust by the Company and thereafter repaid to the Company or discharged
from such trust, as provided in Section 10.3) have been delivered to the
Trustee for cancellation; or
(B) all such Securities not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity within one
year of the date of deposit,
and the Company, in the case of Clause (B) (i) or (B) (ii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for such purpose an amount in the currency or currencies in
which the Securities of such series are payable sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest (including any Additional Interest) to the date
of such deposit (in the case of Securities which have become due and
payable) or to the Stated Maturity;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture have
been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.7 and, if money
shall have been deposited with the Trustee pursuant to subclause (B) of clause
(1) of this Section, the obligations of the Trustee under Section 4.2 and the
last paragraph of Section 10.3 shall survive.
Section 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 10.3, all money
deposited with the Trustee pursuant to Section 4.1 or money or Government
Obligations deposited with the Trustee pursuant to Section 4.3, or received by
the Trustee in respect of Government Obligations deposited with the Trustee
pursuant to Section 4.3, shall be held in trust and applied by the Trustee, in
accordance with the provisions of the Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium, if any) and interest for the
payment of which such money or obligations have been deposited with or
received by the Trustee; provided, however, such moneys need not be segregated
from other funds except to the extent required by law.
Section 4.3. Satisfaction, Discharge and Defeasance of Securities of Any
Series.
Unless otherwise provided in the Board Resolution adopted pursuant to
Section 3.1 establishing the terms of the Securities of any series, the
Company shall be deemed to have paid and discharged the entire indebtedness on
all the Outstanding Securities of any such series and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of such indebtedness, when
(1) with respect to all Outstanding Securities of such series,
(A) the Company has irrevocably deposited or caused to be irrevocably
deposited with the Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire indebtedness on all Outstanding
Securities of such series for principal (and premium, if any) and interest
(including any Additional Interest) to the Stated Maturity or any Redemption
Date as contemplated by the penultimate paragraph of this Section 4.3, as the
case may be; or
(B) the Company has irrevocably deposited or caused to be irrevocably
deposited with the Trustee as obligations in trust for such purpose an amount
of Government Obligations as will, in the written opinion of independent
public accountants delivered to the Trustee, together with predetermined and
certain income to accrue thereon, without consideration of any reinvestment
thereof, be sufficient to pay and discharge when due the entire indebtedness
on all Outstanding Securities of such series for principal (and premium, if
any) and interest (including any Additional Interest) to the Stated Maturity
or any Redemption Date as contemplated by the penultimate paragraph of this
Section 4.3, as the case may be; and
(2) the Company has paid or caused to be paid all other sums payable with
respect to the Outstanding Securities of such series; and
(3) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of the entire
indebtedness on all Outstanding Securities of any such series have been
complied with.
Any deposits with the Trustee referred to in Section 4.3(i) above shall be
irrevocable and shall be made under the terms of an escrow trust agreement in
form and substance reasonably satisfactory to the Trustee. If any Outstanding
Securities of such series are to be redeemed prior to their Stated Maturity,
whether pursuant to any optional redemption provisions or in accordance with
any mandatory sinking fund requirement, the applicable escrow trust agreement
shall provide therefor and the Company shall make such arrangements as are
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company. If the Securities of
such series are not to become due and payable at their Stated Maturity or upon
call for redemption within one year of the date of deposit, then the Company
shall give, not later than the date of such deposit, notice of such deposit to
the Holders of Securities of such series.
Upon the satisfaction of the conditions set forth in this Section 4.3 with
respect to all the Outstanding Securities of any series, the terms and
conditions of such series, including the terms and conditions with respect
thereto set forth in this Indenture, shall no longer be binding upon, or
applicable to, the Company; provided, that the Company shall not be discharged
from any payment obligations in respect of Securities of such series which are
deemed not to be Outstanding under clause (iii) of the definition thereof if
such obligations continue to be valid obligations of the Company under
applicable law.
ARTICLE V. REMEDIES
Section 5.1. Events of Default.
''Event of Default'', wherever used herein with respect to the Securities of
any series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon any Security of that series,
including any Additional Interest in respect thereof, when it becomes due and
payable, and continuance of such default for a period of 30 days (subject to the
deferral of any due date in the case of an Extension Period); or
(2) default in the payment of the principal of (or premium, if any, on)
any Security of that series at its Maturity; or
(3) default in the performance, or breach, in any material respect, of any
covenant or warranty of the Company in this Indenture (other than a covenant
or warranty a default in the performance of which or the breach of which is
elsewhere in this Section specifically dealt with), and continuance of such
default or breach for a period of 90 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities of that series a written notice specifying such default
or breach and requiring it to be remedied; or
(4) the entry of a decree or order by a court having jurisdiction in the
premises adjudging the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under any applicable Federal or
State bankruptcy, insolvency, reorganization or other similar law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its property or
ordering the winding up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of 60 consecutive
days; or
(5) the institution by the Company of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy
or insolvency proceedings against it, or the filing by it of a petition or
answer or consent seeking reorganization or relief under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law,
or the consent by it to the filing of any such petition or to the appointment
of a receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Company or of any substantial part of its property, or the
making by it of an assignment for the benefit for creditors, or the admission
by it in writing of its inability to pay its debts generally as they become
due and its willingness to be adjudicated a bankrupt, or the taking of
corporate action by the Company in furtherance of any such action; or
(6) any other Event of Default with respect to Securities of that series.
Section 5.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series at the
time Outstanding occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series may declare the principal amount (or, if
the Securities of that series are Discount Securities, such portion of the
principal amount as may be specified in the terms of that series) of all the
Securities of that series to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by Holders), provided
that, in the case of the Securities of a series issued to a Lincoln Trust, if,
upon an Event of Default, the Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Securities of that series fail to declare
the principal of all the Securities of that series to be immediately due and
payable, the holders of at least 25% in aggregate liquidation amount of the
corresponding series of Preferred Securities then outstanding shall have such
right by a notice in writing to the Company and the Trustee; and upon any such
declaration such principal amount (or specified amount) of and the accrued
interest (including any Additional Interest) on all the Securities of such
series shall become immediately due and payable, provided that the payment of
principal and interest (including any Additional Interest) on such Securities
shall remain subordinated to the extent provided in Article Thirteen.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in
this Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and
the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient to
pay:
(A) all overdue installments of interest (including any Additional
Interest) on all Securities of that series,
(B) the principal of (and premium, if any, on) any Securities of that
series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Securities, and
(C) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
(2) all Events of Default with respect to Securities of that series, other
than the non-payment of the principal of Securities of that series which has
become due solely by such acceleration, have been cured or waived as provided
in Section 5.13.
The holders of a majority in aggregate outstanding principal amount of the
Securities of a series affected thereby may, on behalf of the holders of all
the Securities of such series, waive any past default, except a default in the
payment of principal or interest (unless such default has been cured and a sum
sufficient to pay all matured installments of interest and principal due
otherwise than by acceleration has been deposited with the Trustee) or a
default in respect of a covenant or provision which under this Indenture
cannot be modified or amended without the consent of the holder of each
outstanding Security of such series and, in the case of Securities of a series
issued to a Lincoln Trust, should the holders of such Securities fail to annul
such declaration and waive such default, the holders of a majority in
aggregate liquidation preference of the related series of Preferred Securities
shall have such right.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Upon receipt by the Trustee of written notice declaring such an
acceleration, or rescission and annulment thereof, with respect to Securities
of a series all or part of which is represented by a Global Security, a record
date shall be established for determining Holders of Outstanding Securities of
such series entitled to join in such notice, which record date shall be at the
close of business on the day the Trustee receives such notice. The Holders on
such record date, or their duly designated proxies, and only such Persons,
shall be entitled to join in such notice, whether or not such Holders remain
Holders after such record date; provided, that, unless such declaration of
acceleration, or rescission and annulment, as the case may be, shall have
become effective by virtue of the requisite percentage having joined in such
notice prior to the day which is 90 days after such record date, such notice
of declaration of acceleration, or rescission and annulment, as the case may
be, shall automatically and without further action by any Holder be canceled
and of no further effect. Nothing in this paragraph shall prevent a Holder, or
a proxy of a Holder, from giving, after expiration of such 90-day period, a
new written notice of declaration of acceleration, or rescission and annulment
thereof, as the case may be, that is identical to a written notice which has
been canceled pursuant to the proviso to the preceding sentence, in which
event a new record date shall be established pursuant to the provisions of
this Section 5.2.
Section 5.3. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if:
(1) default is made in the payment of any installment of interest
(including any Additional Interest) on any Security when such interest becomes
due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of (and premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to the Trustee, for the
benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities for principal, including any sinking fund payment
or analogous obligations (and premium, if any) and interest (including any
Additional Interest); and, in addition thereto, all amounts owing the Trustee
under Section 6.7.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, and may
prosecute such proceeding to judgment or final decree, and may enforce the
same against the Company or any other obligor upon the Securities and collect
the moneys adjudged or decreed to be payable in the manner provided by law out
of the property of the Company or any other obligor upon the Securities,
wherever situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and
enforce its rights and the rights of the Holders of Securities of such series
by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal of the Securities
of any series shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have
made any demand on the Company for the payment of overdue principal (and
premium, if any) or interest (including any Additional Interest)) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest (including any Additional Interest) owing and
unpaid in respect to the Securities and to file such other papers or documents
as may be necessary or advisable and to take any and all actions as are
authorized under the Trust Indenture Act in order to have the claims of the
Holders and any predecessor to the Trustee under Section 6.7 and of the
Holders allowed in any such judicial proceedings; and
(ii) and in particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same in accordance with Section 5.6; and
(b) any custodian, receiver, assignee, trustee, liquidator, sequestrator
(or other similar official) in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee for
distribution in accordance with Section 5.6, and in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay
to the Trustee any amount due to it and any predecessor Trustee under Section
6.7.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding; provided,
however, that the Trustee may, on behalf of the Holders, vote for the election
of a trustee in bankruptcy or similar official and be a member of a creditors'
or other similar committee.
Section 5.5. Trustee May Enforce Claim Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of all the amounts owing the Trustee and any
predecessor Trustee under Section 6.7, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
Section 5.6. Application of Money Collected.
Any money or property collected or to be applied by the Trustee with
respect to a series of Securities pursuant to this Article shall be applied in
the following order, at the date or dates fixed by the Trustee and, in case of
the distribution of such money or property on account of principal (or
premium, if any) or interest (including any Additional Interest), upon
presentation of the Securities and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee and any predecessor
Trustee under Section 6.7;
SECOND: To the payment of the amounts then due and unpaid upon such series
of Securities for principal (and premium, if any) and interest (including any
Additional Interest), in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such series of Securities for
principal (and premium, if any) and interest (including any Additional
Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons entitled thereto.
Section 5.7. Limitation on Suits.
No Holder of any Securities of any series shall have any right to
institute any proceeding, judicial or otherwise, with respect to this
Indenture or for the appointment of a receiver, assignee, trustee, liquidator,
sequestrator (or other similar official) or for any other remedy hereunder,
unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of such Holders shall
have any right in any manner whatever by virtue of, or by availing itself of,
any provision of this Indenture to affect, disturb or prejudice the rights of
any other Holders of Securities, or to obtain or to seek to obtain priority or
preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all such Holders.
Section 5.8. Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right which is absolute and unconditional to receive
payment of the principal of (and premium, if any) and (subject to Section 3.7)
interest (including any Additional Interest) on such Security on the
respective Stated Maturities expressed in such Security and to institute suit
for the enforcement of any such payment, and such right shall not be impaired
without the consent of such Holder. In the case of Securities of a series
issued to a Lincoln Trust, any holder of the corresponding series of Preferred
Securities shall have the right, upon the occurrence of an Event of Default
described in Section 5.1(1) or 5.2(1) hereof, to institute a suit directly
against the Company for enforcement of payment to such Holder of principal of
(premium, if any) and (subject to Section 3.7) interest (including any
Additional Interest) on the Securities having a principal amount equal to the
aggregate liquidation preference of the Preferred Securities of the
corresponding series held by such Holder.
Section 5.9. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee
or to such Holder, then and in every such case the Company, the Trustee and
the Holders shall, subject to any determination in such proceeding, be
restored severally and respectively to their former positions hereunder, and
thereafter all rights and remedies of the Trustee and the Holders shall
continue as though no such proceeding had been instituted.
Section 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of Section 3.6, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 5.11. Delay or Omission Not Waiver.
Except as otherwise provided in the last paragraph of Section 3.6, no
delay or omission of the Trustee or of any Holder of any Security to exercise
any right or remedy accruing upon any Event of Default shall impair any such
right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or
to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.
Section 5.12. Control by Holders.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, provided that:
(1) such direction shall not be in conflict with any rule of law or with
this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) subject to the provisions of Section 6.1, the Trustee shall have the
right to decline to follow such direction if the Trustee in good faith shall,
by a Responsible Officer or Officers of the Trustee, determine that the
proceeding so directed would be unjustly prejudicial to the Holders not
joining in any such direction or would involve the Trustee in personal
liability.
Upon receipt by the Trustee of any written notice directing the time,
method or place of conducting any such proceeding or exercising any such trust
or power, with respect to Securities of a series all or part of which is
represented by a Global Security, a record date shall be established for
determining Holders of Outstanding Securities of such series entitled to join
in such notice, which record date shall be at the close of business on the day
the Trustee receives such notice. The Holders on such record date, or their
duly designated proxies, and only such Persons, shall be entitled to join in
such notice, whether or not such Holders remain Holders after such record
date; provided, that, unless the Holders of a majority in principal amount of
the Outstanding Securities of such series shall have joined in such notice
prior to the day which is 90 days after such record date, such notice shall
automatically and without further action by any Holder be canceled and of no
further effect. Nothing in this paragraph shall prevent a Holder, or a proxy
of a Holder, from giving, after expiration of such 90-day period, a new notice
identical to a notice which has been canceled pursuant to the proviso to the
preceding sentence, in which event a new record date shall be established
pursuant to the provisions of this Section 5.12.
Section 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder and its
consequences with respect to such series except a default:
(1) in the payment of the principal of (or premium, if any) or interest
(including any Additional Interest) on any Security of such series, or
(2) in respect of a covenant or provision hereof which under Article Nine
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent
or other default or impair any right consequent thereon.
Section 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken
or omitted by it as Trustee, the filing by any party litigant in such suit of
an undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities
of any series, or to any suit instituted by any Holder for the enforcement of
the payment of the principal of (or premium, if any) or interest (including
any Additional Interest) on any Security on or after the respective Stated
Maturities expressed in such Security.
Section 5.15. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any usury, stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it
may lawfully do so) hereby expressly waives all benefit or advantage of any
such law, and covenants that it will not hinder, delay or impede the execution
of any power herein granted to the Trustee, but will suffer and permit the
execution of every such power as though no such law had been enacted.
ARTICLE VI. THE TRUSTEE
Section 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of Default,
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; but in the case
of any such certificates or opinions which by any provisions hereof are
specifically required to be furnished to the Trustee, the Trustee shall be
under a duty to examine the same to determine whether or not they conform to
the requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his own affairs.
(c) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action taken or
omitted to be taken by it in good faith in accordance with the direction of
Holders pursuant to Section 5.12 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this Indenture
with respect to the Securities of such series.
(d) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if there shall be reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 6.2. Notice of Defaults.
Within 90 days after actual knowledge by a Responsible Officer of the
Trustee of the occurrence of any default hereunder with respect to the
Securities of any series, the Trustee shall transmit by mail to all Holders of
Securities of such series, as their names and addresses appear in the
Securities Register, notice of such default hereunder known to the Trustee,
unless such default shall have been cured or waived; provided, however, that,
except in the case of a default in the payment of the principal of (or
premium, if any) or interest (including any Additional Interest) on any
Security of such series, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in
good faith determines that the withholding of such notice is in the interests
of the Holders of Securities of such series; and provided, further, that, in
the case of any default of the character specified in Section 5.1(3), no such
notice to Holders of Securities of such series shall be given until at least
30 days after the occurrence thereof. For the purpose of this Section, the
term ''default'' means any event which is, or after notice or lapse of time or
both would become, an Event of Default with respect to Securities of such
series.
Section 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, Security
or other paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the advice of such counsel or
any Opinion of Counsel shall be full and complete authorization and protection
in respect of any action taken, suffered or omitted by it hereunder in good
faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses
and liabilities which might be incurred by it in compliance with such request
or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, indenture,
Security or other paper or document, but the Trustee in its discretion may
make such inquiry or investigation into such facts or matters as it may see
fit, and, if the Trustee shall determine to make such inquiry or
investigation, it shall be entitled to examine the books, records and premises
of the Company, personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
Section 6.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be accountable for the
use or application by the Company of the Securities or the proceeds thereof.
Section 6.5. May Hold Securities.
The Trustee, any Paying Agent, Securities Registrar or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Securities and, subject to Sections 6.8 and 6.13, may otherwise
deal with the Company with the same rights it would have if it were not
Trustee, Paying Agent, Securities Registrar or such other agent.
Section 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by law. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
Section 6.7. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder in such amounts as the Company and the
Trustee shall agree from time to time (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an
express trust);
(2) to reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to its negligence or
bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense (including the reasonable compensation and the
expenses and disbursements of its agents and counsel) incurred without
negligence or bad faith, arising out of or in connection with the acceptance
or administration of this trust or the performance of its duties hereunder,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. This indemnification shall survive the termination of
this Agreement.
To secure the Company's payment obligations in this Section, the Company
and the Holders agree that the Trustee shall have a lien prior to the
Securities on all money or property held or collected by the Trustee. Such
lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 5.1(4) or (5) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Reform Act of 1978 or a successor statute.
Section 6.8. Disqualification; Conflicting Interests.
The Trustee for the Securities of any series issued hereunder shall be
subject to the provisions of Section 310(b) of the Trust Indenture Act.
Nothing herein shall prevent the Trustee from filing with the Commission the
application referred to in the second to last paragraph of Section 301(b) of
the Trust Indenture Act.
Section 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the
United States of America or of any State, Territory or the District of
Columbia, authorized under such laws to exercise corporate trust powers and
subject to supervision or examination by Federal, State, Territorial or
District of Columbia authority, or
(b) a corporation or other Person organized and doing business under the
laws of a foreign government that is permitted to act as Trustee pursuant to a
rule, regulation or order of the Commission, authorized under such laws to
exercise corporate trust powers, and subject to supervision or examination by
authority of such foreign government or a political subdivision thereof
substantially equivalent to supervision or examination applicable to United
States institutional trustees,
in either case having a combined capital and surplus of at least $50,000,000,
subject to supervision or examination by Federal or State authority. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority,
then, for the purposes of this Section, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. If at any time the
Trustee shall cease to be eligible in accordance with the provisions of this
Section, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article. Neither the Company nor any Person
directly or indirectly controlling, controlled by or under common control with
the Company shall serve as Trustee for the Securities of any series issued
hereunder.
Section 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If an
instrument of acceptance by a successor Trustee shall not have been delivered
to the Trustee within 30 days after the giving of such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series, delivered to the Trustee
and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.9 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall be
appointed or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation,
then, in any such case, (i) the Company, acting pursuant to the authority of a
Board Resolution, may remove the Trustee, or (ii) subject to Section 5.14, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause with
respect to the Securities of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee with respect to the
Securities of that or those series. If, within one year after such
resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee with respect to the Securities of any series shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series delivered to the Company and the
retiring Trustee, the successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee with respect to
the Securities of such series and supersede the successor Trustee appointed by
the Company. If no successor Trustee with respect to the Securities of any
series shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, subject to Section
5.14, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment
of a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities of such series as their names and addresses appear in
the Securities Register. Each notice shall include the name of the successor
Trustee with respect to the Securities of such series and the address of its
Corporate Trust Office.
Section 6.11. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; but, on the
request of the Company or the successor Trustee, such retiring Trustee shall,
upon payment of its charges, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the retiring
Trustee and shall duly assign, transfer and deliver to such successor Trustee
all property and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company,
the retiring Trustee and each successor Trustee with respect to the Securities
of one or more series shall execute and deliver an indenture supplemental
hereto wherein each successor Trustee shall accept such appointment and which
(1) shall contain such provisions as shall be necessary or desirable to
transfer and confirm to, and to vest in, each successor Trustee all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates, (2) if the retiring Trustee is not retiring with respect to
all Securities, shall contain such provisions as shall be deemed necessary or
desirable to confirm that all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series as to
which the retiring Trustee is not retiring shall continue to be vested in the
retiring Trustee, and (3) shall add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart
from any trust or trusts hereunder administered by any other such Trustee and
upon the execution and delivery of such supplemental indenture the resignation
or removal of the retiring Trustee shall become effective to the extent
provided therein and each such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights, powers, trusts,
and duties of the retiring Trustee with respect to the Securities of that or
those series to which the appointment of such successor Trustee relates; but,
on request of the Company or any successor Trustee, such retiring Trustee
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all rights, powers and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible
under this Article.
Section 6.12. Merger, Conversion, Consolidation or Succession to
Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on
the part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may
adopt such authentication and deliver the Securities so authenticated, and in
case any Securities shall not have been authenticated, any successor to the
Trustee may authenticate such Securities either in the name of any predecessor
Trustee or in the name of such successor Trustee, and in all cases the
certificate of authentication shall have the full force which it is provided
anywhere in the Securities or in this Indenture that the certificate of the
Trustee shall have.
Section 6.13. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or
any other obligor upon the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims
against the Company (or any such other obligor).
Section 6.14. Appointment of Authenticating Agent.
The Trustee may appoint an Authenticating Agent or Agents with respect to
one or more series of Securities which shall be authorized to act on behalf of
the Trustee to authenticate Securities of such series issued upon original
issue and upon exchange, registration of transfer or partial redemption
thereof, and Securities so authenticated shall be entitled to the benefits of
this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or
the Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States of America, or of any State, Territory or
the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually,
pursuant to law or to the requirements of said supervising or examining
authority, then for the purposes of this Section the combined capital and
surplus of such Authenticating Agent shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time an Authenticating Agent shall cease to be eligible
in accordance with the provisions of this Section, such Authenticating Agent
shall resign immediately in the manner and with the effect specified in this
Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating
Agent shall be a party, or any corporation succeeding to all or substantially
all of the corporate trust business of an Authenticating Agent shall be the
successor Authenticating Agent hereunder, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating
Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 1.6 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provision of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the
provisions of Section 6.7.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities referred to in the within mentioned
Indenture.
As Trustee
By: ;
As Authenticating Agent
By: :
Authorized Officer
ARTICLE VII. HOLDER'S LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 7.1. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not more than 15 days after January 15 and July 15, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of such January 1 and July 1, and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such
list is furnished,
excluding from any such list names and addresses received by the Trustee in
its capacity as Securities Registrar.
Section 7.2. Preservation of Information, Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 7.1 and the names and
addresses of Holders received by the Trustee in its capacity as Securities
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect
to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided in
the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act.
Section 7.3. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to
the Trust Indenture Act, at the times and in the manner provided pursuant
thereto.
(b) Reports so required to be transmitted at stated intervals of not more
than 12 months shall be transmitted no later than July 15 in each calendar
year, commencing with the first July 15 after the first issuance of Securities
under this Indenture.
(c) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which the
Securities are listed and also with the Commission. The Company will notify
the Trustee whenever the Securities are listed on any stock exchange.
Section 7.4. Reports by Company.
The Company shall file with the Trustee and with the Commission, and
transmit to Holders, such information, documents and other reports, and such
summaries thereof, as may be required pursuant to the Trust Indenture Act at
the times and in the manner provided in the Trust Indenture Act; provided that
any such information, documents or reports required to be filed with the
Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934 shall be filed with the Trustee within 15 days after the same is
required to be filed with the Commission. Notwithstanding that the Company may
not be required to remain subject to the reporting requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Company shall continue to
file with the Commission and provide the Trustee with the annual reports and
the information, documents and other reports which are specified in Sections
13 and 15(d) of the Securities Exchange Act of 1934. The Company also shall
comply with the other provisions of Trust Indenture Act Section 314(a).
ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an
entirety to any Person, and no Person shall consolidate with or merge into the
Company or convey, transfer or lease its properties and assets substantially
as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially as
an entirety to any Person, the corporation formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust
organized and existing under the laws of the United States of America or any
State or the District of Columbia, and shall expressly assume, by an indenture
supplemental hereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual payment of the principal of
(and premium, if any) and interest (including any Additional Interest) on all
the Securities and the performance of every covenant of this Indenture on the
part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction, no Event of
Default, and no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be continuing;
(3) in the case of the Securities of a series issued to a Lincoln Trust,
such consolidation, merger, conveyance, transfer or lease is permitted under
the related Trust Agreement and Lincoln Guarantee and does not give rise to
any breach or violation of the related Trust Agreement or Lincoln Guarantee;
and
(4) the Company has delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel each stating that such consolidation, merger,
conveyance, transfer or lease and any such supplemental indenture complies
with this Article and that all conditions precedent herein provided for
relating to such transaction have been complied with; and the Trustee, subject
to Section 6.1, may rely upon such Officers' Certificate and Opinion of
Counsel as conclusive evidence that such transaction complies with this
Section 8.1.
Section 8.2. Successor Corporation Substituted.
Upon any consolidation or merger by the Company with or into any other
Person, or any conveyance, transfer or lease by the Company of its properties
and assets substantially as an entirety to any Person in accordance with
Section 8.1, the successor corporation formed by such consolidation or into
which the Company is merged or to which such conveyance, transfer or lease is
made shall succeed to, and be substituted for, and may exercise every right
and power of, the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; and in the event of any
such conveyance, transfer or lease the Company shall be discharged from all
obligations and covenants under the Indenture and the Securities and may be
dissolved and liquidated.
Such successor Person may cause to be signed, and may issue either in its
own name or in the name of the Company, any or all of the Securities issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Trustee; and, upon the order of such successor Person instead
of the Company and subject to all the terms, conditions and limitations in
this Indenture prescribed, the Trustee shall authenticate and shall deliver
any Securities which previously shall have been signed and delivered by the
officers of the Company to the Trustee for authentication pursuant to such
provisions and any Securities which such successor Person thereafter shall
cause to be signed and delivered to the Trustee on its behalf for the purpose
pursuant to such provisions. All the Securities so issued shall in all
respects have the same legal rank and benefit under this Indenture as the
Securities theretofore or thereafter issued in accordance with the terms of
this Indenture as though all of such Securities had been issued at the date of
the execution hereof.
In case of any such consolidation, merger, sale, conveyance or lease, such
changes in phraseology and form may be made in the Securities thereafter to be
issued as may be appropriate.
ARTICLE IX. SUPPLEMENTAL INDENTURES
Section 9.1. Supplemental Indentures without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company, and the
assumption by any such successor of the covenants of the Company herein and in
the Securities contained; or
(2) to convey, transfer, assign, mortgage or pledge any property to or
with the Trustee or to surrender any right or power herein conferred upon the
Company; or
(3) to establish the form or terms of Securities of any series as
permitted by Sections 2.1 or 3.1; or
(4) to add to the covenants of the Company for the benefit of the Holders
of all or any series of Securities (and if such covenants are to be for the
benefit of less than all series of Securities, stating that such covenants are
expressly being included solely for the benefit of such series) or to
surrender any right or power herein conferred upon the Company; or
(5) to add any additional Events of Default; or
(6) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only when
there is no Security Outstanding of any series created prior to the execution
of such supplemental indenture which is entitled to the benefit of such
provision; or
(7) to cure any ambiguity, to correct or supplement any provision herein
which may be inconsistent with any other provision herein, or to make any
other provisions with respect to matters or questions arising under this
Indenture, provided that such action pursuant to this clause (7) shall not
materially adversely affect the interest of the Holders of Securities of any
series or, in the case of the Securities of a series issued to a Lincoln Trust
and for so long as any of the corresponding series of Preferred Securities
shall remain outstanding, the holders of such Preferred Securities; or
(8) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Securities of one or more series and
to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
6.11(b); or
(9) to comply with the requirements of the Commission in order to effect
or maintain the qualification of this Indenture under the Trust Indenture Act.
Section 9.2. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal
amount of the Outstanding Securities of each series affected by such
supplemental indenture, by Act of said Holders delivered to the Company and
the Trustee, the Company, when authorized by a Board Resolution, and the
Trustee may enter into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the
rights of the Holders of Securities of such series under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby,
(1) except to the extent permitted by Section 3.11 or as otherwise
specified as contemplated by Section 3.1 with respect to the extension of the
interest payment period of the Securities of any series, change the Stated
Maturity of the principal of, or any installment of interest (including any
Additional Interest) on, any Security, or reduce the principal amount thereof
or the rate of interest thereon or reduce any premium payable upon the
redemption thereof, or reduce the amount of principal of a Discount Security
that would be due and payable upon a declaration of acceleration of the
Maturity thereof pursuant to Section 5.2, or change the place of payment
where, or the coin or currency in which, any Security or interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Stated Maturity thereof (or, in the case of
redemption, on or after the date fixed for redemption thereof), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section, Section 5.13 or Section
10.5, except to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent
of the Holder of each Security affected thereby; or
(4) modify the provisions in Article Thirteen of this Indenture with
respect to the subordination of Outstanding Securities of any series in a
manner adverse to the Holders thereof;
provided that, in the case of the Securities of a series issued to a Lincoln
Trust, so long as any of the corresponding series of Preferred Securities
remains outstanding, no such amendment shall be made that adversely affects
the holders of such Preferred Securities, and no termination of this Indenture
shall occur, and no waiver of any Event of Default or compliance with any
covenant under this Indenture shall be effective, without the prior consent of
the holders of at least a majority of the aggregate liquidation preference of
such Preferred Securities then outstanding unless and until the principal (and
premium, if any) of the Securities of such series and all accrued and, subject
to Section 3.7, unpaid interest (including any Additional Interest) thereon
have been paid in full; and provided further that in the case of the
Securities of a series issued to a Lincoln Trust, so long as any of the
corresponding series of Preferred Securities remain outstanding, no amendment
shall be made to Section 5.8 of this Indenture without the prior consent of
the holders of each Preferred Security then outstanding unless and until the
principal (and premium, if any) of the Securities of such series and all
accrued and (subject to Section 3.7) unpaid interest (including any Additional
Interest) thereon have been paid in full.
A supplemental indenture that changes or eliminates any covenant or other
provision of this Indenture that has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such
covenant or other provision, shall be deemed not to affect the rights under
this Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it
shall be sufficient if such Act shall approve the substance thereof.
Section 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created by any
supplemental indenture permitted by this Article or the modifications thereby
of the trusts created by this Indenture, the Trustee shall be entitled to
receive, and (subject to Section 6.1) shall be fully protected in relying
upon, an Officers' Certificate and an Opinion of Counsel stating that the
execution of such supplemental indenture is authorized or permitted by this
Indenture, and that all conditions precedent have been complied with. The
Trustee may, but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
Section 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every
Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
Section 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
Section 9.6. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Company, bear a notation in form approved by the Company as to any matter
provided for in such supplemental indenture. If the Company shall so
determine, new Securities of any series so modified as to conform, in the
opinion of the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series.
ARTICLE X. COVENANTS
Section 10.1. Payment of Principal, Premium and Interest.
The Company covenants and agrees for the benefit of each series of
securities that it will duly and punctually pay the principal of (and premium,
if any) and interest on the Securities of that series in accordance with the
terms of such Securities and this Indenture.
Section 10.2. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment for any series, an
office or agency where Securities of that series may be presented or
surrendered for payment and an office or agency where Securities may be
surrendered for transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served. The
Company initially appoints the Trustee, acting through its Corporate Trust
Office, as its agent for said purposes. The Company will give prompt written
notice to the Trustee of any change in the location of any such office or
agency. If at any time the Company shall fail to maintain such office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices
and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or
all of such purposes, and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in each
Place of Payment for Securities of any series for such purposes. The Company
will give prompt written notice to the Trustee of any such designation and any
change in the location of any such office or agency.
Section 10.3. Money for Security Payments to be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of
such series, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any)
or interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided, and will promptly notify the Trustee
of its failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior
to 10:00 a.m. New York City time on each due date of the principal of or
interest on any Securities, deposit with a Paying Agent a sum sufficient to
pay the principal (and premium, if any) or interest so becoming due, such sum
to be held in trust for the benefit of the Persons entitled to such principal
and premium (if any) or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of its failure so to
act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall
agree with the Trustee, subject to the provisions of this Section, that such
Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities) in the making of any payment of principal (and
premium, if any) or interest;
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held
in trust by such Paying Agent; and
(4) comply with the provisions of the Trust Indenture Act applicable to it
as a Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by the Company or any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal (and premium, if any) or interest has become due and payable
shall (unless otherwise required by mandatory provision of applicable escheat
or abandoned or unclaimed property law) be paid on Company Request to the
Company, or (if then held by the Company) shall (unless otherwise required by
mandatory provision of applicable escheat or abandoned or unclaimed property
law) be discharged from such trust; and the Holder of such Security shall
thereafter, as an unsecured general creditor, look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of
general circulation in the Borough of Manhattan, the City of New York, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 10.4. Statement as to Compliance.
The Company shall deliver to the Trustee, within 120 days after the end of
each calendar year of the Company ending after the date hereof, an Officers'
Certificate covering the preceding calendar year, stating whether or not to
the best knowledge of the signers thereof the Company is in default in the
performance, observance or fulfillment of or compliance with any of the terms,
provisions, covenants and conditions of this Indenture, and if the Company
shall be in default, specifying all such defaults and the nature and status
thereof of which they may have knowledge. For the purpose of this Section
10.4, compliance shall be determined without regard to any grace period or
requirement of notice provided pursuant to the terms of this Indenture.
Section 10.5. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition as specified as contemplated by Section 3.1 with respect
to the Securities of any series, if before or after the time for such
compliance the Holders of at least a majority in principal amount of the
Outstanding Securities of such series shall, by Act of such Holders, either
waive such compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect such
covenant or condition except to the extent so expressly waived, and, until
such waiver shall become effective, the obligations of the Company in respect
of any such covenant or condition shall remain in full force and effect.
Section 10.6. Additional Sums.
In the case of the Securities of a series issued to a Lincoln Trust,
except as otherwise specified as contemplated by Section 3.1, in the event
that (i) a Lincoln Trust is the Holder of all of the Outstanding Securities of
such series, (ii) a Tax Event in respect of such Lincoln Trust shall have
occurred and be continuing and (iii) the Company shall not have (i) redeemed
the Securities of such series pursuant to Section 11.7(b) or (ii) terminated
such Lincoln Trust pursuant to Section 9.2(b) of the related Trust Agreement,
the Company shall pay to such Lincoln Trust (and its permitted successors or
assigns under the related Trust Agreement) for so long as such Lincoln Trust
(or its permitted successor or assignee) is the registered holder of any
Securities of such series, such additional amounts as may be necessary in
order that the amount of distributions (including any Additional Amounts (as
defined in the Trust Agreement)) then due and payable by such Lincoln Trust on
the related Preferred Securities and Common Securities that at any time remain
outstanding in accordance with the terms thereof shall not be reduced as a
result of any Additional Taxes (the ''Additional Sums''). Whenever in this
Indenture or the Securities there is a reference in any context to the payment
of principal of or interest on the Securities, such mention shall be deemed to
include mention of the payments of the Additional Sums provided for in this
paragraph to the extent that, in such context, Additional Sums are, were or
would be payable in respect thereof pursuant to the provisions of this
paragraph and express mention of the payment of Additional Sums (if
applicable) in any provisions hereof shall not be construed as excluding
Additional Sums in those provisions hereof where such express mention is not
made, provided, however, that the extension of an interest payment period
pursuant to Section 3.11 or the Securities shall not extend the payment of any
Additional Sums that may be due and payable during such interest payment
period.
Section 10.7. Additional Covenants.
The Company covenants and agrees with each Holder of Securities of a
series issued to a Lincoln Trust that it will not, and it will not permit any
Subsidiary of the Company to, (a) declare or pay any dividends or
distributions on, or redeem purchase, acquire or make a liquidation payment
with respect to, any shares of the Company's capital stock, or (b) make any
payment of principal, interest or premium, if any, on or repay, repurchase or
redeem any debt securities of the Company that rank pari passu with or junior
to the Securities of such series or make any guarantee payments with respect
to any guarantee by the Company of debt securities of any subsidiary of the
Company if such guarantee ranks pari passu with or junior in interest to the
Securities (other than (a) dividends or distributions in Common Stock of the
Company, (b) redemptions or purchases of any rights pursuant to the Company's
Rights Plan, or any successor to such Rights Plan, and the declaration of a
dividend of such rights or the issuance of stock under such plans in the
future, (c) payments under any Lincoln Guarantee, and (d) purchases of Common
Stock related to the issuance of Common Stock under any of the Company's
benefit plans for its directors, officers or employees) if at such time (i)
there shall have occurred any event of which the Company has actual knowledge
that (a) with the giving of notice or the lapse of time or both, would
constitute an Event of Default hereunder and (b) in respect of which the
Company shall not have taken reasonable steps to cure, (ii) the Company shall
be in default with respect to its payment of any obligations under the related
Lincoln Guarantee or (iii) the Company shall have given notice of its election
to begin an Extension Period as provided herein and shall not have rescinded
such notice, or such period, or any extension thereof, shall be continuing.
The Company also covenants with each Holder of Securities of a series
issued to a Lincoln Trust (i) to maintain directly or indirectly 100%
ownership of the Common Securities of such Lincoln Trust; provided, however,
that any permitted successor of the Company hereunder may succeed to the
Company's ownership of such Common Securities, (ii) not to voluntarily
terminate, wind-up or liquidate such Lincoln Trust, except (a) in connection
with a distribution of the Securities of such series to the holders of
Preferred Securities in liquidation of such Lincoln Trust or (b) in connection
with certain mergers, consolidations or amalgamations permitted by the related
Trust Agreement and (iii) to use its reasonable efforts, consistent with the
terms and provisions of such Trust Agreement, to cause such Lincoln Trust to
remain classified as a grantor trust and not an association taxable as a
corporation for United States federal income tax purposes.
ARTICLE XI. REDEMPTION OF SECURITIES
Section 11.1. Applicability of This Article.
Redemption of Securities (whether by operation of a sinking fund or
otherwise) as permitted or required by any form of Security issued pursuant to
this Indenture shall be made in accordance with such form of Security and this
Article; provided, however, that if any provision of any such form of Security
shall conflict with any provision of this Article, the provision of such form
of Security shall govern. Except as otherwise set forth in the form of
Security for such series, each Security shall be subject to partial redemption
only in the amount of $25 or, in the case of the Securities of a series issued
to a Lincoln Trust, $25, or integral multiples thereof.
Section 11.2. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
or pursuant to a Board Resolution. In case of any redemption at the election
of the Company of less than all of the Securities of any particular series and
having the same terms, the Company shall, not less than 30 nor more than 60
days prior to the date fixed for redemption (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such date and of the
principal amount of Securities of that series to be redeemed. In the case of
any redemption of Securities prior to the expiration of any restriction on
such redemption provided in the terms of such Securities, the Company shall
furnish the Trustee with an Officers' Certificate and an Opinion of Counsel
evidencing compliance with such restriction.
Section 11.3. Selection of Securities to be Redeemed.
If less than all the Securities of any series are to be redeemed (unless
all the Securities of such series and of a specified tenor are to be redeemed
or unless such redemption affects only a single Security), the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities of such series
not previously called for redemption, by such method as the Trustee shall deem
fair and appropriate and which may provide for the selection for redemption of
a portion of the principal amount of any Security of such series, provided
that the unredeemed portion of the principal amount of any Security shall be
in an authorized denomination (which shall not be less than the minimum
authorized denomination) for such Security. If less than all the Securities of
such series and of a specified tenor are to be redeemed (unless such
redemption affects only a single Security), the particular Securities to be
redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Securities of such series and specified
tenor not previously called for redemption in accordance with the preceding
sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for partial redemption and the principal amount thereof to be
redeemed. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part,
to the portion of the principal amount of such Security which has been or is
to be redeemed. If the Company shall so direct, Securities registered in the
name of the Company, any Affiliate or any Subsidiary thereof shall not be
included in the Securities selected for redemption.
Section 11.4. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not later than the thirtieth day, and not earlier than the sixtieth
day, prior to the date fixed for redemption, to each Holder of Securities to
be redeemed, at the address of such Holder as it appears in the Securities
Register.
With respect to Securities of each series to be redeemed, each notice of
redemption shall state:
(a) the date fixed for redemption for Securities of such series;
(b) the redemption price at which Securities of such series are to be
redeemed;
(c) if less than all Outstanding Securities of such particular series and
having the same terms are to be redeemed, the identification (and, in the case
of partial redemption, the respective principal amounts) of the particular
Securities to be redeemed;
(d) that on the date fixed for redemption, the redemption price at which
such Securities are to be redeemed will become due and payable upon each such
Security or portion thereof, and that interest thereon, if any, shall cease to
accrue on and after said date;
(e) the place or places where such Securities are to be surrendered for
payment of the redemption price at which such Securities are to be redeemed;
and
(f) that the redemption is for a sinking fund, if such is the case.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall not be
irrevocable. The notice if mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder
receives such notice. In any case, a failure to give such notice by mail or
any defect in the notice to the Holder of any Security designated for
redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of any other Security.
Section 11.5. Deposit of Redemption Price.
Prior to 10:00 a.m. New York City time on the redemption date specified in
the notice of redemption given as provided in Section 11.4, the Company will
deposit with the Trustee or with one or more paying agents an amount of money
sufficient to redeem on the redemption date all the Securities so called for
redemption at the applicable redemption price.
Section 11.6. Payment of Securities Called for Redemption.
If any notice of redemption has been given as provided in Section 11.4,
the Securities or portion of Securities with respect to which such notice has
been given shall become due and payable on the date and at the place or places
stated in such notice at the applicable redemption price. On presentation and
surrender of such Securities at a place of payment in said notice specified,
the said securities or the specified portions thereof shall be paid and
redeemed by the Company at the applicable redemption price.
Upon presentation of any Security redeemed in part only, the Company shall
execute and the Trustee shall authenticate and deliver to the Holder thereof,
at the expense of the Company, a new Security or Securities of the same
series, of authorized denominations, in aggregate principal amount equal to
the unredeemed portion of the Security so presented and having the same
Original Issue Date, Stated Maturity and terms. If a Global Security is so
surrendered, such new Security will also be a new Global Security.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal of and premium, if any, on such Security
shall, until paid, bear interest from the Redemption Date at the rate
prescribed therefor in the Security.
Section 11.7. Company's Right of Redemption.
(a) Unless otherwise specified as contemplated by Section 3.1 with respect
to the Securities of a particular series and notwithstanding any additional
redemption rights that may be so specified, the Company may, at its option,
redeem the Securities of any series after their date of issuance in whole at
any time or in part from time to time, subject to the provisions of this
clause (a) and the other provisions of this Article XI. Unless otherwise
specified as contemplated by Section 3.1 with respect to the Securities of a
particular series, the redemption price for any Security so redeemed pursuant
to this clause (a) shall be equal to 100% of the principal amount of such
Securities plus any accrued and unpaid interest, including any Additional
Interest, to the date fixed for redemption. The Company shall not redeem the
Securities in part unless all accrued and unpaid interest (including any
Additional Interest) has been paid in full on all Securities Outstanding for
all interest periods terminating on or prior to the date fixed for redemption.
(b) In the case of the Securities of a series issued to a Lincoln Trust,
except as otherwise specified as contemplated by Section 3.1, if a Special
Event in respect of such Lincoln Trust shall occur and be continuing, the
Company may, at its option, redeem the Securities of such series within 90
days of the occurrence of such Special Event, in whole but not in part,
subject to the provisions of this clause (b) and the other provisions of this
Article Eleven. The redemption price for any Security so redeemed pursuant to
this clause (b) shall be equal to 100% of the principal amount of such
Securities then Outstanding plus accrued and unpaid interest, including any
Additional Interest, to the date fixed for redemption.
ARTICLE XII. SINKING FUNDS
Section 12.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of any series except as otherwise specified as
contemplated by Section 3.1 for such Securities.
The minimum amount of any sinking fund payment provided for by the terms
of any Securities of any series is herein referred to as a ''mandatory sinking
fund payment'', and any sinking fund payment in excess of such minimum amount
which is permitted to be made by the terms of such Securities of any series is
herein referred to as an ''optional sinking fund payment''. If provided for by
the terms of any Securities of any series, the cash amount of any sinking fund
payment may be subject to reduction as provided in Section 12.2. Each sinking
fund payment shall be applied to the redemption of Securities of any series as
provided for by the terms of such Securities.
Section 12.2. Satisfaction of Sinking Fund Payments with Securities.
In lieu of making all or any part of a mandatory sinking fund payment with
respect to any Securities of a series in cash, the Company may at its option,
at any time no more than 16 months and no less than 30 days prior to the date
on which such sinking fund payment is due, deliver to the Trustee Securities
of such series (together with the unmatured Coupons, if any, appertaining
thereto) theretofore purchased or otherwise acquired by the Company, except
Securities of such series that have been redeemed through the application of
mandatory or optional sinking fund payments pursuant to the terms of the
Securities of such series, accompanied by a Company Order instructing the
Trustee to credit such obligations and stating that the Securities of such
series were originally issued by the Company by way of bona fide sale or other
negotiation for value; provided that the Securities to be so credited have not
been previously so credited. The Securities to be so credited shall be
received and credited for such purpose by the Trustee at the redemption price
for such Securities, as specified in the Securities so to be redeemed, for
redemption through operation of the sinking fund and the amount of such
sinking fund payment shall be reduced accordingly.
Section 12.3. Redemption of Securities for Sinking Fund.
Not less than 60 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officers'
Certificate specifying the amount of the next ensuing sinking fund payment for
such Securities pursuant to the terms of such Securities, the portion thereof,
if any, which is to be satisfied by payment of cash in the currency in which
the Securities of such series are payable (except as provided pursuant to
Section 3.1) and the portion thereof, if any, which is to be satisfied by
delivering and crediting Securities pursuant to Section 12.2 and will also
deliver to the Trustee any Securities to be so delivered. Such Certificate
shall be irrevocable and upon its delivery the Company shall be obligated to
make the cash payment or payments therein referred to, if any, on or before
the succeeding sinking fund payment date. In the case of the failure of the
Company to deliver such Certificate (or, as required by this Indenture, the
Securities and coupons, if any, specified in such Certificate), the sinking
fund payment due on the succeeding sinking fund payment date for such series
shall be paid entirely in cash and shall be sufficient to redeem the principal
amount of the Securities of such series subject to a mandatory sinking fund
payment without the right to deliver or credit securities as provided in
Section 12.2 and without the right to make the optional sinking fund payment
with respect to such series at such time.
Any sinking fund payment or payments (mandatory or optional) made in cash
plus any unused balance of any preceding sinking fund payments made with
respect to the Securities of any particular series shall be applied by the
Trustee (or by the Company if the Company is acting as its own Paying Agent)
on the sinking fund payment date on which such payment is made (or, if such
payment is made before a sinking fund payment date, on the sinking fund
payment date immediately following the date of such payment) to the redemption
of Securities of such series at the redemption price specified in such
Securities with respect to the sinking fund. Any sinking fund moneys not so
applied or allocated by the Trustee (or by the Company if the Company is
acting as its own Paying Agent, segregated and held in trust as provided in
Section 10.3) for such series and together with such payment (or such amount
so segregated) shall be applied in accordance with the provisions of this
Section 12.3. Any and all sinking fund moneys with respect to the Securities
of any particular series held by the Trustee (or if the Company is acting as
its own Paying Agent, segregated and held in trust as provided in Section
10.3) on the last sinking fund payment date with respect to Securities of such
series and not held for the payment or redemption of particular Securities of
such series shall be applied by the Trustee (or by the Company if the Company
is acting as its own Paying Agent), together with other moneys, if necessary,
to be deposited (or segregated) sufficient for the purpose, to the payment of
the principal of the Securities of such series at Maturity. The Trustee shall
select the Securities to be redeemed upon such sinking fund payment date in
the manner specified in Section 11.3 and cause notice of the redemption
thereof to be given in the name of and at the expense of the Company in the
manner provided in Section 11.4. Such notice having been duly given, the
redemption of such Securities shall be made upon the terms and in the manner
stated in Section 11.6. On or before each sinking fund payment date, the
Company shall pay to the Trustee (or, if the Company is acting as its own
Paying Agent, the Company shall segregate and hold in trust as provided in
Section 10.3) in cash a sum in the currency in which Securities of such series
are payable (except as provided pursuant to Section 3.1) equal to the
principal and any interest accrued to the redemption date for Securities or
portions thereof to be redeemed on such sinking fund payment date pursuant to
this Section 12.3.
Neither the Trustee nor the Company shall redeem any Securities of a
series with sinking fund moneys or mail any notice of redemption of Securities
of such series by operation of the sinking fund for such series during the
continuance of a default in payment of interest, if any, on any Securities of
such series or of any Event of Default (other than an Event of Default
occurring as a consequence of this paragraph) with respect to the Securities
of such series, except that if the notice of redemption shall have been
provided in accordance with the provisions hereof, the Trustee (or the Company
if the Company is then acting as its own Paying Agent) shall redeem such
Securities if cash sufficient for that purpose shall be deposited with the
Trustee (or segregated by the Company) for that purpose in accordance with the
terms of this Article Twelve. Except as aforesaid, any moneys in the sinking
fund for such series at the time when any such default or Event of Default
shall occur and any moneys thereafter paid into such sinking fund shall,
during the continuance of such default or Event of Default, be held as
security for the payment of the Securities and coupons, if any, of such
series; provided, however, that in case such default or Event of Default shall
have been cured or waived herein, such moneys shall thereafter be applied on
the next sinking fund payment date for the Securities of such series on which
such moneys may be applied pursuant to the provisions of this Section 12.3.
ARTICLE XIII. SUBORDINATION OF SECURITIES
Section 13.1. Securities Subordinate to Senior Debt.
The Company covenants and agrees, and each Holder of a Security, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Article, the payment of the principal
of (and premium, if any) and interest (including any Additional Interest) on
each and all of the Securities are hereby expressly made subordinate and
subject in right of payment to the prior payment in full of all amounts then
due and payable in respect of all Senior Debt.
Section 13.2. Payment Over of Proceeds Upon Dissolution, Etc.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company (each such event, if any, herein
sometimes referred to as a ''Proceeding''), then the holders of Senior Debt
shall be entitled to receive payment in full of principal of (and premium, if
any) and interest, if any, on such Senior Debt, or provision shall be made for
such payment in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of Senior Debt, before the Holders of the Securities are
entitled to receive or retain any payment or distribution of any kind or
character, whether in cash, property or securities (including any payment or
distribution which may be payable or deliverable by reason of the payment of
any other Debt of the Company (including any series of the Securities)
subordinated to the payment of the Securities, such payment or distribution
being hereinafter referred to as a ''Junior Subordinated Payment''), on
account of principal of (or premium, if any) or interest (including any
Additional Interest) on the Securities or on account of the purchase or other
acquisition of Securities by the Company or any Subsidiary and to that end the
holders of Senior Debt shall be entitled to receive, for application to the
payment thereof, any payment or distribution of any kind or character, whether
in cash, property or securities, including any Junior Subordinated Payment,
which may be payable or deliverable in respect of the Securities in any such
Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, including any Junior Subordinated
Payment, before all Senior Debt is paid in full or payment thereof is provided
for in cash or cash equivalents or otherwise in a manner satisfactory to the
holders of Senior Debt, and if such fact shall, at or prior to the time of
such payment or distribution, have been made known to the Trustee or, as the
case may be, such Holder, then and in such event such payment or distribution
shall be paid over or delivered forthwith to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other Person
making payment or distribution of assets of the Company for application to the
payment of all Senior Debt remaining unpaid, to the extent necessary to pay
all Senior Debt in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt.
For purposes of this Article only, the words ''any payment or distribution
of any kind or character, whether in cash, property or securities'' shall not
be deemed to include shares of stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment which securities are subordinated
in right of payment to all then outstanding Senior Debt to substantially the
same extent as the Securities are so subordinated as provided in this Article.
The consolidation of the Company with, or the merger of the Company into,
another Person or the liquidation or dissolution of the Company following the
sale of all or substantially all of its properties and assets as an entirety
to another Person or the liquidation or dissolution of the Company following
the sale of all or substantially all of its properties and assets as an
entirety to another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a Proceeding for the purposes of this Section if the
Person formed by such consolidation or into which the Company is merged or the
Person which acquires by sale such properties and assets as an entirety, as
the case may be, shall, as a part of such consolidation, merger, or sale
comply with the conditions set forth in Article Eight.
Section 13.3. Prior Payment to Senior Debt Upon Acceleration of
Securities.
In the event that any Securities are declared due and payable before their
Stated Maturity, then and in such event the holders of the Senior Debt
outstanding at the time such Securities so become due and payable shall be
entitled to receive payment in full of all amounts due on or in respect of
such Senior Debt (including any amounts due upon acceleration), or provision
shall be made for such payment in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Debt, before the Holders of the
Securities are entitled to receive any payment or distribution of any kind or
character, whether in cash, properties or securities (including any Junior
Subordinated Payment) by the Company on account of the principal of (or
premium, if any) or interest (including any Additional Interest) on the
Securities or on account of the purchase or other acquisition of Securities by
the Company or any Subsidiary; provided, however, that nothing in this Section
shall prevent the satisfaction of any sinking fund payment in accordance with
this Indenture or as otherwise specified as contemplated by Section 3.1 for
the Securities of any series by delivering and crediting pursuant to Section
12.2 or as otherwise specified as contemplated by Section 3.1 for the
Securities of any series Securities which have been acquired (upon redemption
or otherwise) prior to such declaration of acceleration.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to
the time of such payment, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment shall be paid over
and delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with respect
to which Section 13.2 would be applicable.
Section 13.4. No Payment When Senior Debt in Default.
(a) In the event and during the continuation of any default in the payment
of principal of (or premium, if any) or interest on any Senior Debt, or in the
event that any event of default with respect to any Senior Debt shall have
occurred and be continuing and shall have resulted in such Senior Debt
becoming or being declared due and payable prior to the date on which it would
otherwise have become due and payable, unless and until such event of default
shall have been cured or waived or shall have ceased to exist and such
acceleration shall have been rescinded or annulled, or (b) in the event any
judicial proceeding shall be pending with respect to any such default in
payment or such event or default, then no payment or distribution of any kind
or character, whether in cash, properties or securities (including any Junior
Subordinated Payment) shall be made by the Company on account of principal of
(or premium, if any) or interest (including any Additional Interest), if any,
on the Securities or on account of the purchase or other acquisition of
Securities by the Company or any Subsidiary; provided, however, that nothing
in this Section shall prevent the satisfaction of any sinking fund payment in
accordance with this Indenture or as otherwise specified as contemplated by
Section 3.1 for the Securities of any series by delivering and crediting
pursuant to Section 12.2 or as otherwise specified as contemplated by Section
3.1 for the Securities of any series Securities which have been acquired (upon
redemption or otherwise) prior to such default in payment or event of default.
In the event that, notwithstanding the foregoing, the Company shall make
any payment to the Trustee or the Holder of any Security prohibited by the
foregoing provisions of this Section, and if such fact shall, at or prior to
the time of such payment, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment shall be paid over
and delivered forthwith to the Company.
The provisions of this Section shall not apply to any payment with respect
to which Section 13.2 would be applicable.
Section 13.5. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this Indenture or in any
of the Securities shall prevent (a) the Company, at any time except during the
pendency of any Proceeding referred to in Section 13.2 or under the conditions
described in Sections 13.3 and 13.4, from making payments at any time of
principal of (and premium, if any) or interest on the Securities, or (b) the
application by the Trustee of any money or Government Obligations deposited
with it hereunder to the payment of or on account of the principal of (and
premium, if any) or interest (including any Additional Interest) on the
Securities or the retention of such payment by the Holders, if, at the time of
such application by the Trustee, it did not have knowledge that such payment
would have been prohibited by the provisions of this Article.
Section 13.6. Subrogation to Rights of Holders of Senior Debt.
Subject to the payment in full of all Senior Debt, or the provision for
such payment in cash or cash equivalents or otherwise in a manner satisfactory
to the holders of Senior Debt, the Holders of the Securities shall be
subrogated to the extent of the payments or distributions made to the holders
of such Senior Debt pursuant to the provisions of this Article (equally and
ratably with the holders of all indebtedness of the Company which by its
express terms is subordinated to Senior Debt of the Company to substantially
the same extent as the Securities are subordinated to the Senior Debt and is
entitled to like rights of subrogation by reason of any payments or
distributions made to holders of such Senior Debt) to the rights of the
holders of such Senior Debt to receive payments and distributions of cash,
property and securities applicable to the Senior Debt until the principal of
(and premium, if any) and interest on the Securities shall be paid in full.
For purposes of such subrogation or assignment, no payments or distributions
to the holders of the Senior Debt of any cash, property or securities to which
the Holders of the Securities or the Trustee would be entitled except for the
provisions of this Article, and no payments over pursuant to the provisions of
this Article to the holders of Senior Debt by Holders of the Securities or the
Trustee, shall, as among the Company, its creditors other than holders of
Senior Debt, and the Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Debt.
Section 13.7. Provisions Solely to Define Relative Rights.
The provisions of this Article are and are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one
hand and the holders of Senior Debt on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended
to or shall (a) impair, as between the Company and the Holders of the
Securities, the obligations of the Company, which are absolute and
unconditional, to pay to the Holders of the Securities the principal of (and
premium, if any) and interest (including any Additional Interest) on the
Securities as and when the same shall become due and payable in accordance
with their terms; or (b) affect the relative rights against the Company of the
Holders of the Securities and creditors of the Company other than their rights
in relation to the holders of Senior Debt; or (c) prevent the Trustee or the
Holder of any Security from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture including, without
limitation, filing and voting claims in any Proceeding, subject to the rights,
if any, under this Article of the holders of Senior Debt to receive cash,
property and securities otherwise payable or deliverable to the Trustee or
such Holder.
Section 13.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance thereof authorizes and
directs the Trustee on his or her behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the subordination
provided in this Article and appoints the Trustee his or her attorney-in-fact
for any and all such purposes.
Section 13.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act, in good faith, by any such holder, or by any noncompliance
by the Company with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with.
Section 13.10. Notice to Trustee.
The Company shall give prompt written notice to the Trustee of any fact
known to the Company which would prohibit the making of any payment to or by
the Trustee in respect of the Securities. Notwithstanding the provisions of
this Article or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit
the making of any payment to or by the Trustee in respect of the Securities,
unless and until the Trustee shall have received written notice thereof from
the Company or a holder of Senior Debt or from any trustee, agent or
representative therefor (whether or not the facts contained in such notice are
true); provided, however, that if the Trustee shall not have received the
notice provided for in this Section at least two Business Days prior to the
date upon which by the terms hereof any monies may become payable for any
purpose (including, without limitation, the payment of the principal of (and
premium, if any) or interest (including any Additional Interest) on any
Security), then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such monies and to
apply the same to the purpose for which they were received and shall not be
affected by any notice to the contrary which may be received by it within two
Business Days prior to such date.
Section 13.11. Reliance on Judicial Order or Certificate of Liquidating
Agent.
Upon any payment or distribution of assets of the Company referred to in
this Article, the Trustee, subject to the provisions of Article Six, and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other
Person making such payment or distribution, delivered to the Trustee or to the
Holders of Securities, for the purpose of ascertaining the Persons entitled to
participate in such payment or distribution, the holders of the Senior Debt
and other indebtedness of the Company, the amount thereof or payable thereon,
the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article.
Section 13.12. Trustee Not Fiduciary for Holders of Senior Debt.
The Trustee, in its capacity as trustee under this Indenture, shall not be
deemed to owe any fiduciary duty to the holders of Senior Debt and shall not
be liable to any such holders if it shall in good faith mistakenly pay over or
distribute to Holders of Securities or to the Company or to any other Person
cash, property or securities to which any holders of Senior Debt shall be
entitled by virtue of this Article or otherwise.
Section 13.13. Rights of Trustee as Holder of Senior Debt; Preservation
of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the rights
set forth in this Article with respect to any Senior Debt which may at any
time be held by it, to the same extent as any other holder of Senior Debt, and
nothing in this Indenture shall deprive the Trustee of any of its rights as
such holder.
Section 13.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term
''Trustee'' as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying
Agent within its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in place of the
Trustee.
Section 13.15. Certain Conversions or Exchanges Deemed Payment.
For the purposes of this Article only, (a) the issuance and delivery of
junior securities upon conversion or exchange of Securities shall not be
deemed to constitute a payment or distribution on account of the principal of
(or premium, if any) or interest (including any Additional Interest) on
Securities or on account of the purchase or other acquisition of Securities,
and (b) the payment, issuance or delivery of cash, property or securities
(other than junior securities) upon conversion or exchange of a Security shall
be deemed to constitute payment on account of the principal of such security.
For the purposes of this Section, the term ''junior securities'' means (i)
shares of any stock of any class of the Company and (ii) securities of the
Company which are subordinated in right of payment to all Senior Debt which
may be outstanding at the time of issuance or delivery of such securities to
substantially the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article.
* * * *
This instrument may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
LINCOLN NATIONAL CORPORATION
By:
Attest:
THE FIRST NATIONAL BANK OF CHICAGO
as Property Trustee
By:
Exhibit 4(k)
-175-
GUARANTEE AGREEMENT
Between
LINCOLN NATIONAL CORPORATION
(as Guarantor)
and
THE FIRST NATIONAL BANK OF CHICAGO
(as Trustee)
dated as of
July 2, 1996
CROSS-REFERENCE TABLE*
Section of
Trust
Indenture Section of
Act of 1939, Guarantee
as amended Agreement
310(a). 4.1(a)
310(b). 4.1(c), 2.8
310(c). Inapplicable
311(a). 2.2(b)
311(b). 2.2(b)
311(c). Inapplicable
312(a). 2.2(a)
312(b). 2.2(b)
313. 2.3
314(a). 2.4
314(b). Inapplicable
314(c). 2.5
314(d). Inapplicable
314(e). 1.1, 2.5, 3.2
314(f). 2.1, 3.2
315(a). 3.1(d)
315(b). 2.7
315(c). 3.1
315(d). 3.1(d)
316(a). 1.1, 2.6, 5.4
316(b). 5.3
316(c). 8.2
317(a). Inapplicable
317(b). Inapplicable
318(a). 2.1(b)
318(b). 2.1
318(c). 2.1(a)
*This Cross-Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms or
provisions.
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . .. 1
ARTICLE II. TRUST INDENTURE ACT . . . . . . . . . . . . . . .
Section 2.1. Trust Indenture Act; Application . . . . . . . . . . . . . . 3
Section 2.2. List of Holders . . . . . . . . . . . . . . . . . . .3
Section 2.3. Reports by the Guarantee Trustee . . . . . . . . . . 4
Section 2.4. Periodic Reports to Guarantee Trustee . . . . . . . .4
Section 2.5. Evidence of Compliance with Conditions Precedent .. .4
Section 2.6. Events of Default; Waiver . . . . . . . . . . . . . .4
Section 2.7. Event of Default; Notice . . . . . . . . . . . . . .4
Section 2.8. Conflicting Interests . . . . . . . . . . . . . . . 4
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE .5
Section 3.1. Powers and Duties of the Guarantee Trustee . . . .. 5
Section 3.2. Certain Rights of Guarantee Trustee . . . . . . . .. 6
Section 3.3. Indemnity . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE IV. GUARANTEE TRUSTEE . . ... . . . . . . . . . . . . . . . . . .7
Section 4.1. Guarantee Trustee; Eligibility . . . . . . . . . . . 7
Section 4.2. Appointment, Removal and Resignation of the
Guarantee Trustee . . . . . . . . . . . . . .. . . .7
ARTICLE V. GUARANTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.1. Guarantee . . . . . . . . . . . . . . . . . . . . . .8
Section 5.2. Waiver of Notice and Demand . . . . . . . . . . . . 8
Section 5.3. Obligations Not Affected . . . . . . . . . . . . . .8
Section 5.4. Rights of Holders . . . . . . . . . . . . . . . . .8
Section 5.5. Guarantee of Payment . . . . . . . . . . . . . . . .9
Section 5.6. Subrogation . . . . . . . . . . . . . . . . . . . .9
Section 5.7. Independent Obligations . . . . . . . . . . . . . . 9
ARTICLE VI. COVENANTS AND SUBORDINATION . . . . . . . . . . . . . . . . 9
Section 6.1. Subordination . . . . . . . . . . . . . . . . . . . 9
Section 6.2. Pari Passu Guarantees . . . . . . . . . . . . . . 9
ARTICLE VII. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 7.1. Termination . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 10
Section 8.1. Successors and Assigns . . . . . . . . . .. . . . 10
Section 8.2. Amendments . . . . . . . . . . . . .. . . . .......10
Section 8.3. Notices . . . . . . . . . . . . . . ..............10
Section 8.4. Benefit . . . . . . . . . . . . . . .. ............11
Section 8.5. Interpretation . . . . . . . . . . .... ...........11
Section 8.6. Governing Law . . . . . . . . . . . ................11
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of July 2, 1996, is executed and
delivered by LINCOLN NATIONAL CORPORATION, an Indiana corporation (the
''Guarantor'') having its principal office at 200 East Berry Street, Fort
Wayne, Indiana 46802-2706, and THE FIRST NATIONAL BANK OF CHICAGO, a
national banking corporation, as trustee (the ''Guarantee Trustee''), for
the benefit of the Holders (as defined herein) from time to time of the
Preferred Securities (as defined herein) of Lincoln National Capital I, a
Delaware statutory business trust (the ''Issuer'').
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
''Trust Agreement''), dated as of July 2, 1996 among the Issuer Trustees
named therein, the Guarantor, as Depositor, and the Holders from time to
time of undivided beneficial interests in the assets of the Issuer, the
Issuer is issuing $215,000,000 aggregate liquidation preference of its
8 3/4% Preferred Securities, Series A, liquidation preference $25 per
preferred security) (the ''Preferred Securities'') representing preferred
undivided beneficial interests in the assets of the Issuer and having the
terms set forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the Issuer and the
proceeds thereof, together with the proceeds from the issuance of the
Issuer's Common Securities (as defined below), will be used to purchase
the Debentures (as defined in the Trust Agreement) of the Guarantor which
will be deposited with The First National Bank of Chicago, as Property
Trustee under the Trust Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase Preferred Securities
the Guarantor desires irrevocably and unconditionally to agree, to the
extent set forth herein, to pay to the Holders of the Preferred Securities
the Guarantee Payments (as defined herein) and to make certain other
payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall
benefit the Guarantor, the Guarantor executes and delivers this Guarantee
Agreement for the benefit of the Holders from time to time of the
Preferred Securities.
ARTICLE I. DEFINITIONS
Section 1.1. Definitions.
As used in this Guarantee Agreement, the terms set forth below shall,
unless the context otherwise requires, have the following meanings.
Capitalized or otherwise defined terms used but not otherwise defined
herein shall have the meanings assigned to such terms in the Trust
Agreement as in effect on the date hereof.
''Affiliate'' of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person, provided, however, that an
Affiliate of the Guarantor shall not be deemed to include the Issuer. For
the purposes of this definition, ''control'' when used with respect to
any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms ''controlling'' and
''controlled'' have meanings correlative to the foregoing.
''Common Securities'' means the securities representing common
undivided beneficial interests in the assets of the Issuer.
''Debt'' means, with respect to any Person, whether recourse is to all
or a portion of the assets of such Person and whether or not contingent,
(i) every obligation of such Person for money borrowed; (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other
similar instruments, including obligations incurred in connection with the
acquisition of property, assets or businesses; (iii) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person;
(iv) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; and (vi)
every obligation of the type referred to in clauses (i) through (v) of
another Person and all dividends of another Person the payment of which,
in either case, such Person has guaranteed or is responsible or liable
for, directly or indirectly, as obligor or otherwise.
''Event of Default'' means a default by the Guarantor on any of its
payment or other obligations under this Guarantee Agreement; provided,
however, that, except with respect to a default in payment of any
Guarantee Payments, the Guarantor shall have received notice of default
and shall not have cured such default within 60 days after receipt of such
notice.
''Guarantee Payments'' means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the
extent not paid or made by or on behalf of the Issuer; (i) any accrued and
unpaid Distributions (as defined in the Trust Agreement) required to be
paid on the Preferred Securities, to the extent the Issuer shall have
funds on hand available therefor at such time, (ii) the redemption price,
including all accrued and unpaid Distributions to the date of redemption
(the ''Redemption Price''), with respect to the Preferred Securities
called for redemption by the Issuer to the extent the Issuer shall have
funds on hand available therefor at such time, and (iii) upon a voluntary
or involuntary termination, winding-up or liquidation of the Issuer,
unless Debentures are distributed to the Holders, the lesser of (a) the
aggregate of the liquidation preference of $25 per Preferred Security plus
accrued and unpaid Distributions on the Preferred Securities to the date
of payment to the extent the Issuer shall have funds on hand available to
make such payment at such time and (b) the amount of assets of the Issuer
remaining available for distribution to Holders in liquidation of the
Issuer (in either case, the ''Liquidation Distribution'').
''Guarantee Trustee'' means The First National Bank of Chicago, until
a Successor Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Guarantee Agreement and
thereafter means each such Successor Guarantee Trustee.
''Holder'' means any holder, as registered on the books and records of
the Issuer, of any Preferred Securities; provided, however, that in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder,
''Holder'' shall not include the Guarantor, the Guarantee Trustee, or any
Affiliate of the Guarantor or the Guarantee Trustee.
''Indenture'' means the Junior Subordinated Indenture dated as of May
1, 1996, as supplemented and amended between the Guarantor and The First
National Bank of Chicago, as trustee.
''List of Holders'' has the meaning specified in Section 2.2(a).
''Majority in liquidation preference of the Securities'' means, except
as provided by the Trust Indenture Act, a vote by the Holder(s), voting
separately as a class, of more than 50% of the liquidation preference of
all then outstanding Preferred Securities issued by the Issuer.
''Officers' Certificate'' means, with respect to any Person, a
certificate signed by the Chairman and Chief Executive Officer, President
or a Vice President, and by the Treasurer, and Associate Treasurer, an
Assistant Treasurer, the Controller, the Secretary or an Assistant
Secretary of such Person, and delivered to the Guarantee Trustee. Any
Officers' Certificate delivered with respect to compliance with a
condition or covenant provided for in this Guarantee Agreement shall
include:
(a) a statement that each officer signing the Officers' Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers'
Certificate;
(c) a statement that each officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of each officer, such
condition or covenant has been complied with.
''Person'' means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other
entity of whatever nature.
''Responsible Officer'' means, with respect to the Guarantee Trustee,
any Senior Vice President, any Vice President, any Assistant Vice
President, the Secretary, any Assistant Secretary, the Treasurer, any
Assistant Treasurer, any Trust Officer or Assistant Trust Officer or any
other officer of the Corporate Trust Department of the above-designated
officers and also means, with respect to a particular corporate trust
matter, any other officer to whom such matter is referred because of that
officer's knowledge of and familiarity with the particular subject.
''Senior Debt'' means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of
any petition in bankruptcy or for reorganization relating to the Guarantor
whether or not such claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date of this
Guarantee or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are not superior in right of payment to the
Guarantee or to other Debt which is pari passu with, or subordinated to,
the Guarantee; provided, however, that Senior Debt shall not be deemed to
include (a) any Debt of the Guarantor which when incurred and without
respect to any election under Section 1111(b) of the Bankruptcy Reform Act
of 1978, was without recourse to the Guarantor, (b) any Debt of the
Guarantor to any of its Subsidiaries, (c) Debt to any employee of the
Guarantor, (d) any liability for taxes, (e) Debt or other monetary
obligations to trade creditors created or assumed by the Guarantor or any
of its Subsidiaries in the ordinary course of business in connection with
the obtaining of goods, materials or services and (f) Debt issued under
the Indenture and (g) the Guarantee.
''Successor Guarantee Trustee'' means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section
4.1.
''Trust Indenture Act'' means the Trust Indenture Act of 1939, as
amended.
ARTICLE II. TRUST INDENTURE ACT
Section 2.1. Trust Indenture Act; Application.
(a) This Guarantee Agreement is subject to the provisions of the Trust
Indenture Act that are required to be part of this Guarantee Agreement and
shall, to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of this Guarantee
Agreement limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed
duties shall control.
Section 2.2. List of Holders.
(a) The Guarantor shall furnish or cause to be furnished to the
Guarantee Trustee (a) semiannually, on or before January 15 and July 15 of
each year, a list, in such form as the Guarantee Trustee may reasonably
require, of the names and addresses of the Holders (''List of Holders'')
as of a date not more than 15 days prior to the delivery thereof, and (b)
at such other times as the Guarantee Trustee may request in writing,
within 30 days after the receipt by the Guarantor of any such request, a
List of Holders as of a date not more than 15 days prior to the time such
list is furnished, in each case to the extent such information is in the
possession or control of the Guarantor and is not identical to a
previously supplied list of Holders or has not otherwise been received by
the Guarantee Trustee in its capacity as such. The Guarantee Trustee may
destroy any List of Holders previously given to it on receipt of a new
List of Holders.
(b) The Guarantee Trustee shall comply with its obligations under
Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture
Act.
Section 2.3. Reports by the Guarantee Trustee.
Not later than July 15 of each year, commencing July 15, 1997, the
Guarantee Trustee shall provide to the Holders such reports as are
required by Section 313 of the Trust Indenture Act, if any, in the form
and in the manner provided by Section 313 of the Trust Indenture Act. The
Guarantee Trustee shall also comply with the requirements of Section
313(d) of the Trust Indenture Act.
Section 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee, the Securities
and Exchange Commission and the Holders such documents, reports and
information, if any, as required by Section 314 of the Trust Indenture Act
and the compliance certificate required by Section 314 of the Trust
Indenture Act, in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act.
Section 2.5. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with such conditions precedent, if any, provided for in this
Guarantee Agreement that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to
be given by an officer pursuant to Section 314(c)(1) may be given in the
form of an Officers' Certificate.
Section 2.6. Events of Default; Waiver.
The Holders of a Majority in liquidation preference of the Preferred
Securities may, by vote, on behalf of the Holders, waive any past Event of
Default and its consequences. Upon such waiver, any such Event of Default
shall cease to exist, and any Event of Default arising therefrom shall be
deemed to have been cured, for every purpose of this Guarantee Agreement,
but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent therefrom.
Section 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the occurrence
of an Event of Default, transmit by mail, first class postage prepaid, to the
Holders, notices of all Events of Default known to the Guarantee Trustee,
unless such defaults have been cured before the giving of such notice,
provided, that, except in the case of a default in the payment of a
Guarantee Payment, the Guarantee Trustee shall be protected in withholding
such notice if and so long as the Board of Directors, the executive
committee or a trust committee of directors and/or Responsible Officers of
the Guarantee Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written
notice, or a Responsible Officer charged with the administration of the
Trust Agreement shall have obtained written notice, of such Event of
Default.
Section 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically described in
this Guarantee Agreement for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
Section 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee Trustee
for the benefit of the Holders, and the Guarantee Trustee shall not transfer
this Guarantee Agreement to any Person except a Holder exercising his or
her rights pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee
on acceptance by such Successor Guarantee Trustee of its appointment to
act as Successor Guarantee Trustee. The right, title and interest of the
Guarantee Trustee shall automatically vest in any Successor Guarantee
Trustee, upon acceptance by such Successor Guarantee Trustee of its
appointment hereunder, and such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing, the
Guarantee Trustee shall enforce this Guarantee Agreement for the benefit
of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of
Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically
set forth in this Guarantee Agreement, and no implied covenants shall be
read into this Guarantee Agreement against the Guarantee Trustee. In case
an Event of Default has occurred (that has not been cured or waived
pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the
rights and powers vested in it by this Guarantee Agreement, and use the
same degree of care and skill in its exercise thereof, as a prudent person
would exercise or use under the circumstances in the conduct of his or her
own affairs.
(d) No provision of this Guarantee Agreement shall be construed to
relieve the Guarantee Trustee from liability for its own negligent action,
its own negligent failure to act or its own willful misconduct, except
that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall be
determined solely by the express provisions of this Guarantee Agreement,
and the Guarantee Trustee shall not be liable except for the performance
of such duties and obligations as are specifically set forth in this
Guarantee Agreement; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Guarantee Trustee and
conforming to the requirements of this Guarantee Agreement; but in the
case of any such certificates or opinions that by any provision hereof or
of the Trust Indenture Act are specifically required to be furnished to
the Guarantee Trustee, the Guarantee Trustee shall be under a duty to
examine the same to determine whether or not they conform to the
requirements of this Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was
made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in liquidation
preference of the Preferred Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the
Guarantee Trustee, or exercising any trust or power conferred upon the
Guarantee Trustee under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require the
Guarantee Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if the Guarantee Trustee
shall have reasonable grounds for believing that the repayment of such
funds or liability is not reasonably assured to it under the terms of this
Guarantee Agreement or adequate indemnity against such risk or liability
is not reasonably assured to it.
Section 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may rely and shall be fully protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document reasonably believed by it to be genuine and to
have been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Guarantee Agreement shall be sufficiently evidenced by an Officer's
Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee Agreement, the
Guarantee Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting to take any action
hereunder, the Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its part,
request and rely upon an Officers' Certificate which, upon receipt of such
request from the Guarantee Trustee, shall be promptly delivered by the
Guarantor.
(iv) The Guarantee Trustee may consult with legal counsel, and the
written advice or opinion of such legal counsel with respect to legal
matters shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted to be taken by it hereunder in
good faith and in accordance with such advice or opinion. Such legal
counsel may be legal counsel to the Guarantor or any of its Affiliates and
may be one of its employees. The Guarantee Trustee shall have the right at
any time to seek instructions concerning the administration of this
Guarantee Agreement from any court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Guarantee Agreement at the
request or direction of any Holder, unless such Holder shall have provided
to the Guarantee Trustee such adequate security and indemnity as would
satisfy a reasonable person in the position of the Guarantee Trustee,
against the costs, expenses (including attorneys' fees and expenses) and
liabilities that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by the
Guarantee Trustee; provided that, nothing contained in this Section
3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the
occurrence of an Event of Default, of its obligation to exercise the
rights and powers vested in it by this Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document, but the Guarantee Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as
it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
its agents or attorneys, and the Guarantee Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent
or attorney appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee Agreement the
Guarantee Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder, the Guarantee Trustee (A) may request instructions from the
Holders, (B) may refrain from enforcing such remedy or right or taking
such other action until such instructions are received, and (C) shall be
protected in acting in accordance with such instructions.
(b) No provision of this Guarantee Agreement shall be deemed to impose
any duty or obligation on the Guarantee Trustee to perform any act or acts
or exercise any right, power, duty or obligation conferred or imposed on
it in any jurisdiction in which it shall be illegal, or in which the
Guarantee Trustee shall be unqualified or incompetent in accordance with
applicable law, to perform any such act or acts or to exercise any such
right, power, duty or obligation. No permissive power or authority
available to the Guarantee Trustee shall be construed to be a duty to act
in accordance with such power and authority.
Section 3.3. Indemnity.
The Guarantor agrees to indemnify the Guarantee Trustee for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence or bad faith on the part of the Guarantee Trustee, arising out
of or in connection with the acceptance or administration of this
Guarantee Agreement, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The Guarantee
Trustee will not claim or exact any lien or charge on any Guarantee
Payments as a result of any amount due to it under this Guarantee
Agreement.
ARTICLE IV. GUARANTEE TRUSTEE
Section 4.1. Guarantee Trustee: Eligibility.
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust Indenture Act
to act as such and has a combined capital and surplus of at least
$50,000,000, and shall be a corporation meeting the requirements of
Section 310(c) of the Trust Indenture Act. If such corporation publishes
reports of condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority, then, for the
purposes of this Section and to the extent permitted by the Trust
Indenture Act, the combined capital and surplus of such corporation shall
be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to
so act under Section 4.1(a), the Guarantee Trustee shall immediately
resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any ''conflicting
interest'' within the meaning of Section 310(b) of the Trust Indenture
Act, the Guarantee Trustee and Guarantor shall in all respects comply with
the provisions of Section 310(b) of the Trust Indenture Act.
Section 4.2. Appointment, Removal and Resignation of the Guarantee
Trustee.
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed
or removed without cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed until a Successor
Guarantee Trustee has been appointed and has accepted such appointment by
written instrument executed by such Successor Guarantee Trustee and
delivered to the Guarantor.
(c) The Guarantee Trustee appointed hereunder shall hold office until
a Successor Guarantee Trustee shall have been appointed or until its removal
or resignation. The Guarantee Trustee may resign from office (without need
for prior or subsequent accounting) by an instrument in writing executed
by the Guarantee Trustee and delivered to the Guarantor, which resignation
shall not take effect until a Successor Guarantee Trustee has been
appointed and has accepted such appointment by instrument in writing
executed by such Successor Guarantee trustee and delivered to the
Guarantor and the resigning Guarantee Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the Guarantor, any court
of competent jurisdiction for appointment of a Successor Guarantee
Trustee. Such court may thereupon, after prescribing such notice, if any,
as it may deem proper, appoint a Successor Guarantee Trustee.
ARTICLE V. GUARANTEE
Section 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay in full to
the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by or on behalf of the Issuer), as and when due,
regardless of any defense, right of set-off or counterclaim which the
Issuer may have or assert. The Guarantor's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Guarantor to the Holders or by causing the Issuer to pay such amounts to
the Holders.
Section 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the Guarantee
Agreement and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first
against the Guarantee Trustee, Issuer or any other Person before
proceeding against the Guarantor, protest, notice of nonpayment, notice of
dishonor, notice of redemption and all other notices and demands.
Section 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the Guarantor
under this Guarantee Agreement shall in no way be affected or impaired by
reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied
agreement, covenant, term or condition relating to the Preferred
Securities to be performed or observed by the Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions (other than an extension of time for payment
of Distributions that results from the extension of any interest payment
period on the Debentures as so provided in the Indenture), Redemption
Price, Liquidation Distribution or any other sums payable under the terms
of the Preferred Securities or the extension of time for the performance
of any other obligation under, arising out of, or in connection with, the
Preferred Securities;
(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Issuer granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings affecting, the
Issuer or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) the settlement or compromise of any obligation guaranteed hereby
or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the
intent of this Section 5.3 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
the consent of, the Guarantor with respect to the happening of any of the
foregoing.
Section 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this Guarantee
Agreement will be deposited with the Guarantee Trustee to be held for the
benefit of
the Holders; (ii) the Guarantee Trustee has the right to enforce this
Guarantee Agreement on behalf of the Holders; (iii) the Holders of a
Majority in liquidation preference of the Preferred Securities have the
right to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of this
Guarantee Agreement or exercising any trust or power conferred upon the
Guarantee Trustee under this Guarantee Agreement; and (iv) any Holder may
institute a legal proceeding directly against the Guarantor to enforce its
rights under this Guarantee Agreement, without first instituting a legal
proceeding against the Guarantee Trustee, the Issuer or any other Person.
Section 5.5. Guarantee of Payment
This Guarantee Agreement creates a guarantee of payment and not of
collection. This Guarantee Agreement will not be discharged except by
payment of the Guarantee Payments in full (without duplication of amounts
theretofore paid by the Issuer) or upon distribution of Debentures to
Holders as provided in the Trust Agreement.
Section 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of the
Holders against the Issuer in respect of any amounts paid to the Holders by
the Guarantor under this Guarantee Agreement and shall have the right to
waive payment by the Issuer pursuant to Section 5.1; provided, however, that
the Guarantor shall not (except to the extent required by mandatory provisions
of law) be entitled to enforce or exercise any rights which it may acquire
by way of subrogation or any indemnity, reimbursement or other agreement,
in all cases as a result of payment under this Guarantee Agreement, at the
time of any such payment, any amounts are due and unpaid under this
Guarantee Agreement. If any amount shall be paid to the Guarantor in
violation of the preceding sentence, the Guarantor agrees to hold such
amount in trust for the Holders and to pay over such amount to the
Holders.
Section 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Issuer with respect to the Preferred
Securities and that the Guarantor shall be liable as principal and as
debtor hereunder to make Guarantee Payments pursuant to the terms of this
Guarantee Agreement notwithstanding the occurrence of any event referred
to in subsections (a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI. COVENANTS AND SUBORDINATION
Section 6.1. Subordination.
This Guarantee Agreement will constitute an unsecured obligation of
the Guarantor and will rank subordinate and junior in right of payment to all
Senior Debt of the Guarantor.
Section 6.2. Pari Passu Guarantees.
This Guarantee Agreement shall rank pari passu with any similar
Guarantee Agreements issued by the Guarantor on behalf of the holders of
Preferred Securities issued by Lincoln National Capital II and Lincoln
National Capital III.
ARTICLE VII. TERMINATION
Section 7.1. Termination.
This Guarantee Agreement shall terminate and be of no further force
and effect upon (i) full payment of the Redemption Price of all Preferred
Securities, (ii) the distribution of Debentures to the Holders in exchange
for all of the Preferred Securities or (iii) full payment of the amounts
payable in accordance with the Trust Agreement upon liquidation of the
Issuer. Notwithstanding the foregoing, this Guarantee Agreement will
continue to be effective or will be reinstated, as the case may be, if at
any time any Holder must restore payment of any sums paid with respect to
Preferred Securities or this Guarantee Agreement.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee Agreement
shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the
Holders of the Preferred Securities then outstanding. Except in connection
with a consolidation, merger or sale involving the Guarantor that is
permitted under Article Eight of the Indenture and pursuant to which the
assignee agrees in writing to perform the Guarantor's obligations
hereunder, the Guarantor shall not assign its obligations hereunder.
Section 8.2. Amendments.
Except with respect to any changes which do not adversely affect the
rights of the Holders in any material respect (in which case no consent of
the Holders will be required), this Guarantee Agreement may only be
amended with the prior approval of the Holders of not less than a Majority
in liquidation preference of all the outstanding Preferred Securities. The
provisions of Article VI of the Trust Agreement concerning meetings of the
Holders shall apply to the giving of such approval.
Section 8.3. Notices.
Any notice, request or other communication required or permitted to be
given hereunder shall be in writing, duly signed by the party giving such
notice, and delivered, telecopied or mailed by first class mail as
follows:
(a) if given to the Guarantor, to the address set forth below or such
other address, facsimile number or to the attention of such other Person
as the Guarantor may give notice to the Holders:
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
Facsimile No.: 219-455-6265
Attention: Treasurer
(b) if given to the Issuer, in care of the Guarantee Trustee, at the
Issuer's (and the Guarantee Trustee's) address set forth below or such
other address as the Guarantee Trustee on behalf of the Issuer may give
notice to the Holders:
Lincoln National Capital I
c/o Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
Facsimile No.: 219-455-6265
Attention: Treasurer
with a copy to:
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, Illinois 60670
Facsimile No.: 312-407-1708
Attention: Corporate Services Division
(c) if given to any Holder, at the address set forth on the books and
records of the Issuer.
All notices hereunder shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by first class
mail, postage prepaid, except that if a notice or other document is
refused delivery or cannot be delivered because of a changed address of
which no notice was given, such notice or other document shall be deemed
to have been delivered on the date of such refusal or inability to
deliver.
Section 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the Holders and
is not separately transferable from the Preferred Securities.
Section 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee Agreement but not defined
in the preamble hereto have the respective meanings assigned to them in
Section 1.1;
(b) a term defined anywhere in this Guarantee Agreement has the same
meaning throughout;
(c) all references to ''the Guarantee Agreement'' or ''this Guarantee
Agreement'' are to this Guarantee Agreement as modified, supplemented or
amended from time to time;
(d) all references in this Guarantee Agreement to Articles and
Sections are to Articles and Sections of this Guarantee Agreement unless
otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Guarantee Agreement unless otherwise defined in this
Guarantee Agreement or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice versa;
and
(g) the masculine, feminine or neuter genders used herein shall
include the masculine, feminine and neuter genders.
Section 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
THIS GUARANTEE AGREEMENT is executed as of the day and year first
above written.
Lincoln National Corporation
By:
Name:
Title:
The First National Bank of Chicago
as Guarantee Trustee
By:
Name:
Title:
Exhibit 4(l)
-189-
GUARANTEE AGREEMENT
Between
LINCOLN NATIONAL CORPORATION
(as Guarantor)
and
THE FIRST NATIONAL BANK OF CHICAGO
(as Trustee)
dated as of
August 21, 1996
Lincoln National Capital II
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . .1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . 1
ARTICLE II. TRUST INDENTURE ACT . . . . . . . . . . . . . 3
Section 2.1 Trust Indenture Act; Application . . . . . . . 3
Section 2.2. List of Holders . . . . . . . . . . . . . . . 3
Section 2.3. Reports by the Guarantee Trustee . . . . . . 4
Section 2.4. Periodic Reports to Guarantee Trustee 4
Section 2.5. Evidence of Compliance with Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.6. Events of Default; Waiver . . . . . . . . . . 4
Section 2.7. Event of Default; Notice . . . . . . . . . . 4
Section 2.8. Conflicting Interests . . . . . . . . . . . . 4
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE
GUARANTEE TRUSTEE . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1. Powers and Duties of the Guarantee
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2. Certain Rights of Guarantee Trustee . . . . . 6
Section 3.3. Indemnity . . . . . . . . . . . . . . . . . . 7
ARTICLE IV. GUARANTEE TRUSTEE . . . . . . . . . . . . . . 7
Section 4.1. Guarantee Trustee; Eligibility . . . . . . . 7
Section 4.2. Appointment, Removal and Resignation of
the Guarantee Trustee . . . . . . . . . . . . . . . . . . . 7
ARTICLE V. GUARANTEE . . . . . . . . . . . . . . . . . . . . 8
Section 5.1. Guarantee . . . . . . . . . . . . . . . . . . 8
Section 5.2. Waiver of Notice and Demand . . . . . . . . . 8
Section 5.3. Obligations Not Affected . . . . . . . . . . . 8
Section 5.4. Rights of Holders . . . . . . . . . . . . . . 8
Section 5.5. Guarantee of Payment . . . . . . . . . . . . 9
Section 5.6. Subrogation . . . . . . . . . . . . . . . . . 9
Section 5.7. Independent Obligations . . . . . . . . . . . 9
ARTICLE VI. COVENANTS AND SUBORDINATION . . . . . . . . . 9
Section 6.1. Subordination . . . . . . . . . . . . . . . . 9
Section 6.2. Pari Passu Guarantees . . . . . . . . . . . . 9
ARTICLE VII. TERMINATION . . . . . . . . . . . . . . . . . 9
Section 7.1. Termination . . . . . . . . . . . . . . . . . .9
ARTICLE VIII. MISCELLANEOUS . . . . . . . . . . . . . . .10
Section 8.1. Successors and Assigns . . . . . . . . . . . 10
Section 8.2. Amendments . . . . . . . . . . . . . . . . . 10
Section 8.3. Notices . . . . . . . . . . . . . . . . . . . 10
Section 8.4. Benefit . . . . . . . . . . . . . . . . . . . 11
Section 8.5. Interpretation . . . . . . . . . . . . . . . 11
Section 8.6. Governing Law . . . . . . . . . . . . . . . . 11
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT, dated as of August 21, 1996, is
executed and delivered by LINCOLN NATIONAL CORPORATION, an
Indiana corporation (the ''Guarantor'') having its principal
office at 200 East Berry Street, Fort Wayne, Indiana 46802-2706,
and THE FIRST NATIONAL BANK OF CHICAGO, a national banking
corporation, as trustee (the ''Guarantee Trustee''), for the
benefit of the Holders (as defined herein) from time to time of
the Preferred Securities (as defined herein) of Lincoln National
Capital II, a Delaware statutory business trust (the
''Issuer'').
WHEREAS, pursuant to an Amended and Restated Trust
Agreement (the ''Trust Agreement''), dated as of August 21,
1996 among the Issuer Trustees named therein, the Guarantor,
as Depositor, and the Holders from time to time of undivided
beneficial interests in the assets of the Issuer, the Issuer
is issuing up to $100,000,000 aggregate liquidation preference
of its 8.35% Preferred Securities, Series B (liquidation
preference $25 per preferred security) (the ''Preferred
Securities''), representing preferred undivided beneficial
interests in the assets of the Issuer and having the terms set
forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued by the
Issuer and the proceeds thereof, together with the proceeds
from the issuance of the Issuer's Common Securities (as
defined below), will be used to purchase the Debentures (as
defined in the Trust Agreement) of the Guarantor which will be
deposited with The First National Bank of Chicago, as Property
Trustee under the Trust Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase Preferred
Securities the Guarantor desires irrevocably and
unconditionally to agree, to the extent set forth herein, to
pay to the Holders of the Preferred Securities the Guarantee
Payments (as defined herein) and to make certain other
payments on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase by each
Holder of Preferred Securities, which purchase the Guarantor
hereby agrees shall benefit the Guarantor, the Guarantor
executes and delivers this Guarantee Agreement for the benefit
of the Holders from time to time of the Preferred Securities.
ARTICLE I. DEFINITIONS
Section 1.1. Definitions.
As used in this Guarantee Agreement, the terms set forth
below shall, unless the context otherwise requires, have the
following meanings. Capitalized or otherwise defined terms
used but not otherwise defined herein shall have the meanings
assigned to such terms in the Trust Agreement as in effect on
the date hereof.
''Affiliate'' of any specified Person means any other
Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified
Person, provided, however, that an Affiliate of the Guarantor
shall not be deemed to include the Issuer. For the purposes of
this definition, ''control''20 when used with respect to any
specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or
otherwise; and the terms ''controlling''0 and ''controlled'' have
meanings correlative to the foregoing.
''Common Securities'' means the securities representing
common undivided beneficial interests in the assets of the
Issuer.
''Debt'' means, with respect to any Person, whether
recourse is to all or a portion of the assets of such Person
and whether or not contingent, (i) every obligation of such
Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with
the acquisition of property, assets or businesses; (iii) every
reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities
issued for the account of such Person; (iv) every obligation
of such Person issued or assumed as the deferred purchase
price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course
of business); (v) every capital lease obligation of such
Person; and (vi) every obligation of the type referred to in
clauses (i) through (v) of another Person and all dividends of
another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable for,
directly or indirectly, as obligor or otherwise.
''Event of Default'' means a default by the Guarantor on
any of its payment or other obligations under this Guarantee
Agreement; provided, however, that, except with respect to a
default in payment of any Guarantee Payments, the Guarantor
shall have received notice of default and shall not have cured
such default within 60 days after receipt of such notice.
''Guarantee Payments'' means the following payments or
distributions, without duplication, with respect to the
Preferred Securities, to the extent not paid or made by or on
behalf of the Issuer; (i) any accrued and unpaid Distributions
(as defined in the Trust Agreement) required to be paid on the
Preferred Securities, to the extent the Issuer shall have
funds on hand available therefor at such time, (ii) the
redemption price, including all accrued and unpaid
Distributions to the date of redemption (the ''Redemption
Price''), with respect to the Preferred Securities called for
redemption by the Issuer to the extent the Issuer shall have
funds on hand available therefor at such time, and (iii) upon
a voluntary or involuntary termination, winding-up or
liquidation of the Issuer, unless Debentures are distributed
to the Holders, the lesser of (a) the aggregate of the
liquidation preference of $25 per Preferred Security plus
accrued and unpaid Distributions on the Preferred Securities
to the date of payment to the extent the Issuer shall have
funds on hand available to make such payment at such time and
(b) the amount of assets of the Issuer remaining available for
distribution to Holders in liquidation of the Issuer (in
either case, the ''Liquidation Distribution'').
''Guarantee Trustee'' means The First National Bank of
Chicago, until a Successor Guarantee Trustee has been
appointed and has accepted such appointment pursuant to the
terms of this Guarantee Agreement and thereafter means each
such Successor Guarantee Trustee.
''Holder'' means any holder, as registered on the books and
records of the Issuer, of any Preferred Securities; provided,
however, that in determining whether the holders of the
requisite percentage of Preferred Securities have given any
request, notice, consent or waiver hereunder, ''Holder'' shall
not include the Guarantor, the Guarantee Trustee, or any
Affiliate of the Guarantor or the Guarantee Trustee.
''Indenture'' means the Junior Subordinated Indenture dated
as of May 1, 1996, as supplemented and amended between the
Guarantor and The First National Bank of Chicago, as trustee.
''List of Holders'' has the meaning specified in Section
2.2(a).
''Majority in liquidation preference of the Securities''
means, except as provided by the Trust Indenture Act, a vote
by the Holder(s), voting separately as a class, of more than
50% of the liquidation preference of all then outstanding
Preferred Securities issued by the Issuer.
''Officers' Certificate'' means, with respect to any
Person, a certificate signed by the Chairman and Chief
Executive Officer, President or a Vice President, and by the
Treasurer, and Associate Treasurer, an Assistant Treasurer,
the Controller, the Secretary or an Assistant Secretary of
such Person, and delivered to the Guarantee Trustee. Any
Officers' Certificate delivered with respect to compliance
with a condition or covenant provided for in this Guarantee
Agreement shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the
definitions relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in
rendering the Officers' Certificate;
(c) a statement that each officer has made such examination
or investigation as, in such officer's opinion, is necessary
to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
(d) a statement as to whether, in the opinion of each
officer, such condition or covenant has been complied with.
''Person'' means a legal person, including any individual,
corporation, estate, partnership, joint venture, association,
joint stock company, limited liability company, trust,
unincorporated association, or government or any agency or
political subdivision thereof, or any other entity of whatever
nature.
''Responsible Officer'' means, with respect to the
Guarantee Trustee, any Senior Vice President, any Vice
President, any Assistant Vice President, the Secretary, any
Assistant Secretary, the Treasurer, any Assistant Treasurer,
any Trust Officer or Assistant Trust Officer or any other
officer of the Corporate Trust Department of the above-
designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom
such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
''Senior Debt'' means the principal of (and premium, if
any) and interest, if any (including interest accruing on or
after the filing of any petition in bankruptcy or for
reorganization relating to the Guarantor whether or not such
claim for post-petition interest is allowed in such
proceeding), on Debt, whether incurred on or prior to the date
of this Guarantee or thereafter incurred, unless, in the
instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the
Guarantee or to other Debt which is pari passu with, or
subordinated to, the Guarantee; provided, however, that Senior
Debt shall not be deemed to include (a) any Debt of the
Guarantor which when incurred and without respect to any
election under Section 1111(b) of the Bankruptcy Reform Act of
1978, was without recourse to the Guarantor, (b) any Debt of
the Guarantor to any of its Subsidiaries, (c) Debt to any
employee of the Guarantor, (d) any liability for taxes, (e)
Debt or other monetary obligations to trade creditors created
or assumed by the Guarantor or any of its Subsidiaries in the
ordinary course of business in connection with the obtaining
of goods, materials or services and (f) Debt issued under the
Indenture and (g) the Guarantee.
''Successor Guarantee Trustee'' means a successor Guarantee
Trustee possessing the qualifications to act as Guarantee
Trustee under Section 4.1.
''Trust Indenture Act'' means the Trust Indenture Act of
1939, as amended.
ARTICLE II. TRUST INDENTURE ACT
Section 2.1. Trust Indenture Act; Application.
(a) This Guarantee Agreement is subject to the provisions
of the Trust Indenture Act that are required to be part of
this Guarantee Agreement and shall, to the extent applicable,
be governed by such provisions.
(b) If and to the extent that any provision of this
Guarantee Agreement limits, qualifies or conflicts with the
duties imposed by Sections 310 to 317, inclusive, of the Trust
Indenture Act, such imposed duties shall control.
Section 2.2. List of Holders.
(a) The Guarantor shall furnish or cause to be furnished to
the Guarantee Trustee (a) semiannually, on or before January
15 and July 15 of each year, a list, in such form as the
Guarantee Trustee may reasonably require, of the names and
addresses of the Holders (''List of Holders'') as of a date
not more than 15 days prior to the delivery thereof, and (b)
at such other times as the Guarantee Trustee may request in
writing, within 30 days after the receipt by the Guarantor of
any such request, a List of Holders as of a date not more than
15 days prior to the time such list is furnished, in each case
to the extent such information is in the possession or control
of the Guarantor and is not identical to a previously supplied
list of Holders or has not otherwise been received by the
Guarantee Trustee in its capacity as such. The Guarantee
Trustee may destroy any List of Holders previously given to it
on receipt of a new List of Holders.
(b) The Guarantee Trustee shall comply with its obligations
under Section 311(a), Section 311(b) and Section 312(b) of the
Trust Indenture Act.
Section 2.3. Reports by the Guarantee Trustee.
Not later than July 15 of each year, commencing July 15,
1997, the Guarantee Trustee shall provide to the Holders such
reports as are required by Section 313 of the Trust Indenture
Act, if any, in the form and in the manner provided by Section
313 of the Trust Indenture Act. The Guarantee Trustee shall
also comply with the requirements of Section 313(d) of the
Trust Indenture Act.
Section 2.4. Periodic Reports to the Guarantee Trustee.
The Guarantor shall provide to the Guarantee Trustee, the
Securities and Exchange Commission and the Holders such
documents, reports and information, if any, as required by
Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture
Act, in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act.
Section 2.5. Evidence of Compliance with Conditions
Precedent.
The Guarantor shall provide to the Guarantee Trustee such
evidence of compliance with such conditions precedent, if any,
provided for in this Guarantee Agreement that relate to any of
the matters set forth in Section 314(c) of the Trust Indenture
Act. Any certificate or opinion required to be given by an
officer pursuant to Section 314(c)(1) may be given in the form
of an Officers' Certificate.
Section 2.6. Events of Default; Waiver.
The Holders of a Majority in liquidation preference of the
Preferred Securities may, by vote, on behalf of the Holders,
waive any past Event of Default and its consequences. Upon
such waiver, any such Event of Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of this Guarantee
Agreement, but no such waiver shall extend to any subsequent
or other default or Event of Default or impair any right
consequent therefrom.
Section 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first
class postage prepaid, to the Holders, notices of all Events
of Default known to the Guarantee Trustee, unless such
defaults have been cured before the giving of such notice,
provided, that, except in the case of a default in the payment
of a Guarantee Payment, the Guarantee Trustee shall be
protected in withholding such notice if and so long as the
Board of Directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the
Guarantee Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Guarantee Trustee
shall have received written notice, or a Responsible Officer
charged with the administration of the Trust Agreement shall
have obtained written notice, of such Event of Default.
Section 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be specifically
described in this Guarantee Agreement for the purposes of
clause (i) of the first proviso contained in Section 310(b) of
the Trust Indenture Act.
ARTICLE III. POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
Section 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the Guarantee
Trustee for the benefit of the Holders, and the Guarantee
Trustee shall not transfer this Guarantee Agreement to any
Person except a Holder exercising his or her rights pursuant
to Section 5.4(iv) or to a Successor Guarantee Trustee on
acceptance by such Successor Guarantee Trustee of its
appointment to act as Successor Guarantee Trustee. The right,
title and interest of the Guarantee Trustee shall
automatically vest in any Successor Guarantee Trustee, upon
acceptance by such Successor Guarantee Trustee of its
appointment hereunder, and such vesting and cessation of title
shall be effective whether or not conveyancing documents have
been executed and delivered pursuant to the appointment of
such Successor Guarantee Trustee.
(b) If an Event of Default has occurred and is continuing,
the Guarantee Trustee shall enforce this Guarantee Agreement
for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default
that may have occurred, shall undertake to perform only such
duties as are specifically set forth in this Guarantee
Agreement, and no implied covenants shall be read into this
Guarantee Agreement against the Guarantee Trustee. In case an
Event of Default has occurred (that has not been cured or
waived pursuant to Section 2.6), the Guarantee Trustee shall
exercise such of the rights and powers vested in it by this
Guarantee Agreement, and use the same degree of care and skill
in its exercise thereof, as a prudent person would exercise or
use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Guarantee Agreement shall be
construed to relieve the Guarantee Trustee from liability for
its own negligent action, its own negligent failure to act or
its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that
may have occurred:
(A) the duties and obligations of the Guarantee Trustee
shall be determined solely by the express provisions of this
Guarantee Agreement, and the Guarantee Trustee shall not be
liable except for the performance of such duties and
obligations as are specifically set forth in this Guarantee
Agreement; and
(B) in the absence of bad faith on the part of the
Guarantee Trustee, the Guarantee Trustee may conclusively
rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon any certificates or
opinions furnished to the Guarantee Trustee and conforming to
the requirements of this Guarantee Agreement; but in the case
of any such certificates or opinions that by any provision
hereof or of the Trust Indenture Act are specifically required
to be furnished to the Guarantee Trustee, the Guarantee
Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this
Guarantee Agreement;
(ii) the Guarantee Trustee shall not be liable for any
error of judgment made in good faith by a Responsible Officer
of the Guarantee Trustee, unless it shall be proved that the
Guarantee Trustee was negligent in ascertaining the pertinent
facts upon which such judgment was made;
(iii) the Guarantee Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in
good faith in accordance with the direction of the Holders of
not less than a Majority in liquidation preference of the
Preferred Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the
Guarantee Trustee, or exercising any trust or power conferred
upon the Guarantee Trustee under this Guarantee Agreement; and
(iv) no provision of this Guarantee Agreement shall require
the Guarantee Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the
performance of any of its duties or in the exercise of any of
its rights or powers, if the Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such
funds or liability is not reasonably assured to it under the
terms of this Guarantee Agreement or adequate indemnity
against such risk or liability is not reasonably assured to
it.
Section 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may rely and shall be fully
protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper
or document reasonably believed by it to be genuine and to
have been signed, sent or presented by the proper party or
parties.
(ii) Any direction or act of the Guarantor contemplated by
this Guarantee Agreement shall be sufficiently evidenced by an
Officer's Certificate unless otherwise prescribed herein.
(iii) Whenever, in the administration of this Guarantee
Agreement, the Guarantee Trustee shall deem it desirable that
a matter be proved or established before taking, suffering or
omitting to take any action hereunder, the Guarantee Trustee
(unless other evidence is herein specifically prescribed) may,
in the absence of bad faith on its part, request and rely upon
an Officers' Certificate which, upon receipt of such request
from the Guarantee Trustee, shall be promptly delivered by the
Guarantor.
(iv) The Guarantee Trustee may consult with legal counsel,
and the written advice or opinion of such legal counsel with
respect to legal matters shall be full and complete
authorization and protection in respect of any action taken,
suffered or omitted to be taken by it hereunder in good faith
and in accordance with such advice or opinion. Such legal
counsel may be legal counsel to the Guarantor or any of its
Affiliates and may be one of its employees. The Guarantee
Trustee shall have the right at any time to seek instructions
concerning the administration of this Guarantee Agreement from
any court of competent jurisdiction.
(v) The Guarantee Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Guarantee Agreement at the request or direction of any Holder,
unless such Holder shall have provided to the Guarantee
Trustee such adequate security and indemnity as would satisfy
a reasonable person in the position of the Guarantee Trustee,
against the costs, expenses (including attorneys' fees and
expenses) and liabilities that might be incurred by it in
complying with such request or direction, including such
reasonable advances as may be requested by the Guarantee
Trustee; provided that, nothing contained in this Section
3.2(a)(v) shall be taken to relieve the Guarantee Trustee,
upon the occurrence of an Event of Default, of its obligation
to exercise the rights and powers vested in it by this
Guarantee Agreement.
(vi) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper
or document, but the Guarantee Trustee, in its discretion, may
make such further inquiry or investigation into such facts or
matters as it may see fit.
(vii) The Guarantee Trustee may execute any of the trusts
or powers hereunder or perform any duties hereunder either
directly or by or through its agents or attorneys, and the
Guarantee Trustee shall not be responsible for any misconduct
or negligence on the part of any such agent or attorney
appointed with due care by it hereunder.
(viii) Whenever in the administration of this Guarantee
Agreement the Guarantee Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or
right or taking any other action hereunder, the Guarantee
Trustee (A) may request instructions from the Holders, (B) may
refrain from enforcing such remedy or right or taking such
other action until such instructions are received, and (C)
shall be protected in acting in accordance with such
instructions.
(b) No provision of this Guarantee Agreement shall be
deemed to impose any duty or obligation on the Guarantee
Trustee to perform any act or acts or exercise any right,
power, duty or obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in which the
Guarantee Trustee shall be unqualified or incompetent in
accordance with applicable law, to perform any such act or
acts or to exercise any such right, power, duty or obligation.
No permissive power or authority available to the Guarantee
Trustee shall be construed to be a duty to act in accordance
with such power and authority.
Section 3.3. Indemnity.
The Guarantor agrees to indemnify the Guarantee Trustee
for, and to hold it harmless against, any loss, liability or
expense incurred without negligence or bad faith on the part
of the Guarantee Trustee, arising out of or in connection with
the acceptance or administration of this Guarantee Agreement,
including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder. The
Guarantee Trustee will not claim or exact any lien or charge
on any Guarantee Payments as a result of any amount due to it
under this Guarantee Agreement.
ARTICLE IV. GUARANTEE TRUSTEE
Section 4.1. Guarantee Trustee: Eligibility.
(a) There shall at all times be a Guarantee Trustee which
shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and
surplus of at least $50,000,000, and shall be a corporation
meeting the requirements of Section 310(c) of the Trust
Indenture Act. If such corporation publishes reports of
condition at least annually, pursuant to law or to the
requirements of the supervising or examining authority, then,
for the purposes of this Section and to the extent permitted
by the Trust Indenture Act, the combined capital and surplus
of such corporation shall be deemed to be its combined capital
and surplus as set forth in its most recent report of
condition so published.
(b) If at any time the Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Guarantee Trustee
shall immediately resign in the manner and with the effect set
out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any
''conflicting interest'' within the meaning of Section 310(b)
of the Trust Indenture Act, the Guarantee Trustee and
Guarantor shall in all respects comply with the provisions of
Section 310(b) of the Trust Indenture Act.
Section 4.2. Appointment, Removal and Resignation of the
Guarantee Trustee.
(a) Subject to Section 4.2(b), the Guarantee Trustee may be
appointed or removed without cause at any time by the
Guarantor.
(b) The Guarantee Trustee shall not be removed until a
Successor Guarantee Trustee has been appointed and has
accepted such appointment by written instrument executed by
such Successor Guarantee Trustee and delivered to the
Guarantor.
(c) The Guarantee Trustee appointed hereunder shall hold
office until a Successor Guarantee Trustee shall have been
appointed or until its removal or resignation. The Guarantee
Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument in writing executed by
the Guarantee Trustee and delivered to the Guarantor, which
resignation shall not take effect until a Successor Guarantee
Trustee has been appointed and has accepted such appointment
by instrument in writing executed by such Successor Guarantee
trustee and delivered to the Guarantor and the resigning
Guarantee Trustee.
(d) If no Successor Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section
4.2 within 60 days after delivery to the Guarantor of an
instrument of resignation, the resigning Guarantee Trustee may
petition, at the expense of the Guarantor, any court of
competent jurisdiction for appointment of a Successor
Guarantee Trustee. Such court may thereupon, after prescribing
such notice, if any, as it may deem proper, appoint a
Successor Guarantee Trustee.
ARTICLE V. GUARANTEE
Section 5.1. Guarantee.
The Guarantor irrevocably and unconditionally agrees to pay
in full to the Holders the Guarantee Payments (without
duplication of amounts theretofore paid by or on behalf of the
Issuer), as and when due, regardless of any defense, right of
set-off or counterclaim which the Issuer may have or assert.
The Guarantor's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the
Guarantor to the Holders or by causing the Issuer to pay such
amounts to the Holders.
Section 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance of the
Guarantee Agreement and of any liability to which it applies
or may apply, presentment, demand for payment, any right to
require a proceeding first against the Guarantee Trustee,
Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor,
notice of redemption and all other notices and demands.
Section 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties of the
Guarantor under this Guarantee Agreement shall in no way be
affected or impaired by reason of the happening from time to
time of any of the following:
(a) the release or waiver, by operation of law or
otherwise, of the performance or observance by the Issuer of
any express or implied agreement, covenant, term or condition
relating to the Preferred Securities to be performed or
observed by the Issuer;
(b) the extension of time for the payment by the Issuer of
all or any portion of the Distributions (other than an
extension of time for payment of Distributions that results
from the extension of any interest payment period on the
Debentures as so provided in the Indenture), Redemption Price,
Liquidation Distribution or any other sums payable under the
terms of the Preferred Securities or the extension of time for
the performance of any other obligation under, arising out of,
or in connection with, the Preferred Securities;
(c) any failure, omission, delay or lack of diligence on
the part of the Holders to enforce, assert or exercise any
right, privilege, power or remedy conferred on the Holders
pursuant to the terms of the Preferred Securities, or any
action on the part of the Issuer granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution,
sale of any collateral, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of debt of, or other
similar proceedings affecting, the Issuer or any of the assets
of the Issuer;
(e) any invalidity of, or defect or deficiency in, the
Preferred Securities;
(f) the settlement or compromise of any obligation
guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a
guarantor, it being the intent of this Section 5.3 that the
obligations of the Guarantor hereunder shall be absolute and
unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to,
or obtain the consent of, the Guarantor with respect to the
happening of any of the foregoing.
Section 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i) this
Guarantee Agreement will be deposited with the Guarantee
Trustee to be held for the benefit of the Holders; (ii) the
Guarantee Trustee has the right to enforce this Guarantee
Agreement on behalf of the Holders; (iii) the Holders of a
Majority in liquidation preference of the Preferred Securities
have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
Guarantee Trustee in respect of this Guarantee Agreement or
exercising any trust or power conferred upon the Guarantee
Trustee under this Guarantee Agreement; and (iv) any Holder
may institute a legal proceeding directly against the
Guarantor to enforce its rights under this Guarantee
Agreement, without first instituting a legal proceeding
against the Guarantee Trustee, the Issuer or any other Person.
Section 5.5. Guarantee of Payment
This Guarantee Agreement creates a guarantee of payment and
not of collection. This Guarantee Agreement will not be
discharged except by payment of the Guarantee Payments in full
(without duplication of amounts theretofore paid by the
Issuer) or upon distribution of Debentures to Holders as
provided in the Trust Agreement.
Section 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any) rights of
the Holders against the Issuer in respect of any amounts paid
to the Holders by the Guarantor under this Guarantee Agreement
and shall have the right to waive payment by the Issuer
pursuant to Section 5.1; provided, however, that the Guarantor
shall not (except to the extent required by mandatory
provisions of law) be entitled to enforce or exercise any
rights which it may acquire by way of subrogation or any
indemnity, reimbursement or other agreement, in all cases as a
result of payment under this Guarantee Agreement, at the time
of any such payment, any amounts are due and unpaid under this
Guarantee Agreement. If any amount shall be paid to the
Guarantor in violation of the preceding sentence, the
Guarantor agrees to hold such amount in trust for the Holders
and to pay over such amount to the Holders.
Section 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations hereunder
are independent of the obligations of the Issuer with respect
to the Preferred Securities and that the Guarantor shall be
liable as principal and as debtor hereunder to make Guarantee
Payments pursuant to the terms of this Guarantee Agreement
notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI. COVENANTS AND SUBORDINATION
Section 6.1. Subordination.
This Guarantee Agreement will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior
in right of payment to all Senior Debt of the Guarantor.
Section 6.2. Pari Passu Guarantees.
This Guarantee Agreement shall rank pari passu with any
similar Guarantee Agreements issued by the Guarantor on behalf
of the holders of Preferred Securities issued by Lincoln
National Capital I and Lincoln National Capital III.
ARTICLE VII. TERMINATION
Section 7.1. Termination.
This Guarantee Agreement shall terminate and be of no
further force and effect upon (i) full payment of the
Redemption Price of all Preferred Securities, (ii) the
distribution of Debentures to the Holders in exchange for all
of the Preferred Securities or (iii) full payment of the
amounts payable in accordance with the Trust Agreement upon
liquidation of the Issuer. Notwithstanding the foregoing, this
Guarantee Agreement will continue to be effective or will be
reinstated, as the case may be, if at any time any Holder must
restore payment of any sums paid with respect to Preferred
Securities or this Guarantee Agreement.
ARTICLE VIII. MISCELLANEOUS
Section 8.1. Successors and Assigns.
All guarantees and agreements contained in this Guarantee
Agreement shall bind the successors, assigns, receivers,
trustees and representatives of the Guarantor and shall inure
to the benefit of the Holders of the Preferred Securities then
outstanding. Except in connection with a consolidation, merger
or sale involving the Guarantor that is permitted under
Article Eight of the Indenture and pursuant to which the
assignee agrees in writing to perform the Guarantor's
obligations hereunder, the Guarantor shall not assign its
obligations hereunder.
Section 8.2. Amendments.
Except with respect to any changes which do not adversely
affect the rights of the Holders in any material respect (in
which case no consent of the Holders will be required), this
Guarantee Agreement may only be amended with the prior
approval of the Holders of not less than a Majority in
liquidation preference of all the outstanding Preferred
Securities. The provisions of Article VI of the Trust
Agreement concerning meetings of the Holders shall apply to
the giving of such approval.
Section 8.3. Notices.
Any notice, request or other communication required or
permitted to be given hereunder shall be in writing, duly
signed by the party giving such notice, and delivered,
telecopied or mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set forth
below or such other address, facsimile number or to the
attention of such other Person as the Guarantor may give
notice to the Holders:
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
Facsimile No.: 219-455-6265
Attention: Treasurer
(b) if given to the Issuer, in care of the Guarantee
Trustee, at the Issuer's (and the Guarantee Trustee's) address
set forth below or such other address as the Guarantee Trustee
on behalf of the Issuer may give notice to the Holders:
Lincoln National Capital II
c/o Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
Facsimile No.: 219-455-6265
Attention: Treasurer
with a copy to:
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, Illinois 60670
Facsimile No.: 312-407-1708
Attention: Corporate Services Division
(c) if given to any Holder, at the address set forth on the
books and records of the Issuer.
All notices hereunder shall be deemed to have been given
when received in person, telecopied with receipt confirmed, or
mailed by first class mail, postage prepaid, except that if a
notice or other document is refused delivery or cannot be
delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have
been delivered on the date of such refusal or inability to
deliver.
Section 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of the
Holders and is not separately transferable from the Preferred
Securities.
Section 8.5. Interpretation.
In this Guarantee Agreement, unless the context otherwise
requires:
(a) capitalized terms used in this Guarantee Agreement but
not defined in the preamble hereto have the respective
meanings assigned to them in Section 1.1;
(b) a term defined anywhere in this Guarantee Agreement has
the same meaning throughout;
(c) all references to ''the Guarantee Agreement'' or ''this
Guarantee Agreement'' are to this Guarantee Agreement as
modified, supplemented or amended from time to time;
(d) all references in this Guarantee Agreement to Articles
and Sections are to Articles and Sections of this Guarantee
Agreement unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Guarantee Agreement unless otherwise
defined in this Guarantee Agreement or unless the context
otherwise requires;
(f) a reference to the singular includes the plural and
vice versa; and
(g) the masculine, feminine or neuter genders used herein
shall include the masculine, feminine and neuter genders.
Section 8.6. Governing Law.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES
THEREOF.
This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together
constitute but one and the same instrument.
THIS GUARANTEE AGREEMENT is executed as of the day and year
first above written.
Lincoln National Corporation
By:
Name:
Title:
The First National Bank of
Chicago
as Guarantee Trustee
By:
Name:
Title:
Exhibit 4(m)
-203-
[Form of 8 3/4% Note (Series A)]
This Preferred Security is a Global Certificate within
the meaning of the Trust Agreement hereinafter referred to and is
registered in the name of The Depository Trust Company (the
"Depository") or a nominee of the Depository. This Preferred
Security is exchangeable for Preferred Securities registered in
the name of a person other than the Depository or its nominee
only in the limited circumstances described in the Trust
Agreement and no transfer of this Preferred Security (other than
a transfer of this Preferred Security as a whole by the
Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the
Depository) may be registered except in limited circumstances.
Unless this Preferred Security is presented by an
authorized representative of The Depository Trust Company (55
Water Street, New York) to Lincoln National Capital I or its
agent for registration of transfer, exchange or payment, and any
Preferred Security issued is registered in the name of Cede & Co.
or such other name as requested by an authorized representative
of The Depository Trust Company and any payment hereon is made to
Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY A PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.
Certificate Number Number of Preferred Securities
P-1 8,600,000
CUSIP No.
534177209
Certificate Evidencing Preferred Securities
of
Lincoln National Capital I
8 3/4% Cumulative Quarterly Income Preferred Securities,
Series A
(liquidation amount $25 per Preferred Security)
Lincoln National Capital I, a statutory business trust
formed under the laws of the State of Delaware (the "Trust),
hereby certifies that Cede & Co. (the "Holder") is the registered
owner of Eight Million Six Hundred Thousand (8,600,000) preferred
securities of the Trust representing an undivided beneficial
interest in the assets of the Trust and designated the Lincoln
National Capital I 8 3/4% Cumulative Quarterly Income Preferred
Securities, Series A (Liquidation Amount $25 per Preferred
Security) (the "Preferred Securities"). The Preferred Securities
are transferable on the books and records of the Trust, in person
or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer as
provided in Section 5.4 of the Trust Agreement (as defined
below). The designations, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred
Securities are set forth in, and this certificate and the
Preferred Securities represented hereby are issued and shall in
all respects be subject to the terms and provisions of, the
Amended and Restated Trust Agreement of the Trust, dated as of
July 2, 1996, as the same may be amended from time to time (the
"Trust Agreement") including the designation of the terms of
Preferred Securities as set forth therein. The Holder is
entitled to the benefits of the Guarantee Agreement entered into
by Lincoln National Corporation, an Indiana corporation, and The
First National Bank of Chicago, as guarantee trustee, dated as of
July 2, 1996 (the "Guarantee"), to the extent provided therein.
The Trust will furnish a copy of the Trust Agreement and the
Guarantee to the Holder without charge upon written request to
the Trust at its principal place of business or registered
office.
Upon receipt of this certificate, the Holder is bound
by the Trust Agreement and is entitled to the benefits
thereunder.<PAGE>
IN WITNESS WHEREOF, one of the Administrative Trustees
of the Trust has executed this certificate this 2nd day of July,
1996.
LINCOLN NATIONAL CAPITAL I
By:
Name:
Administrative Trustee
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Preferred Security Certificate on the
books of the Trust. The agent may substitute another to act for
him or her.
Date:
Signature:
(Sign exactly as your name appears on the other side of this
Preferred Security Certificate)
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
1257642
Exhibit 4(n)
-205-
[Form of 8.35% Note (Series B)]
This Preferred Security is a Global Certificate
within the meaning of the Trust Agreement hereinafter referred
to and is registered in the name of The Depository Trust
Company (the "Depository") or a nominee of the Depository.
This Preferred Security is exchangeable for Preferred
Securities registered in the name of a person other than the
Depository or its nominee only in the limited circumstances
described in the Trust Agreement and no transfer of this
Preferred Security (other than a transfer of this Preferred
Security as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository
or another nominee of the Depository) may be registered except
in limited circumstances.
Unless this Preferred Security is presented by an
authorized representative of The Depository Trust Company (55
Water Street, New York) to Lincoln National Capital II or its
agent for registration of transfer, exchange or payment, and
any Preferred Security issued is registered in the name of
Cede & Co. or such other name as requested by an authorized
representative of The Depository Trust Company and any payment
hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL
inasmuch as the registered owner hereof, Cede & Co., has an
interest herein.
Certificate Number Number of Preferred Securities
P-1 4,000,000
CUSIP No.
534178207
Certificate Evidencing Preferred Securities
of
Lincoln National Capital II
8.35% Trust Originated Preferred Securities,
Series B
(liquidation amount $25 per Preferred Security)
Lincoln National Capital II, a statutory business
trust formed under the laws of the State of Delaware (the
"Trust), hereby certifies that Cede & Co. (the "Holder") is
the registered owner of Four Million (4,000,000) preferred
securities of the Trust representing an undivided beneficial
interest in the assets of the Trust and designated the Lincoln
National Capital II 8.35% Trust Originated Preferred
Securities, Series B (Liquidation Amount $25 per Preferred
Security) (the "Preferred Securities"). The Preferred
Securities are transferable on the books and records of the
Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form
for transfer as provided in Section 5.4 of the Trust Agreement
(as defined below). The designations, rights, privileges,
restrictions, preferences and other terms and provisions of
the Preferred Securities are set forth in, and this
certificate and the Preferred Securities represented hereby
are issued and shall in all respects be subject to the terms
and provisions of, the Amended and Restated Trust Agreement of
the Trust, dated as of August 21, 1996, as the same may be
amended from time to time (the "Trust Agreement") including
the designation of the terms of Preferred Securities as set
forth therein. The Holder is entitled to the benefits of the
Guarantee Agreement entered into by Lincoln National
Corporation, an Indiana corporation, and The First National
Bank of Chicago, as guarantee trustee, dated as of August 21,
1996 (the "Guarantee"), to the extent provided therein. The
Trust will furnish a copy of the Trust Agreement and the
Guarantee to the Holder without charge upon written request to
the Trust at its principal place of business or registered
office.
Upon receipt of this certificate, the Holder is
bound by the Trust Agreement and is entitled to the benefits
thereunder.
IN WITNESS WHEREOF, one of the Administrative
Trustees of the Trust has executed this certificate this 21st
day of August 1996.
LINCOLN NATIONAL CAPITAL II
By:
Name: Jane C. Whitney
Administrative Trustee
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this
Preferred Security to:
(Insert assignee's social security or tax identification
number)
(Insert address and zip code of assignee)
and irrevocably appoints
agent to transfer this Preferred Security Certificate on the
books of the Trust. The agent may substitute another to act
for him or her.
Date:
Signature:
(Sign exactly as your name appears on the other side of this
Preferred Security Certificate)
Signature(s) Guaranteed:
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
1257626
Exhibit 10(h)
-207-
LINCOLN NATIONAL CORPORATION
DIRECTORS' VALUE SHARING PLAN
(Including All Amendments Through November 14, 1996)
ARTICLE I - PURPOSE OF PLAN
1.1 Establishment of Plan. Lincoln National Corporation
(the "Corporation") adopts the Directors' Value Sharing Plan (the
"Plan") to provide the benefits specified in the Plan for members
of the Board of Directors of the Corporation who are not
employees of the Corporation or any of its affiliates or
subsidiaries ("Non-Employee Directors").
1.2 Purpose of the Plan. The purpose of the Plan is to
provide Non-Employee Directors with an increased economic
interest in the Corporation in order to attract and retain
well-qualified individuals to serve as Non-Employee Directors and
to enhance the identity of interests between Non-Employee
Directors and the shareholders of the Corporation.
The Corporation intends that its Non-Employee Directors'
Base Compensation (i.e., retainer and meeting fees) approximate
the median of that for peer companies within the industry. The
Plan is designed to provide additional compensation to
Non-Employee Directors linked to overall return to the
Corporation's shareholders.
The Plan increases the Non-Employee Directors' financial
interest in the Corporation through the payment of stock units
based on:
1) Performance of the Corporation's stock relative to a
group of peer companies, and
2) Service on the Board.
ARTICLE II - ELIGIBILITY AND PARTICIPATION
All Non-Employee Directors are eligible and shall
participate in the Plan in accordance with the terms and
conditions set forth herein.
<PAGE>
ARTICLE III - VALUE SHARING AWARD: STOCK PERFORMANCE
3.1 Stock Units. At the end of (i) the one-year period
ending December 31, 1996; (ii) the two-year period ending
December 31, 1997; and (iii) the three-year period ending
December 31, 1998 and each succeeding three-year period ending
annually thereafter (each such period, a "Performance Cycle"),
the Corporation shall award each Non-Employee Director a whole
number of stock units (the "Stock Units"), as determined under
Section 3.2, in consideration for services rendered as a
Non-Employee Director. Each Stock Unit shall represent an
unfunded, unsecured obligation of the Corporation to pay an
amount equal to the fair market value of a share of common stock
of the Corporation ("Stock"), determined as of any business day
by averaging the high and low sales price of the Stock quoted on
the New York Stock Exchange Composite Listing on the preceding
business day on which there were such quotations for the day in
question.
3.2 Calculation of Stock Unit Award. The number of Stock
Units awarded to each Non-Employee Director at the end of each
Performance Cycle shall be based on the total shareholder return
on the Stock as compared with that of the peer companies set
forth in Exhibit A (the "Peer Companies") for that Performance
Cycle. For purposes of this Section 3.2, the Corporation's total
shareholder return shall be equal to the sum of (i) dividends
paid on Stock during the Performance Cycle; and (ii) the
appreciation in the value of Stock based on the average closing
prices of Stock on the last trading date for each of the three
months prior to the beginning of the Performance Cycle and the
last trading date for each of the three months prior to the end
of the Performance Cycle. The total shareholder return for the
Peer Companies shall be calculated in the same manner.
For each Performance Cycle, each Director shall be awarded a
whole number of Stock Units having a value as follows:
Performance Relative Value of
to Peer Companies Stock Units
Median $ 0
Top Tier (75th percentile) 16,000
Top Company 41,000
If the Corporation's performance falls between the above
referenced points, the value of the Stock Units awarded will be
based on the interpolation of the value to be awarded between the
relevant referenced points. To the extent that the formula
described in this Section 3.2 does not result in a whole number
of Stock Units, the result shall be rounded upwards to the next
whole number such that no fractional Stock Units shall be issued
under the Plan.
ARTICLE IV - VALUE SHARING AWARD: BOARD SERVICE
4.1 In addition to the awards based on stock
performance described in Article III, the Corporation shall award
Stock Units in lieu of participation in any pension or other
retirement program of the Corporation to each Non-Employee
Director who on or before March 31, 1996, waived any entitlement
under (or who never becomes entitled to benefits under) such a
program.
4.2 The number of such Stock Units to be granted each
eligible Director shall be determined by (i) calculating the
dollar amount (the "Level Funding") required to fund in equal
quarterly payments over the Calculation Period (defined below) a
notional lump sum amount payable as of age 70 of .185 of the
current annual retainer multiplied by the number of quarters in
the Calculation Period; and then (ii) applying the provisions of
4.3 through 4.9 of this Plan. The Level Funding shall be
calculated assuming such payments were credited at the end of
each calendar quarter commencing on the later of April 1, 1986,
or the beginning of the calendar quarter which includes the date
on which the individual first became a Non-Employee Director and
terminating at the end of the Calculation Period and assuming an
effective annual interest rate of 7.5% during the Calculation
Period and during the period from the end of the Calculation
Period to age 70. The Calculation Period shall be a period equal
to the lesser of forty calendar quarters or the number of
calendar quarters commencing with the calendar quarter which
includes the date on which the individual's service as a
Non-Employee Director began and ending with the calendar quarter
immediately preceding the calendar quarter during which
attainment of age 70 occurs. (See Exhibit B.)
4.3. An initial grant of stock units shall be made to each
Non-Employee Director who has waived benefits as provided in 4.1
above by calculating (i) the dollar amount that would have
accumulated had such Level Funding outlined in 4.2 (i) above
taken place during the period beginning the later of April 1,
1986 or the quarter which includes the date the individual became
a Non-Employee Director and ending on March 31, 1996, including
interest at 7.5% and dividing this amount by (ii) the value of a
share of Stock determined in the manner set forth in 3.1 above
(the "Stock Value") on March 31, 1996.
4.4 For an individual who as of March 31, 1996 has served
as a Non-Employee Director for a period equal to or greater than
the Calculation Period, the initial grant as described in 4.3
above shall constitute the entire basic Board Service Value
Sharing Award and shall be supplemented by additional Board
Service grants only as provided in 4.6 below.
4.5 For a Non-Employee Director who as of March 31,
1996 has not served as a Non-Employee Director for a period equal
to or greater than the Calculation Period, the Corporation shall
continue to make grants of Stock Units at the end of calendar
quarters beginning April 1, 1996, and thereafter equal to the
Level Funding amount calculated under 4.2 (i) divided by the
Stock Value as of the date of grant until grants have been made
for each of the remaining quarters in the Calculation Period
during which the individual continues to serve as a Non-Employee
Director.
4.6 To the extent that the current annual retainer
payable to Non-Employee Directors is increased in any year, each
Non-Employee Director serving for such year shall also receive a
grant of Stock Units equal to (i) .185 of the dollar amount of
such increase times the number of quarters (to a maximum of
forty) then served as a Non-Employee Director discounted at 7.5%
interest from the Non-Employee Director's age 70 to the last day
of the quarter during which such increase in retainer occurred,
divided by (ii) the Stock Value as of the last day of the quarter
in which such increase in retainer occurred.
4.7 For a Non-Employee Director who, as of the date any
increase in retainer occurs, has not served as a Non-Employee
Director for a period equal to or greater than the Calculation
Period, the amount of any quarterly payment made in quarters
following the quarter during which the increase in retainer
occurred will be increased to an amount equal to the then current
quarterly payment times the ratio of the new retainer to the then
current retainer.
<PAGE>
4.8 The beneficiary of a Non-Employee Director who dies
while serving as a Non-Employee Director and who prior to March
31, 1996, waived his or her rights under any pension or
retirement plan as provided in 4.1 above shall be entitled to
receive an additional amount credited to his or her Account equal
to the amount by which (i) the lump sum death benefit which would
have been payable under the Lincoln National Corporation
Directors' Retirement Plan had the Non-Employee Director
continued to participate in that plan until his or her date of
death exceeds (ii) the value as of the date of his or her death
of the Stock Units calculated under the provisions of 4.2 through
4.7 and the Dividend Equivalent Payments provided by Article VI
attributable to such Stock Units. No additional amount shall be
credited under 4.8 if 4.8(ii) exceeds 4.8(i).
4.9 In no event shall grants under this Article IV be
increased or decreased to reflect increases or decreases in Stock
Value subsequent to the date of grant.
ARTICLE V - STOCK UNIT TERMS AND CONDITIONS
Stock Units shall be represented by and recorded in a
bookkeeping account set up in each Non-Employee Director's name
(the "Account"). The following terms and conditions shall apply
to Stock Units: (i) a Dividend Equivalent Payment, as defined in
Article VI below, shall be credited to the Account and shall have
the same terms and conditions as the Stock Units; (ii) none of
the Stock Units may be sold, transferred, assigned, pledged, or
otherwise encumbered or disposed of; and (iii) the Stock Units
and Dividend Equivalent Payments shall vest on the date the
Non-Employee Director ceases to be a Director of the Corporation.
ARTICLE VI - DIVIDEND EQUIVALENT PAYMENTS
As of each dividend payment date with respect to Stock, each
Non-Employee Director shall be awarded a Dividend Equivalent
Payment equal to the product of (i) the per share cash dividend
payable with respect to each share of Stock on such date; and
(ii) the total number of Stock Units and Dividend Equivalent
Payments credited to the Non-Employee Director's <PAGE>
Account, as of the record
date corresponding to such dividend
payment date, divided by the fair market value. The Dividend
Equivalent Payments are subject to the restrictions specified in
Article V.
ARTICLE VII - PAYMENT OF BENEFITS
As soon as practicable following the date the Non-Employee
Director ceases to be a director of the Corporation (the "Date"),
the Corporation shall pay to the Non-Employee Director (or his or
her designated beneficiary) an amount equal in value to the Stock
Units and Dividend Equivalent Payments credited to his or her
Account in a lump sum valued as of the Date. In lieu of a lump
sum, at age 70 or after, a Director who has so elected may
receive payments in annual installments over a 5, 10 or 15 year
period.
ARTICLE VIII - ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event of a Stock dividend, Stock split or
combination, reclassification, recapitalization or other capital
adjustment of shares of Stock, the number of Stock Units and the
amount of Dividend Equivalent Payments credited to Accounts shall
be appropriately adjusted by the Board of Directors of the
Corporation, whose determination shall be final, binding and
conclusive. The award of Stock Units pursuant to this Plan shall
not affect in any way the right or power of the Corporation to
issue additional Stock or other securities, to make adjustments,
reclassification, reorganizations or other changes in its
corporate, capital or business structure, to participate in a
merger, consolidation or share exchange or to transfer its assets
or dissolve or liquidate.
ARTICLE IX - TERMINATION OR AMENDMENT OF PLAN
9.1 In General. The Board of Directors of the Corporation
may at any time terminate, suspend or amend this Plan.
9.2 Written Consents. No amendment may, without the
written consent of such Non-Employee Director, adversely affect
the right of any Non-Employee Director to receive any Stock Units
or any Dividend Equivalent Payments previously awarded.
ARTICLE X - GOVERNMENT REGULATIONS
The obligations of the Corporation under this Plan shall be
subject to all applicable laws, rules and regulations and the
obtaining of all such approvals by government agencies as may be
deemed necessary or appropriate by the Board of Directors of the
Corporation.
ARTICLE XI - MISCELLANEOUS
11.1 Unfunded Plan. The Plan shall at all times be
entirely unfunded. Any Account established and maintained under
the Plan is solely for accounting purposes and shall not require
a segregation of any assets of the Corporation. A Non-Employee
Director's right to receive any payment under this Plan shall be
no greater than the rights of an unsecured general creditor of
the Corporation.
11.2 Assignment; Encumbrances. Stock Units and Dividend
Equivalent Payments under this Plan are not assignable or
transferrable and shall not be subject to any encumbrances,
liens, pledges or charges of the Non-Employee Director or his or
her creditors. Any attempt to assign, transfer or hypothecate
any Stock Units or Dividend Equivalent Payments shall be void and
of no force and effect whatsoever.
11.3 Applicable Law. This Plan shall be governed by the
laws of the State of Indiana to the extent not preempted by
Federal law.
11.4 Headings. The headings in this Plan are for reference
purposes only and shall not affect the meaning or interpretation
of this Plan.
11.5 Plan Administration. The Plan shall be administered
by a DVSP Administration Committee (the "Committee"). At any
date, the members of the Committee shall be those members of the
Nominating and Governance Committee of the Board of Directors who
are Non-Employee Directors as such term is defined in Section 16
of the Securities Exchange Act of 1934, as it may be amended from
time to time. The Committee may not exercise its authority at
any time there are less than 2 members. The Committee shall
exercise its authority only by a majority vote of its members at
a meeting or by a writing without meeting.
<PAGE>
ARTICLE XII - EFFECTIVE DATE OF PLAN
This Plan shall become effective as of January 1, 1996.
XLW/PCDocs No. 5580\2
February 12, 1997
EXHIBIT A
Peer Group Designations
The following companies shall compose the Peer Group of
companies for the 1996
Performance Cycle:
Allstate Corp.
ReliaStar (formerly The NWNL Cos.)
First Colony Corp.
Provident Life & Accident Ins. Co.
American General Corp.
SAFECO Corp.
Providian Corp. (formerly Capital Holding Corp.)
Torchmark Corp.
CIGNA Corp.
Transamerica Corp.
Traveler's Inc.
The Equitable Companies, Inc.
USF&G Corp.
USLIFE Corp.
Alternates:
1. Equitable of Iowa Companies
2. Reinsurance Group of America, Inc.
3. Western National Corp.
4. SunAmerica, Inc.
If, as a result of a (1) merger, (2) consolidation, (3)
liquidation, (4) similar corporate reorganization or
restructuring, (5) insolvency, or (6) takeover, any of the
members of this Peer Group of companies ceases to exist as a
publicly-held corporation or if a Peer Group Company's
primary business changes, the company so affected (the
"terminated company") shall cease to be a member of the Peer
Group, effective as of the beginning of the Performance Period
during which such event occurred. In such event, the First
Remaining company contained in the Alternate list shall replace
the terminated company, provided that such designation shall be
effective only with respect to Performance Periods beginning
after the Performance Period during which the terminated company
was removed. If it is necessary to replace more than one company
during any Performance Period, a replacement company is paired
with a terminating company based on the first company available
from the Alternate list and the earliest date at which one of the
terminating companies was deemed to cease to exist or changed its
primary business.
EXHIBIT B
DVSP Board Service Quarterly Contribution
Calculated for $30,000 Retainer at 7.5% Interest
Become Calculation
Director Period
at Age: Quarterly
Contribution:
69 5,400
68 5,205
67 5,015
66 4,829
65 4,649
64 4,473
63 4,302
62 4,136
61 3,974
60 3,817
59 3,551
58 3,303
57 3,073
56 2,858
55 2,659
54 2,473
53 2,301
52 2,140
51 1,991
50 1,852
49 1,723
48 1,603
47 1,491
46 1,387
45 1,290
44 1,200
43 1,116
42 1,039
41 966
40 899
39 836
38 778
Exhibit 10(i)
-213-
AMENDMENT TO
LINCOLN NATIONAL CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN FOR EMPLOYEES
By virtue and in exercise of the power granted to the Chief
Executive Officer of Lincoln National Corporation by resolution
of its Board of Directors, the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees (the "Plan"),
is hereby amended effective January 1, 1996, by adding the
following Supplement A thereto:
SUPPLEMENT A
TO
LINCOLN NATIONAL CORPORATION
Executive Deferred Compensation Plan
Purpose and Application.
The purpose of this Supplement A is to modify and supplement the
provisions of the Plan, as applied to each individual who was at
the time of the deferral an employee of the Delaware Management
Holdings, Inc. ("DMH") or its subsidiaries, hereinafter referred
to as a "DMH Participant."
Definitions.
Unless the context of the Plan or this Supplement A clearly
implies or indicates the contrary, a word, term or phrase used or
defined in the Plan is similarly used or defined in this
Supplement A.
Modification of Plan.
The following provisions, sections and subsections of the
Plan shall be modified, deleted, or added as indicated
with respect to participation in the Plan by DMH Participants:
1. Subsections 2.03(b) and (d) relating to the 401(k)
Plan do not apply;
2. All references in Section 2 to the Match are not
applicable;
3. The reference in subsection 2.04 to a hardship withdrawal
from the 401(k) Plan causing an automatic revocation in
the Plan, shall be changed so that a hardship withdrawal
from any defined contribution Plan maintained by DMH or
any subsidiary, shall also cause automatic revocation
of participation in the Plan for the remainder of
the calendar year;
4. Subsection 2.10 shall apply for the 12 month
period beginning on January 1, 1996, the date DMH
and its subsidiaries began participation in the
Plan;
5. DMH shall not be eligible for Unit Grants under
subsection 3.02;
6. Subsections 4.12 and 4.15 shall be inapplicable to
DMH Participants. In the event that DMH is no
longer a subsidiary of LNC, DMH will retain full
liability for all payments under the terms of the
Plan relating to periods that individuals were
employed by DMH and its subsidiaries; and
7. Subsection 4.13 is modified to provide that LNC
(rather than a Rabbi Trust) shall make payments to
DMH Participants in the event that specific
actions taken by LNC (listed in the subsection)
cause DMH to be unable to meet its obligation to
a DMH Participant, and further, that the payment of
such amount is not accelerated but will be made at
a time when the payments under the Plan shall
otherwise be due.
DMC Profit Sharing Plan
In the event that an individual's deferral of Sharing Plan
compensation under the Plan causes a reduction in the amount that
would have been contributed to the Delaware Management Company
Employee Profit Sharing Plan ("DMC Profit Sharing Plan"), such
additional amount that would have been contributed to the DMC
Profit Sharing Plan shall be credited to this Plan as of the same
date as the contribution to the DMH Profit Sharing Plan is made,
and shall be subject to the same vesting schedule.
Investment Options.
The Investment Options listed on Appendix A that are offered to
DMH Participants may be limited as determined in the sole
discretion of the Chairman of DMH or his designee.
IN WITNESS WHEREOF, the Chief Executive Officer of the
Corporation has executed this Amendment this _______ day of July,
1996.
LINCOLN NATIONAL CORPORATION
By:
Ian M. Rolland
Chief Executive Officer
XLW/PCDocs No. 2699\1
7/09/96
LINCOLN NATIONAL CORPORATION
EXECUTIVE DEFERRED COMPENSATION PLAN FOR EMPLOYEES
Amended Effective May 1, 1996
This Lincoln National Corporation Executive Deferred Compensation
Plan for Employees is established by Lincoln National Corporation
("LNC").
Section 1: Definitions
The following definitions are provided for key terms contained
within this document:
1.01 Account. The term "Account" refers to a separate
deferred compensation account established by the Employer in the
name of each Participant.
1.02 Beneficiary. The word "Beneficiary" refers to an
individual designated by the Participant to receive certain
benefits enumerated in this Plan.
1.03 Benefits Administrator. The "Benefits Administrator"
shall be the LNC Senior Vice President of Human Resources.
1.04 Bonus. The term "Bonus" refers to an amount calculated
by reference to the Lincoln National Management Incentive Plan
("MIP"), the LNC Executive Value Sharing Plan ("EVSP"), the
American States Insurance Companies Sustained Performance
Incentive Plan for Senior Management, the American States'
Executive Performance Incentive Compensation Plan ("EPIC"),
or any similar bonus Plan currently in effect or which may
be adopted by Employers in the future.
1.05 Change in Control. A "Change in Control" means that LNC
has had a change of control as that term is defined in the
LNC Executives Severance Benefit Plan, as in effect immediately
prior to Change of Control. This definition shall always be
identical to the definition of "Change in Control" contained in
the LNC Executives' Severance Benefit Plan (or any successor
Plan). Any amendment of the definition contained in the LNC
Executives' Severance Benefit Plan (or any successor Plan) shall
be deemed an amendment of the definition of Change in Control
contained in this Plan. Furthermore, in the event of a "Change
in Control" the term "Change in Control" shall have the
definition which was operative on the day immediately
preceding that event.
1.06 Compensation. For purposes of the Plan, "Compensation"
means the basic cash compensation paid or payable to Participant
by the Employer at regular intervals, plus the amounts by which
such compensation is reduced pursuant to the Participant's
voluntary election, but excluding bonuses, overtime earnings,
service awards, and other special compensation.
1.07 Deferrals. The word "Deferrals" refers to the amount
that a Participant specifies in his or her Election to defer
pursuant to the terms and conditions of this Plan.
1.08 Election. The term "Election" refers to the act of the
Participant of stating in writing that he or she intends to
participate in the Plan for the calendar year following the
year of the execution of the Election.
1.09 Employer(s). The term "Employer" when used in the
singular refers to LNC or any individual Subsidiary and when used
in the plural ( Employers ) refers to LNC and all subsidiaries
collectively.
1.10. 401(k) Plan. The phrase "401(k) Plan" refers to the LNC
and the American States Financial Corporation Employees' Savings
and Profit-Sharing Plans, either singly or together as the
context implies.
1.11 Hardship. "Hardship" shall mean an unforeseeable
emergency to the Participant resulting from a sudden
and unexpected illness or accident of the Participant
or of a dependent (as defined in Section 152(a) of the Internal
Revenue Code of 1986, as amended) of the Participant, loss of the
Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant.
1.12 Insider. "Insider" means those individuals subject
to the short- swing profit recovery provisions of Section 16 of
the Securities Exchange Act of 1934.
1.13 LNCC. "LNCC" means the LNC Compensation Committee
constituted as described in the LNC Bylaws.
1.14 Match. The term "Match" refers to a contribution to
the Plan made by the Employer equal to (i) 6% of the
Participant's Compensation for such year multiplied
by the percentage specified in the 401(k) Plan for such calendar
year representing the Employer contribution, less (ii) the actual
Employer contribution to the 401(k) Plan pursuant thereto for
such calendar year, less (iii) the amount credited by
the Employer to the LNC Employees' Supplemental Savings and
Profit-Sharing Plan and to the American States' Supplemental
Savings and Profit-Sharing Plan on behalf of the Participant for
such calendar year, and, less (iv) any amount Employer decides in
its sole discretion to pay directly to Participant.
1.15 Match Units. "Match Units" means Units contributed
pursuant to the Match.
1.16 Paid Units. "Paid Units" means Units with respect to
which the Participant has paid the purchase price.
1.17.Participant. The word "Participant" refers to an employee
who is a member of a select group of management or highly
compensated employees of the Employers.
1.18 Plan. The word "Plan" refers to this LNC Executive
Deferred Compensation Plan for Employees.
1.19 Subsidiary. The term "Subsidiary" means any
corporation of which 50% or more of the voting stock is owned,
directly or indirectly, by LNC.
1.20 Unpaid Units. "Unpaid Units" means Units awarded to
the Participant and which are not vested.
1.21 Vested Units. "Vested Units" are Units awarded to
the Participant that are no longer subject to forfeiture.
Section 2: Eligibility, Participation, and Disbursements
This Plan is executed by Employers for the benefit of a select
group of management and highly compensated Participants, pursuant
to which Participants may elect to defer payment of a portion of
Compensation and/or Bonus under the Plan.
2.01 The Participant may elect to defer payment of a
portion of his or her Compensation under certain
conditions hereinafter provided; additionally,
Participant may defer a portion of his or her Bonus
upon the terms and conditions hereinafter provided.
2.02 The Employer shall have discretion to determine the
eligibility of employees to participate under this
Plan provided, however, that in order to be eligible,
all Participants must be members of a select group of
management or highly compensated employees of an
Employer.
2.03 Subject to the terms of this Plan, the Participant
and the Employer may make the following types of annual
compensation Deferrals for a calendar year:
a The Participant may elect to defer a portion of
Compensation not to exceed 70% of such
Participant's annual Compensation;
b Provided that the Participant has made Pre-Tax
Contributions to his or her 401(k) Plan in the
maximum amount permitted under the terms of the
Plan for a calendar year, the Employer shall
provide a contribution equal to the Match which
will be invested in LNC Phantom Stock if the Match
is under the LNC 401(k) Plan or ASFC Phantom
Stock if the Match is under the ASFC 401(k) plan.
c The Participant may elect to defer a specified
amount of Bonus which may be earned by the
Participant during the subsequent calendar year,
and which is typically paid within six (6) months
after the close of the calendar year to which the
election relates.
d. To the extent that a Participant in the 401(k)
Plan reaches the contribution limit for that Plan,
he or she may elect to defer the additional
amounts that otherwise would have been placed in
the 401(k) Plan into this Plan.
2.04 The Participant shall file an Election with the
Employer in the form attached hereto, which shall
specify the timing and amount of Deferrals, if any,
to be made under the Plan by the Participant for
the prospective pay periods. The Participant shall
file an Election prior to the date that such
Compensation is earned. The amount deferred may be
changed no more frequently than annually and such
change is only effective for Compensation paid
after the first day of the next succeeding calendar
year. An Election shall be irrevocable for any
calendar year, provided, however, that in the case
of a Hardship withdrawal from one of the 401(k)
Plans, the Participant's Election shall be
automatically revoked beginning with the first day
of the next regularly scheduled payroll period for
the remainder of the calendar year.
2.05 If a Deferral or a Match is made for any calendar
year, the Employer shall establish an Account in
the name of the Participant, to which shall be
credited all Deferrals and Matches made on behalf
of such Participant. The Employer shall also
credit such Account with earnings which would
otherwise accrue if the Account were actually
invested in the investment options selected by the
Participant from among the options offered from
time to time by the Employer, provided, however,
that any expenses incurred by an Employer
(including expenses for Federal and State
income taxes) in connection with such Participant's
Account may be charged against the Participant's
Account. Additionally, Employer makes the
following representations concerning the investment
options available under the Plan:
a. Due care will be taken to assure that all
Deferrals and Matches are credited in proper
proportions to sub-accounts for the phantom
investment options selected by the Participant.
b The phantom investment options available under
this Plan are those set forth on the specimen Form
which forms Appendix A of this Plan, including,
but not limited to, phantom stock units of LNC
common stock. Employees of American States
Financial Corporation ("ASFC") and its
subsidiaries, may be permitted to specify phantom
stock units in ASFC common stock. To the extent
such option is made available, the characteristics
of ASFC Phantom Stock units shall have the same
characteristics and be valued in the same manner
as LNC Phantom Stock Units as described in the
Plan.
c With respect to the phantom stock units, no actual
shares of common stock will be issued directly or
indirectly under the Plan, and no voting or other
rights of any kind associated with the ownership
of common stock shall inure to any Participant by
virtue of his/her entitlement to phantom stock
units under this Plan.
d With respect to the other investment options
currently available under the Plan, Participants
have no rights to any assets of any of the funds
arising from participation in this Plan.
e. Participants may change investment option
selections, under conditions prescribed by the
Benefits Administrator. LNC reserves the right to
eliminate, change, and add investment options at
any time. LNC is under no obligation to offer any
particular investment option, nor to effectuate a
selection by a Participant. Any selection shall
be treated by the Employer as a mere expression of
investment preference on the part of the
Participant.
2.06 The Participant's Account shall be paid to the
Participant (or his or her Beneficiary) in one lump
sum not later than thirty (30) days following the
earliest to occur of the Participant's (a) death,
(b) total disability, (c) termination of any and
all service with the Employer, or (d) solely in
the case of Participants providing services to an
Employer in a country other than the United States,
such other period as determined in the sole
discretion of the Benefits Administrator.
2.07 Notwithstanding the provisions of Section 2.06, a
Participant may elect an option other than a lump
sum payment prior to the Participant's retirement
or termination from service subject to the
restrictions contained in this Section 2.07. The
election must be made in writing, may be made no
less than twelve (12) months prior to the
occurrence of the Participant's termination of
service with the Employer, and must request an
annuity payment option of a type offered
by The Lincoln National Life Insurance Company
( LNL ) to the public. Under no circumstances
shall this Section 2.07 be used to enable a
Participant to receive any part of his or her
Deferrals pursuant to this Plan prior to the
earliest to occur of Participant's death,
disability, or termination of any and all service
with Employer. An election under this Section 2.07
shall become irrevocable once the Participant is
within twelve (12) months of termination.
2.08 Notwithstanding the provisions of Section 2.06, a
Participant may make separate elections to receive
other than a lump sum payment which shall be
applicable in the event of the Participant's death
or disability prior to termination of service with
the Employer. Such elections must be made in
writing and shall under no circumstances require
payments to commence prior to twelve (12) months
after the date of execution of the election. An
election made pursuant to this Section 2.08 is
irrevocable once made.
2.09 In the event that any legislative body shall pass a
statute or a regulatory body or court of competent
jurisdiction shall interpret any law to limit the
deductibility of any amount otherwise payable under
this Plan, then such amount and earnings thereon
shall automatically be subject to additional
deferral as determined by the LNCC but not for more
than five (5) years until the Employer is permitted
to claim a deduction for amounts paid out pursuant
to this Plan. If any amount is deferred pursuant
to this Section 2.09 for five (5) years, then it
shall be presumed that the amount will never be
deductible by the Employer and payments will
commence pursuant to this Plan as if the
Participant had terminated from service in the year
of the determination that such amount shall never
be deductible.
2.10 If a Participant plans to voluntarily terminate
from service with Employer within twelve (12)
months from the effective date of this Plan, he or
she may elect to further defer payment by Employer
beyond his or her termination date, subject to the
following terms and conditions. Such election must
be made in writing at least sixty (60) days prior
to Participant's termination date. The election
shall specify an alternative payment schedule in
the form of an annuity of a type currently offered
by LNL. Payments made pursuant to such an election
shall not commence prior to either twelve (12)
months from the date of the election or within
sixty (60) days of the termination date of the
Participant whichever is later. An election made
pursuant to this Section 2.10 is irrevocable once
made.
2.11 A Participant may request that the Employer make an
immediate, accelerated distribution from his or her
Account in the event such Participant has incurred
a severe financial Hardship. Payments under this
Plan for a severe financial Hardship will not be
made to the extent that such Hardship is relieved
through insurance proceeds, liquidation of
Participant's assets (only to the extent that such
liquidation would not itself cause a severe
financial Hardship) or by cessation of Deferrals
under this Plan. Payments for severe financial
Hardship under this Plan are limited to the extent
necessary to comply with Treas. Reg. Section
1.457-2. The Employer shall determine whether the
Participant has incurred a severe financial
Hardship and, in its sole discretion, may grant the
immediate, accelerated distribution of all, or a
portion of, the amounts then credited to the
Participant's Account, provided, however, that such
distribution shall not exceed the amount determined
by the Employer to be necessary for such
Participant to alleviate the severe financial
Hardship. If a Participant is an Insider, then
such Participant is not eligible for Hardship
withdrawals from this Plan.
2.12 The Participant may designate a Beneficiary to
receive amounts payable to him or her under this
Plan in the event of death. The Participant may
revoke or change a Beneficiary designation and name
a new Beneficiary by filing a written notice of
revocation or other notice of change of
Beneficiary with the Employer (on a form prescribed
by the Employer), at any time. In the absence of a
surviving Beneficiary or a valid Beneficiary
designation, the balance in a Participant's
Account, if any, shall be paid in one single lump
sum to the Participant's estate.
2.13 Interests in this Plan shall not be transferred,
assigned, pledged or encumbered. Prior to the time
payment is actually made to the Participant or his
or her Beneficiary, such Participant or Beneficiary
shall have no rights by way of anticipation or
otherwise to assign or dispose of any interest
under this Plan.
2.14 If the Deferrals of a Participant who is providing
services to an Employer in a country other than the
United States is subject to the deferral provision
described in Section 2.06(d), such Participant may
elect in writing to extend such deferral period to
be consistent with the normal terms and conditions
of this Plan, provided such written election is
made at least twelve (12) months prior to the time
when such Participant would otherwise be entitled
to receive cash and such election is irrevocable
once made.
Section 3: Administration of Phantom Stock Units
3.01 Administration of Match Units, Paid Units and
Vested Units.
a. General. The administration of the Match Units,
Paid Units and Vested Units shall be done in
accordance with rules and definitions that the
Benefits Administrator shall in his or her
absolute discretion develop from time to time.
The Benefits Administrator may delegate his or her
responsibilities to other persons, or retain the
services of lawyers, accountants, or other outside
third parties to assist with the administration of
the Plan.
b. Restrictions on Transfers. A Participant may
transfer amounts into or out of Units pursuant to
an election made during a thirty (30) day window
period following the release of either a quarterly
statement of earnings of LNC or the Annual
Statement to Shareholders. In the case of any
Insider, an election by either the Employer or the
Participant to place amounts into Match Units,
Paid Units, or Vested Units must remain in Units
until death, disability, termination of service,
or six (6) months after termination of Insider
status occurs.
3.02. Administration of Unit Grants.
a. Grant of Awards. The LNCC shall have full and
complete authority in its discretion, but
consistent with and subject to the express
provisions of the Plan, to (i) select the
Participants to whom Unpaid Units shall be awarded
under the Plan, (ii) determine the number of
Unpaid Units to be awarded, and (iii) adopt such
rules and restrictions and make all other
determinations deemed necessary or desirable for
the administration of Unpaid Units pursuant to the
Plan. Those individuals who receive Unpaid
Units under the Plan for a given year shall be
individuals who qualify for participation
in the LNC Executive Deferred Compensation Plan
for Employees and who are selected by the LNCC as
persons who are expected to materially contribute
to the growth and profitability of LNC's business.
A Participant may be granted Unpaid Units under
the Plan upon more than one occasion.
b. Awards to be Performance Based. Notwithstanding
anything contained in this Plan to the contrary,
the LNCC will only grant awards based upon the
attainment of performance goals which measure the
LNC's relative performance against a peer group of
companies selected by the LNCC. Each performance
goal must be established prior to the beginning of
the year or years for which an award is granted.
Each performance goal shall measure the value
achieved for shareholders of LNC as compared to
its peer group of companies.
c Timing. The LNCC may award Unpaid Units under the
Plan for any year after the effective date of the
Plan and after adoption of the Plan by the board
of directors of LNC (the "Board"). Awards may be
made as of the first day of the first calendar
quarter commencing after adoption of the Plan by
the Board (the "Plan Inception Date.")
d. General Vesting Rules. Unpaid Units (unless
forfeited in accordance with Section 3.02(g))
shall become Vested Units on either: (i) the date
specified by the LNCC at the time that such Units
are awarded which is at least six (6) months after
the date of the grant or (ii) if the LNCC does not
specify a vesting date, then the third anniversary
date of the day on which such shares were awarded
by the LNCC.
e. Certain Terminations of Employment Causing
Vesting. If a Participant ceases to be in the
employ of the Employer by reason of the
Participant's: (i) involuntary termination within
one year of a Change in Control of LNC, (ii)
death, (iii) disability,
(iv) termination of employment on account of
retirement on or after age 55, or, (v) involuntary
termination other than for cause, any Unpaid Units
of the Participant shall vest as of the last day
of such Participant's employment with the Employer
or six (6) months after the date of grant,
whichever is later.
f. Action of LNCC. The LNCC may for any reason vest
any Unpaid Units.
g. Forfeiture of Unvested Units. Subject to Section
3.03(e) (relating to vesting of Unpaid Units upon
death, disability, involuntary termination of
employment other than for cause), and any action
taken by the LNCC pursuant to Section 3.03(f), all
of a Participant's Unvested Units shall be
forfeited immediately upon the Participant's
termination of employment with the Employer for
any reason.
3.03 Phantom Dividends on Units. To the extent
dividends are paid by LNC or ASFC on common stock
of the same class as the Phantom Stock Units,
Participants will be credited with phantom
dividends. Phantom dividends shall be calculated,
on each dividend payment date, as an amount equal
to the product of the dividend paid on a share of
common stock multiplied by the number of Phantom
Stock Units. Any dividends on Unpaid Units are also
subject to forfeiture pursuant to Section 3.02(g).
3.04 Determination of Price for Units. The value of a
Phantom Stock Unit shall be equal to the final
sales price quoted by the New York Stock Exchange
Composite Listing of a share of LNC or ASFC common
stock of the same class as the Phantom Stock Units
on the last business day immediately preceding the
calculation.
3.05 Changes in Capital and Corporate Structure. In the
event of any change in the outstanding shares of
common stock of LNC or ASFC by reason of an
issuance of additional shares, recapitalization,
reclassification, reorganization, stock split,
reverse stock split, combination of shares, stock
dividend or similar transaction, the number of
Phantom Stock Units held by Participants under the
Plan shall be proportionately adjusted, in an
equitable manner. The foregoing adjustment shall
be made in a manner that will cause the
relationship between the aggregate appreciation in
outstanding common stock and earnings per share of
LNC or ASFC and the increase in value of each
Phantom Stock Unit granted hereunder to remain
unchanged as a result of the applicable
transaction.
3.06 Voting. Participant shall not be entitled to any
voting rights with respect to the Common Stock of
LNC or ASFC as a result of receipt of Match Units,
Paid Units, Unpaid Units, or Vested Units.
3.07 Maximum Number of Units. The maximum number of LNC
Phantom Stock Units which may be outstanding
pursuant to the Plan and the LNC Phantom Stock Plan
for Agents together is equal to 1% of the
outstanding shares of LNC common stock as of
December 31 of the year prior to the year for which
the calculation is being made.
3.08 Nontransferability of Units. Units shall not be
transferred, assigned, pledged or encumbered.
3.09 Legal Requirements. At the time of the award of
Units, LNC may, (i) postpone the date of delivery
of the Units until such time as LNC has available
for delivery to the Participant a prospectus
meeting the requirements of all applicable
securities laws, or (ii) impose any reasonable
requirements or restrictions on the award of Units.
Section 4: Miscellaneous Rights, Duties, and Plan
Interpretations
4.01 This Plan incorporates the LNC Phantom Stock Plan
for Employees. In the event that such
incorporation is found to violate any legal
requirement then the most recent version of the LNC
Phantom Stock Plan for Employees shall be deemed
effective and the provisions in this Plan
applicable to phantom stock shall be null and void.
4.02 This Plan is not intended to create a contract of
employment. The provisions of this Plan shall not
limit the right of the Employer to discharge the
Participant, or limit the right of the Participant
to voluntarily terminate from the service of the
Employer.
4.03 The rights of the Participant under this Plan (as
well as any right of his or her Beneficiary or
estate) shall be solely those of an unsecured
general creditor of the Employer and such rights
shall not constitute an interest in any specific
asset of the Employer.
4.04 The Plan shall be administered by the Benefits
Administrator. The Benefits Administrator may
establish administrative rules from time to time
that are consistent with the provisions of this
Plan and may, delegate his or her responsibilities
to other persons, or retain the services of
lawyers, accountants, or other outside third
parties to assist with the administration of the
Plan.
4.05 LNC retains the right to amend this Plan
prospectively at any time. This Plan may be
amended by action of the Board at a meeting held
either in person or by telephone or other
electronic means, or by unanimous consent in lieu
of a meeting. The Board may delegate this
amendment power to an officer of LNC or Committee
of the Board, in whole or in part, by resolution
adopted by the Board. Pursuant to Resolution
Number 1193 of the Board, adopted November 8,
1990, the Chief Executive Officer of LNC has been
authorized to make any modification to this Plan
if such modification is, in the opinion of counsel,
required by local, state or federal law or
regulation, and the authority to make any
discretionary modification to this Plan if such
modification is estimated to cost LNC no
more than $500,000 in the next full calendar year
after the effective date of such modifications. No
amendment to this Plan shall serve to reduce
amounts previously credited to the Accounts of
Participants except as required by state or federal
statute, regulation, or court order, or except as
provided in Sections 4.08 and 4.10.
4.06 LNC, by action of its Board of Directors, may
terminate this Plan for any reason at any time.
The Plan will terminate as to all of the Employers
on any day specified by LNC if thirty (30) days'
advance written notice of the termination is given
to the Employers. The Plan will terminate as to
any individual Employer on the first to occur of
the following:
a the date it is terminated by that Employer if
thirty (30) days' advance written notice is given
to LNC;
b. the date that Employer is judicially declared
bankrupt or insolvent;
c. the dissolution, merger, consolidation or
reorganization of the Employer, or the sale by
that Employer of all or substantially all of its
assets, except as otherwise provided in Section
4.12; or
d. the date specified by the Board in an action
terminating this Plan for one or more specific
Employers provided that thirty (30) days' advance
written notice is given to the Employer prior to
termination of the Plan.
4.07 By participating in the Plan, Participant waives
the right to litigate any dispute arising pursuant
to this Agreement in any court of otherwise
competent jurisdiction. In the event that a
Participant disagrees with any decision, action or
interpretation of this Plan made by his or her
Employer, he or she shall submit in writing a full
description of the disagreement. The determination
of the Employer as to any disputed questions
relating to and concerning construction and
interpretation, shall be final, binding, and
conclusive upon all persons. The Employer may, but
is not required to, agree to assistance in the
resolution of any dispute arising under this Plan
from a mediator who shall be a disinterested party
to the dispute.
4.08 The Employer may in its sole discretion deduct from
all contributions, payments and distributions any
federal, state, or local taxes or such other
amounts as may be required by law to be withheld
with respect to such payments. Alternatively, the
Employer may in its sole discretion charge each
Participant a flat fee based upon the amount of
money deferred pursuant to the Plan for purposes of
covering any taxes or other amounts required by
law to be withheld from payments pursuant to
this Plan.
4.09 When appropriate, the singular nouns in this Plan
include the plural, and vice versa.
4.10 The Employer may make equitable adjustments under
this Plan from time to time, including retroactive
adjustments to correct mathematical, accounting, or
factual errors made in good faith by the Employer
or a Participant. Any such adjustments will be
final and binding on all Participants and
Beneficiaries.
4.11 This Plan shall be governed and construed in
accordance with the laws of the State of Indiana.
4.12 If a Subsidiary ("Affected Corporation") shall
cease to meet the definition of a Subsidiary of
LNC as a result of sale, merger or other
disposition by LNC, LNC shall negotiate in good
faith with Affected Corporation or the entity
purchasing Affected Corporation whichever is
appropriate, to have Affected Corporation
assume responsibility for the Plan and all
liabilities to Participants who are employees
of that Affected Corporation. In the
event that LNC is unable to divest itself of
all liability of the Affected Corporation,
then the Participant shall be treated as if
he or she had terminated service with the
Affected Corporation for purposes of his or her
participation in the Plan as an employee
of the Affected Corporation. Nothing in this
Section 4.12 shall be interpreted to prevent
a Participant who remains employed by an Employer
from participating in the Plan for future years.
4.13 In the event that LNC fails to maintain and operate
a Subsidiary as a separate and identifiable legal
entity or diverts assets of a Subsidiary by either
declaring dividends or unilaterally causing a
Subsidiary to expand its business to such an extent
that the diversion of assets results in the
Subsidiary having insufficient capital to fund its
operations or meet its financial obligations, then,
to the extent that Subsidiary is rendered unable to
honor its liabilities under the Plan, the Trustee
of the LNC Rabbi Trust ("Trust") shall
automatically pay all Participants from that
Subsidiary their respective account balances
in the Plan. In the event the assets within
the Trust are insufficient to make such payments,
then LNC shall be obligated to pay the balance
due to the Participants from the Subsidiary, and
to the extent that the Subsidiary is able to honor
its obligations under the Plan, the Subsidiary
must reimburse either Trustee or LNC for
amounts paid on its behalf. Nothing in this
Section 4.13 shall be interpreted to require
LNC to make a payment under the Plan except
to the extent that a Subsidiary is unable
to meet its obligations under the Plan as
a direct result of specific actions
taken by LNC.
4.14 Any payment payable under this Plan to an
incompetent or otherwise incapacitated person
may, at the sole discretion of the Employer,
be made directly to such person or for the
benefit of such person through payment to
an institution or other entity caring
for or rendering service to or for such
person or to a guardian of such person or to
another person with whom such person resides.
The receipt of such payment by the institution,
entity, guardian or other person shall be
a full discharge of that amount of the
obligation by the Employer to the Employee
or Beneficiary.
4.15 Notwithstanding anything contained in Section 2.06,
Section 2.07 or any other provision in this Plan to
the contrary, in the event that a Participant is
involuntarily terminated for fraud or other
fidelity crimes, Participant automatically and
irrevocably forfeits all amounts contained in
all Accounts established by Employer pursuant to
this Plan.
4.16 This amended and restated Plan shall be effective
as of May 1, 1996. If any provision of this Plan
is deemed invalid or unenforceable, the remaining
provisions shall continue in effect.
This amendment and restatement of this Lincoln National
Corporation Executive Deferred Compensation Plan for
Employees is hereby approved.
___________________________________ April 22, 1996
Ian M. Rolland
Chief Executive Officer
Lincoln National Corporation
___________________________________ April 22, 1996
Witness
XLW/PCDocs No. 13021\1
4/22/96
APPENDIX A
INVESTMENT OPTIONS
The amount of earnings credited to each Participant's Account
will be in accordance with the performance of the LNL Variable
Annuity Account C Multi-Funds which the Participant selects.
Neither the Employers nor Lincoln National Corporation is under
any obligation to effectuate any investment option selection.
______ Money Market Fund ______Putnam Master Fund
______ Social Awareness Fund ______Growth Fund
______ Fixed Fund ______Bond Fund
______ Managed Fund ______Special Opportunities Fund
______ International Fund ______Lincoln National Equity -
Income Fund, Inc.
______ Lincoln National Aggressive ______Lincoln National
Growth Fund, Inc. CAPITAL Appreciation
Fund, Inc.
______ LNC Phantom Stock ______ ASFC Phantom Stock
***** **** ****
Exhibit 10(j)
-226-
LINCOLN NATIONAL CORPORATION
1993 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
(Including All Amendments Through November 14, 1996)
ARTICLE I - PURPOSE OF PLAN
1.1 Purpose of Plan. Lincoln National Corporation (the
"Corporation") has adopted the 1993 Stock Plan for Non-Employee
Directors (the "Plan") to provide for payment in shares of the
Corporation's Common Stock ("Stock") of a portion of the retainer
fee payable to members of the Board of Directors of the
Corporation who are not employees of the Corporation or any of
its affiliates or subsidiaries ("Non-Employee Directors") and to
allow Non-Employee Directors and directors of any of the
Corporation s affiliates or subsidiaries ( Non-LNC Directors ) to
elect to defer receipt of all or a portion of their retainer
and/or meeting fees. The Plan also provides a restricted stock
bonus in the form of Restricted Stock for Non-Employee Directors.
The Plan is intended to provide Non-Employee Directors with a
larger equity interest in the Corporation in order to attract and
retain well-qualified individuals to serve as Non-Employee
Directors and to enhance the identity of interests between
Non-Employee Directors and the shareholders of the Corporation.
ARTICLE II - ELIGIBILITY AND PARTICIPATION
2.1 Eligibility and Participation. Only Non-Employee Directors
of the Corporation and Non-LNC Directors shall be eligible to
participate in the Plan, and participation in the Plan is
mandatory for all Non-Employee Directors. Except as specifically
provided herein, a Non-Employee Director may not elect to
increase or decrease the portion of the retainer fee payable in
Stock.
ARTICLE III - RETAINER STOCK AWARDS AND DEFERRAL ELECTIONS
3.1 Retainer Stock Awards.
(a) Amount of Award. On each July 1 after the Effective Date
through and including July 1, 2004 (each such date
hereinafter a "Grant Date"), in lieu of the retainer fee
payable to a Non-Employee Director with respect to the
calendar quarter beginning on the Grant Date determined
without regard to the Plan ("Retainer"), and in
consideration for services rendered as a Non-Employee
Director, the Corporation shall issue to each Non-Employee
Director a whole number of shares of Stock (a "Stock Award")
equal to the number of shares determined by dividing (a)
the
sum
of (i) twenty-five percent (25%) of the Retainer
established by resolution of the Board of Directors of the
Corporation and payable for services prior to
July 1, 1995, plus (ii) one hundred per cent (100%) of any
increase in the Retainer adopted by the Board of Directors
of the Corporation for services after July 1, 1995
(provided, however, that this clause (ii) shall take effect
with respect to each such increase only upon the effective
date of such increase), by (b) the Fair Market Value of the
Stock on such Grant Date. For purposes of this Plan, the
"Fair Market Value" of Stock on any business day shall be
the average of the high and low sales prices of the Stock
quoted on the New York Exchange Composite Listing on the
next preceding business day on which there were such
quotations for the day in question. To the extent that the
formula described in this Section 3.1(a) does not result in
a whole number of shares of Stock, the result shall be
rounded upwards to the next whole number such that no
fractional shares of Stock shall be issued under the Plan.
Such shares shall be restricted from sale or transfer as
provided in Section 3.1(b).
(b)
Restrictions on Stock Awards. A stock certificate
representing the Stock Award shall be registered in each
Non-Employee Director's name. The Non-Employee Director
shall have all rights and privileges of a shareholder as to
such Stock Award, including the right to vote such
Restricted Shares, except that the following restrictions
shall apply: (i) no dividends shall be payable on the
shares, however, a Dividend Equivalent Payment, as defined
in Article V, below, shall be credited to an account
established under the Plan, invested in Stock Units, as
described under Section 3.2(b) and shall have the same
restrictions as the relevant restricted shares, (ii) none of
the Restricted Shares may be sold, transferred, assigned,
pledged, or otherwise encumbered or disposed of during the
Restricted Period, and (iii) except as provided in Section
3.1(c), all of the Restricted Shares and Dividend Equivalent
Payments shall be forfeited and all rights of the
Non-Employee Director to such Restricted Shares shall
terminate without further obligation on the part of the
Corporation and its subsidiaries upon the Non-Employee
Director's ceasing to be a director of the Corporation and
its subsidiaries.
(c) Termination of Directorship.
(i) Vesting of Shares. If a Non-Employee Director ceases
to be a director of the Corporation and its
subsidiaries by reason of Disability, Death,
Retirement or Change of Control, the Restricted Shares
granted to and Dividend Equivalent Payments on such
shares accumulated for such Non-Employee Director shall
immediately vest. If a Non-Employee Director ceases to
be a director of the Corporation and its subsidiaries
for any other reason, the Non-Employee Director shall
immediately forfeit all Restricted Shares, except to
the extent that a majority of the Board of Directors of
the Corporation other than the Non-Employee Director
approves the vesting of such Restricted Shares. Upon
vesting, except as provided in Article X, all
restrictions applicable to such Restricted Shares shall
lapse.
(ii) Disability. For purposes of this Section 3.1(c),
"Disability" shall mean a permanent and total
disability as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended.
(iii)Retirement. For purposes of this Section 3.1(c),
"Retirement" shall mean ceasing to be a director of the
Company (A) on or after age 70, or (B) on or after age 65
with the consent of a majority of the members of the Board
of Directors of the Corporation other than the Non-Employee
Director.
(iv)Change of Control. For purposes of this Section 3.1(c),
"Change of Control" shall have the same meaning as in the
Lincoln National Corporation Executives' Severance Benefit
Plan on the date that is six (6) months immediately
preceding the "Change of Control."
3.2 Deferral of Retainer and/or Fees.
(a) Deferral Elections. Commencing on the effective date of the
Plan, payment of all or part of the Retainer (excluding
Stock Awards pursuant to Section 3.1[a]) and/or fees payable
to a Non-Employee Director for meetings of the Board of
Directors of the Corporation or Board Committees or for
extraordinary services may be deferred by election of the
Non-Employee Director. Payment of all or a part of any
retainer and/or fees payable to a Non-LNC Director by an
affiliate or subsidiary of the Corporation for meetings of
the Board of Directors of the subsidiary or affiliate or for
board committees or for extraordinary services, may also be
deferred commencing with the adoption of the Plan by the
affiliate or subsidiary. Each such election must be made
prior to the start of the calendar year for which the
Retainer and/or fees will be paid and must be irrevocable
for the affected calendar year, provided, however, that for
1994, each Non-Employee Director shall be permitted to elect
deferred payment of all or a portion of the Retainer and/or
the fees earned after the effective date of the Plan and
before December 31, 1994, provided such Non-Employee
Director has made an irrevocable election to this effect
prior to stockholder approval of the Plan. In addition,
each election to defer payment of any amount of the Retainer
and/or fees payable in cash shall be made at least six (6)
months in advance of the date such election is to be
effective and shall be continuous and irrevocable except
upon a subsequent irrevocable election that takes effect at
least six (6) months after the date of such subsequent
election, to the extent necessary to satisfy the
requirements of Rule 16b-3(d) promulgated under the
Securities Exchange Act of 1934 ("1934 Act"), as the same
may be hereafter amended.
(b) Crediting Stock Units to Accounts. Amounts deferred
pursuant to Section 3.2(a) shall be credited as of the date
of the deferral to a bookkeeping reserve account maintained
by the Corporation ("Account") in units which are equivalent
in value to shares of Stock ("Stock Units"). The number of
Stock Units credited to an Account with respect to any
Non-Employee Director shall equal a number of Stock Units
equal to any deferred cash amount divided by the Fair Market
Value of the Stock on the date on which such cash amount
would have been paid but for the deferral election pursuant
to Section 3.2(a).
(c) Fully Vested Stock Units. All Stock Units credited to a
Non-Employee Director's Account pursuant to this Section
3.2 shall be at all times fully vested and nonforfeitable.
(d) Payment of Stock Units. Stock Units credited to a
Non-Employee Director's Account pursuant to this Article III
shall be payable in an equal number of shares of Stock or
cash in a single lump sum distribution or annual installment
payments made at such time specified by the Non-Employee
Director in the applicable deferral election, provided that
the designated payment date with respect to any election
must be the first day of a subsequent calendar year which is
no earlier than twelve (12) months following the
establishment of the affected Stock Unit.
(e) Payment of Stock Units Upon a Change of Control. Stock
Units credited to a Non-Employee Director s Account shall be
automatically distributed in a single lump sum amount of
shares of Stock, with fractional Stock Units being
distributed in cash, upon a Change of Control.
ARTICLE IV - RESTRICTED STOCK BONUS
4.1 Restricted Stock Bonus for Non-Employee Directors on July 1,
1994. Each Non-Employee Director serving as such on the date of
shareholder approval of the Plan shall be awarded a whole number
of restricted Shares of Stock (a "Stock Bonus") equal to $10,000
divided by Fair Market Value of Common Stock in consideration for
services rendered as a Non-Employee Director of the Corporation
and its subsidiaries. To the extent that the formula described
in this Section 4.1 does not result in a whole number of Shares
of Stock, the result shall be rounded upwards to the next whole
number such that no fractional shares shall be issued under the
Plan. The restrictions on the Stock Bonus shall be the same as
those restrictions described in Section 3.1(b).
4.2 Restricted Stock Bonus for Non-Employee Directors After July
1, 1994. Each Non-Employee Director who commences serving a new
three year term after July 1, 1994 shall be issued an additional
Stock Bonus equal to $10,000 divided by the Fair Market Value of
Common Stock as of the July 1 on which he or she begins serving a
new term as a Non-Employee Director, and thereafter until the
Plan is terminated. A new Non-Employee Director who is appointed
or elected to an unexpired term, shall receive a partial Stock
Bonus on the next succeeding July 1 after his or her appointment
or election to such partial term in an amount equal to the Fair
Market Value of Stock on such July 1 of $10,000 multiplied by a
fraction the numerator being the number of months remaining in
the unexpired term since being so appointed or elected and the
denominator being 36. To the extent that the formula described
in this Section 4.2 does not result in a whole number of Shares
of Stock, the result shall be rounded upwards to the next whole
number such that no fractional shares shall be issued under the
Plan. This Stock Bonus shall contain the same restrictions as
specified in Section 3.1(b).
ARTICLE
V - DIVIDEND EQUIVALENT PAYMENTS
5.1 Dividend Equivalent Payments. As of each dividend payment
date with respect to Stock, each Non-Employee Director shall
receive additional Stock Units ("Dividend Equivalent Payment")
equal to the product of (i) the per-share cash dividend payable
with respect to each share of Stock on such date, and (ii) the
total number of Restricted Shares issued in his or her name and
Stock Units credited to his Account as of the record date
corresponding to such dividend payment date, divided by the Fair
Market Value. Fractional Stock Units may be awarded. The
Dividend Equivalent Payments with respect to Restricted Shares
shall contain the same restrictions as specified in Section
3.1(b).
ARTICLE VI - DELIVERY OF STOCK CERTIFICATES
6.1 Stock Awards. As soon as practicable following the
expiration of the restrictions, but in no event sooner than six
(6) months from such Grant Date, the Corporation shall deliver to
the Non-Employee Director an unrestricted Stock certificate with
respect to the shares of Stock issued pursuant to such Stock
Award and Stock Bonus. During any six (6) month period after the
Grant Date and before delivery of the Stock certificate after the
restrictions have lapsed, the Non-Employee Director shall have
all the rights of a shareholder with respect to such Stock,
except for the right to receive dividend payments and except that
such Stock shall not be transferable by the Non-Employee Director
other than by will or the laws of descent and distribution.
6.2 Stock Unit Payments. The Corporation shall issue and
deliver to the Non-Employee Director cash or a Stock certificate,
as elected by the Non-Employee Director for payment of Stock
Units as soon as practicable following the date on which Stock
Units are payable in accordance with Section 3.2(d). No
fractional shares will be distributed.
ARTICLE VII - STOCK
7.1 Stock. The aggregate number of shares of Stock that may be
issued under the Plan shall not exceed one hundred fifty thousand
(150,000) shares, unless such number of shares is adjusted as
provided in Article VIII of this Plan. In addition to the
foregoing limit, the aggregate number of restricted shares that
may be granted during the term of the Plan shall not exceed fifty
thousand (50,000) shares, unless such number of shares is
adjusted as provided in Article VIII of this Plan. To the extent
that an award lapses or the rights of the Non-Employee Director
terminate or the award is settled in cash (e.g. cash settlement
of Stock Units) any shares of Common Stock subject to such award
shall again be available for the grant of an award.
ARTICLE VIII - ADJUSTMENT UPON CHANGES IN CAPITALIZATION
8.1 Adjustment Upon Changes in Capitalization. In the event of
a stock dividend, stock split or combination, reclassification,
recapitalization or other capital adjustment of shares of Stock,
the number of shares of Stock that may be issued pursuant to
Stock Awards, Stock Bonuses, and Stock Units and the number of
Stock Units credited to Accounts shall be appropriately adjusted
by the Board of Directors of the Corporation, whose determination
shall be final, binding and conclusive. No fractional shares of
Stock shall be issued under the Plan on account of any adjustment
specified herein. The grant of Stock Awards, Stock Bonuses, or
Stock Units pursuant to this Plan shall not affect in any way the
right or power of the Corporation to issue additional Stock or
other securities, make adjustments, reclassifications,
reorganizations or other changes in its corporate, capital or
business structure, to participate in a merger, consolidation or
share exchange or to transfer its assets or dissolve or
liquidate.
<PAGE>
ARTICLE
IX - TERMINATION OR AMENDMENT OF PLAN
9.1 In General. The Board of Directors of the Corporation may
at any time terminate, suspend or amend this Plan. However,
except as otherwise determined by the Board of Directors of the
Corporation, no such amendment shall become effective without the
approval of the stockholders of the Corporation to the extent
stockholder approval is required in order to comply with Rule
16b-3 under the 1934 Act.
9.2
Amendment No More than Once in Six (6) Months. Those
provisions of this Plan that set forth the amounts and the
formula for determining the amounts, prices and timing of Stock
Awards, Stock Bonuses, and Stock Units, respectively, may not be
amended more than once every six (6) months.
9.3 Written Consents. No amendment may adversely affect the
right of any Non-Employee Director to receive any Stock
previously issued as a Stock Award, Stock Bonus, or to receive
any Stock of Dividend Equivalent Payments pursuant to an
outstanding Stock Unit without the written consent of such
Non-Employee Director.
9.4 Termination of
Plan.
Unless the Plan is sooner terminated,
no Stock Award or Stock Bonus shall be granted after July 1,
2004. The termination of the Plan shall have no effect on
outstanding Stock Awards, Stock Bonuses or Stock Units.
ARTICLE X - GOVERNMENT REGULATIONS
10.1 Government Regulations.
(a) The obligations of the Corporation to issue any Stock
granted under this Plan shall be subject to all applicable
laws, rules and regulations and the obtaining of all such
approvals by governmental agencies as may be deemed
necessary or appropriate by the Board of Directors of the
Corporation.
(b) Except as otherwise provided in Article IX of this Plan, the
Board of Directors of the Corporation may make such changes
as may be necessary or appropriate to comply with the rules
and regulations of any governmental authority.
ARTICLE XI - MISCELLANEOUS
11.1 Unfunded Plan. The Plan shall be unfunded with respect to
the Corporation's obligation to pay any amounts due pursuant to
Stock Units and Dividend Equivalent Payments, and a Non-Employee
Director's rights to receive any payment of any Stock Unit or
Dividend Equivalent Payment shall be not greater than the rights
of an unsecured general creditor of the Corporation.
11.2 Assignment; Encumbrances. The right to receive a Stock
Award, Stock Bonus or Stock Unit and the right to receive payment
with respect to a Stock Unit under this Plan are not assignable
or transferable and shall not be subject to any encumbrances,
liens, pledges or charges of the Non-Employee Director or his or
her creditors. Any attempt to assign, transfer or hypothecate
any Restricted Stock Award, Stock Bonus, or Stock Unit or any
right to receive a Stock Award, Stock Bonus or Stock Unit shall
be void and of no force and effect whatsoever.
11.3 Designation of Beneficiaries. A Non-Employee Director may
designate a beneficiary or beneficiaries to receive any
distributions under the Plan upon his or her death.
11.4
Applicable Law. The validity, interpretation and
administration of this Plan and any rules, regulations,
determinations or decisions made hereunder, and the rights of any
and all persons having or claiming to have any interest herein or
hereunder, shall be determined exclusively in accordance with the
laws of the State of Indiana, without regard to the choice of
laws provisions hereof.
11.5 Headings. The headings in this Plan are for reference
purposes only and shall not affect the meaning or interpretation
of this Plan.
11.6 Notices. All notices or other communications made or given
pursuant to this Plan shall be in writing and shall be
sufficiently made or given if hand-delivered or mailed by
certified mail, addressed to any Non-Employee Director at the
address contained in the records of the Corporation or to the
Corporation in care of the Corporation s Secretary, 200 East
Berry Street, Fort Wayne, IN 46802-2706.
ARTICLE XII - EFFECTIVE DATE OF PLAN
12.1 Effective Date of Plan. This Plan shall become effective
on the date on which it is approved by the affirmative vote of
the holders of a majority of the votes cast by shareholders of
the Corporation present, or represented and entitled to vote, at
the next annual meeting of the shareholders of the Corporation
duly held in accordance with the laws of the State of
Indiana.
XLW/PCDocs No. 43164\2
February 12, 1997
Exhibit 10(m)
-232-
AMERICAN STATES FINANCIAL CORPORATION
EXECUTIVE PERFORMANCE INCENTIVE COMPENSATION PLAN
SECTION 1
General
1.1 Purpose. The AMERICAN STATES FINANCIAL CORPORATION
EXECUTIVE PERFORMANCE INCENTIVE COMPENSATION PLAN (the "Plan")
is established by the American States Financial Corporation,
an Indiana corporation (the "Corporation ). The purpose of
the Plan is to create rewards to participants for superior
performance that reflects corporate, business unit and
individual contributions to the Corporation. The Plan is also
intended to aid in the retention of key executives by
providing for the payment of awards in shares of the
Corporation's restricted stock or restricted phantom stock.
1.2 Plan Administration. The Plan shall be administered
by the Compensation Committee (the "Committee") of the Board
of Directors (the "Board") of Lincoln National Corporation
( Lincoln ), except that the Committee may delegate some or
all authority to the Compensation Committee of the Board of
Directors of the Corporation. In addition to those rights,
duties and powers vested in the Committee by other provisions
of the Plan, the Committee shall have exclusive authority to:
(a) interpret the provisions of the Plan;
(b) adopt, amend and rescind rules and regulations for
administration of the Plan; and
(c) make all other determinations deemed by it to be
necessary or advisable for the administration of the
Plan;
provided that the Committee shall exercise its authority in
accordance with the provisions of the Plan. The Committee may
not exercise its authority at any time that it has fewer than
three members. The Committee shall exercise its authority
only by a majority vote of its members at a meeting or by a
writing without a meeting. The Committee shall be composed
solely of members of the Board who qualify as "disinterested
persons within the meaning of Rule 16b-3(c)(2)(i) as
promulgated under the Securities Exchange Act of 1934 (the
"1934 Act").
For purposes of the Performance Cycle beginning January 1,
1996, any action taken by the Committee before the closing
date of the initial public offering of the Corporation's
common stock (the "Closing Date") shall be deemed for purposes
of this Plan to have been taken on December 31, 1995.
1.3 Applicable Laws. The Plan shall be construed and
administered in accordance with the laws of the State of
Indiana to the extent that such laws are not preempted by the
laws of the United States of America.
1.4 Gender and Number. Where the context permits, words
in any gender shall include the other gender, words in the
singular shall include the plural and the plural shall include
the singular.
1.5 Performance Period. The term "Performance Period"
shall mean a calendar-year period.
1.6 Performance Cycle. The term "Performance Cycle"
generally means (a) the one-year period ending December 31,
1996; (b) the two-year period ending December 31, 1997; and
(c) the three-year period ending each December 31 thereafter,
except that the three-year Performance Cycles ending on
December 31, 1996 and 1997 under the Lincoln National
Corporation Executive Value Sharing Plan may be used to
determine the amount of certain awards provided for under this
Plan with respect to those Performance Cycles. Each
three-year Performance Cycle shall be composed of three
Performance Periods. The Committee shall have the discretion,
however, to create Performance Cycles that are composed of one
or two Performance Periods and applicable to all or a portion
of the participation in the Plan of individuals designated by
the Committee before 90 days after the commencement of such
Performance Cycles.
1.7 Corporation. For purposes of Section 3 of the Plan,
the Committee may interpret the term "Corporation" to include
a Subsidiary or division or the parent corporation (or
Subsidiary or division thereof) of the Corporation, and the
Committee may establish separate Performance Goals designed to
measure the performance of any such business unit or units
relative to a designated Peer Group of companies. In such
event, the Committee may establish a separate Peer Group of
companies for each Performance Goal established, and the rules
of Section 3 shall otherwise apply.
1.8 Subsidiary. The term "Subsidiary" means any
corporation of which the Corporation owns directly, or
indirectly through an unbroken chain of Subsidiary
corporations, stock possessing a majority of the total
combined voting power of all classes of stock of that
corporation.
1.9 Effective Date and Duration of the Plan. The Plan
shall be effective as of the Closing Date. The Plan shall
continue indefinitely, subject to amendment or termination
pursuant to Section 1.10.
1.10 Amendment and Termination of the Plan. The Board,
or the Committee acting pursuant to such authority as may be
delegated to it by the Board, may amend or terminate the Plan
at any time. Amendment or termination of the Plan shall not
affect the validity or terms of any EPIC Award previously made
to a participant in any way that is adverse to the
participant without the participant's consent. Without the
approval of the holders of a majority of Corporation stock
entitled to vote at a duly held meeting of Corporation
shareholders, neither the Board nor the Committee may (a)
increase the number of shares of the Corporation's Common
Stock that may be issued under the Plan; (b) amend the manner
of determining the fair market value at which EPIC Awards are
converted into Restricted Stock Awards or Phantom Stock
Awards, unless such amendment would reduce the number of
shares of restricted stock awarded; (c) amend the standards
for eligibility set forth in this Plan; or (d) otherwise
materially increase the benefits available to employees under
the Plan.
1.11 Shares Available. The aggregate number of shares
of the Corporation's Common Stock that may be awarded under
Section 4.2 of the Plan as Restricted Stock Awards ("RSAs")
shall be subject to and included in the limitations on the
number of shares available under the American States Financial
Corporation Stock Option Incentive Plan or its successor (the
"Stock Option Plan"). Any RSAs issued under this Plan shall
decrease the number of shares available under the Stock Option
Plan. To the extent that an RSA lapses or the rights of its
holder terminate, any shares of Common Stock subject to such
RSA shall again be available for the grant of an RSA and not
be included in calculating the number of remaining shares
available under this subsection and the Stock Option Plan. In
the event of a merger, consolidation, reorganization,
combination, exchange, recapitalization, stock dividend, stock
split or other similar change in the corporate structure or
capitalization of the Corporation which affects the
Corporation's Common Stock, outstanding EPIC Awards granted in
the form of RSAs or Phantom Stock Awards shall be subject to
adjustment. Additionally, in the event of such changes in the
corporate structure or capitalization of the Corporation, the
aggregate number of shares available under this subsection and
the Stock Option Plan shall be adjusted proportionately.
SECTION 2
Plan Participation
2.1 Participant Designations. Prior to the commencement
of a Performance Cycle, the Committee may designate any key
executive, managerial, supervisory or professional employee of
the Corporation or a Subsidiary to be a participant, provided
that the number of participants designated for each
Performance Cycle shall not exceed 20. The Chief Executive
Officer of the Corporation will always be a participant. The
Committee may also prescribe rules allowing newly-hired
employees of the Corporation or a Subsidiary to become
participants in the Plan during a Performance Cycle. Each
participant shall be notified of his designation as a
participant as soon as practicable following such designation
by the Committee.
The right to designate eligible employees of the
Corporation or a Subsidiary who are subject to Rule 16(a) of
the 1934 Act ("Reporting Persons") as participants is reserved
exclusively to the Committee. The right to designate eligible
employees of the Corporation or a Subsidiary who are not
Reporting Persons as participants and the right to establish
Performance Cycles, Performance Goals and Peer Groups
applicable to such participants may be delegated in whole or
in part by the Committee to the Chief Executive Officer of the
Corporation or of Lincoln National Corporation.
2.2 Participation Not a Contract of Employment. The
Plan does not constitute a contract of employment.
Participation in the Plan does not give any employee the right
to be retained in the employ of the Corporation or a
Subsidiary and does not limit in any way the Corporation's or
the Subsidiary's right to change the duties or
responsibilities of any employee.
2.3 Withholding Taxes on Plan Benefits. The Corporation
shall have the right to deduct from any payment of stock or
cash made pursuant to the Plan the amount of any tax required
by law to be withheld from that payment.
SECTION 3
Plan Benefits
3.1 Peer Groups. In advance of each Performance Cycle,
the Committee shall establish a Peer Group of companies for
the purpose of facilitating a determination as to whether a
Performance Goal (described in Section 3.2 below) has been
attained. Different Peer Groups of companies may be
established for each Performance Goal, for each Performance
Cycle and for each designated business unit for which a
Performance Goal is established. Each Peer Group of companies
shall be designed to enhance cooperation between major
business units of the Corporation and to enhance the overall
productivity and efficiency of participants for the benefit of
the Corporation and its shareholders. Upon the establishment
of a Peer Group of companies, the Committee shall also
establish objective procedures for adjusting the composition
of the Peer Group upon the occurrence of certain events during
the Performance Cycle.
3.2 Performance Goals. In advance of each Performance
Cycle, one or more Performance Goals shall be established for
the Performance Cycle. Performance Goals shall be designed to
measure the Corporation's performance relative to the Peer
Group of companies over the course of the Performance Cycle.
Each Performance Goal shall be expressed in terms of objective
formulae. These formulae may be expressed in words,
algebraically, in tabular form or through a combination of
these methods. They may, for example, either separately or in
combination, (a) compare the Corporation's combined ratio for
the Performance Periods contained within the Performance Cycle
to the combined ratio of various companies contained within
the Peer Group of companies; and (b) measure the percentage
increase in the Corporation s life and property and casualty
units for the Performance Periods. They may, in the
discretion of the Committee, take such other form as the
Committee shall from time to time establish with respect to
specified Performance Cycles and business units. Any
additional written guidelines for measuring the Corporation s
and the Peer Group's performance during a Performance Period
and during the Performance Cycle that the Committee deems
necessary to assure that a third party having knowledge of the
performance results of the Corporation and the Peer Group
could calculate the maximum EPIC Award for each Reporting
Person shall also be established in advance of each
Performance Cycle. In no event shall a Performance Goal that
measures performance relative to a Peer Group be set such that
it could be considered to be satisfied if the Corporation's
performance relative to the respective Peer Group is below the
average performance of the Peer Group over the course of the
Performance Cycle.
3.3 Maximum EPIC Awards. For each Performance Goal, the
Committee shall establish objective formulae for determining
the maximum amount payable to a Reporting Person as an EPIC
Award on account of attaining the Performance Goal. The
Committee shall have no discretion to increase the amount of
a Reporting Person participant's EPIC Award above the maximum
amount determined by applying the formulae described above.
The Committee shall have discretion, however, either to
eliminate a participant's EPIC Award or to reduce the amount
of a participant's EPIC Award below the maximum amount. In no
event shall any EPIC Award for any Performance Cycle exceed
$3,500,000 for the Corporation's Chief Executive Officer,
$2,500,000 for the Corporation's Chief Operating Officer,
$1,750,000 for the Corporation's Executive Vice-Presidents or
$1,500,000 in the case of any other participant.
SECTION 4
Payment of Benefits
4.1 Determination of Amount of Award. The determination
of the amount of a participant's EPIC Award shall be made at
the end of each Performance Cycle in accordance with Section 3
of the Plan. Prior to the payment of an EPIC Award, the
Committee shall certify the extent to which the Performance
Goals for the Performance Cycle were attained. The Chief
Executive Officer of the Corporation may adjust a
participant's EPIC award to recognize such participant's
outstanding performance, but in no event may an EPIC award
exceed the maximum award determined under subsection 3.3 of
the Plan. EPIC Awards shall be distributed to all
participants entitled to such awards (including any former
participants who have retired, become disabled or terminated
employment and who are entitled to such awards) as soon as
practicable after such certification by the Committee (the
"Payment Date").
4.2 Payment of Award. The Corporation, upon
recommendation by the Committee, may convert the cash value of
each participant's EPIC Award into an equivalent number of
shares of the Corporation's Common Stock as RSAs under the
terms of the Stock Option Plan and Section 1.11 of this Plan.
Alternatively, the Committee may convert the cash value of
each participant's EPIC Award into an equivalent number of
shares of Phantom Stock of the Corporation. Such Phantom
Stock Awards ("PSAs") shall have the characteristics of, and
be subject to the same terms and conditions as, the "Unpaid
Units" provided for under the Lincoln National Corporation
Executive Deferred Compensation Plan for Employees or a
successor to such plan, except as otherwise provided in this
Plan. The Committee shall determine the time of vesting of
RSAs and the time of payment of PSAs. No payment in exchange
for any participant's PSA awarded pursuant to this Plan shall
be made before the calendar year following the year in which
the participant retires or otherwise terminates employment
with the Corporation and its Subsidiaries, and any such
payment shall be made only in cash. In no event shall
entitlement to payment of a PSA or vesting of an RSA occur
less than six months and one day after the participant's
receipt of his or her EPIC Award in such form. The conversion
of an EPIC Award into either an RSA or a PSA shall be based on
the Fair Market Value of the Corporation's Common Stock as of
the close of the business day immediately preceding January 1,
February 1, and March 1 of the next succeeding Performance
Cycle. These Fair Market Values shall be averaged to
determine the price of a share of the Corporation's Common
Stock for that prior Performance Cycle (the "19XX Stock
Price"). "Fair Market Value" means the average of the highest
and lowest prices of a share of Common Stock, as quoted on the
composite transactions table covering transactions on the New
York Stock Exchange, on the first date that the stock was
traded on that Exchange which next precedes the date as of
which the determination is being made. Any amount which is
not converted to an RSA or a PSA shall be paid to a
participant in cash.
The Committee shall have the authority to adopt rules
under which a participant may choose that PSAs awarded to the
participant shall constitute (after such period of time as the
Committee may specify in each PSA) phantom stock units of the
Corporation's Common Stock that are subject to the terms of
the American States Financial Corporation Executive Deferred
Compensation Plan for Employees, including in such terms the
ability to direct that future increases or decreases in the
value of the participant's award be measured by phantom
investment options other than such phantom stock units.
4.3 Exclusion. No participant or former participant
whose personal performance or conduct is, in the opinion of
the Committee, less than competent shall be paid or due an
EPIC Award under the Plan. In addition, no participant who
voluntarily terminates employment (other than on account of
death, disability, retirement, or a resignation by mutual
agreement) shall be paid or due an EPIC Award under the Plan.
4.4 Termination of Employment. If a participant leaves
the employ of the Corporation and all of its affiliates during
a Performance Cycle, the Committee shall make EPIC Awards
under Section 4.2 of the Plan in accordance with the following
guidelines:
(a) Retirement. If a participant retires during a
Performance Cycle, the participant shall be awarded an EPIC
Award on the Payment Date in such amount as the Committee may
determine, provided that such EPIC Award shall not exceed an
amount determined under Section 3 of the Plan.
(b) Disability. If a participant's employment
terminates during a Performance Cycle because he or she
becomes disabled (as defined in the American States Insurance
Company Employees' Retirement Plan), the Committee may award
the participant an EPIC Award on the Payment Date. The
Committee may, however, reduce or eliminate the participant's
EPIC Award if, in the opinion of the Committee, such reduction
or elimination is appropriate.
(c) Death. In the event of a participant's death,
the Committee may award an EPIC Award on the Payment Date.
The Committee may, however, reduce or eliminate the
participant's EPIC Award if, in the opinion of the Committee,
such reduction or elimination is appropriate. Payments under
the Plan in the event of a participant's death shall be made
in accordance with a writing filed with the Committee, or if
no writing is filed, to the participant's estate for
disposition under the terms of the participant's will or by
the laws of descent or distribution.
(d) Other Termination of Employment. If a
participant's employment with the Corporation and all of its
affiliates terminates for reasons other than those described
in paragraphs (a) through (c) above, no EPIC Award shall be
payable with respect to any Performance Cycle which does not
end prior to the termination of the participant's employment.
4.5 Effect on Other Employee Benefits. EPIC Awards
under the Plan shall have no effect on the level of employee
benefits or other forms of noncash compensation that are
salary-based.
SECTION 5
Employee's Rights or Title to Funds
5.1 The Plan is an unfunded plan, and neither the
Corporation nor its Subsidiaries have any obligation to set
aside, earmark, or entrust any fund, policy, or money with
which to pay any obligations under the Plan. The Plan is also
intended to be maintained primarily for the purpose of
providing deferred compensation for a select group of
management or highly compensated employees, and therefore to
be exempt from various provisions of the Employee Retirement
Income Security Act of 1974, as amended, and shall be
administered and construed accordingly.
5.2 The amount of any EPIC Award payable under the Plan
with respect to any participant shall be paid solely from the
general assets of the Corporation.
5.3 Any participant or beneficiary shall be and remain a
general creditor of the Corporation with respect to any
promises to pay under the Plan in the same manner as any other
creditor who has a general claim for an unpaid liability.
XLW/PCDocs No. 5594\1
Exhibit 10(n)
-238-
AMERICAN STATES FINANCIAL CORPORATION
STOCK OPTION INCENTIVE PLAN
SECTION 1
GENERAL
1.1. Purpose. The purpose of the AMERICAN STATES FINANCIAL
CORPORATION STOCK OPTION INCENTIVE PLAN (the "Plan") is to
promote the long-term financial performance of American
States Financial Corporation ("ASFC") by (a) attracting and
retaining key employees by providing incentive compensation
opportunities which are competitive with those of other
major corporations; (b) motivating such persons to further
the long-range goals of ASFC; and (c) furthering the
identity of interests of participating employees and ASFC
shareholders through opportunities for increased ownership
of ASFC Common Stock, thereby strengthening their concern
for the welfare of ASFC by enhancing its profitable growth.
1.2. Definitions. The following definitions shall be applicable
throughout the Plan:
(a) "Award" means, individually or collectively, any
Option, Restricted Stock Award, Performance Award,
Stock Appreciation Right, Incentive Award or Dividend
Equivalent Right.
(b) "Board" means the Board of Directors of American States
Financial Corporation.
(c) "Code" means the Internal Revenue Code of 1986, as
amended. Reference in the Plan to any section of the
Code shall be deemed to include any amendments or
successor provisions to such section and any
regulations under such section.
(d) "Committee" means not less than three members of the
Board who are selected by the Board as provided in
subsection 1.4.
(e) "Common Stock" means the common stock of American
States Financial Corporation.
(f) "Company" means, collectively, American States
Financial Corporation and its subsidiaries.
(g) "Dividend Equivalent Right" or "DER" means the right of
the holder thereof to receive, pursuant to the terms of
the DER, credits based on cash dividends that would be
paid in shares specified by the DER if such shares were
held by the Holder, as more particularly described in
Section 8.
(h) "Fair Market Value" means, as of any specified date,
the average of the highest and lowest quoted selling
prices of the Common Stock as reported on the Composite
Tape for issues listed on the New York Stock Exchange
on the first business day that the Common Stock was
traded on that Exchange which next precedes the date as
of the Award, or, if no sales were reported on the
Composite Tape on such specified date, the average of
the highest and lowest quoted selling prices of the
Common Stock on the nearest dates before and after such
specified date on which sales of the Common Stock were
so reported.
(i) "Holder" means an employee of the Company who has been
granted an Option, a Restricted Stock Award, a
Performance Award, Dividend Equivalent Right, Stock
Appreciation Right or an Incentive Award.
(j) "Incentive Award" means an Award granted under Section
6 of the Plan.
(k) "Incentive Stock Option" means an Option within the
meaning of section 422(b) of the Code.
(l) "Option" means an Award under Section 3 of the Plan and
includes both Nonqualified Stock Options and Incentive
Stock Options to purchase Common Stock.
(m) "Performance Award" means an Award granted under
Section 7 of the Plan.
(n) "Personal Representative" means the person who upon the
death, disability or incompetency of a Holder shall
have acquired, by will or by the laws of descent and
distribution or by other legal proceedings, the right
to exercise an Option or the right to any Restricted
Stock Award, Performance Award, Dividend Equivalent
Right or Incentive Award therefore granted or made to
such Holder.
(o) "Plan" means the American States Financial Corporation
Stock Option Incentive Plan.
(p) "Restricted Stock Award" means an Award granted under
Section 5 of the Plan.
(q) "Stock Appreciation Right" or "SAR" means an Award
granted under Section 4 of the Plan.
(r) "Subsidiary" means any corporation at any date that
ASFC owns directly, or indirectly through an unbroken
chain of subsidiary corporations, stock possessing a
majority of the total combined voting power of all
classes of stock of that corporation.
1.3. Effective Date and Duration of Plan. The Plan shall become
effective on the later of (i) the closing date of the
initial public offering of ASFC common stock, or (ii) the
Plan's adoption by the Board and approval of shareholders of
American States Financial Corporation. No further Awards
may be granted under the Plan after July 1, 2000. The Plan
shall remain in effect until all Options granted under the
Plan have been exercised or expired by reason of lapse of
time, all restrictions on Restricted Stock Awards have been
eliminated, and all DER's and SAR's satisfied.
1.4. Plan Administration. The Plan shall be administered by the
Committee. In addition to those rights, duties, and powers
vested in the Committee by other provisions of the Plan, the
Committee shall have sole authority, in its discretion, to:
(a) determine which employees of the Company shall receive
an Award;
(b) construe the Plan and respective agreements executed
thereunder;
(c) adopt, amend and rescind rules and regulations for the
administration of the Plan;
(d) ensure that awards continue to qualify under Rule 16b-3
of the Securities Exchange Act of 1934, as the same may
be hereafter amended; and
(e) make all other determinations deemed by it to be
necessary or advisable for the administration of the
Plan;
provided that the Committee shall exercise its authority in
accordance with the provisions of the Plan. The Committee
may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any agreement relating
to an Award in the manner and to the extent it shall deem
expedient to carry it into effect. The determinations of
the Committee on the matters referred to in this subsection
1.4 shall be conclusive.
The Committee may not exercise its authority at any time
that it has fewer than three members. The Committee shall
exercise its authority only by a majority vote of its
members at a meeting or by a writing without meeting. At
any date, the members of the Committee shall be those
members of the Compensation Committee of the Board who are
not eligible and who have not been eligible within one year
preceding that date to participate in the Plan or any other
plan of ASFC or a Subsidiary under which stock, stock
options or stock appreciation rights of ASFC or a Subsidiary
may be granted. In the event that fewer than three members
of the Compensation Committee of the Board are eligible to
serve on the Committee, the Board may appoint one 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.
1.5. Shares Available. The aggregate number of shares of ASFC
Common Stock that may be issued under this Plan shall not
exceed 1,000,000 shares. Notwithstanding the foregoing
sentence, in no event shall the aggregate number of shares
of ASFC Common Stock that may be issued under the Plan
permit, after the exercise of all options and rights, or
otherwise cause or enable the total number of shares of ASFC
Common Stock that are issued and outstanding in the name of
shareholders other than Lincoln National Corporation ("LNC")
to constitute 20 or more percent of the total number of
shares of ASFC Common Stock issued and outstanding.
In addition to the foregoing limits on the aggregate number
of shares that may be issued under all Awards, the aggregate
number of Restricted Stock Awards that may be granted during
any calendar year (or portion thereof) shall not exceed
75,000. This aggregate limit on Restricted Stock Awards
includes any Restricted Stock Awards made under the
Executive Performance Incentive Plan ("EPIC"), which in some
cases may be awarded by the compensation committee of LNC
rather than that of ASFC. Any Restricted Stock Awards made
under EPIC shall reduce the number of shares available for
Restricted Stock Awards under this Plan. If the number of
shares of Common Stock awarded as Restricted Stock Awards in
any year is less than the number of shares that could have
been so granted pursuant to this subsection, the balance of
such unused shares may be added to the maximum number of
shares of Restricted Stock that may be effectively awarded
in following years. To the extent that an Award lapses or
the rights of its Holder terminate or the Award is paid in
cash, any shares of Common Stock subject to such Award shall
again be available for the grant of an Award and not be
included in calculating shares available under this
subsection.
1.6. Individual Limitations. The aggregate Fair Market Value of
shares of ASFC Common Stock with respect to which Awards
(excluding the underlying shares for Dividend Equivalent
Rights) may be made to any individual in any one calendar
year cannot exceed $2,500,000.
1.7. Stock Offered. The shares of Common Stock to be offered,
pursuant to the grant of an Award shall be authorized but
unissued shares.
1.8. Change in Corporate Structure. In the event of a merger,
consolidation, reorganization, combination, exchange,
recapitalization, stock dividend, stock split or other
similar change in the corporate structure or capitalization
of ASFC which affects the Common Stock, outstanding Awards
shall be subject to adjustment by the Committee at its
discretion as to the number and price of shares of Common
Stock or other consideration subject to such Awards. In the
event of such changes in the corporate structure or
capitalization of ASFC, the aggregate number of shares
available under the Plan may be appropriately adjusted by
the Committee, whose determination shall be conclusive.
1.9. Amendment and Termination of Plan. The Board may amend or
terminate the Plan at any time except that, without the
approval of the holders of a majority of ASFC stock entitled
to vote at a duly held meeting of such shareholders, the
Board may not:
(a) increase the number of shares of Common Stock which may
be issued under the Plan, except as provided in
subsection 1.8;
(b) reduce the minimum option price under any Option,
except as provided in subsection 1.8;
(c) increase the maximum period during which Options and
related Stock Appreciation Rights or related Dividend
Equivalent Rights may be exercised;
(d) extend the maximum period during which Awards may be
granted under the Plan;
(e) amend the standards for eligibility described in
Section 2; and
(f) materially increase the benefits accruing to employees
under the Plan.
Amendment or termination of the Plan shall not affect the
validity or terms of any Award previously made to a Holder
in any way which is adverse to the Holder without the
consent of the Holder.
SECTION 2
ELIGIBILITY; EFFECT OF THE PLAN
2.1. Participation Designations. The Committee may, at any time,
make Awards to any key executive, managerial, supervisory or
professional employee of the Company. Awards may not be
granted to (i) any director who is not an employee of the
Company or (ii) any person who immediately after such grant
is the owner, directly or indirectly of more than 10% of the
total combined voting power of all classes of stock of ASFC.
The right to select eligible employees who are subject to
Rule 16(a) of the Securities Exchange Act of 1934
("Reporting Persons") and all decisions regarding Awards to
such Reporting Persons are reserved exclusively to the
Committee. The right to select individuals who are not
Reporting Persons for participation in the Plan is reserved
to the Committee, but such reserved right may be delegated
in whole or in part by the Committee to the chief executive
officer or chief operating officer of ASFC.
2.2. Participation Not Contract of Employment. The Plan does not
constitute a contract of employment. Participation in the
Plan does not give any employee the right to be retained in
the employ of ASFC or a Subsidiary nor does it limit in any
way the right of ASFC or a Subsidiary to change the duties
or responsibilities of any employee.
2.3. Multiple Awards. An Award may be made on more than one
occasion to the same person, and such Award may include an
Incentive Stock Option, Nonqualified Stock Option,
Restricted Stock Award, Stock Appreciation Right, Dividend
Equivalent Right, Performance Award, Incentive Award, or any
combination thereof.
2.4. Withholding Taxes on Plan Benefits. The Company shall have
the right to deduct from any cash payment made pursuant to
the Plan the amount of any tax required by law to be
withheld from that payment. The Company shall have the
right to require payment from any person entitled to receive
Common Stock pursuant to the Plan of the amount of any tax
required by law to be withheld with respect to that stock
prior to its delivery. A Holder may elect with respect to
any Option, any Stock Appreciation or Dividend Equivalent
Right which is paid in whole or in part in Common Stock and
any Restricted Stock, Incentive or Performance Award to
surrender shares of Common Stock the Fair Market Value of
which on the date of surrender satisfies all or part of the
withholding requirements. Such election must be made by
filing a Stock Surrender Withholding Election with the
Secretary of ASFC which meets the following requirements and
conditions:
(a) Any Stock Surrender Withholding Election shall be in
writing and be irrevocable;
(b) The Committee shall have the right with respect to any
or all outstanding awards to terminate or suspend for
any period the right of a Holder to make a Stock
Surrender Withholding Election at any time prior to the
making of such election;
(c) Any Stock Surrender Withholding Election must be made
prior to the date that the amount of tax to be withheld
is determined (the "Tax Date"); and
(d) If a Holder is a Reporting Person, the Stock Surrender
Withholding Election must be made:
(i) more than six months after the date of grant of
the Award with respect to which such election is
made (except whenever such election is made by a
disabled Holder or the estate or personal
representative of a deceased Holder); and
(ii) either at least six months prior to the Tax Date
or during the ten day "window period" beginning on
the third day following the release for publica-
tion of ASFC's summary statement of earnings for a
quarter or fiscal year.
2.5. Awards to Employees Who Are Foreign Nationals. Without
amending the Plan, the Committee may, subject to the
limitations in subsections 1.5 and 1.9, grant, amend,
administer, annul or terminate awards to employees who are
foreign nationals on such terms and conditions different
from those specified in the Plan as may in the judgment of
the Committee be necessary or desirable to foster and
promote achievement of the purposes of the Plan.
SECTION 3
STOCK OPTIONS
3.1. Grantees. The Committee may, at any time, award an
Incentive Stock Option or Nonqualified Stock Option to an
eligible employee, whether or not such individual has
previously received a grant under the Plan.
3.2. Stock Option Agreement. Each Option granted under the Plan
shall be evidenced by an agreement between the Holder and
ASFC. The provisions of each agreement shall in the form
attached hereto as Exhibit A, except as modified by
completion by the Committee in accordance with the
provisions of the Plan. ASFC shall notify a Holder of any
grant of an Option, and a written option agreement or
agreements shall be duly executed and delivered by ASFC to
the Holder.
3.3. Shareholder Rights and Privileges. A Holder shall be
entitled to all rights and privileges of a shareholder only
with respect to such shares of Common Stock as have been
purchased on exercise of the Option and for which
certificates of stock have been registered in the Holder's
name.
3.4. Individual Limitations. In the case of Options, the maximum
number of Options awarded to one individual cannot exceed
50,000 Options. In the case of Incentive Stock Options, the
aggregate Fair Market Value (determined as of the time the
Option is granted according to Section 422(d)(1) of the
Code) of shares of Common Stock with respect to which are
exercisable for the first time in any one calendar year by
any one individual cannot exceed $100,000 (or such other
individual limits as may be in effect under the Code on the
date of grant).
3.5. Exercise of Options and Payment. The price at which a share
of Common Stock may be purchased upon exercise of an Option
shall not be less than 100% of the Fair Market Value of a
share of Common Stock when the Option is granted. During
any period that an Option is exercisable, it may be
exercised by delivering an irrevocable notice of exercise
which specifies the number of shares purchased and full
payment of the purchase price to the Secretary of ASFC.
Payment may be made in cash, in shares of Common Stock with
an aggregate Fair Market Value equal to the purchase price,
or in any combination of cash and such shares, provided,
however, payment of the exercise price may only be made in
shares of Common Stock which have been owned by the Holder
for at least six months.
3.6. Limitations on Exercise of Option. An Option shall be
exercisable in whole or in such installments and at such
times, commencing not earlier than six months from the date
of grant, as determined by the Committee. Generally,
Options granted to a Holder shall not be exercisable prior
to the first anniversary of the grant date except, in the
discretion of the Committee and subject to the limitations
of subsection 3.4, if the Holder's employment with ASFC and
all Subsidiaries terminates by reason of death, Disability
(as defined in the ASFC Employees' Retirement Plan), or
retirement (as described in subsection 3.7(d)).
3.7. Option Period. Each Option shall terminate and not be
exercisable as specified by the Committee which date shall
not be later than the earliest of (a) the tenth anniversary
of the grant date; (b) the last day of the three month
period beginning on the date the Holder's service with ASFC
and all Subsidiaries terminates for reasons other than
described in (c) or (d) following; (c) the first anniversary
of the date of Holder's termination of service with ASFC and
all Subsidiaries on account of death or Disability; or (d)
the fifth anniversary of the Holder's retirement at or after
age 65 or, with the approval of the Holder's employer, early
retirement at either age 55 with 5 years of service or under
the terms of a retirement plan of ASFC or a Subsidiary.
3.8. Transferability. An Option shall not be transferable except
by will or the laws of descent and distribution, and may be
exercisable during the Holder's lifetime only by the Holder;
provided, however, to the extent permitted under Rule 16b-3
under the Securities Exchange Act of 1934, the Committee may
develop rules to permit the transfer of Nonqualified Options
to an immediate family member of the Holder or to a family
trust.
3.9. Surrender of Options. The Committee (concurrently with the
grant of an Option or subsequent to such grant) may, in its
sole discretion, grant to any Option Holder the right upon
written request, to surrender any exercisable Option or
portion thereof in exchange for cash, whole shares of Common
Stock or a combination thereof, as determined by the
Committee, with a value equal to the Fair Market Value, as
of the date of such request, of one share of Common Stock
over the Option price for such share multiplied by the
number of Shares covered by the Option or portion thereof to
be surrendered. In the case of any such surrender right
which is granted with an Incentive Stock Option, such right
shall be exercisable only when the Fair Market Value of the
Common Stock exceeds the price specified therefor in the
Option or portion thereof to be surrendered. In the event
of the exercise of any surrender right granted hereunder;
the number of shares reserved under the Plan shall be
reduced only to the extent that shares of Common Stock are
actually issued in connection with the exercise of such
surrender right. Additional terms and conditions governing
any such surrender rights may from time to time be
prescribed by the Committee in its sole discretion.
SECTION 4
STOCK APPRECIATION RIGHTS
4.1. Holders. The Committee may, at the time an Award is made,
designate that a Holder be granted, in conjunction with that
Award, a Stock Appreciation Right ("SAR"). With respect to
a Holder who is eligible for a cash award under the terms of
the ASFC Executive Performance Incentive Compensation Plan
or the LNC Executive Value Sharing Plan, the Committee may
so designate such Holder only upon the recommendation of the
Compensation Committee of the Board of Directors of Lincoln
National Corporation (the Lincoln Compensation
Committee ). No SAR may be granted in conjunction with a
previously granted Incentive Stock Option without the
written consent of the affected Holder. No more than 50,000
SARs may be awarded to one participant in one calendar year.
For purposes of the Plan, the term "Stock Appreciation
Right" means a right to surrender all or a portion of an
Option and receive, in exchange, payment of a cash amount no
greater than the excess of the Fair Market Value of one or
more shares of ASFC common stock over the Fair Market Value
of such option share on the date the related Option was
granted. Each Stock Appreciation Right granted under the
Plan shall be evidenced by an agreement between the Holder
and ASFC. The provisions of each agreement shall be
determined by the Committee in accordance with the
provisions of the Plan.
4.2. Terms of SARs. The Committee shall determine the number of
shares of Common Stock and the percentage (not more than 100
percent) or maximum amount of the increase in the Fair
Market Value of those shares over the relevant period upon
which payment of each SAR at exercise shall be based. Each
SAR may be exercisable at any date with respect to no more
than the number of shares for which the related Option is
exercisable on that date. Each SAR issued in conjunction
with an Incentive Stock Option may be exercisable only when
there has been an increase in Fair Market Value of the
shares over the relevant period. If a Holder to whom a SAR
has been granted is subject to Section 16 of the Securities
Exchange Act of 1934, as amended, the Committee may, at any
time, impose such conditions and limitations to such SAR as
the Committee deems necessary or desirable for the Holder to
comply with or obtain an exemption from such Section 16 and
applicable rules and regulations. The terms of a SAR may
include such other conditions and limitations on exercise as
the Committee deems desirable.
4.3. Exercise of SARs and Payment. During any period that a SAR
is exercisable, it may be exercised by delivering an
irrevocable written notice to the Secretary of ASFC which
specifies the extent to which the SAR is being exercised.
Payment to the Holder shall be made as soon as practicable
after exercise of the SAR and may be made in cash, in shares
of Common Stock with an aggregate Fair Market Value on the
date of exercise equal to the amount to be paid, or in any
combination of cash and such shares as determined by the
Committee. Upon exercise of a SAR, the right to exercise
the related Option shall automatically be terminated to the
same extent that the SAR was exercised. Upon exercise of a
SAR attached to a Restricted Stock Award, the restrictions
on the Restricted Stock Award shall lapse.
4.4. Termination of SARs. Each SAR shall terminate and not be
exercisable after the same date that the related Award
terminates.
4.5. Transferability. Each SAR granted to a Holder shall not be
transferable except by will or the laws of descent and
distribution; provided, however, to the extent permitted
under Rule 16b-3 under the Securities Exchange Act of 1934,
the Committee may develop rules to permit the transfer of
the SAR together with the related Option and only to the
extent that the related Option may be transferred.
SECTION 5
RESTRICTED STOCK AWARDS
5.1. Holders. The Committee may, at any time, designate a Holder
to receive a Restricted Stock Award whether or not the
Holder has previously received a grant under the Plan. With
respect to a Holder who is eligible for a cash award under
the terms of the ASFC Executive Performance Incentive
Compensation Plan or the LNC Executive Value Sharing Plan,
the Committee may so designate such Holder only upon the
recommendation of the Lincoln Compensation Committee. For
purposes of the Plan, the term "Restricted Stock Award"
means the right to receive, at specified times and subject
to specified conditions, shares of Common Stock which may
bear such restrictive endorsements as the Committee
determines. Each Restricted Stock Award ("RSA") shall be
evidenced by an agreement between the Holder and ASFC. The
provisions of each agreement shall in the form attached
hereto as Exhibit B, except as modified by completion by the
Committee in accordance with the provisions of the Plan.
5.2. Grants of Restricted Stock Awards. The Committee shall,
subject to sub-section 1.5 and this Section 5, determine the
number of shares of Common Stock which may be awarded, the
time or times the shares may be awarded, and the conditions
which must be met for award and delivery of the shares to
the Holder under each RSA granted under the Plan. An RSA
may provide, in the discretion of the Committee, for the
crediting to the Holder, on each dividend payment date, of
an amount equal to the product of the dividend paid on a
share of Common Stock multiplied by the number of shares
which may be awarded under that RSA, and for the payment in
cash to the Holder of the amounts so credited at such time
as the Committee may determine. An RSA may provide, in the
discretion of the Committee, for the issuance of the shares
which may be awarded under the RSA in the name of the Holder
subject to the following restrictions:
(a) the shares may not be issued earlier than six months
after the grant of the RSA;
(b) the shares may not be sold, transferred, pledged or
otherwise assigned or encumbered;
(c) each stock certificate shall be registered in the name
of the Holder and deposited with the Secretary of ASFC;
(d) if dividends are paid on the shares, they shall be paid
to the Holder at such times as the Committee shall
determine; and
(e) the shares and any dividends accumulated shall be
subject to forfeiture in accordance with subsection
5.4.
Subject to the foregoing restrictions, the Holder shall have
all of the rights of a holder of Common Stock with respect
to the shares issued to him or her under this subsection
5.2.
5.3. Distribution of Shares. Subject to the provisions of
subsection 5.4, each RSA shall provide for the distribution
of the awarded shares of Common Stock free of all
restrictions to the Holder or, in the event of the Holder`s
death, the person or persons to whom the RSA was transferred
by will or the laws of descent and distribution.
Distribution shall be provided for at such time or times
during the period beginning on the first anniversary of the
date of grant of the RSA and ending on a date as the
Committee shall determine; except that, in the discretion of
the Committee, distribution may be provided for prior to
such first anniversary if the Holder's service with ASFC and
all Subsidiaries terminates on account of death, Disability,
or retirement (as described in subsection 3.7(d)).
5.4. Forfeiture. Each RSA shall provide that a Holder shall
forfeit all rights under the RSA, all shares of Common Stock
issued pursuant to the RSA which had not been distributed to
the Holder free of all restrictions, and all undistributed
amounts credited to the Holder with respect to dividends
paid on Common Stock pursuant to the RSA if:
(a) the Holder's service with ASFC and all Subsidiaries
terminates for any reason other than death, Disability,
retirement (as described in subsection 3.7(d)), or
other reasons determined by the Committee which should
not cause forfeiture; or
(b) the conditions, if any, specified in the RSA are not
fully satisfied within the prescribed time.
5.5. Transferability. Each RSA granted to a Holder may not be
transferred by the Holder except by will or the laws of
descent and distribution.
SECTION 6
INCENTIVE AWARDS
6.1 General. An Incentive Award may be granted hereunder in the
form of shares. Incentive shares may be granted to an
eligible employee for no cash consideration, for such
minimum as may be required by applicable law, or for such
other consideration as may be specified by the grant. The
terms and conditions of incentive shares shall be specified
by the grant.
6.2. Terms of Incentive Awards. Incentive shares may be paid to
the grantee in a single installment or in installments and
may be paid at the time of grant or deferred to a later date
or dates. Each grant shall specify the time and method of
payment as determined by the Committee, provided that no
such determination shall authorize delivery of shares to be
made later than the tenth anniversary of the Holder's date
of termination. The Committee, by amendment of the grant
prior to delivery, can modify the method of payment for any
incentive shares, provided that the delivery of any
incentive shares shall be completed not later than the tenth
anniversary of the Holder's date of termination.
6.3. Distribution of Incentive Awards. If any incentive shares
are payable after the Holder dies, such shares shall be
payable (a) to the Holder's designated beneficiary or, if
there is no designated beneficiary, to the Holder's personal
representative, and (b) either in the form specified by the
Award or otherwise, as may be determined in the individual
case by the Committee under this Plan.
6.4. Forfeiture. Any grant of incentive shares is provisional,
as any share, until delivery of the certificate representing
such share. If, while the grant is provisional,
(a) the grantee terminates, but does not terminate
normally, or
(b) the grantee is determined to have engaged in
detrimental activity,
the grant shall be annulled as of the date of termination
or, the date of such determination, as the case may be.
6.5. Executive Performance Incentive Compensation Plan and Other
Incentive Plans. The Committee may, in its discretion,
designate that a Holder who is eligible for a cash award
under the terms of the ASFC Executive Performance Incentive
Compensation Plan, the LNC Executive Value Sharing Plan, the
Management Performance Incentive Compensation Plan or the
Regional Management Performance Incentive Compensation Plan
(the "Incentive Plans") receive such award as a grant of
restricted stock in lieu of all or a portion of the
Incentive Plan cash award. With respect to a Holder who is
eligible for a cash award under the terms of the ASFC
Executive Performance Incentive Compensation Plan or the LNC
Executive Value Sharing Plan, the Committee may so designate
such Holder only upon the recommendation of the Lincoln
Compensation Committee. If the Committee decides to make an
RSA in lieu of all or a portion of the Incentive Plan cash
award, such RSA shall be made subject to subsection 1.5 and
Section 5. The amount, if any, of the Incentive Plan award
which is not paid as an RSA shall be paid in cash.
6.6. Career Stock. The Committee may, in its discretion,
designate Restricted Stock Awards, subject to subsection 1.5
and section 5, to employees of ASFC and its subsidiaries who
make an irrevocable election to waive participation in and
any benefits under designated retirement programs maintained
by the Company. The Committee may also, in its sole
discretion, award shares of Restricted Stock to individuals
who become officers after the effective date of the Plan in
lieu of participation in certain retirement programs
maintained by the Company. With respect to such officers
who are eligible for a cash award under the terms of the
ASFC Executive Performance Incentive Compensation Plan or
the LNC Executive Value Sharing Plan, the Committee may so
designate Restricted Stock Awards or award shares of
Restricted Stock under this subsection 6.6 only upon the
recommendation of the Lincoln Compensation Committee.
SECTION 7
PERFORMANCE AWARDS
7.1. General. Performance awards may be granted hereunder to an
eligible employee, for no cash consideration, for such
minimum as may be required by applicable law, or for such
other consideration as may be specified by the grant. The
terms and conditions of performance awards, which may
include provisions establishing performance periods,
performance criteria to be achieved during a performance
period, and vesting dates shall be specified by the award.
7.2. Terms of Performance Awards. Performance awards shall be
credited as of the date of the award to a bookkeeping
reserve account maintained by ASFC ("Account") in units
which are equivalent in value to shares of Common Stock
("Stock Units"). Performance awards may be paid in cash,
shares, or other consideration, or any combination thereof.
The extent to which any applicable performance criteria have
been achieved shall be conclusively determined by the
Committee. Performance awards may be payable in a single
payment or in installments and may be payable at a specified
date or dates or upon attaining performance criteria.
7.3. Forfeiture. Except as otherwise specified by the award, if
the Holder terminates, but does not terminate on account of
death, Disability, or retirement, as defined in subsection
3.7(d), any performance award or installment thereof not
vested prior to the Holder's termination shall be annulled
as of the date of termination.
7.4. Executive Value Sharing Plan and Other Incentive Plans. The
Committee may, in its discretion, designate that a person
who is eligible to receive a cash award under the LNC
Executive Value Sharing Plan, the Management Performance
Incentive Compensation Plan or the Regional Management
Performance Incentive Compensation Plan receive such award
in Stock Units as a Performance Award. With respect to a
person who is eligible for a cash award under the terms of
the ASFC Executive Performance Incentive Compensation Plan
or the LNC Executive Value Sharing Plan, the Committee may
so designate such person only upon the recommendation of the
Lincoln Compensation Committee. The Committee may also in
its sole discretion convert outstanding RSAs to Stock Units
as Performance Awards.
7.5. Transferability. Each Performance Award shall not be
transferable except by will or the laws of descent and
distribution.
SECTION 8
DIVIDEND EQUIVALENT RIGHTS; INTEREST EQUIVALENTS
8.1. Dividend Equivalent Right. A Dividend Equivalent Right or
DER may be granted hereunder to an eligible employee, as a
component of another award or as a separate award. With
respect to an employee who is eligible for a cash award
under the terms of the ASFC Executive Performance Incentive
Compensation Plan or the LNC Executive Value Sharing Plan,
the Committee may so designate such Holder only upon the
recommendation of the Lincoln Compensation Committee. The
terms and conditions of DERs shall be specified by the
grant. Dividend equivalents credited to the holder of a DER
may be paid currently or may be deemed to be reinvested in
additional shares (which may thereafter accrue additional
dividend equivalents). Any such reinvestment shall be at
Fair Market Value at the time thereof. DERs may be settled
in cash or shares or combination thereof, in a single
installment or installments. A DER granted as a component
of another award may provide that such DER shall be settled
upon exercise, settlement, or payment of, or lapse of
restrictions on, such other award, and that such DER shall
expire or be forfeited or annulled under the same conditions
as such other awards. A DER granted as a component of
another award may also contain terms and conditions
different from such other award.
8.2. Interest Crediting. Any award under this Plan that is
settled in whole or in part in cash on a deferred basis may
provide, as determined in the sole discretion of the
Committee, for interest equivalents to be credited with
respect to such cash payment. Interest equivalents may be
compounded and shall be paid upon such terms and conditions
as may be specified by the grant.
SECTION 9
POSTPONEMENT OF EXERCISE
The Committee may postpone any exercise of an Option or SAR or
distribution pursuant to an RSA for such time as the Committee in
its discretion may deem necessary in order to permit ASFC (a) to
effect or maintain registration of the Plan or Common Stock
issuable pursuant to the Plan under the Securities Act of 1933,
as amended, or the securities laws of any applicable
jurisdiction; (b) to take any action necessary to comply with
restrictions or regulations incident to the maintenance of a
public market for Common Stock; or (c) to determine that no
action referred to in (a) or (b) above needs to be taken. ASFC
shall not be obligated to issue shares upon exercise of any
Option or SAR or to issue shares pursuant to an RSA in violation
of any law. Any such postponement shall not extend the term of
an Award. Neither ASFC nor its directors or officers shall have
any obligation or liability to any Holder (or successor in
interest) because of the loss or rights under any Award under the
Plan due to postponements pursuant to this Section 9.
XLW/PCDocs No. 43315\1
Exhibit A
Nonqualified Stock Option
This Stock Option Agreement (the "Agreement") evidences the
grant by American States Financial Corporation ("ASFC") of a
Nonqualified Stock Option (the "Option") to _________ (the
"Grantee") on , (the "Date of Grant") and the
Grantee's acceptance of the Option in accordance with the
provisions of the American States Financial Corporation Stock
Option Incentive Plan (the "Plan"), as modified by this
Agreement. ASFC and the Grantee agree as follows:
1. Shares Optioned and Option Price
The Grantee shall have an Option to purchase _______
shares of ASFC common stock, for $ (United States dollars)
for each share. The shares optioned are subject to the Plan
terms and the terms of the Agreement.
2. Vesting Dates
Grantee shall be entitled to exercise the shares optioned as
follows:
______ shares on ________________, 19__;
______ shares on ________________, 19__;
______ shares on ________________, 19__; and
______ shares on ________________, 20__.
In addition, Grantee shall be entitled to exercise all the shares
optioned under this Agreement on either of the following dates:
(i) the date of Grantee's death; and (ii) the date of the
Grantee's total disability (as defined in paragraph 3). Each
date on which such shares are exercisable is known as the
"Vesting Date" with respect to those shares.
3. Exercise Period
The Option may be exercised, from time to time, with respect
to all or any number of unexercised shares subject to the Option
on any regular business day of ASFC at its then executive offices
during the period beginning on a Vesting Date of such shares and
ending on the earliest to occur of the following dates:
(a) the tenth anniversary of the Date of Grant;
(b) the first anniversary of the date of the Grantee's
termination of employment with ASFC and all
Subsidiaries (as defined in the Plan) on account
of death or total disability (as defined below);
(c) the fourth anniversary of the Grantee's normal
retirement or, with the approval of the Grantee's
employer, early retirement at either 55 with 5
years of service or under the terms of a
retirement plan of ASFC or a Subsidiary;
[the following to be used where applicable:
[(d) the date three months after the date that the
Grantee's employment with ASFC and all
Subsidiaries terminates on account of an
involuntary termination of employment other than
for Cause as defined in section 9 of the Grantee's
employment agreement of ______________, 19__;]
(e) the date that the Grantee's employment with ASFC
and all Subsidiaries terminates for any reason
other than described in (b), (c), [or (d)] next
above; or
[the following to be used where applicable:
[(f) the date of any violation of section 11 of the
Grantee's employment agreement of ___________,
19__.]
If Grantee is an insider subject to Section 16(b) of the
Securities Exchange Act of 1934, such period shall not begin
sooner than 6 months after the Date of Grant. For the purposes
of the Agreement, the term "total disability" means the Grantee
is prevented from performing his duties or fulfilling his
responsibilities to ASFC by reason of any incapacity or
disability that is reasonably expected to continue for a period
of six (6) months or until death. The determination of whether a
Grantee's employment terminated on account of total disability
shall be made by ASFC, in its sole and absolute discretion, based
on the opinion of a qualified physician.
4. Exercise
During the period that the Option is exercisable, it may be
exercised in full or in part by the Grantee or, in the event of
the Grantee's death, by the person or persons to whom the Option
was transferred by will or the laws of descent and distribution,
by delivering or mailing written notice of the exercise and full
payment of the purchase price to the Secretary of ASFC. The
written notice shall be signed by each person entitled to
exercise the Option and shall specify the address and social
security number of each such person. If any person other than
the Grantee purports to be entitled to exercise all or any
portion of the Option, the written notice shall be accompanied by
proof, satisfactory to the Secretary of ASFC, of that
entitlement. The written notice shall be accompanied by full
payment in cash (including personal check), in shares of ASFC
common stock represented by certificates which had been owned for
at least six months transferring ownership to ASFC and with an
aggregate Fair Market Value (as defined in the Plan) equal to the
purchase price on the date the written notice is received by the
Secretary, or in any combination of cash and such shares. The
written notice will be effective and the Option will be deemed
exercised to the extent specified in the notice on the date that
the written notice (together with required accompaniments) is
received by the Secretary of ASFC at its then executive offices
during regular business hours.
5. Transfer of Shares Upon Exercise
As soon as practicable after receipt of an effective written
notice of exercise and full payment of the purchase price as
provided in paragraph 4, the Secretary of ASFC shall cause
ownership of the appropriate number of shares of ASFC common
stock to be transferred to the person or persons exercising the
Option by having a certificate or certificates for those shares
registered in the name of such person or persons and shall have
each certificate delivered to the appropriate person.
Notwithstanding the foregoing, if ASFC or a Subsidiary requires
reimbursement of any tax required by law to be withheld with
respect to shares of ASFC common stock, the Secretary shall not
transfer ownership of those shares until the required payment is
made. ASFC may permit the Grantee to surrender shares of ASFC
common stock to satisfy all withholding requirements.
6. Transferability
No rights under this Agreement may be transferred except by
will or the laws of descent and distribution. The rights under
this Agreement may be exercised during the lifetime of the
Grantee only by the Grantee.
7. Authorized Leave
Authorized leaves of absence from ASFC or a Subsidiary shall
not constitute a termination of employment for purposes of this
Agreement. For purposes of this Agreement, an authorized leave
of absence shall be an absence while the Grantee is on military
leave, sick leave, or other bona fide leave of absence so long as
the Grantee's right to employment with ASFC or a Subsidiary is
guaranteed by statute, contract, or company policy.
IN WITNESS WHEREOF, ASFC, by its duly authorized officers
has signed this Agreement as of the day and year first above
written.
AMERICAN STATES FINANCIAL CORPORATION
F. Cedric McCurley
XLW/PCDocs No. 43315\1
Exhibit B
RESTRICTED STOCK AWARD AGREEMENT
This Restricted Stock Award Agreement (the "Agreement")
effective , by and between American States
Financial Corporation ("ASFC") and
(the "Grantee") evidences the grant, by ASFC, on the
day of , of a Restricted Stock Award (the
"RSA") to the Grantee, and the Grantee's acceptance of the RSA in
accordance with the provisions of American States Financial
Corporation Stock Option Incentive Plan (the "Plan") and this
Agreement. ASFC and Grantee agree as follows:
1. Number of Shares Granted
The Grantee is awarded shares of ASFC common stock
subject to the restrictions set out in the Plan and in this
Agreement (the "Restricted Shares"). In the event of a stock
dividend or stock split, the number of Restricted Shares shall be
increased in the same manner as all outstanding shares of ASFC
common stock and shall be subject to the same restrictions as the
underlying shares.
2. Restrictions
The Restricted Shares may not be sold, pledged or otherwise
encumbered. Grantee shall have voting rights on the Restricted
Shares after the Restricted Shares have been issued. Grantee
shall have no rights to the dividends payable on the Restricted
Shares. After the restrictions have lapsed, ASFC shall deliver
to the Grantee or his designee the stock certificates for the
Restricted Shares and pay an amount equal to the sum of the
dividends on those Restricted Shares that would have been paid if
the Restricted Shares had been outstanding from the date of this
Agreement; provided, however, that the Compensation Committee of
the ASFC Board of Directors may exercise its sole discretion and
cause all or a portion of such Restricted Shares to be converted
to phantom units under the terms of the ASFC Executive
Performance Incentive Compensation Plan in the event Grantee is a
Reporting Person under Section 16(a) of the Securities Exchange
Act of 1934 and the Grantee's employer would be denied a
deduction for the value of such converted Restricted Shares on
lapse date. The shares represented by such certificates shall
then cease to be Restricted Shares.
3. Issuance of Shares
On the later of the date that is six months after the date
of this Agreement and the receipt of this signed Agreement, the
Secretary of ASFC will have issued the Restricted Shares,
registered in the name of the Grantee, to be held in book entry
by the Transfer Agent until the restrictions lapse or until the
Restricted Shares are forfeited. The transfer of these
Restricted Shares is restricted under the terms of this
Agreement.
4. Forfeiture
In the event Grantee's service (as defined in this item 4)
with ASFC and all subsidiaries terminates prior to
, other than on account of death, disability, the
Restricted Shares shall be forfeited and transferred back to
ASFC. Grantee shall have no further rights in such Restricted
Shares nor in accumulated dividend equivalencies. For purposes
of this Agreement, the term "service" includes service as a
common law employee, a full time life insurance salesman or
broker under contract with ASFC or a subsidiary, or the
furnishing of exclusive consulting services to ASFC or a
subsidiary after retirement.
5. Lapse of Restrictions
Prior to the forfeiture of the Restricted Shares as provided
in item 4 of this Agreement and subject to conversion to phantom
units as described in item 2, the Restricted Shares shall be
immediately distributed to Grantee (or his estate) without
restrictions as of a date no later than the earliest to occur of:
(a) ________, 19__;
(b) the date on which the Compensation Committee of
the ASFC Board of Directors determines the total
disability of Grantee;
(c) the date of Grantee's death.
6. Tax Withholding
The Grantee must remit to the Secretary of ASFC an amount
equal to the withholding requirements on the value of the
Restricted Shares and the dividend equivalency at such time as
they are taxable to the Grantee. Grantee may elect to surrender
shares of ASFC common stock the fair market value of which on the
date of surrender satisfies all or part of the withholding
requirements.
IN WITNESS WHEREOF, ASFC, by its duly authorized officer,
and the Grantee have signed this Agreement as of the effective
date set out above.
AMERICAN STATES FINANCIAL CORPORATION
By:
F. Cedric McCurley
Date received stamp Grantee's Signature
of the office of the
Secretary of ASFC
XLW/PCDocs No. 43315\1
- 253-
EXHIBIT 10(o): DESCRIPTION OF COMPENSATION ARRANGEMENTS WITH
EXECUTIVE OFFICERS
Item 1: With respect to June E. Drewery, Senior Vice
President and Chief Knowledge and Technology Officer with an
employment date of May 28, 1996, LNC agreed that if, during
the first three years of her employment, LNC terminated her
employment for other than cause or causes a significant
diminution in her job responsibilities, she will be eligible
for one year of severance at her then current base salary.
****************
Item 2: With respect to Richard C. Vaughan, Executive Vice
President and Chief Financial Officer, LNC agreed to pay one
year of his then base salary if the corporation terminates his
employment between June 18, 1996 and age 55.
****************
Item 3: Jeffrey J. Nick was granted performance units in the
Cannon Lincoln Limited Phantom Stock Plan on May 12, 1993:
Cannon Lincoln Limited Phantom Stock Plan
1. Purpose
The Purpose of the Cannon Lincoln Limited Phantom Stock
Plan (the "Plan") is to provide deferred compensation to
Jeffrey J. Nick, an employee of Lincoln National Corporation
(the "Company"). It is recognized by the management of the
Company that Mr. Nick has certain management responsibilities
with respect to Cannon Lincoln Limited ("Cannon") and the Plan
is established to reward Mr. Nick to the extent that Cannon
increases in value to the Company. The deferred compensation
provided under the Plan shall be based on the increased value
of Performance Units, the value of which is related to the
value of the common stock of Cannon.
2. Administration
The Plan shall be administered by the Compensation
Committee (the "Committee") of the Board of Directors of the
Company. Subject to the provisions of the Plan, the
Committee shall have authority to interpret the Plan, to adopt
and revise rules and regulations relating to the Plan, to
determine the conditions subject to which any awards may be
made or payable, and to make any other determinations which it
believes necessary or advisable for the administration of the
Plan. Determinations by the Committee shall be made in its
sole discretion by majority vote and shall be final and
binding on all parties with respect to all matters relating to
the Plan.
3. Grant and of Performance Units
Mr. Nick is hereby granted 15,000 Performance Units on
May 12, 1993. All such Performance Units shall be credited to
a Performance Unit Account (the "Account") established and
maintained for Mr. Nick. The Account of Mr. Nick is the
record of Performance Units granted to him under the Plan and
is solely for accounting purposes. The establishment of the
Account shall not require a segregation of any Company assets.
Subsequent to the date of grant each Performance Unit shall be
valued by the Committee, in the manner provided by Paragraph
6. The value of each Performance Unit on the date of
grant shall be 29.73 Pounds Sterling.
4. Maturity of Performance Units
Performance Units granted to Mr. Nick shall mature at a
rate of 25% per year beginning on November 1, 1993, and on
each November 1 thereafter so long as his primary place of
employment is the United Kingdom and his is employed by the
Company, one of its subsidiaries or an affiliate. In the
event Mr. Nick is transferred from the United Kingdom prior to
November 1, 1996, all Performance Units that are not matured
shall be forfeited. In the event of Mr. Nick's termination of
employment with the Company due to death, disability or
retirement, prior to November 1, 1996, all Performance Units
shall become fully matured. In the event of the sale of
Cannon prior to November 1, 1996, all nonmatured shares shall
become 100% vested.
5. Payment for Performance Units
Upon the earlier of January 1, 1997, and the termination
of Mr. Nick's employment with the Company and all of its
subsidiaries and affiliates for any reason, Mr. Nick shall be
entitled to receive from the Company an amount, with respect
to each then mature Performance Unit. The amount
payable for each Performance Unit shall be determined as
follows: (a) the value of each Performance Unit shall be
determined by the Committee pursuant to Paragraph 6, and (b)
such value shall then be reduced by 29.73 Pounds Sterling.
Mr. Nick will not be entitled to receive any increase in the
value of Performance Units with respect to the period between
the valuation of the Performance Unit and the payment under
the Plan.
Prior to the later of November 1, 2002, and his
termination of employment, Mr. Nick may request a cash out of
all or a specified number of mature Performance Units by
filing a written request with the Committee by the November 1,
prior to the January 1, on which he designates that he
requests a valuation and cash out of a specified number of the
Performance Units. In no event may he request a cash out
relating to less than 1,000 Performance Units at any one
time. In a cash out, he shall receive an amount for each
Performance Unit as provided above. All Performance Units
not cashed out on or before January 1, 2003, shall be
forfeited.
Payment for the appreciation in value of the Performance
Units shall be made in U.S. currency in a single lump sum
payment. The conversion rate shall be the higher of $1.50
(U.S.) per pound sterling and the rate of exchange for the
first business day after the valuation date as quoted for
that day by National Westminster Bank. Payment shall be made
by the March 15 following the valuation.
Notwithstanding any other provision of the Plan, all
rights to any payments hereunder will be discontinued and
forfeited and the Company will have no further obligation
hereunder to Mr. Nick, if either of the following
circumstances occur: (i) he is discharged from employment with
the Company for cause; or (ii) he performs active willful
malfeasance or gross negligence in a matter of material
importance to the Company.
The Committee shall have sole discretion with respect to
the application of the provisions of this paragraph and such
exercise of discretion shall be conclusive and binding upon
Mr. Nick and all other persons. In addition, the Committee
may require a cash out of all outstanding Performance Units in
the event that the Company transfers more
than 50% of its interest in Cannon.
6. Valuation of Performance Units
The Valuation of a Performance Unit shall be determined
as follows: each Performance Unit shall be equal to the per
share price of common stock of Cannon as determined in
accordance with the valuation procedures contained in the
Cannon Lincoln Employee Share Option Scheme on each January
1; provided, however, that in the event of Mr. Nick's
termination of employment prior to January 1, 1997, other than
on account of death or disability, fifty percent of the
Performance Units shall be valued as of the first day of the
calendar year in which the termination occurs, and the
other fifty percent shall be valued as of the first day of the
calendar year immediately following the calendar year in which
the termination occurs; and further provided, however, that in
the event of a cash out after the Company transfers more than
50% of its interest in Cannon, the value of each Performance
Unit shall be equal to the per share price of common stock of
Cannon paid by the transferee.
7. Forfeiture of Performance Units
If the employment of Mr. Nick with the Company and all of
its affiliates and subsidiaries is terminated for any reason
other than death, disability or retirement, or if, the owners
of a majority of shares of the common stock of Cannon
terminate the business of, or liquidate or dissolve
Cannon, or if substantially all of the assets of Cannon are
sold, or if Cannon merges or consolidates with any other
corporation and Cannon is not the surviving corporation of
such merger or consolidation, then Mr. Nick's rights with
respect to Performance Units shall as of the date of the
occurrence of the event be cashed out in accordance with
Paragraph 5.
8. Changes in Capital and Corporate Structure
In the event of any change in the outstanding shares of
common stock of Cannon by reason of an issuance of additional
shares, recapitalization, reclassification, reorganization,
stock split, reverse stock split, combination of shares, stock
dividend or similar transaction, the Committee shall
proportionally adjust, in an equitable manner, the number of
Performance Units held by Mr. Nick under the Plan. The
foregoing adjustment shall be made in a manner that will cause
the relationship between the aggregate appreciation and
outstanding common stock of Cannon and the increase in value
of each Performance Unit granted to remain unchanged as a
result of the applicable transaction.
9. Nontransferability
Performance Units and any rights and privileges
pertaining thereto may not be transferred, assigned, pledged,
or hypothecated in any manner, by operation of law or
otherwise, other than by will or by the laws of descent
and distribution, and shall not be subject to execution,
attachment, or similar process. In the event of Mr. Nick's
death, payment of any amount due under the Plan shall be made
to the following beneficiary so designated by Mr. Nick:
(Name)
(Relationship)
10. Withholding
The Company shall have the right to deduct from all
amounts paid pursuant to the Plan any taxes required by law to
be withheld with respect to such payment.
11. Voting and Dividend Rights
Mr. Nick shall not be entitled to any voting rights or
entitled to receive any dividends or to have his Account
credited or increased as a result of any dividends or other
distributions with respect to shares of Cannon other than as
provided in paragraph 8, above.
12. Mediation and Arbitration
Any controversy, dispute or question arising out of, in
connection with, or in relation to this Plan or its
interpretation, performance, or nonperformance or any breach
thereof shall be resolved through mediation. In the event
mediation fails to reach a satisfactory conclusion within 30
days after a mediator has been agreed upon or such other
longer period as may be agreed to by Mr. Nick and the Company,
such controversy, dispute or question shall be resolved
through arbitration in accordance with the Center
for Public Resources Rules for Non-Administered Arbitration of
Business Disputes, by a sole arbitrator. The arbitration
shall be governed by the United States Arbitration Act, 9
U.S.C. 2{1-16, and judgement upon the award rendered by the
arbitrator may be entered by any court having jurisdiction
thereof. The place of the arbitration shall be Fort Wayne,
Indiana.
13. Miscellaneous Provisions
Neither the Plan nor any action taken hereunder shall be
construed as giving Mr. Nick any right to be retained in the
employ of the Company. The Plan shall at all times be
entirely unfunded and no provision shall at any time be made
with respect to segregating assets of the Company for payment
of any benefits hereunder. Neither Mr. Nick nor any other
person shall have any interest in any particular assets of the
Company by reason of the right to receive a benefit under the
Plan and Mr. Nick shall have only the rights of a general
unsecured creditor of the Company with respect to any rights
under the Plan. The Committee may by writing, delegate any of
its duties and responsibilities under the Plan to the Chief
Executive Officer of LNC, the Chief Operating Officer of LNC,
or any vice president of LNC.
14. Amendment of the Plan
The Committee may alter or amend the Plan from time to
time. No amendment to the Plan may alter, impair or reduce
the number of Performance Units granted under the Plan prior
to the effective date of such amendment without the written
consent of Mr. Nick.
Lincoln National Corporation
Dated:____________ ___________________________________
By: P. Kenneth Dunsire
Executive Vice President
Dated:____________ ___________________________________
By: Jeffrey J. Nick
*****************
Item 4: Agreement dated January 1, 1997 by and between
American States Financial Corporation and Robert A. Anker:
AGREEMENT
AGREEMENT made as of January 1, 1997, by and between
American States Financial Corporation (hereinafter called
"Company"), an Indiana corporation having its principal place of
business in Indianapolis, Indiana, and Robert A. Anker
(hereinafter called "Employee"):
WITNESSETH:
WHEREAS, Employee desires to render faithful and
efficient service to Company; and
WHEREAS, Company desires to receive the benefit of
Employee's service; and
WHEREAS, Employee is willing to be employed by Company;
and
WHEREAS, Company deems it essential to formalize the
conditions of Employee's employment by written agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties agree as
follows:
1. Office. Company hereby employs Employee as its
Chief Executive Officer, and Employee hereby agrees to serve
Company in such capacity or in such other capacity as the
Board of Directors of Company may from time to time designate.
2. Term of Employment. Employee's employment shall be
for the "Employment Period," with the term commencing on
January 1, 1997 and ending on December 31, 1997. During the
Employment Period, Employee's employment may be terminated for
Cause as defined in Section 5. Employee's employment may
continue by mutual agreement at the will of Company after the
expiration of the Employment Period or Employee and Employer
may extend this contract by mutual written agreement. During
any such period of at will employment, the provisions of
Sections 12, 15, 16 and 17 of this Agreement shall continue to
apply as if the Employment Period under this Agreement had not
ended.
3. Incapacity. If during the Employment Period,
Employee should be prevented from performing Employee's duties
or fulfilling Employee's responsibilities by reason of any
incapacity or disability that is reasonably expected to
continue for a period of six (6) months or until death, then
Company, in its sole and absolute discretion, may, based on
the opinion of a qualified physician, consider such incapacity
or disability to be total and may on ninety (90) days written
notice to Employee terminate the Employment Period.
4. Death. The Employment Period shall automatically
terminate upon the death of Employee.
5. For Cause. For purposes of this Agreement, Cause
means a determination by the Board of Directors of Company or
the Chief Executive Officer of Lincoln National Corporation
("Lincoln"), made in good faith, without being bound by
Company's progressive discipline policy for employees:
a. that Employee has engaged in acts or omissions
against Company, its parent company, or any of its
subsidiaries constituting dishonesty, intentional breach of
fiduciary obligation or intentional wrongdoing or misfeasance;
b. that Employee has been arrested or indicted in
a possible criminal violation involving fraud or dishonesty;
c. after due consideration and with prior written
notice to the Employee, that Employee has performed poorly;
d. that Employee has failed or refused to perform
Employee's duties set forth in paragraph 6 hereof, or
willfully failed to execute any reasonable instruction
relating to Employee's duties with Company given him by the
Board of Directors of Company, or the Chief Executive Officer
of Lincoln, if either such failure or refusal is not corrected
within ten (10) business days after Employee's receipt of
written notification of such failure or refusal; or
e. that Employee has intentionally and in bad
faith acted in a manner which results in a material detriment
to the assets, business or prospects of Lincoln, Company or
the subsidiaries or affiliates of either of them.
6. Responsibilities. During the period of Employee's
employment, Employee shall devote Employee's entire business
time and attention, except during reasonable vacation periods,
to, and exert Employee's best efforts to promote, the affairs
of Company, and shall render such services to Company as may
be required by the Board of Directors of Company consistent
with services required by virtue of the office set forth in
paragraph 1 hereof and shall perform such other services as
may now or hereafter be specified or enumerated in the By-Laws
of Company consistent with such office. While employed by
Company, Employee shall not, directly or indirectly, alone or
as a member of a partnership or association, or as an officer,
director, advisor, consultant, agent or employee of any other
company, be engaged in or concerned with any other duties or
pursuits requiring Employee's personal services except with
the prior written consent of the Board of Directors of
Company. Nothing herein contained shall preclude the
ownership by Employee of stocks or other investment
securities. Nothing herein contained shall preclude service
by Employee on boards of directors or trustees of charitable
or other not-for-profit entities not engaged in any business
competitive with the business of Company so long as such
service does not materially interfere with Employee's
responsibilities to Company.
7. Compensation. During the Employment Period,
Employee shall receive a base salary that shall be at an
annual rate of not less than $565,000 payable in accordance
with the payroll practices of Company as from time to time in
effect with regard to executive personnel.
8. Benefit Plans and Programs. During the Employment
Period, Employee shall be eligible for participation in all
benefit plans and programs made available by Company to its
employees generally (other than Company's generally available
severance program) and in those benefit plans and programs
applicable to executives of the Employee's level to the extent
Employee is not eligible for comparable benefits from Lincoln.
The bonus payable by Company for periods which include the
Employment Period will be payable under the terms of Company's
Executive Performance Incentive Compensation Plan ("EPIC").
Employee's performance goals and target and maximum awards are
set out in Exhibit A. To the extent an EPIC bonus is payable
in the form of stock, phantom stock, or stock units, it shall
be awarded and payable in the form of (or, in the case of
phantom stock or stock units, measured by reference to) Common
Stock of Company.
Employee shall be entitled through March 31, 1998 to the
benefit of Company's standard relocation package for
executives at Employee's level.
9. Stock Options and Restricted Stock Awards. Among
the benefit plans and programs to be made available by Company
to certain of its employees is Company's Stock Option Plan.
Any options granted to Employee shall be options for Company
Common Stock at the appropriate level for his position.
10. Payments after Termination. If Employee's
employment with Company terminates at the end of the
Employment Period referred to in Section 2 hereof for reasons
other than incapacity or death or Cause, Employee shall be
entitled to all the following upon execution of a release
satisfactory to Company and Lincoln ("Release"):
a. Company shall pay to the Employee $600,000 in
26 equal biweekly installments;
b. Employee shall become entitled to EPIC bonus
payments as set out on Exhibit A;
c. Employee shall be entitled to receive an early
retirement benefit without adjustment for Employee's age;
d. Employee shall be entitled to outplacement
benefits through Right & Associates' standard program for
executives or a similar firm approved by Company; and
e. Employee shall be entitled to executive
financial planning benefits for calendar year 1998.
In the event that Employee's employment terminates prior to
the end of the Employment Period due to death or disability,
the amounts specified in subsections a, b and c above shall
still be payable. If Employee's employment terminates during
the Employment Period for the reasons specified in Section 5c,
upon execution of a Release, Employee shall be entitled to
receive $285,000 in 26 equal biweekly installments and the
benefit specified in subsection c above shall also be payable.
If Employee's employment terminates during the Employment
Period for the reasons specified in Section 5b, upon execution
of a Release, the Employee shall be entitled to receive
$285,000 in 26 equal biweekly installments. The amounts
provided under subsections b and c above shall be payable only
if the indictment or charges are dismissed or Employee is
acquitted as a result of a trial.
11. Expenses. During the Employment Period, Company
shall allow Employee reasonable expense of travel and business
entertainment incurred in the performance of Employee's duties
hereunder, subject to the rules and regulations adopted by
Company for the handling of such business expenses.
12. Other Obligations of Employee. All payments to the
Employee provided for under Section 10 of this Agreement or
under the Executive Salary Continuation Plan of Company, the
exercise of any options for stock of Company and the vesting
or payment of any restricted stock (or restricted phantom
stock or restricted stock units) of Company or Lincoln shall
be subject, to the extent permitted by law, to Employee's
compliance with the following provisions. (For purposes of
this Section, Company and Lincoln shall be deemed to include
their affiliates and subsidiaries.)
a. Assistance in Litigation. At all times during
and after the term of this Agreement, Employee shall, upon
reasonable notice, furnish such information and proper
assistance to Company or Lincoln as may reasonably be required
by Company or Lincoln in connection with any litigation in
which it is, or may become, a party.
<PAGE>
b. Confidential Information. At all times during
and after the term of this Agreement, Employee shall not
knowingly disclose or reveal to any unauthorized person any
trade secret or other confidential information relating to
Company or Lincoln or to any of the businesses operated by
them. Employee acknowledges, understands and agrees that any
amounts payable under this Agreement that have not been paid
shall be immediately forfeited in the event Employee divulges
or appropriates to Employee's own use or the use of any other
person or organization, except as otherwise ordered by a court
of competent jurisdiction, any secret or confidential
information or knowledge pertaining to the businesses of
Company or Lincoln obtained during Employee's employment with
Company or Lincoln. Employee recognizes and acknowledges that
(1) all plans, systems, methods, designs, programs,
procedures, books and records relating to the operations,
practices and personnel of Company or Lincoln (whether
instituted or commenced prior or subsequent to the date
Employee was first employed by Company or Lincoln and whether
or not devised, created or initially instituted by Company or
Lincoln) and (2) all other records, documents and information
concerning the business activities, practices and procedures,
as they may exist from time to time, constitute and will
constitute secret or confidential information or knowledge
pertaining to the businesses of Company or Lincoln. The
information and material described in this paragraph shall
constitute secret or confidential information or knowledge
only to the extent such information and material has remained
confidential (except for unauthorized disclosures) and except
as otherwise ordered by a court of competent jurisdiction.
The provisions of this Section 12b shall not be construed as
prohibiting or limiting Company or Lincoln from pursuing any
other remedies for the divulgence or appropriation or
threatened divulgence or appropriation of secret or
confidential information or knowledge relating to Company or
Lincoln.
c. Non-competition. During the term of Employee's
employment and for a period of three (3) years following the
termination of Employee's employment, Employee will not act as
a director, officer, employee, consultant or advisor to, nor
directly or indirectly become associated with any person,
firm, company or corporation where his activities relate to
any business competitive with Company or Lincoln; provided,
however, that this prohibition shall not extend to the
Property Casualty Reinsurance business. Employee specifically
acknowledges that the geographic region to which this
restriction applies is the same geographic region in which
Employee personally was present and performed services for
Lincoln during the past two (2) years. This restriction does
not prohibit Employee from buying, selling, or otherwise
trading in the securities of any corporation which is listed
on any recognized securities exchange, and he may engage in
any other business activities not competitive with Company or
Lincoln. Neither Company nor Lincoln will object to
Employee's service on the boards of other companies as a
Director so long as there is no conflict with the terms of
this subsection or subsection b above or e below. Employee
may request an interpretation by the Chief Executive Officer
of Lincoln of the applicability of this provision to specific
activities in which Employee contemplates engaging.
d. Non-solicitation. During the term of
Employee's employment and for a period of three (3) years
following the termination of the Employee's employment,
Employee shall not directly or indirectly solicit or endeavor
to entice away from Company or Lincoln any person who is
employed with Company or Lincoln.
e. Change in Control. During the term of
Employee's employment and for a period of three (3) years
following the termination of Employee's employment, Employee
agrees that neither he nor any entity directly or indirectly
controlled by him will directly or indirectly participate in a
proscribed activity. A "proscribed activity" shall mean
either (1) soliciting others to invest in the Common Stock of
Lincoln for the purpose of effecting an acquisition of control
of Lincoln or Employee's directly investing in more than 1% of
the Common Stock of Lincoln or (2) using confidential
information (as described in subparagraph b above) to assist
any person, entity or group of persons which intends to or
does attempt to effect an acquisition of control of Lincoln.
The term "Control" shall be defined for purposes of this
subparagraph to have the meaning of control contained in Ind.
Code Ann. Sec. 27-1-23-1(e) (West, 1996).
f. Consideration and Legal Action. As
consideration for the receipt of the amounts payable under
this Agreement, Employee acknowledges, understands and agrees
that any such amounts that have not been paid will be
immediately forfeited if Employee breaches any provision of
this Section 12 during the term of Employee's employment and
for a period of three (3) years following the termination of
Employee's employment. Employee acknowledges that the
restrictions contained in this Section 12 b, c, d and e are
reasonable and necessary to protect the legitimate interests
of Company and Lincoln; and that, therefore, Company or
Lincoln shall be entitled to seek preliminary and permanent
injunctive and other equitable relief (including, without
limitation, and equitable accounting of all earnings, profits
and other benefits arising from such violation) in any court
of competent jurisdiction, which rights shall be cumulative
and in addition to any other rights or remedies to which
Company or Lincoln may be entitled. Employee hereby
irrevocably consents to the personal jurisdiction over him of
the courts of the State of Indiana and of any Federal court
located in such state in connection with any action or
proceeding arising out of or relating to this Section 12 or
any related breach of this Agreement involved in such action
or proceeding and further agrees, and shall not contest, that
the proper venue for filing and maintaining any such action or
proceeding shall be in the State of Indiana.
13. Effect of Termination of the Employment Period.
Except as specifically provided in Sections 2, 10 and 12, this
Agreement shall terminate upon the termination of the
Employment Period. The obligations of the Employee under
Section 12 and the rights and remedies available to Company
under that Section for any breach of such obligations,
however, shall in all events survive.
14. Notice. Any notice required to be given by Company
hereunder to Employee shall be in proper form and signed by an
Officer or Director of Company. Until one party shall advise
the other in writing to the contrary, notices shall be deemed
delivered:
a. to Company if delivered to Lynda Van Kirk, Vice
President, with a copy to Tom Ober, General Counsel, or, if
mailed, certified or registered mail, postage prepaid, to the
above-named individuals at American States Insurance Company,
500
North Meridian Street, Indianapolis, IN 46204; and a copy to
George Davis, Senior Vice President, Lincoln National
Corporation, 200 East Berry Street, Fort Wayne, IN 46802.
b. to Employee if delivered to Employee, or if
mailed to him, certified or registered mail, postage prepaid,
at 3603 West Hamilton Road, Fort Wayne, IN 46804.
15. Alternative Dispute Resolution. With the exception
of actions under Sections 12b, c, d and e of this Agreement,
any controversy, dispute or questions arising out of, in
connection with or in relation to this Agreement or its
interpretation, performance or nonperformance or any breach
thereof shall be resolved through mediation. In the event
mediation fails to resolve the dispute within sixty (60) days
after a mediator has been agreed upon or such other longer
period as may be agreed to by the parties, such controversy,
dispute or question shall be settled by arbitration in
accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitrator shall be governed by the United
States Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon
the award rendered by the arbitrator may be entered by any
court having jurisdiction thereof. The place of the
arbitration shall be Indianapolis, Indiana. In any such
controversy or dispute, regardless of the party by whom such
controversy or dispute is initiated, Company shall, if
written notice is given and upon presentation of appropriate
vouchers, pay all legal expenses, including reasonable
attorneys' fees, court costs and ordinary and necessary
out-of-pocket costs of attorneys, billed to and payable by the
Employee in connection with the bringing, prosecuting,
defending, litigating, negotiating, or settling such
controversy or dispute; provided, however, that such expenses,
fees and costs shall not be paid by Company unless and until
the Employee is successful on the merits; further provided,
however, that in the event such controversy or dispute is
settled, the settlement agreement shall provide for the
allocation of such expenses, fees and costs between the
parties.
16. Benefit. This Agreement shall bind and inure to
the benefit of Company and the Employee, their respective
heirs, successors and assigns.
17. Conditions. This Agreement is effective upon the
approval of the Agreement by the non-interested members of the
Board of Directors of Company or its designated compensation
committee. Should the aforementioned conditions not be
satisfied, this Agreement shall become null and void and shall
have no effect whatsoever on any previous agreement, expressed
or implied, between Employee and Company.
18. Effect on Previous Agreements. Should this
Agreement become effective, it will supersede all employment
related agreements between Employee and Company or Lincoln or
their affiliates or subsidiaries.
19. Amendments. This Agreement may only be amended by
the written agreement of Employee and Company with the written
approval of Lincoln.
20. Severability. In case any part of this Agreement
shall be invalid, illegal or otherwise unenforceable, the
validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired
thereby. In lieu of any such illegal, invalid or
unenforceable provision, there automatically will be added as
part of this Agreement a legal, valid and enforceable
provision as similar in terms and intent to such illegal,
invalid or unenforceable provision as possible.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
American States Financial Corporation
By:
Name: William J. Lawson
Title:
Employee
By:
Name: Robert A. Anker
Title:
EXHIBIT A
Executive Performance Incentive Compensation Plan
Performance Threshold Target Maximum
Cycle
1996-1997 $174,825 $436,230 $765,900
These numbers were established taking into account Employee's
actual Employment Period with Company during the Performance
Cycle.
If employment terminates as set out in Section 10, Employee
shall be entitled to receive a pro rata award for the 1997-1999
EPIC cycle.
****************
<PAGE>
ITEM 5: LNC's ongoing benefit obligations to Robert A. Anker
as of and after the transfer of his employment from LNC to
American states as set forth in letter dated January 10, 1997:
January 10, 1997
Mr. Robert A. Anker
Chairman & CEO
American States Insurance Company
500 North Meridian Street
Indianapolis, IN 46204
This letter outlines LNC's ongoing benefit obligations to you
as of and after the transfer of your employment from LNC to
American States. This is just a summary and is not intended
to modify the terms of your employment agreement with American
States nor to modify the terms of the specific plans.
LNC EVSP
The LNC Compensation Committee has agreed to pay out all
performance cycles in which you currently participate on
a prorata basis based on your service as LNC COO through
12-31-96. This means that in 1997 you will be eligible
for a full award for the 1994-1996 cycle. In 1998 you
will be eligible to receive 2/3 of the award for the
1995-1997 cycle. In 1999 you will be eligible to receive
1/3 of the award for the 1996-1998 cycle. These awards
have traditionally been paid in cash and LNC restricted
stock and, as you know, the amount of the award for each
cycle is determined by the Compensation Committee.
LNC Options
Your outstanding LNC stock options will not be affected
by the transfer and will continue to vest as provided in
the option agreement.
LNC Restricted Shares and Restricted Phantom
The Compensation Committee has the right to convert some
or all of your restricted shares which are scheduled to
vest on January 1, 1997 into phantom stock due to
Internal Revenue Code section 162(m) -- the $1 million
cap. Service with ASI will continue to count toward the
vesting requirements of your restricted phantom shares.
LNC Deferred Compensation
American States is a participating employer under the
terms of this plan.
<PAGE>
LNC Employees Savings and Profit Sharing Plan
Upon transfer to American States, this account balance
remains in the plan since the transfer of employment is
not a "distributable event" and your account balance
cannot be rolled into the American States plan. Any
additional employer matching contribution declared by the
LNC Board at its May 1997 meeting will be credited to
your account under this plan.
LNC Employees Retirement Plan
Currently, there is a liability under both the American
States and the Non-Life retirement plans for your
retirement benefit. At the end of 1997 there will be a
transfer of assets between the Non-Life and American
States plans so that your qualified benefit will be under
the American States plan. Because this is a funded plan,
this will not have any impact on the ultimate benefit.
LNC Excess Compensation Plan
This is an unfunded plan which provides retirement
benefits based on salary amounts in excess of $150,000
(as adjusted for cost of living). This liability will
be transferred to American States.
LNC Supplemental Pension Plan
This is also an unfunded plan which provides retirement
benefits in excess of the IRC section 415 limits. To the
extent that any benefits are payable from this plan, ASI
will be responsible for making these payments since your
participation will be transferred to the ASI plan.
LNC Executive Salary Continuation Plan
Your participation will be transferred from this plan to
the identical American States plan. This plan provides
an additional monthly payment of 10% per month after
retirement subject to the terms of the plan.
LNC Executive Severance Benefit Plan
This is the plan which goes into effect in the event of a
change of control of LNC. As CEO of American States, you
will continue to be a participant.
Split Dollar Plan
Currently this contract is between you and LNC, this
contract will need to be amended so that it is consistent
with those of the other officers of American States.
There will be no change in the benefit.
LNC Medical for Retired Employees
If you retire as of December 31, 1997, and at any time
thereafter lose your coverage under another group health
plan (including the American States Medical Plan for
Retired Employees), you may elect to participate within
60 days of losing such coverage, but not later than your
attaining age 65.
The receipt of amounts outlined above which are in addition to
amounts to which you are otherwise entitled, is conditioned on
your execution of an agreement and release provided to you by
LNC upon termination of your employment. The terms of the
agreement will be substantially identical to the ones set out
in Section 12 of your Employment Agreement with American
States effective January 1, 1997. The release will be the
same one required by Section 10 of that Employment Agreement.
****************
Item 6: Agreement made as of March 18, 1996 by and between
American States Financial Corporation and F. Cedric McCurley:
AGREEMENT
Agreement made as of March______, 1996, by and between
American States Financial Corporation (hereinafter called "the
Company"), an Indiana corporation having its principal place of
business in Indianapolis, Indiana, and F. Cedric McCurley
(hereinafter called "Employee"):
WITNESSETH:
WHEREAS, Employee desires to render faithful and efficient
service to the Company; and
WHEREAS, the Company desires to receive the benefit of
Employee's service; and
WHEREAS, the Company deems it essential to formalize the
conditions of Employee's employment by written agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter set forth, the parties agree as
follows:
1. Office. The Company hereby employs Employee as its
Chief Executive Officer, and Employee hereby agrees to serve the
Company in such capacity or in such other capacity as the Board
of Directors of the Company may from time to time designate.
2. Term of Employment. Employee's employment shall be
for the "Employment Period," with the term commencing at the
closing date (the "Closing Date") of the initial public offering
of the Company's common stock ("Initial Public Offering") and
extending to the later of December 31, 1997, or the date which
is twelve (12) months following the date on which the Board of
Directors of the Company designates anyone other than the
Employee as the Chief Executive Officer of the Company. Except
as Employee and Company may agree otherwise in writing,
Employee's employment shall continue at the will of the Company
after the expiration of the Employment Period. During any such
period of at will employment, the provisions of Sections 11, 14,
15, and 16 of this Agreement shall continue to apply as if the
Employment Period under this Agreement had not ended.
3. Incapacity. If during the Employment Period, Employee
should be prevented from performing his duties or fulfilling his
responsibilities by reason of any incapacity or disability that
is reasonably expected to continue for a period of six (6)
months or until death, then the Company, in its sole and
absolute discretion, may, based on the opinion of a qualified
physician, consider such incapacity or disability to be total
and may on ninety (90) days written notice to Employee terminate
the Employment Period.
4. Death. The Employment period shall automatically
terminate upon the death of Employee.
5. Responsibilities. During the Period of his employment
as Chief Executive Officer of the Company, Employee shall devote
his entire business time and attention, except during reasonable
vacation periods, to, and exert his best efforts to promote, the
affairs of the Company, and shall render such services to the
Company as may be required by the Board of Directors of the
Company consistent with services required by virtue of the
office
set forth in paragraph 1 hereof and shall perform such other
services as may now or hereafter be specified or enumerated in
the By-Laws of the Company consistent with such office. While
employed by the Company, Employee shall not, directly or
indirectly, alone or as a member of a partnership or
association, indirectly, alone or as a member of a partnership
or association, or as an officer, director, advisor, consultant,
agent or employee of any other company be engaged in or
concerned with any other duties or pursuits requiring his
personal services except with the prior written consent of the
Board of Directors of the Company. Nothing herein contained
shall preclude the ownership by Employee of stocks or other
investment securities. Nothing herein contained shall preclude
service by Employee on boards of directors or trustees of
charitable or other not-for-profit entities not engaged in any
business competitive with the business of the Company so long as
such service does not materially interfere with his
responsibilities to the Company.
6. Compensation. During the Employment Period, Employee
shall receive a base salary that shall be at an annual rate of
not less than $385,000, payable in accordance with the payroll
practices of the Company as from time to time in effect with
regard to executive personnel, plus, commencing in 1997, any
annual increase to such salary as determined by the Board of
Directors of the Company or its Compensation Committee.
7. Benefit Plans and Programs. During the Employment
Period, Employee shall be eligible for participation in all
benefit plans and programs made available by the Company to its
employees generally (other than the Company's generally
available severance program) and in those benefit plans and
programs applicable to executives of the Employee's level.
The bonus payable by the Company to the Employee in May
1996 shall be the bonus that would have been payable, based on
the performance of Lincoln National Corporation and the
determinations of the Compensation Committee of the Board of
Lincoln National Corporation, under the Lincoln National
Corporation Executive Value Sharing Plan for the performance
cycle ending in 1995. Such bonus shall be payable fifty percent
in cash and fifty percent in restricted common stock (or
restricted phantom stock or stock units) of the Company. Any
bonus payable to the Employee under the American States
Financial Corporation Executive Performance Incentive
Compensation Plan or similar plan ("EPIC") for cycles ending in
1996 and subsequent years shall be payable by the Company and
shall be in lieu of any bonus payable under the Lincoln National
Corporation Executive Value Sharing Plan for such cycles,
because the transitional provisions of EPIC take such bonuses
into account. To the extent an EPIC bonus for such cycles is
payable in the form of stock, phantom stock, or stock units, it
shall be awarded and payable in the form of (or, in the case of
phantom stock or stock units, measured by reference to) common
stock of the Company.
8. Stock Options and Restricted Stock Awards. Among the
benefit plans and programs to be made available by the Company
to certain of its employees after the Initial Public Offering is
the Company's Stock Option Plan. Effective on the Closing Date,
and in lieu of any award of Lincoln National Corporation options
in 1996, Employee shall be awarded stock options to purchase, at
the price per share of the Company's common stock at the Initial
Public Offering ("Initial Offering Price"), a number of shares
of the Company's common stock. Such number will be determined
by multiplying the number of shares subject to stock options
granted to Employee by Lincoln National Corporation in 1995 by a
Conversion Ratio. The Conversion Ratio shall be a fraction, the
numerator of which shall be the average of the opening price and
the closing price on the New York Stock Exchange of common stock
of Lincoln National Corporation on the business day immediately
preceding the Closing Date and the denominator of which shall be
the Initial Offering Price. Such stock options shall be
reflected in an Option Agreement which will be substantially in
the form attached as Exhibit A. Any options subsequently
granted to Employee also shall be options for Company common
stock.
9. Payments after Termination.
(a) In the event that Employee's employment is
terminated by the Company (or the Company terminates the
Employment Period) before the end of the Employment Period
referred to in Section 2 hereof for reasons other than
incapacity or death and without Cause:
(1) The Company shall pay to the Employee an amount equal
to his then current annual base salary accrued through
the date termination becomes effective (the
"Termination Date") and shall continue to make
payments of such base salary at the same rate as if
the Employee's employment continued throughout such
Period;
(2) The Employee shall become entitled to EPIC bonus
payments at such times and to the same extent (if any)
that he would have been entitled to payments had his
employment continued until the end of the Employment
Period and he had retired from the Company on such
date;
(3) all options granted to him under paragraph 8 of this
Agreement shall become vested and exercisable as if
his employment had continued until the end of the
Employment Period and he had retired from the Company
on such date; and
(4) to the extent that the Employee's termination of
employment results in a loss of benefits or
contributions that the Employee would have become
entitled to had he remained employed until the end of
the Employment Period, and retired on such date under
the Company's tax-qualified defined benefit retirement
and profit-sharing plans or under supplemental
nonqualified plans designed to provide benefits equal
to benefits that would have been received under those
plans but for Internal Revenue Code restrictions
(collectively, the "Plans"), the Company shall make
additional payments to the Employee having a value
equal to that of the benefits from amounts that would
have been paid by the Company and Company
profit-sharing contributions lost. For this purpose,
the Company shall have discretion to determine
such value, and the amount of any Company
profit-sharing contributions shall be determined
on the assumption that the Employee made the maximum
permitted contributions to the Plans.
For purposes of this Agreement, Cause means a determination by
the Chief Executive Officer or the Chief Operating Officer of
Lincoln National Corporation, made in good faith, without being
bound by the Company's progressive discipline policy for
employees:
* that Employee has engaged in acts or omissions against
the Company, its parent company, or any of its
subsidiaries constituting dishonesty, intentional
breach of fiduciary obligation or intentional
wrongdoing or misfeasance;
* that Employee has been arrested or indicted in a
possible criminal violation involving fraud or
dishonesty;
* after due consideration and with notice to the
Employee, that Employee has performed poorly;
* that Employee has failed or refused to perform his
duties set forth in paragraph 5 hereof, or willfully
failed to execute any reasonable instruction relating
to his duties with the Company given him by the Board
of Directors of the Company, or the Chief Executive
Officer or the Chief Operating Officer of Lincoln
National Corporation, if either such failure or
refusal is not corrected within ten business days
after his receipt of written notification of such
failure or refusal; or
* that Employee has intentionally and in bad faith acted
in a manner which results in a material detriment to
the assets, business or prospects of Lincoln National
Corporation, the Company or the subsidiaries of either
of them.
(b) If on the Termination Date, following termination for
any reason, Employee shall not be fully vested in the employer
matching contributions made on his behalf under the Company's
profit sharing plan, the Company shall pay to Employee within 30
days following the Termination Date a lump sum cash amount equal
to the value of the unvested portion of such employer matching
contributions; provided, however, that if any payment pursuant
to this paragraph (9) (d) may or would result in such payment
being deemed a transaction which is subject to Section 16(b) of
the Securities Exchange Act of 1934, as amended, the Company
shall make such payment so as to meet the conditions for an
exemption from such Section 16(b) as set forth in the rules (and
interpretive and no-action letters relating thereto) under
Section 16. The value of any such unvested employer matching
contributions shall be determined as of the Termination Date.
10. Expenses. During the Employment Period, the Company
shall allow Employee his reasonable expenses of travel and
business entertainment incurred in the performance of his duties
hereunder, subject to the rules and regulations adopted by the
Company for the handling of such business expenses.
11. Other obligations of Employee. All payments to the
Employee provided for under Section 9 of this Agreement or under
the Executive Salary Continuation Plan of the Company, the
exercise of any options for stock of the Company, and the
vesting or payment of any restricted stock (or restricted
phantom stock or restricted stock units) of the Company shall be
subject, to the extent permitted by law, to the Employee's
compliance with the following provisions:
(a) Assistance in Litigation. At all times during and
after the term of this Agreement, the Employee shall, upon
reasonable notice, furnish such information and proper
assistance to the Company as may reasonably be required by the
Company in connection with any litigation in which it or any of
its subsidiaries or affiliates is, or may become, a party.
(b) Confidential Information. At all times during and
after the term of this Agreement, the Employee shall not
knowingly disclose or reveal to any unauthorized person any
trade secret or other confidential information relating to the
Company or its subsidiaries or affiliates, or to any of the
businesses operated by them. Employee acknowledges, understands
and agrees that any amounts payable under this Agreement that
have not been paid shall be immediately forfeited in the event
Employee divulges or appropriates to his own use or the use of
any other person or organization (except with the prior written
consent of the Company or pursuant to the written order of a
regulatory commission, department or agency or a court of
competent jurisdiction) any trade secret or confidential
information or knowledge pertaining to the business of the
Company obtained during his employment with the Company.
Employee recognizes and acknowledges that (a) all plans,
systems, methods, designs, programs, procedures, notes, books
and records relating to the operations, practices and personnel
of the Company and its subsidiaries and affiliates (whether
instituted or commenced prior or subsequent to the date Employee
was first employed by the Company and whether or not devised,
created or initially instituted by the Company); and (b) all
other records, documents and information concerning the business
activities, practices and procedures, as they may exist from
time to time, constitute and will constitute secret or
confidential information or knowledge pertaining to the business
of the Company; provided, however, that the information and
material described in this sentence shall constitute secret or
confidential information or knowledge only to the extent such
information and material has theretofore remained confidential
(except for unauthorized disclosures) and except as otherwise
ordered by a court of competent jurisdiction.
The Employee further acknowledges that the restrictions
contained in this Section 11(b) are reasonable and necessary, in
view of the nature of the Company's business, in order to
protect the legitimate interests of the Company, and that any
violation thereof would result in irreparable injury to the
Company. The provisions of this Section 11(b) shall not be
construed as prohibiting or limiting the Company from pursuing
any other remedies for the divulgence or appropriation or
threatened divulgence or appropriation of trade secrets or
confidential information or knowledge relating to the Company.
The Employee agrees that the Company and its affiliates shall be
entitled to preliminary and permanent injunctive and other
equitable relief (including, without limitation, an equitable
accounting of all earnings, profits and other benefits arising
from such violation) in any court of competent jurisdiction,
which rights shall be cumulative and in addition to any other
rights or remedies to which the Company or its affiliates may be
entitled. Employee hereby irrevocably consents to the personal
jurisdiction over him of the courts of the State of Indiana and
of any Federal court located in such State in connection with
any action or proceeding arising out of or under or relating to
this Section 11(b) or any related breach of this Agreement
involved in such action or proceeding and further agrees, and
shall not contest, that the proper venue for filing and
maintaining any such action or proceeding shall be in the State
of Indiana.
12. Grounds for Termination of Employment. The Company
may terminate the Employment period by written notice to
Employee, specifying the ground or grounds for such termination,
if any.
13. Effect of Termination of the Employment period.
Except as specifically provided in Sections 2, 9 and 11, this
Agreement shall terminate upon the termination of the Employment
period. The obligations of the Employee under Section 11 and
the rights and remedies available to the Company under that
Section for any breach of such obligations, however, shall in
all events survive.
14. Notice. Any notice required to be given by the
Company hereunder to Employee shall be in proper form and signed
by an officer or Director of the Company. Until one party shall
advise the other in writing to the contrary, notices shall be
deemed delivered:
(a) to the Company if delivered to Lynda Van Kirk, Vice
President, with a copy to Tom Ober, General Counsel,
or, if mailed, certified or registered mail, postage
prepaid, to the above-named individuals at American
States Insurance Companies, 500 N. Meridian Street,
Indianapolis, IN 46204.
(b) to Employee if delivered to Employee, or if mailed to
him, certified or registered mail, postage prepaid, at
4436 Edinburgh Point, Indianapolis, IN 46208.
15. Alternative Dispute Resolution. With the exception of
actions under Section 11(b) of this Agreement, any controversy,
dispute or questions arising out of, in connection with or in
relation to this Agreement or its interpretation, performance or
nonperformance or any breach thereof shall be resolved through
mediation. In the event mediation fails to resolve the dispute
within 60 days after a mediator has been agreed upon or such
other longer period as may be agreed to by the parties, such
controversy, dispute or question shall be settled by arbitration
in accordance with the Center for Public Resources Rules for
Non-Administered Arbitration of Business Disputes, by a sole
arbitrator. The arbitration shall be governed by the United
States Arbitration Act, 9 U.S.C. Sec. 1-16, and judgment upon
the award rendered by the arbitrator may be entered by any court
having jurisdiction thereof. The place of the arbitration shall
be Indianapolis, Indiana. In any such controversy or dispute,
regardless of the party by whom such controversy or dispute is
initiated, the Company shall, if written notice is given and
upon presentation of appropriate vouchers, pay all legal
expenses, including reasonable attorneys' fees, court costs and
ordinary and necessary out-of-pocket costs of attorneys, billed
to and payable by the Employee in connection with the bringing,
prosecuting, defending, litigating, negotiating, or settling
such controversy or dispute; provided, however, that such
expenses, fees and costs shall not be paid by the Company unless
and until the Employee is successful on the merits; further
provided, however, that in the event such controversy or dispute
is settled, the settlement agreement shall provide for the
allocation of such expenses, fees and costs between the parties.
16. Benefit. This Agreement shall bind and inure to the
benefit of the Company and the Employee, their respective heirs,
successors and assigns.
17. Conditions. This Agreement is effective upon the
satisfaction of the following conditions: (a) the closing of the
proposed Initial Public Offering of the Company, and (b) the
approval of the Agreement by the non-interested members of the
Board of Directors of the Company or its designated compensation
committee. Should the aforementioned conditions not be
satisfied, this Agreement shall become null and void and shall
have no effect whatsoever on any previous agreement, express or
implied, between Employee and the Company.
18. Effect on Previous Agreements. Should this Agreement
become effective, it will supersede all employment-related
agreements between Employee and the Company or any member of the
Lincoln National Corporation controlled group of companies.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
Attest: American States Financial Corporation
[Sharon L. Wilson] By: William J. Lawson
Signed, sealed and delivered
in the presence of:
[Sharon L. Wilson] F. Cedric McCurley
[Thomas M. Ober]
EXHIBIT A
Nonqualified Stock Option
This Stock Option Agreement (the Agreement") evidences the
grant by American States Financial Corporation ("ASFC") of a
Nonqualified Stock Option (the "Option") to F. Cedric McCurley
(the "Grantee") on ________________, (the "Date of Grant") and
the Grantee's acceptance of the Option in accordance with the
provisions of the American States Financial Corporation Stock
Option Incentive Plan (the "Plan"), as modified by this
Agreement. ASFC and the Grantee agree as follows:
1. Shares Optioned and Option Price
The Grantee shall have an Option to purchase _______shares
of ASFC common stock, for $_______ (United States dollars) for
each share. The shares optioned are subject to the Plan terms
and the terms of the Agreement.
2. Vesting Dates
Grantee shall be entitled to exercise the shares optioned
as follows:
_______shares on____________________, 1997;
_______shares on____________________, 1998;
_______shares on____________________, 1999; and
_______shares on____________________, 2000.
In addition, Grantee shall be entitled to exercise all the
shares optioned under this Agreement on either of the following
dates:
(i) the date of Grantee's death; and (ii) the date of the
Grantee's total disability (as defined in paragraph 3). Each
date on which such shares are exercisable is known as the
"Vesting Date" with respect to those shares.
3. Exercise Period
The Option may be exercised, from time to time, with
respect to all or any number of unexercised shares subject to
the Option on any regular business day of ASFC at its then
executive offices during the period beginning on a Vesting Date
of such shares and ending on the earliest to occur of the
following dates:
(a) the tenth anniversary of the Date of Grant;
(b) the first anniversary of the date of the Grantee's
termination of employment with ASFC and all Subsidiaries (as
defined in the Plan) on account of death or total disability (as
defined below);
(c) the fourth anniversary of the Grantee's normal
retirement or, with the approval of the Grantee's employer,
early retirement at either 55 with 5 years of service or under
the terms of a retirement plan of ASFC or a Subsidiary;
(d) the date three months after the date that the
Grantee's employment with ASFC and all Subsidiaries terminates
on account of an involuntary termination of employment other
than for Cause as defined in section 9 of the Grantee's
employment agreement of ___________, 1996;
(e) the date that the Grantee's employment with ASFC and
all Subsidiaries terminates for any reason other than described
in (b), (c), or (d) next above; or
(f) the date of any violation of section 11 of the
Grantee's employment agreement of _______________, 1996.
If Grantee is an insider subject to Section 16(b) of the
Securities Exchange Act of 1934, such period shall not begin
sooner than 6 months after the Date of Grant. For the purposes
of the Agreement, the term "total disability" means the Grantee
is prevented from performing his duties or fulfilling his
responsibilities to ASFC by reason of any incapacity or
disability that is reasonably expected to continue for a period
of six (6) months or until death. The determination of whether
a Grantee's employment terminated on account of total disability
shall be made by ASFC, in its sole and absolute discretion,
based on the opinion of a qualified physician.
4. Exercise
During the period that the Option is exercisable, it may be
exercised in full or in part by the Grantee or, in the event of
the Grantee's death, by the person or persons to whom the Option
was transferred by will or the laws of descent and distribution,
by delivering or mailing written notice of the exercise and full
payment of the purchase price to the Secretary of ASFC. The
written notice shall be signed by each person entitled to
exercise the Option and shall specify the address and social
security number of each such person. If any person other than
the Grantee purports to be entitled to exercise all or any
portion of the Option, the written notice shall be accompanied
by proof, satisfactory to the Secretary of ASFC, of that
entitlement. The written notice shall be accompanied by full
payment in cash (including personal check), in shares of ASFC
common stock represented by certificates which had been owned
for at least six months transferring ownership to ASFC and with
an aggregate Fair Market Value (as defined in the Plan) equal to
the purchase price on the date the written notice is received by
the Secretary, or in any combination of cash and such shares.
The written notice will be effective and the Option will be
deemed exercised to the extent specified in the notice on the
date that the written notice (together with required
accompaniments) is received by the Secretary of ASFC at its then
executive offices during regular business hours.
5. Transfer of Shares Upon Exercise
As soon as practicable after receipt of an effective
written notice of exercise and full payment of the purchase
price as provided in paragraph 4, the Secretary of ASFC shall
cause ownership of the appropriate number of shares of ASFC
common stock to be transferred to the person or persons
exercising the Option by having a certificate or certificates
for those shares registered in the name of such person or
persons and shall have each certificate delivered to the
appropriate person. Notwithstanding the foregoing, if ASFC or a
Subsidiary requires reimbursement of any tax required by law to
be withheld with respect to shares of ASFC common stock, the
Secretary shall not transfer ownership of those shares until the
required payment is made. ASFC may permit the Grantee to
surrender shares of ASFC common stock to satisfy all withholding
requirements.
6. Transferability
No rights under this Agreement may be transferred except by
will or the laws of descent and distribution. The rights under
this Agreement may be exercised during the lifetime of the
Grantee only by the Grantee.
7. Authorized Leave
Authorized leaves of absence from ASFC or a Subsidiary
shall not constitute a termination of employment for purposes of
this Agreement. For purposes of this Agreement, an authorized
leave of absence shall be an absence while the Grantee is on
military leave, sick leave, or other bona fide leave of absence
so long as the Grantee's right to employment with ASFC or a
Subsidiary is guaranteed by statute, contract, or company
policy.
IN WITNESS WHEREOF, ASFC, by its duly authorized officers
has signed this Agreement as of the day and year first above
written.
AMERICAN STATES FINANCIAL CORPORATION
William J. Lawson
-272-
LINCOLN NATIONAL CORPORATION
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
Year Ended December 31 1996 1995 1994
PRIMARY
Average shares outstanding (assuming
conversion of series A, E and F
preferred stock) ---------------------- 104,560,880 104,115,650 103,863,196
Net effect of dilutive stock
options (based on the treasury stock
method using average market price) ---- 855,470 701,494 506,601
Total shares outstanding ------------ 105,416,350 104,817,144 104,369,797
FULLY DILUTED
Average shares outstanding (assuming
conversion of Series A, E and F
preferred stock) ---------------------- 104,560,880 104,115,650 103,863,196
Net effect of dilutive stock options
(based on the treasury stock method
using the year-end market price,
if higher than average market price) -- 1,011,636 1,115,139 506,764
Total shares outstanding ------------ 105,572,516 105,230,789 104,369,960
DOLLAR INFORMATION (000's Omitted)
Net Income ---------------------------- $513,558 $482,186 $349,898
NET INCOME PER SHARE
Primary ------------------------------- $4.87 $4.60 $3.35
Fully Diluted ------------------------- $4.86 $4.58 $3.35
Notes: 1. Earnings per share are computed based on the average number of
common shares outstanding during each year after assuming
conversion of the series A, E and F preferred stock.
2. LNC did not include the dilutive impact of the stock option
program in the computation of the earnings per share information
appearing in the consolidated financial statements since it was
immaterial.
-273-
LINCOLN NATIONAL CORPORATION
EXHIBIT 12 - HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31,
(millions of dollars) 1996 1995 1994 1993 1992
Net Income before Taxes, Accounting
Change and Minority Interests ------ 712.3 626.6 376.3 587.8 424.7
Equity Loss (Earnings) in
Unconsolidated Affiliates ---------- 1.4 12.4 14.6 -- (.2)
Sub-total of Fixed Charges ---------- . 94.4 66.6 62.9 74.6
Sub-total of Adjusted Net Income - 819.5 708.6 428.3 650.7 499.5
Interest on Annuities &
Financial Products ----------------- 1435.6 1400.0 1359.0 1315.8 1261.7
Adjusted Income Base ------------- 2255.1 2108.6 1787.3 1966.5 1761.2
Rent Expense ------------------------ 71.6 65.6 51.4 55.8 67.4
Fixed Charges:
Interest and Debt Expense ----------- 84.7 72.5 49.5 44.3 53.8
Rent (Pro-rated) -------------------- 23.9 21.9 17.1 18.6 20.8
Sub-total of Fixed Charges ------- 108.6 94.4 66.6 62.9 74.6
Interest on Annuities &
Financial Products ----------------- 1435.6 1400.0 1359.0 1315.8 1261.7
Sub-total of Fixed Charges ------- 1544.2 1494.4 1425.6 1378.7 1336.3
Preferred Dividends (Pre-tax) ------- .1 8.7 24.2 24.2 20.3
Total Fixed Charges -------------- 1544.3 1503.1 1449.8 1402.9 1356.6
Ratio of Earnings to Fixed Charges:
Excluding Interest on
Annuities and Financial
Products (1) ---------------------- 7.55 7.51 6.43 10.35 6.69
Including Interest on
Annuities and Financial
Products (2) ---------------------- 1.46 1.41 1.25 1.43 1.32
Ratio of Earnings to
Combined Fixed Charges
and Preferred Stock
Dividends (3) --------------------- 1.46 1.40 1.23 1.40 1.30
(1) For purposes of determining this ratio, earnings consist of income before
federal income taxes, cumulative effect of accounting change and minority
interests adjusted for the difference between income or losses from
unconsolidated equity investments and cash distributions from such
investments, plus fixed charges. Fixed charges consist of 1) interest
and debt expense on short and long-term debt and distributions to
minority interest-preferred securities of subsidiary companies and 2) the
portion of operating leases that are representative of the interest
factor.
(2) Same as the ratio of earnings to fixed charges, excluding interest on
annuities and financial products, except fixed charges and earnings
include interest on annuities and financial products.
(3) Same as the ratio of earnings to fixed charges, including interest on
annuities and financial products, except that fixed charges include the
pre-tax earnings required to cover preferred stock dividend requirements.
-274-
March 1, 1997 EXHIBIT A
ORGANIZATIONAL CHART OF THE
LINCOLN NATIONAL INSURANCE HOLDING COMPANY SYSTEM
All the members of the holding company system are corporations, with
the exception of American States Lloyds Insurance Company, Delaware
Distributors, L.P., Founders CBO, L.P., and Lincoln National Mezzanine
Fund, L.P.
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|
|--| American States Financial Corporation |
| | 83.3% - Indiana - Holding Company |
| |
| |__| American States Insurance Company |
| | 100% - Indiana - Property/Casualty |
| |
| |--| American Economy Insurance Company |
| | | 100% - Indiana - Property/Casualty |
| | |
| | |--| American States Insurance Company of Texas |
| | | 100% - Texas - Property/Casualty |
| |
| |--| American States Life Insurance Company |
| | | 100% - Indiana - Life/Health |
| |
| |--| American States Lloyds Insurance Company |
| | | Lloyds Plan - * - Texas - Property/Casualty |
| |
| |--| American States Preferred Insurance Company |
| | | 100% - Indiana - Property/Casualty |
| |
| |--| City Insurance Agency, Inc. |
| | | 100% - Indiana |
| |
| |--| Insurance Company of Illinois |
| | 100% - Illinois - Fire & Casualty Insurance |
|
|
| | Aseguradora InverLincoln, S.A. Compania de Seguros y |
|--| Reaseguros, Grupo Financiero InverMexico |
| | 49% - Mexico - Life, Property and Casualty Insurance |
|
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|
|--| The Insurers' Fund, Inc. # |
| | 100% - Maryland - Inactive |
|
|
|--| LNC Administrative Services Corporation |
| | 100% - Indiana - Third Party Administrator |
|
|
|--| The Richard Leahy Corporation |
| | 100% - Indiana - Insurance Agency |
| |
| |--| The Financial Alternative, Inc. |
| | | 100% - Utah- Insurance Agency |
| |
| |--| Financial Alternative Resources, Inc. |
| | | 100% - Kansas - Insurance Agency |
| |
| |--| Financial Choices, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| |
| | | Financial Investment Services, Inc. |
| |--| (formerly Financial Services Department, Inc.)|
| | | 100% - Indiana - Insurance Agency |
| | |
| | | Financial Investments, Inc. |
| |--| (formerly Insurance Alternatives, Inc.) |
| | | 100% - Indiana - Insurance Agency |
| |
| |--| The Financial Resources Department, Inc. |
| | | 100% - Michigan - Insurance Agency |
| |
| |--| Investment Alternatives, Inc. |
| | | 100% - Pennsylvania - Insurance Agency |
| |
| |--| The Investment Center, Inc. |
| | | 100% - Tennessee - Insurance Agency |
| |
| |--| The Investment Group, Inc. |
| | | 100% - New Jersey - Insurance Agency |
| |
| |--| Personal Financial Resources, Inc. |
| | | 100% - Arizona - Insurance Agency |
| |
| |--| Personal Investment Services, Inc. |
| | 100% - Pennsylvania - Insurance Agency |
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|
|--| LincAm Properties, Inc. |
| | 50% - Delaware - Real Estate Investment |
|
|
| | Lincoln Financial Group, Inc. |
|--| (formerly Lincoln National Sales Corporation)|
| | 100% - Indiana - Insurance Agency |
| |
| |--| LNC Equity Sales Corporation |
| | | 100% - Indiana - Broker-Dealer |
| |
| | |Corporate agencies: Lincoln Financial Group, Inc. ("LFG") |
| |--|has subsidiaries of which LFG owns from 80%-100% of the |
| | |common stock (see Attachment #1). These subsidiaries serve |
| | |as the corporate agency offices for the marketing and |
| | |servicing of products of The Lincoln National Life Insurance |
| | |Company. Each subsidiary's assets are less than 1% of the |
| | |total assets of the ultimate controlling person. |
| |
| |--| Professional Financial Planning, Inc. |
| | 100% - Indiana - Financial Planning Services |
|
|--| Lincoln Life Improved Housing, Inc. |
| | 100% - Indiana |
|
|
|--| Lincoln National (China) Inc. |
| | 100% - Indiana - China Representative Office |
|
|
|--| Lincoln National (India) Inc. |
| | 100% - Indiana - India Representative Office |
|
|--| Lincoln National Intermediaries, Inc. |
| | 100% - Indiana - Reinsurance Intermediary |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | |
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | |
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | |
| | | |--| Delaware Distributors, Inc. |
| | | | | 100% - Delaware - General Partner |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | |
| | |--|Delaware Management Holdings, Inc.|
| | | | 100% - Delaware - Holding Company|
| | | |
| | | |--| DMH Corp. |
| | | | | 100% - Delaware - Holding Company |
| | | |
| | | |--| Delaware Distributors, Inc. |
| | | | | 100% - Delaware - General Partner |
| | | |
| | | |--| Delaware Distributors, L.P. |
| | | | | 100% - Delaware - Mutual Fund |
| | | | | Distributor & Broker/Dealer |
| | | | |
| | | |--| Delaware International Advisers Ltd. |
| | | | | 81.1% - England - Investment Advisor |
| | | | |
| | | |--| Delaware Capital Management, Inc. |
| | | | |(formerly Delaware Investment Counselors, Inc.)|
| | | | | 100% - Delaware - Investment Advisor |
| | | | |
| | | |__| Delaware Investment & Retirement Services, Inc.|
| | | | | 100% - Delaware - Registered Transfer Agent |
| | | | |
| | | |__| Delaware International Holdings, Ltd. |
| | | | | 100% - Bermuda - Investment Advisor |
| | | | |
| | | |--| Delaware Management Company, Inc. |
| | | | | 100% - Delaware - Investment Advisor |
| | | | |
| | | | |--| Founders Holdings, Inc. |
| | | | | | 100% - Delaware - General Partner |
| | | | | |
| | | | |--| Founders CBO, L.P. |
| | | | | | 100% - Delaware - Investment Partnership|
| | | | | |
| | | | |--| Founders CBO Corporation
| | | | | 100% - Delaware - Co-Issuer
| | | | | with Founders CBO |
| | | |
| | | |--| Delaware Management Trust Company |
| | | | | 100% - Pennsylvania - Trust Service |
| | | |
| | | |--| Delaware Service Company, Inc. |
| | | | | 100% - Delaware - Shareholder |
| | | | | Services & Transfer Agent |
| |
| | | Lincoln Investment Management, Inc. |
| |--| (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| |
| | | Lincoln Investment Management, Inc. |
| |--| (formerly Lincoln National Investment Management Company) |
| | | 100% - Illinois - Mutual Fund Manager and |
| | | Registered Investment Adviser |
| | |
| | | | Lincoln National Mezzanine Corporation |
| | |--| 100% - Indiana - General Partner for Mezzanine Financing |
| | | Limited Partnership |
| | |
| | |--| Lincoln National Mezzanine Fund, L.P. |
| | | 50% - Delaware - Mezzanine Financing |
| | | Limited Partnership |
|
|__| Lincoln National Investments, Inc. |
| | (fka Lincoln National Investment Companies, Inc.)|
| | 100% - Indiana - Holding Company |
| |
| |--| Lincoln National Investment Companies, Inc.|
| | |(fka Lincoln National Investments, Inc.) |
| | | 100% - Indiana - Holding Company |
| | |
| | |--| Lynch & Mayer, Inc. |
| | | | 100% - Indiana - Investment Adviser |
| | | |
| | | |--| Lynch & Mayer Asia, Inc. |
| | | | 100% - Delaware - Investment Management |
| | | |
| | | |--| Lynch & Mayer Securities Corp. |
| | | | | 100% - Delaware - Securities Broker |
| | |
| | | | Vantage Global Advisors, Inc. |
| | |--| (formerly Modern Portfolio Theory Associates, Inc.)|
| | | | 100% - Delaware - Investment Adviser |
|
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| |
| |--| First Penn-Pacific Life Insurance Company |
| | | 100% - Indiana |
| |
| |--| Lincoln Life & Annuity Company of New York |
| | | 100% - New York |
| |
| |--| Lincoln National Aggressive Growth Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Bond Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|
|--| The Lincoln National Life Insurance Company |
| | 100% - Indiana |
| |
| |--| Lincoln National Capital Appreciation Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Equity-Income Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| | | Lincoln National Global Asset Allocation Fund, Inc. |
| |--| (formerly Lincoln National Putnam Master Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| |
| | | Lincoln National Growth and Income Fund, Inc. |
| |--| (formerly Lincoln National Growth Fund, Inc.) |
| | | 100% - Maryland - Mutual Fund |
| |
| |
| |--| Lincoln National Health & Casualty Insurance Company |
| | | 100% - Indiana |
| |
| |--| Lincoln National International Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Managed Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Money Market Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Social Awareness Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Special Opportunities Fund, Inc. |
| | | 100% - Maryland - Mutual Fund |
| |
| |--| Lincoln National Reassurance Company |
| | 100% - Indiana - Life Insurance |
| |
| |--| Special Pooled Risk Administrators, Inc. |
| | 100% - New Jersey - Catastrophe Reinsurance |
| | Pool Administrator |
|
|--| Lincoln National Management Services, Inc. |
| | 100% - Indiana - Underwriting and Management Services |
|
|
|--| Lincoln National Realty Corporation |
| | 100% - Indiana - Real Estate |
|
|
|--| Lincoln National Reinsurance Company (Barbados) Limited |
| | 100% - Barbados |
|
| Lincoln National Corporation |
| Indiana - Holding Company |
| |
|--| Lincoln National Reinsurance Company Limited |
| | (formerly Heritage Reinsurance, Ltd.) |
| | 100% ** - Bermuda |
| |
| |--| Lincoln European Reinsurance S.A. |
| | | 79% - Belgium |
| | | (Remaining 21% owned by Lincoln National Underwriting|
| | | Services, Ltd.) |
| |
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 90% - England/Wales - Life/Accident/Health Underwriter |
| | | (Remaining 10% owned by Old Fort Ins. Co. Ltd.) |
| | |
| | |Lincoln European Reinsurance S.A. |
| | | 21% - Belgium |
| | | Remaining 79% owned by Lincoln National
| | | Reinsurance Company Limited
| |
| | | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
| |--| 51% - Mexico - Reinsurance Underwriter |
| | (Remaining 49% owned by Lincoln National Corp.) |
|
|--| Lincoln National Risk Management, Inc. |
| | 100% - Indiana - Risk Management Services |
|
|--| Lincoln National Structured Settlement, Inc. |
| | 100% - New Jersey |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Allied Westminster & Company Limited |
| | | 100% - England/Wales - Sales Services |
| |
| |--|Cannon Fund Managers Limited |
| | | 100% - England/Wales - Inactive |
| |
| |--| Culverin Property Services Limited |
| | | 100% - England/Wales - Property Development Services |
| |
| | | HUTM Limited |
| | | 100% - England/Wales - Unit Trust Management (Inactive) |
| |
| |--| ILI Supplies Limited |
| | | 100% - England/Wales - Computer Leasing |
| |
| |--| Laurentian Financial Group PLC |
| | | 100% - England/Wales - Holding Company |
| | |
| | |--| Lincoln Financial Advisers Limited |
| | | | (formerly: Laurentian Financial Advisers Ltd.) |
| | | | 100% - England/Wales - Sales Company |
| | |
| | |--| Lincoln Investment Management Limited |
| | | | (formerly: Laurentian Fund Management Ltd.) |
| | | | 100% - England/Wales - Investment Management |
| | |
| | |--| Lincoln Independent Limited |
| | | | (formerly: Laurentian Independent Financial Planning Ltd.)|
| | | | 100% - England/Wales - Independent Financial Adviser |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| Laurentian Financial Group PLC |
| | | 100% - England/Wales - Holding Company |
| | |
| | |--| Laurentian Life PLC |
| | | | 100% - England/Wales - Life Insurance|
| | | |
| | | |--|Barnwood Property Group Limited |
| | | | |100% - England/Wales - Holding Company|
| | | | |
| | | | |--| Barnwood Developments Limited |
| | | | | | 100% England/Wales - Property Development|
| | | | |
| | | | |--| Barnwood Properties Limited |
| | | | | 100% - England/Wales - Property Investment |
| | | |
| | | |--|IMPCO Properties Limited |
| | | |100% - England/Wales - Property Investment (Inactive) |
| | |
| | |--| Laurentian Management Services Limited |
| | | | 100% - England/Wales - Management Services|
| | | |
| | | |--|Laurit Limited |
| | | |100% - England/Wales - Data Processing Systems |
| | |
| | |--| Laurentian Milldon Limited |
| | | | 100% - England/Wales - Sales Company |
| | |
| | |--| Laurentian Unit Trust Management Limited |
| | | | 100% - England/Wales - Unit Trust Management |
| | | |
| | | |--| LUTM Nominees Limited |
| | | | 100% - England/Wales - Nominee Services |
| | |
| | |--| Laurtrust Limited |
| | | 100% - England/Wales - Pension Scheme Trustee (Inactive) |
| | |
| | |--| The Money Club Direct Company Limited |
| | | 100% - Dormant |
| |
| |
| |--| Liberty Life Assurance Limited |
| | | 100% - England/Wales - Inactive |
| |
| |--| Liberty Life Pension Trustee Company Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| |
| |--| Liberty Press Limited |
| | | 100% - England/Wales - Printing Services |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--|Lincoln Assurance Limited |
| | | 100% ** - England/Wales - Life Assurance |
| |
| |--| Lincoln Fund Managers Limited |
| | | 100% - England/Wales - Unit Trust Management |
| |
| |--| Lincoln Insurance Services Ltd. |
| | | 100% - Holding Company |
| | |
| | |--| British National Life Sales Ltd.|
| | | | 100% - Inactive |
| | |
| | |--| BNL Trustees Limited |
| | | | 100% - England/Wales - Corporate Pension Fund |
| | |
| | |--| Chapel Ash Financial Services Ltd. |
| | | | 100% - Direct Insurance Sales |
| | |
| | |--| Lincoln General Insurance Co. Ltd. |
| | | | 100% - Accident & Health Insurance |
| | |
| | |--| P.N. Kemp-Gee & Co. Ltd. |
| | | 100% - Inactive |
| |
| |--| Lincoln National Training Services Limited |
| | | 100% - England/Wales - Training Company |
| |
| |--| Lincoln Pension Trustees Limited |
| | | 100% - England/Wales - Corporate Pension Fund |
| |
| |--| LIV Limited (formerly Lincoln Investment Management Ltd.)|
| | | 100% - England/Wales - Investment Management Services |
| | |
| | |--| CL CR Management Ltd. |
| | | 50% - England/Wales - Administrative Services |
| |
| |--| LN Management Limited |
| | | 100% - England/Wales - Administrative Services |
| | |
| | |--| UK Mortgage Securities Limited |
| | | 100% - England/Wales - Inactive |
| |
| |
| Lincoln National Corporation |
| Indiana - Holding Company |
|
|
|--| Lincoln National (UK) PLC |
| | 100% - England/Wales - Holding Company |
| |
| |--| LN Securities Limited |
| | | 100% - England/Wales - Nominee Company |
| |
| |--| Niloda Limited |
| | 100% - England/Wales - Investment Company |
|
|
| | Linsco Reinsurance Company |
|--| (formerly Lincoln National Reinsurance Company) |
| | 100% - Indiana - Property/Casualty |
|
|
|--| Old Fort Insurance Company, Ltd. |
| | 100% ** - Bermuda |
| |
| | | Lincoln National Underwriting Services, Ltd. |
| |--| 10% - England/Wales - Life/Accident/Health Underwriter |
| | (Remaining 90% owned by Lincoln Natl. Reinsurance Co.) |
|
|
| | Servicios de Evaluacion de Riesgos, S. de R.L. de C.V. |
|--| 49% - Mexico - Reinsurance Underwriter |
| | (Remaining 51% owned by Lincoln Natl. Reinsurance Co.) |
|
|
|--| Underwriters & Management Services, Inc. |
| 100% - Indiana - Underwriting Services |
Footnotes:
* The funds contributed by the Underwriters were, and continue to be subject
to trust agreements between American States Insurance Company, the grantor,
and each Underwriter, as trustee.
** Except for director-qualifying shares
# Lincoln National Corporation has subscribed for and paid for 100 shares of
Common Stock (with a par value of $1.00 per share) at a price of $10 per
share, as part of the organizing of the fund. As such stock is further
sold, the ownership of voting securities by Lincoln National Corporation
will decline and fluctuate.
ATTACHMENT #1
LINCOLN FINANCIAL GROUP, INC.
CORPORATE AGENCY SUBSIDIARIES
1) Lincoln Financial Group, Inc. (AL)
2) Lincoln Southwest Financial Group, Inc. (Phoenix, AZ)
3) Lincoln Financial and Insurance Services Corporation (Walnut Creek, CA)
3a) California Fringe Benefit and Insurance Marketing Corporation
DBA/California Fringe Benefit Company (Walnut Creek, CA)
4) Colorado-Lincoln Financial Group, Inc. (Denver, CO)
5) Lincoln National Financial Services, Inc. (Lake Worth, FL)
6) CMP Financial Services, Inc. (Chicago, IL)
7) Lincoln Financial Group of Northern Indiana, Inc. (Fort Wayne, IN)
8) Financial Planning Partners, Ltd. (Mission, KS)
9) The Lincoln National Financial Group of Louisiana, Inc. (Shreveport,
LA)
10) Benefits Marketing Group, Inc. (D.C. & Chevy Chase, MD)
11) Lincoln National Sales Corporation of Maryland (Baltimore, MD)
(formerly: Morgan Financial Group, Inc.)
12) Lincoln Financial Services and Insurance Brokerage of New England, Inc.
(formerly: Lincoln National of New England Insurance Agency, Inc.)
(Worcester, MA)
13) Lincoln Financial Group of Michigan, Inc. (Troy, MI)
13a) Financial Consultants of Michigan, Inc. (Troy, MI)
14) Lincoln Financial Group of Missouri, Inc. (formerly: John J. Moore &
Associates, Inc.) (St. Louis, MO)
15) Beardslee & Associates, Inc. (Clifton, NJ)
16) Lincoln Financial Group, Inc. (formerly: Resources/Financial, Inc.
(Albuquerque, NM)
17) Lincoln Cascades, Inc. (Portland, OR)
18) Lincoln Financial Services, Inc. (Pittsburgh, PA)
19) Lincoln National Financial Group of Philadelphia, Inc.
(Philadelphia, PA)
20) Lincoln Financial Group, Inc. (Salt Lake City, (UT)
PC Doc.#12752
-285-
LINCOLN NATIONAL CORPORATION
EXHIBIT 23 - CONSENT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements on Forms S-3 and S-8 (Securities and Exchange Commission
Registration Numbers 33-51415, 33-51721, 33-58113, 33-52667, 33-59785,
33-4711, 33-13445, 33-62315, 333-04133, 2-77594, and 2-77599) of
Lincoln National Corporation and in the related Prospectuses of our report
dated February 6, 1997, with respect to the consolidated financial statements
and schedules of Lincoln National Corporation included in this Annual Report
(Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Fort Wayne, Indiana
March 11, 1997
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated financial statements of Lincoln National Corporation
and is qualifed in its entirety by reference to such condensed consolidated
financial statements.
</LEGEND>
<CIK> 0000059558
<NAME> LINCOLN NATIONAL CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 27,906,440,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 992,702,000
<MORTGAGE> 3,272,980,000
<REAL-ESTATE> 655,024,000
<TOTAL-INVEST> 34,044,964,000
<CASH> 1,231,724,000
<RECOVER-REINSURE> 2,544,196,000
<DEFERRED-ACQUISITION> 1,891,949,000
<TOTAL-ASSETS> 71,713,405,000
<POLICY-LOSSES> 13,331,098,000
<UNEARNED-PREMIUMS> 766,050,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 21,176,963,000
<NOTES-PAYABLE> 815,271,000
315,000,000<F1>
1,212,000
<COMMON> 857,450,000
<OTHER-SE> 3,611,294,000
<TOTAL-LIABILITY-AND-EQUITY> 71,713,405,000<F2>
3,810,180,000
<INVESTMENT-INCOME> 2,365,922,000
<INVESTMENT-GAINS> 128,052,000
<OTHER-INCOME> 417,116,000
<BENEFITS> 3,921,278,000
<UNDERWRITING-AMORTIZATION> 766,505,000
<UNDERWRITING-OTHER> 1,321,222,000
<INCOME-PRETAX> 712,265,000
<INCOME-TAX> 179,152,000
<INCOME-CONTINUING> 513,558,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 513,558,000
<EPS-PRIMARY> 4.91
<EPS-DILUTED> 4.91
<RESERVE-OPEN> 2,406,300,000
<PROVISION-CURRENT> 1,245,600,000
<PROVISION-PRIOR> (43,200,000)
<PAYMENTS-CURRENT> 654,000,000
<PAYMENTS-PRIOR> 648,900,000
<RESERVE-CLOSE> 2,305,800,000
<CUMULATIVE-DEFICIENCY> 43,000,000
<FN>
<F1>
Consists of Preferred Stock Issued by Subsidiary Companies.
<F2>
In addition to Liabilities and Shareholders' Equity this amount
includes Preferred Stock Issued by Subsidiary Companies.
</FN>
</TABLE>
SCHEDULE P - Analysis of Losses and Loss Expenses
1. The parts of Schedule P:
Part 1 - detailed information on losses and loss expenses.
Part 2 - history of incurred losses and allocated expenses.
Part 3 - history of loss and allocated expense payments.
Part 4 - history of bulk and incurred but not reported
reserves.
Part 5 - history of claims.
Part 6 - history of premiums earned.
Part 7 - history of loss sensitive contracts.
Schedule P interrogatories.
2. Lines of business A through M, R and S are groupings
of the lines of business used on the state page.
3. Reinsurance A, B, C and D (Lines N to Q) are:
Reinsurance A = nonproportoinal property
(1988 and subsequent).
Reinsurance B = nonproportional liability
(1988 and subsequent).
Reinsurance C = financial lines (1988 and subsequent).
Reinsurance D = old Schedule O, Line 30
(1987 and prior).
4. Parts 2 and 4 are gross of all discounting, including
tabular discounting. Part 1 is gross of only
non-tabular discounting, which is reported in
Columns 31 and 32 of Part 1. The tabular discount,
if any, is reported in the Notes to Financial Statements
which will reconcile Part 1 with Parts 2 and 4.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 1 SUMMARY
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
PRIOR 0 0 0 31484 7187 5557 271 534 1001 30584 0
1987 1586324 306318 1280006 667380 -17433 18443 -25964 25215 48806 778026 0
1988 1863777 246413 1617364 632031 -360474 -2131 -71924 30968 65524 1127822 0
1989 1768361 50176 1718185 1173758 38757 83346 4303 32376 70371 1284415 0
1990 1945767 62918 1882849 1328858 108570 83630 11143 34061 74398 1367173 0
1991 2160586 72502 2088084 1328578 53731 84456 3464 33078 91406 1447245 0
1992 2062687 74699 1987988 1198975 65620 66955 1261 30575 89705 1288754 0
1993 1908717 57985 1850732 988488 10860 50103 138 26106 91486 1119079 0
1994 1820915 69127 1751788 910002 15667 35499 138 26903 94579 1024275 0
1995 1818988 61648 1757340 803126 15960 18878 80 23094 94542 900506 0
1996 1769177 65500 1703677 602814 10180 7409 4 11747 77554 677593 0
TOTAL 0 0 0 9665494 -51375 452145 -77086 274657 799372 11045472 0
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
PRIOR 225458 60337 177432 18346 30103 3965 7559 0 0 11820 369724 0
1987 18969 1724 12967 128 8470 106 2599 0 0 2216 43263 0
1988 31590 11091 15670 65 12682 381 3309 0 0 2951 54665 0
1989 41314 7418 30370 578 20084 260 7024 0 0 5397 95933 0
1990 58288 11760 41041 3455 26056 722 8622 0 0 7059 125129 0
1991 73401 8894 43980 2808 29551 216 8713 0 0 8140 151867 0
1992 80351 3113 45244 3431 26899 166 6006 0 0 8280 160070 0
1993 110895 2559 41633 579 23332 304 4657 0 0 9075 186150 0
1994 153281 11851 45578 122 20587 464 4619 0 0 11496 223124 0
1995 208652 8202 91906 1900 24675 653 11178 0 0 18344 344000 0
1996 364123 11914 211106 3608 34940 1591 26962 0 0 32421 652439 0
TOTAL 1366322 138863 756927 35020 257379 8828 91248 0 0 117199 2406364 0
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL32 COL 33 COL 34 COL 35
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 324207 45517
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1987 779849 -41437 821286 49.2 -13.5 64.2 0 0 0.0 30084 13179
1988 761627 -420860 1182487 40.9 -170.8 73.1 0 0 0.0 36104 18561
1989 1431663 51315 1380348 81.0 102.3 80.3 0 0 88.0 63688 32245
1990 1627951 135651 1492300 83.7 215.6 79.3 0 0 95.0 84114 41015
1991 1668225 69114 1599111 77.2 95.3 76.6 0 0 95.0 105679 46188
1992 1522418 73592 1448826 73.8 98.5 72.9 0 0 95.0 119051 41019
1993 1319670 14439 1305231 69.1 24.9 70.5 0 0 100.0 149390 36760
1994 1275640 28242 1247398 70.1 40.9 71.2 0 0 100.0 186886 36238
1995 1271300 26793 1244507 69.9 43.5 70.8 0 0 100.0 290456 53544
1996 1357331 27298 1330033 76.7 41.7 78.1 0 0 100.0 559707 92732
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 1949366 456998
</TABLE>
***74***
<TABLE>
<CAPTION>
SCHEDULE P - PART 2
SUMMARY
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 456246 494315 509402 529812 564192 607860 694502 702795 799424 837252 37828 134457
1987 864804 798462 754272 752058 749921 753739 755242 757142 756915 770262 13347 13120
1988 0 1135365 1101513 1108379 1108221 1099245 1097423 1099688 1101795 1114012 12217 14324
1989 0 0 1298562 1283751 1283234 1289603 1270256 1279221 1292507 1304578 12071 25357
1990 0 0 0 1428325 1410255 1407173 1395580 1391046 1393237 1410843 17606 19797
1991 0 0 0 0 1608174 1584006 1534673 1512357 1503466 1499565 -3901 -12792
1992 0 0 0 0 0 1505916 1433686 1396328 1370251 1350841 -19410 -45487
1993 0 0 0 0 0 0 1352225 1272667 1225940 1204670 -21270 -67997
1994 0 0 0 0 0 0 0 1283771 1189561 1141324 -48237 -142447
1995 0 0 0 0 0 0 0 0 1195042 1131620 -63422 0
1996 0 0 0 0 0 0 0 0 0 1220058 0 0
TOTAL -63171 -61668
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3 SUMMARY
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 117618 197893 262644 335031 361184 396075 421835 449761 479347 0 0
1987 341590 484489 586378 630457 673976 693367 706991 716412 723604 729217 0 0
1988 0 481002 758628 858376 948712 988976 1017002 1037722 1053139 1062299 0 0
1989 0 0 546098 815383 978421 1070175 1126165 1166124 1196179 1214044 0 0
1990 0 0 0 479195 897088 1055911 1152401 1218325 1261867 1292773 0 0
1991 0 0 0 0 664386 1010267 1160585 1257708 1322661 1355838 0 0
1992 0 0 0 0 0 601823 921659 1076838 1160717 1199049 0 0
1993 0 0 0 0 0 0 571344 837741 961691 1027594 0 0
1994 0 0 0 0 0 0 0 566029 824700 929694 0 0
1995 0 0 0 0 0 0 0 0 553804 805963 0 0
1996 0 0 0 0 0 0 0 0 0 600039 0 0
TOTAL
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4 SUMMARY
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 86559 52268 30215 28633 33169 51527 91434 82193 152596 166646
1987 298199 91164 35604 26827 16839 15213 11005 11788 11293 15437
1988 0 347303 105190 63064 36970 27002 22881 17939 16452 18914
1989 0 0 391543 168430 90298 67289 38887 32614 38516 36815
1990 0 0 0 489662 194704 105544 76525 55447 49982 46208
1991 0 0 0 0 496446 212914 114977 82153 64307 49885
1992 0 0 0 0 0 488171 169260 108372 75247 47819
1993 0 0 0 0 0 0 387278 155692 72500 45711
1994 0 0 0 0 0 0 0 334878 121779 50075
1995 0 0 0 0 0 0 0 0 271727 101184
1996 0 0 0 0 0 0 0 0 0 234461
TOTAL
</TABLE>
<PAGE>
***75***
<TABLE>
<CAPTION>
SCHEDULE P - PART 1A HOMEOWNERS/FARMOWNERS
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 354 170 31 0 5 9 224 0
1987 157317 31643 125674 85619 11762 1667 -543 947 5376 81443 52510
1988 182785 24753 158032 86929 -20437 -4215 -7958 1196 7646 118755 58376
1989 166701 2607 164094 127307 919 3297 -75 1359 8429 138189 61549
1990 178679 3905 174774 142625 5397 3147 172 1395 10019 150222 82378
1991 214737 6011 208726 169740 2229 5960 45 1180 12852 186278 84439
1992 212355 3183 209172 160898 1056 4647 16 919 13379 177852 66401
1993 209900 6878 203022 160257 25 4092 1 1069 14881 179204 67338
1994 206789 8475 198314 161764 0 2962 0 1247 15682 180408 60334
1995 206451 8541 197910 136325 0 1741 0 578 15179 153245 66711
1996 204943 7444 197499 129751 0 1397 0 306 14122 145270 74072
TOTAL 0 0 0 1361569 1121 24726 -8342 10201 117574 1511090 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 131 0 19 0 9 0 1 0 0 13 173 8
1987 75 0 4 0 5 0 0 0 0 6 90 9
1988 213 7 4 0 15 0 0 0 0 18 243 11
1989 403 200 6 0 27 13 0 0 0 23 246 8
1990 828 0 10 0 56 0 0 0 0 78 972 11
1991 1684 0 27 0 113 0 2 0 0 157 1983 34
1992 2984 13 63 0 1164 7 27 0 0 273 4491 61
1993 3294 0 81 0 419 0 9 0 0 294 4097 92
1994 5481 2689 209 0 422 0 23 0 0 582 4028 170
1995 6705 0 2738 0 930 0 338 0 0 872 11583 457
1996 31659 5 15008 0 2131 0 323 0 0 3333 52449 5867
TOTAL 53457 2914 18169 0 5291 20 723 0 0 5649 80355 6728
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 150 23
1987 92753 11219 81534 59.0 35.5 64.9 0 0 0.0 79 11
1988 90610 -28386 118996 49.6 -114.7 75.3 0 0 0.0 210 33
1989 139490 1057 138433 83.7 40.5 84.4 0 0 88.0 209 37
1990 156767 5569 151198 87.7 142.6 86.5 0 0 95.0 838 134
1991 190536 2273 188263 88.7 37.8 90.2 0 0 95.0 1711 272
1992 183432 1091 182341 86.4 34.3 87.2 0 0 95.0 3034 1457
1993 183327 27 183300 87.3 0.4 90.3 0 0 100.0 3375 722
1994 187125 2689 184436 90.5 31.7 93.0 0 0 100.0 3001 1027
1995 164828 0 164828 79.8 0.0 83.3 0 0 100.0 9443 2140
1996 197725 5 197720 96.5 0.1 100.1 0 0 100.0 46662 5787
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 68712 11643
</TABLE>
***76***
<TABLE>
<CAPTION>
SCHEDULE P - PART 1B PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 1005 647 25 5 18 22 400 0
1987 214387 56834 157553 121153 -2660 283 -2619 3911 8436 135151 66786
1988 245559 18944 226615 69814 -132835 -7835 -16782 4383 14057 225653 75312
1989 221583 3046 218537 203344 2871 8035 86 4679 13390 221812 69741
1990 240380 4243 236137 229557 9517 8858 673 5314 13684 241909 75604
1991 296004 7593 288411 236022 2686 9571 74 5159 15491 258324 68067
1992 293313 7733 285580 205838 1061 8734 0 4745 15744 229255 60959
1993 295028 6302 288726 193313 713 8133 0 4325 18857 219590 59590
1994 284933 6008 278925 172081 1441 6217 0 3757 20473 197330 57529
1995 285987 4257 281730 135970 620 3141 0 2697 19346 157837 59692
1996 295385 4069 291316 76639 109 976 0 1126 14034 91540 55456
TOTAL 0 0 0 1644736 -115830 46138 -18563 40114 153534 1978801 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 20018 7609 41 0 530 351 3 0 0 236 12868 37
1987 267 172 8 0 16 10 0 0 0 7 116 9
1988 724 205 22 0 44 13 1 0 0 30 603 16
1989 903 0 28 0 56 0 2 0 0 47 1036 16
1990 1933 754 96 0 118 46 6 0 0 77 1430 25
1991 3708 472 91 0 226 28 5 0 0 179 3709 68
1992 7249 74 498 0 2208 23 151 0 0 396 10405 181
1993 16316 76 1157 0 2147 53 149 0 0 934 20574 414
1994 27564 812 4247 0 1881 57 289 0 0 1647 34759 1030
1995 54859 347 11864 0 3789 76 814 0 0 3601 74504 2936
1996 95590 369 35497 0 5830 22 2166 0 0 7123 145815 12809
TOTAL 229131 10890 53549 0 16845 679 3586 0 0 14277 305819 17541
</TABLE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 12450 418
1987 130172 -5096 135268 60.7 -9.0 85.9 0 0 0.0 103 13
1988 76857 -149400 226257 31.3 -788.6 99.8 0 0 0.0 541 62
1989 225806 2955 222851 101.9 97.0 102.0 0 0 88.0 931 105
1990 254327 10990 243337 105.8 259.0 103.0 0 0 95.0 1275 155
1991 265295 3259 262036 89.6 42.9 90.9 0 0 95.0 3327 382
1992 240819 1158 239661 82.1 15.0 83.9 0 0 95.0 7673 2732
1993 241008 841 240167 81.7 13.3 83.2 0 0 100.0 17397 3177
1994 234398 2309 232089 82.3 38.4 83.2 0 0 100.0 30999 3760
1995 233383 1044 232339 81.6 24.5 82.5 0 0 100.0 66376 8128
1996 237854 500 237354 80.5 12.3 81.5 0 0 100.0 130718 15097
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 271790 34029
</TABLE>
***77***
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 1C COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 298 147 103 34 1 8 228 0
1987 175699 31357 144342 73471 -16763 3225 -3377 1093 5256 102092 26564
1988 210865 35501 175364 66790 -50297 1036 -7160 1041 5585 130868 32699
1989 204024 2548 201476 148437 5368 10136 408 1195 7050 159847 34588
1990 239071 9294 229777 182393 28477 11636 2684 1218 6938 169806 37389
1991 262584 16329 246255 167126 17077 10462 1559 1235 8358 167310 35052
1992 242412 10968 231444 128622 7975 6907 522 1224 7697 134729 28644
1993 216682 3276 213406 112354 963 6985 51 987 8384 126709 26202
1994 195680 3907 191773 86268 -247 4781 18 964 9831 101109 25485
1995 185788 3476 182312 60468 -942 2423 -2 725 8778 72613 25505
1996 182180 3260 178920 32706 226 626 1 487 6374 39479 23692
TOTAL 0 0 0 1058933 -8016 58320 -5262 10170 74259 1204790 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 1357 -3 27 0 82 0 2 0 0 74 1545 65
1987 325 0 44 0 19 0 3 0 0 19 410 10
1988 1031 467 107 0 70 34 6 0 0 47 760 20
1989 2956 775 202 0 185 53 12 0 0 131 2658 21
1990 2607 35 1954 1477 177 8 22 0 0 156 3396 41
1991 6459 1053 1719 264 325 7 25 0 0 286 7490 62
1992 9331 194 3076 1484 2554 50 433 0 0 560 14226 103
1993 15216 99 2427 244 1947 79 54 0 0 891 20113 210
1994 31702 2082 7611 0 2307 194 170 0 0 1793 41307 539
1995 41782 477 16057 947 2667 44 922 0 0 3171 63131 1261
1996 70064 845 19969 573 4331 59 1175 0 0 4813 98875 4679
TOTAL 182830 6024 53193 4989 14664 528 2824 0 0 11941 253911 7011
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 1387 158
1987 82363 -20140 102503 46.9 -64.2 71.0 0 0 0.0 369 41
1988 74675 -56953 131628 35.4 -160.4 75.1 0 0 0.0 671 89
1989 169107 6603 162504 82.9 259.1 80.7 0 0 88.0 2383 275
1990 205880 32681 173199 86.1 351.6 75.4 0 0 95.0 3049 347
1991 194761 19961 174800 74.2 122.2 71.0 0 0 95.0 6861 629
1992 159181 10226 148955 65.7 93.2 64.4 0 0 95.0 10729 3497
1993 148259 1436 146823 68.4 43.8 68.8 0 0 100.0 17300 2813
1994 144464 2046 142418 73.8 52.4 74.3 0 0 100.0 37231 4076
1995 136268 524 135744 73.3 15.1 74.5 0 0 100.0 56415 6716
1996 140059 1703 138356 76.9 52.2 77.3 0 0 100.0 88615 10260
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 225010 28901
</TABLE>
***78***
SCHEDULE P - PART 1D WORKERS' COMPENSATION
<TABLE>
<CAPTION>
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 6395 2426 238 72 120 128 4263 0
1987 145358 17992 127366 82650 -10374 1213 -1868 1839 6470 102575 43051
1988 206887 26808 180079 90751 -46004 -1230 -6607 2155 8131 150263 54231
1989 218760 1253 217507 155374 2413 6197 110 2282 8380 167428 54670
1990 240860 1706 239154 172930 5558 6365 498 2758 8947 182186 54416
1991 277049 2356 274693 174308 627 7071 9 2102 10192 190935 49627
1992 241105 2438 238667 118988 316 4809 8 1068 8397 131870 36154
1993 225021 1856 223165 101859 324 3507 9 917 7497 112530 27657
1994 205194 1321 203873 75628 69 2628 4 1611 7818 86001 25225
1995 204085 -3269 207354 53820 0 1481 0 182 6211 61512 24987
1996 156631 1139 155492 22791 0 403 0 31 3753 26947 20813
TOTAL 0 0 0 1055494 -44645 32682 -7765 15065 75924 1216510 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 56846 31012 9141 0 2884 1706 166 0 0 1403 37722 439
1987 9796 1018 3496 0 449 67 23 0 0 328 13007 64
1988 9669 260 4854 0 388 18 34 0 0 322 14989 97
1989 15570 1769 6600 0 692 120 46 0 0 508 21527 131
1990 21411 3781 7563 0 1085 257 64 0 0 746 26831 203
1991 21077 1089 7573 0 1033 75 99 0 0 853 29471 276
1992 16143 29 7662 0 1105 3 195 0 0 679 25752 316
1993 20406 479 7024 0 968 38 80 0 0 804 28765 422
1994 23557 970 8572 0 1119 79 221 0 0 997 33417 664
1995 40113 4540 10171 0 2273 369 269 0 0 1726 49643 1431
1996 44069 926 22576 0 2836 64 903 0 0 2786 72180 5719
TOTAL 278657 45873 95232 0 14832 2796 2100 0 0 11152 353304 9762
</TABLE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 34975 2747
1987 104426 -11157 115583 71.8 -62.0 90.7 0 0 0.0 12274 733
1988 112920 -52332 165252 54.6 -195.2 91.8 0 0 0.0 14263 726
1989 193369 4412 188957 88.4 352.1 86.9 0 0 88.0 20401 1126
1990 219111 10094 209017 91.0 591.7 87.4 0 0 95.0 25193 1638
1991 222205 1799 220406 80.2 76.4 80.2 0 0 95.0 27561 1910
1992 157977 357 157620 65.5 14.6 66.0 0 0 95.0 23776 1976
1993 142143 853 141290 63.2 46.0 63.3 0 0 100.0 26951 1814
1994 120538 1121 119417 58.7 84.9 58.6 0 0 100.0 31159 2258
1995 116064 4907 111157 56.9 -150.1 53.6 0 0 100.0 45744 3899
1996 100115 990 99125 63.9 86.9 63.7 0 0 100.0 65719 6461
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 328016 25288
</TABLE>
***79***
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 1E COMMERCIAL MULTIPLE PERIL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 1658 -11 2114 -3 81 81 3867 0
1987 304399 39799 264600 64492 -34768 6172 -11704 3020 7051 124187 36743
1988 353947 38594 315353 43618 -92791 680 -25830 3828 9822 172741 44143
1989 335246 4258 330988 189314 6578 35832 1412 3652 12399 229555 50701
1990 375943 4268 371675 190896 5638 32586 1224 3765 12980 229600 58237
1991 431679 4561 427118 211808 3423 33053 90 3584 16438 257786 59924
1992 417074 5586 411488 234043 13096 27555 146 3992 17624 265980 50671
1993 387670 10441 377229 166903 -57 17641 1 2746 15417 200017 47316
1994 368231 12331 355900 161728 1675 11675 44 2643 18867 190551 45839
1995 370697 12343 358354 148369 270 5862 33 2198 18738 172666 52125
1996 367638 10384 357254 105230 0 1954 0 751 15415 122599 49257
TOTAL 0 0 0 1518059 -96947 175124 -34587 30260 144832 1969549 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 7840 651 10002 0 7584 195 3476 0 0 1879 29935 271
1987 4893 285 5294 0 5416 28 1840 0 0 1176 18306 144
1988 8275 2847 7441 0 8970 291 2585 0 0 1808 25941 212
1989 9900 0 15947 0 14270 0 5541 0 0 3378 49036 324
1990 14315 0 18266 0 17300 0 6347 0 0 4049 60277 346
1991 21029 251 17440 0 19121 75 6060 0 0 4446 67770 418
1992 20272 0 15364 0 12672 0 3462 0 0 3934 55704 419
1993 30537 0 8990 0 11776 0 2351 0 0 3733 57387 659
1994 37982 0 8487 0 10444 0 2067 0 0 4209 63189 1072
1995 43257 480 21047 0 11272 40 5100 0 0 5559 85715 1928
1996 55984 30 58488 0 13931 2 14796 0 0 8892 152059 8262
TOTAL 254284 4544 186766 0 132756 631 53625 0 0 43063 665319 14055
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 17191 12744
1987 96332 -46159 142491 31.6 -116.0 53.9 0 0 0.0 9902 8404
1988 83198 -115483 198681 23.5 -299.2 63.0 0 0 0.0 12869 13072
1989 286580 7990 278590 85.5 187.6 84.2 0 0 88.0 25847 23189
1990 296736 6862 289874 78.9 160.8 78.0 0 0 95.0 32581 27696
1991 329394 3837 325557 76.3 84.1 76.2 0 0 95.0 38218 29552
1992 334924 13241 321683 80.3 237.0 78.2 0 0 95.0 35636 20068
1993 257349 -56 257405 66.4 -0.5 68.2 0 0 100.0 39527 17860
1994 255460 1719 253741 69.4 13.9 71.3 0 0 100.0 46469 16720
1995 259203 824 258379 69.9 6.7 72.1 0 0 100.0 63824 21891
1996 274688 31 274657 74.7 0.3 76.9 0 0 100.0 114442 37617
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 436506 228813
</TABLE>
***80***
<TABLE>
<CAPTION>
SCHEDULE P - PART 1F SECTION 1 MEDICAL MALPRACTICE - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0
1987 86 64 22 -6 0 0 0 0 1 -5 0
1988 65 37 28 3 3 9 1 0 19 27 3
1989 52 0 52 144 11 82 3 0 -2 210 6
1990 66 0 66 0 0 0 0 0 0 0 5
1991 86 0 86 0 0 0 0 0 4 4 3
1992 79 0 79 104 0 35 0 0 6 145 12
1993 79 0 79 9 0 126 0 0 10 145 11
1994 75 0 75 0 0 0 0 0 8 8 4
1995 59 0 59 0 0 0 0 0 6 6 4
1996 43 0 43 0 0 0 0 0 4 4 0
TOTAL 0 0 0 254 14 252 4 0 56 544 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 64 0 0 0 20 0 0 0 0 3 87 4
1987 0 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 285 0 0 0 92 0 0 0 0 16 393 4
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 1 0 51 0 0 0 16 0 0 3 71 4
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 350 0 51 0 112 0 16 0 0 22 551 12
</TABLE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 64 23
1987 -5 0 -5 -5.8 0.0 -22.7 0 0 0.0 0 0
1988 31 4 27 47.7 10.8 96.4 0 0 0.0 0 0
1989 224 15 209 430.8 0.0 401.9 0 0 88.0 0 0
1990 0 0 0 0.0 0.0 0.0 0 0 95.0 0 0
1991 4 0 4 4.7 0.0 4.7 0 0 95.0 0 0
1992 147 0 147 186.1 0.0 186.1 0 0 95.0 0 0
1993 538 0 538 681.0 0.0 681.0 0 0 100.0 285 108
1994 8 0 8 10.7 0.0 10.7 0 0 100.0 0 0
1995 77 0 77 130.5 0.0 130.5 0 0 100.0 52 19
1996 4 0 4 9.3 0.0 9.3 0 0 100.0 0 0
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 401 150
</TABLE>
***81***
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 1F SECTION 2 MEDICAL MALPRACTICE - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1987 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1988 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1989 0 0 0 0.0 0.0 0.0 0 0 85.0 0 0
1990 0 0 0 0.0 0.0 0.0 0 0 91.0 0 0
1991 0 0 0 0.0 0.0 0.0 0 0 91.0 0 0
1992 0 0 0 0.0 0.0 0.0 0 0 91.0 0 0
1993 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
1994 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
1995 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
1996 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
</TABLE>
***83***
<TABLE>
<CAPTION>
SCHEDULE P - PART 1H SECTION 1 OTHER LIABILITY - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 3797 869 2660 124 4 260 5724 0
1987 138182 33008 105174 25555 -8203 2444 -6684 320 2561 45447 11159
1988 170129 40775 129354 42780 -6141 7774 -5154 362 2855 64704 12292
1989 139867 9066 130801 61020 10019 14806 2230 138 2500 66077 11408
1990 138382 9686 128696 80170 22300 16114 5550 305 1873 70307 10567
1991 122772 12567 110205 49447 13117 13390 1421 153 2729 51028 9411
1992 119622 16448 103174 43143 15420 9076 520 54 2617 38896 8303
1993 112459 11841 100618 22477 2963 5872 54 92 2530 27862 7644
1994 109558 11893 97665 18699 751 3886 70 62 3984 25748 6978
1995 105078 11785 93293 10075 -176 1208 0 19 3822 15281 6589
1996 100058 12144 87914 5892 0 206 0 40 2828 8926 5283
TOTAL 0 0 0 363055 50919 77436 -1869 1549 28559 420000 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 16401 2956 15049 0 11815 1309 3779 0 0 2641 45420 675
1987 2709 4 2047 0 1793 0 514 0 0 544 7603 101
1988 3332 5 2586 0 2646 1 649 0 0 685 9892 118
1989 5624 181 5324 476 3744 76 1172 0 0 1143 16274 126
1990 8138 984 8620 715 5898 403 1982 0 0 1747 24283 136
1991 9086 222 11514 205 6653 21 2438 0 0 2091 31334 191
1992 16509 907 9978 35 5522 63 1657 0 0 2278 34939 225
1993 15365 96 12802 0 4637 67 1878 0 0 2154 36673 260
1994 15706 500 10431 0 3721 132 1756 0 0 2010 32992 351
1995 12447 1533 19473 44 3073 123 3302 0 0 2987 39582 518
1996 19246 5660 24970 0 5304 1436 6147 0 0 3511 52082 1133
TOTAL 124563 13048 122794 1475 54806 3631 25274 0 0 21791 331074 3834
</TABLE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 28494 16926
1987 38168 -14884 53052 27.6 -45.1 50.4 0 0 0.0 4752 2851
1988 63308 -11288 74596 37.2 -27.7 57.7 0 0 0.0 5913 3979
1989 95332 12978 82354 68.2 143.2 63.0 0 0 88.0 10291 5983
1990 124541 29951 94590 90.0 309.2 73.5 0 0 95.0 15059 9224
1991 97345 14986 82359 79.3 119.2 74.7 0 0 95.0 20173 11161
1992 90779 16947 73832 75.9 103.0 71.6 0 0 95.0 25545 9394
1993 67716 3182 64534 60.2 26.9 64.1 0 0 100.0 28071 8602
1994 60192 1453 58739 54.9 12.2 60.1 0 0 100.0 25637 7355
1995 56387 1525 54862 53.7 12.9 58.8 0 0 100.0 30343 9239
1996 68108 7097 61011 68.1 58.4 69.4 0 0 100.0 38556 13526
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 232834 98240
</TABLE>
***84***
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 1H SECTION 2 OTHER LIABILITY - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 2 0 9 0 0 0 11 0
1987 2018 1965 53 3094 3093 5 5 0 0 1 182
1988 3328 3274 54 3550 3367 -1 14 0 17 185 179
1989 4362 4303 59 3190 3205 -11 0 0 0 -26 153
1990 4400 4316 84 7207 7198 -8 0 0 2 3 194
1991 7991 7985 6 12181 553 -132 0 0 287 11783 173
1992 17116 6466 10650 5138 0 -131 0 0 56 5063 194
1993 6124 -976 7100 2897 0 0 0 0 41 2938 174
1994 2778 -747 3525 2009 0 5 0 0 94 2108 154
1995 12970 -546 13516 400 0 21 0 0 5 426 152
1996 -1384 -513 -871 983 0 0 0 0 9 992 141
TOTAL 0 0 0 40651 17416 -243 19 0 511 23484 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 634 579 106 0 149 122 27 0 0 26 241 5
1987 80 74 6 0 5 0 2 0 0 1 20 5
1988 6 0 6 0 5 0 2 0 0 1 20 4
1989 41 34 6 0 5 0 2 0 0 1 21 4
1990 94 94 0 0 0 0 0 0 0 0 0 4
1991 1954 0 0 0 0 0 0 0 0 0 1954 5
1992 611 0 0 0 0 0 0 0 0 0 611 6
1993 1290 0 0 0 0 0 0 0 0 0 1290 14
1994 1240 0 0 0 0 0 0 0 0 0 1240 17
1995 1921 0 0 0 46 0 0 0 0 22 1989 45
1996 3506 0 49 0 0 0 13 0 0 4 3572 98
TOTAL 11377 781 173 0 210 122 46 0 0 55 10958 207
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 161 80
1987 3194 3172 22 158.3 161.4 41.5 0 0 0.0 12 8
1988 3586 3380 206 107.8 103.2 381.5 0 0 0.0 12 8
1989 3236 3241 -5 74.2 75.3 -8.5 0 0 88.0 13 8
1990 7296 7293 3 165.8 169.0 3.6 0 0 95.0 0 0
1991 14289 553 13736 178.8 6.9 228933.3 0 0 95.0 1954 0
1992 5674 0 5674 33.2 0.0 53.3 0 0 95.0 611 0
1993 4227 0 4227 69.0 0.0 59.5 0 0 100.0 1290 0
1994 3349 0 3349 120.6 0.0 95.0 0 0 100.0 1240 0
1995 2414 0 2414 18.6 0.0 17.9 0 0 100.0 1921 68
1996 4567 0 4567 -330.0 0.0 -524.3 0 0 100.0 3555 17
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 10769 189
</TABLE>
***85***
<TABLE>
<CAPTION>
SCHEDULE P - PART 1I SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE, EARTHQUAKE, GLASS, BURGLARY & THEFT)
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 848 4 369 0 357 53 1266 0
1995 82527 5481 77046 43996 1295 762 47 491 4419 47835 0
1996 82330 5267 77063 34751 636 408 0 178 3838 38361 0
TOTAL 0 0 0 79595 1935 1539 47 1026 8310 87462 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 2454 0 3 0 217 0 0 0 0 157 2831 63
1995 2084 0 6 0 54 0 0 0 0 159 2303 41
1996 7582 228 2690 0 191 6 22 0 0 486 10737 1316
TOTAL 12120 228 2699 0 462 6 22 0 0 802 15871 1420
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 2457 374
1995 51480 1341 50139 62.4 24.5 65.1 0 0 100.0 2090 213
1996 49967 872 49095 60.7 16.6 63.7 0 0 100.0 10044 693
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 14591 1280
</TABLE>
***86***
<TABLE>
<CAPTION>
SCHEDULE P - PART 1J AUTO PHYSICAL DAMAGE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 -3159 -244 60 -1 1700 -156 -3010 0
1995 242826 796 242030 153012 388 1122 0 16097 16634 170380 154030
1996 242594 619 241975 158793 360 913 0 8827 16115 175461 153219
TOTAL 0 0 0 308646 504 2095 -1 26624 32593 342831 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 272 9 997 100 53 0 0 0 0 27 1240 40
1995 280 0 -8 0 6 0 0 0 0 19 297 86
1996 17047 64 1384 0 149 0 12 0 0 1284 19812 7214
TOTAL 17599 73 2373 100 208 0 12 0 0 1330 21349 7340
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 1160 80
1995 171067 388 170679 70.4 48.7 70.5 0 0 100.0 272 25
1996 195699 426 195273 80.7 68.8 80.7 0 0 100.0 18367 1445
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 19799 1550
</TABLE>
**87**
<TABLE>
<CAPTION>
SCHEDULE P - PART 1K FIDELITY / SURETY
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 -66 -227 110 6 475 13 278 0
1995 10954 869 10085 805 0 153 0 106 157 1115 0
1996 10916 798 10118 199 0 9 0 0 114 322 0
TOTAL 0 0 0 938 -227 272 6 581 284 1715 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 1260 156 0 0 404 49 0 0 0 61 1520 81
1995 931 0 0 0 300 0 0 0 0 49 1280 53
1996 464 0 796 0 149 0 256 0 0 56 1721 89
TOTAL 2655 156 796 0 853 49 256 0 0 166 4521 223
</TABLE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 1104 416
1995 2397 0 2397 21.9 0.0 23.8 0 0 100.0 931 349
1996 2040 0 2040 18.7 0.0 20.2 0 0 100.0 1260 461
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 3295 1226
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
**88**
SCHEDULE P - PART 1L OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 -26425 -21263 8 -18 0 56 -5080 0
1995 100705 17761 82944 58946 14504 899 2 0 682 46021 0
1996 116906 20752 96154 34025 8847 501 3 0 392 26068 0
TOTAL 0 0 0 66546 2088 1408 -13 0 1130 67009 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 41273 33995 22715 5805 373 98 21 0 0 84 24568 279
1995 3790 824 9493 906 0 0 238 0 0 46 11837 470
1996 18628 3787 28833 3035 0 0 927 0 0 38 41604 545
TOTAL 63691 38606 61041 9746 373 98 1186 0 0 168 78009 1294
</TABLE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 24188 380
1995 74096 16238 57858 73.6 91.4 69.8 0 0 100.0 11553 284
1996 83343 15674 67669 71.3 75.5 70.4 0 0 100.0 40639 965
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 76380 1629
</TABLE>
**89**
<TABLE>
<CAPTION>
SCHEDULE P - PART 1M INTERNATIONAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0
1992 146 0 146 -6 0 0 0 0 0 -6 0
1993 113 0 113 0 0 0 0 0 -2 -2 0
1994 2 0 2 0 0 0 0 0 -2 -2 0
1995 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0 0 -6 0 0 0 0 -4 -10 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1987 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1988 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1989 0 0 0 0.0 0.0 0.0 0 0 88.0 0 0
1990 0 0 0 0.0 0.0 0.0 0 0 95.0 0 0
1991 0 0 0 0.0 0.0 0.0 0 0 95.0 0 0
1992 -5 0 -5 -3.4 0.0 -3.4 0 0 95.0 0 0
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 -2 0 -2 -1.8 0.0 -1.8 0 0 100.0 0 0
1994 -2 0 -2 -100.0 0.0 -100.0 0 0 100.0 0 0
1995 0 0 0 0.0 0.0 0.0 0 0 100.0 0 0
1996 0 0 0 0.0 0.0 0.0 0 0 100.0 0 0
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
</TABLE>
**90**
<TABLE>
<CAPTION>
SCHEDULE P - PART 1N REINSURANCE A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 2922 75 2847 -63 9 -10 0 0 9 -73 0
1989 1655 104 1551 637 -406 -3 0 0 -15 1025 0
1990 711 112 599 -562 -36 -19 1 0 -16 -562 0
1991 550 151 399 -359 505 13 38 0 87 -802 0
1992 24677 9643 15034 43027 22085 90 8 0 226 21250 0
1993 6386 2109 4277 3866 475 30 2 0 87 3506 0
1994 -258 426 -684 -168 0 0 0 0 0 -168 0
1995 -579 9 -588 0 0 0 0 0 0 0 0
1996 41 1 40 0 0 0 0 0 2 2 0
TOTAL 0 0 0 46378 22632 101 49 0 380 24178 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 11 1 0 0 9 0 0 0 0 0 19 0
1989 200 104 0 0 33 0 0 0 0 0 129 0
1990 78 4 0 0 13 0 0 0 0 0 87 0
1991 364 110 91 0 94 5 0 0 0 0 434 0
1992 866 185 116 56 134 0 0 0 0 0 875 0
1993 188 23 51 2 30 0 0 0 0 0 244 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 1707 427 258 58 313 5 0 0 0 0 1788 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 -41 11 -52 (1.4) 14.7 (1.8) 0 0 0.0 10 9
1989 854 -302 1156 51.6 (290.4) 74.5 0 0 88.0 96 33
1990 -507 -29 -478 -71.3 -25.9 -79.8 0 0 95.0 74 13
1991 288 660 -372 52.4 437.1 -93.2 0 0 95.0 345 89
1992 44459 22335 22124 180.2 231.6 147.2 0 0 95.0 741 134
1993 4251 503 3748 66.6 23.9 87.6 0 0 100.0 214 30
1994 -168 0 -168 65.1 0.0 24.6 0 0 100.0 0 0
1995 0 0 0 0.0 0.0 0.0 0 0 100.0 0 0
1996 2 0 2 4.9 0.0 5.0 0 0 100.0 0 0
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 1480 308
</TABLE>
**91**
<TABLE>
<CAPTION>
SCHEDULE P - PART 1O REINSURANCE B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 255 0 255 -1620 -157 -118 0 0 -19 -1600 0
1989 93 0 93 -1562 -186 -141 3 0 -25 -1545 0
1990 4362 0 4362 -1408 -244 -223 0 0 -39 -1426 0
1991 39 0 39 -3657 -717 -747 -1 0 -99 -3785 0
1992 4000 44 3956 336 -18 336 3 0 20 707 0
1993 5914 -27 5941 589 60 144 13 0 3 663 0
1994 1109 46 1063 -391 0 2 0 0 -21 -410 0
1995 562 6 556 0 0 0 0 0 0 0 0
1996 581 0 581 0 0 0 0 0 0 0 0
TOTAL 0 0 0 -7713 -1262 -747 18 0 -180 -7396 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 296 0 428 66 86 0 0 0 0 0 744 0
1989 689 11 1164 103 202 0 0 0 0 0 1941 0
1990 1454 0 2225 228 240 0 0 0 0 0 3691 0
1991 1227 2 2020 92 240 0 0 0 0 0 3393 0
1992 3209 18 2831 296 343 0 0 0 0 0 6069 0
1993 1398 8 778 56 113 0 0 0 0 0 2225 0
1994 96 0 188 16 78 0 0 0 0 0 346 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 8369 39 9634 857 1302 0 0 0 0 0 18409 0
</TABLE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 -944 -90 -854 (370.2) 0.0 (334.9) 0 0 0.0 658 86
1989 324 -68 392 348.4 0.0 421.5 0 0 88.0 1739 202
1990 2248 -15 2263 51.5 0.0 51.9 0 0 95.0 3451 240
1991 -1015 -624 -391 -2602.6 0.0 -1002.6 0 0 95.0 3153 240
1992 7078 299 6779 177.0 679.5 171.4 0 0 95.0 5726 343
1993 3025 136 2889 51.1 -503.7 48.6 0 0 100.0 2112 113
1994 -49 16 -65 -4.4 34.8 -6.1 0 0 100.0 268 78
1995 0 0 0 0.0 0.0 0.0 0 0 100.0 0 0
1996 0 0 0 0.0 0.0 0.0 0 0 100.0 0 0
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 17107 1302
</TABLE>
**92**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 1P REINSURANCE C
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1989 0 0 0 0.0 0.0 0.0 0 0 85.0 0 0
1990 0 0 0 0.0 0.0 0.0 0 0 91.0 0 0
1991 0 0 0 0.0 0.0 0.0 0 0 91.0 0 0
1992 0 0 0 0.0 0.0 0.0 0 0 91.0 0 0
1993 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
1994 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
1995 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
1996 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
</TABLE>
**93**
<TABLE>
<CAPTION>
SCHEDULE P - PART 1Q REINSURANCE D
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 17987 2931 385 27 0 491 15905 0
1987 11444 126 11318 -501 -58 -88 0 0 2 -529 0
TOTAL 0 0 0 17486 2873 297 27 0 493 15376 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 119960 15973 142850 18346 6285 222 57 0 0 5453 240064 0
1987 470 2 1188 128 49 0 0 0 0 0 1577 0
TOTAL 120430 15975 144038 18474 6334 222 57 0 0 5453 241641 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 228491 11573
1987 1122 72 1050 9.8 57.1 9.3 0 0 0.0 1528 49
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 230019 11622
</TABLE>
**94**
<TABLE>
<CAPTION>
SCHEDULE P - PART 1R SECTION 1 PRODUCTS LIABILITY - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 -5 0 -22 0 0 0 -27 0
1987 11517 3003 8514 830 -1185 737 82 15 1188 3858 144
1988 12241 2498 9743 3217 -529 1383 145 17 1778 6762 333
1989 18433 7590 10843 2156 113 1339 0 3 1148 4530 834
1990 15587 5646 9941 1741 166 824 0 12 1102 3501 573
1991 9588 60 9528 2156 0 1437 0 13 1466 5059 452
1992 4969 21 4948 1415 0 744 0 -1 841 3000 209
1993 4587 19 4568 719 0 366 0 4 588 1673 216
1994 4660 24 4636 270 0 199 0 0 172 641 185
1995 4819 25 4794 266 0 66 0 0 270 602 215
1996 3927 21 3906 75 0 13 0 0 247 335 108
TOTAL 0 0 0 12840 -1435 7086 227 63 8800 29934 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 682 70 197 0 709 32 49 0 0 87 1622 8
1987 94 0 866 0 712 0 218 0 0 127 2017 11
1988 246 0 116 0 418 0 28 0 0 36 844 5
1989 288 0 992 0 830 0 249 0 0 153 2512 11
1990 622 0 806 0 1097 0 202 0 0 172 2899 11
1991 828 0 330 0 1691 0 83 0 0 121 3053 21
1992 870 0 468 0 1088 0 80 0 0 129 2635 25
1993 644 0 700 0 847 0 120 0 0 149 2460 25
1994 846 0 503 0 265 0 88 0 0 121 1823 19
1995 470 0 1016 0 264 0 178 0 0 131 2059 26
1996 185 0 700 0 53 0 176 0 0 84 1198 25
TOTAL 5775 70 6694 0 7974 32 1471 0 0 1310 23122 187
</TABLE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 809 813
1987 4771 -1103 5874 41.4 -36.7 69.0 0 0 0.0 960 1057
1988 7227 -384 7611 59.0 -15.4 78.1 0 0 0.0 362 482
1989 7156 113 7043 38.8 1.5 65.0 0 0 88.0 1280 1232
1990 6566 166 6400 42.1 2.9 64.4 0 0 95.0 1428 1471
1991 8113 0 8113 84.6 0.0 85.1 0 0 95.0 1158 1895
1992 5632 0 5632 113.3 0.0 113.8 0 0 95.0 1338 1297
1993 4132 0 4132 90.1 0.0 90.5 0 0 100.0 1344 1116
1994 2460 0 2460 52.8 0.0 53.1 0 0 100.0 1349 474
1995 2657 0 2657 55.1 0.0 55.4 0 0 100.0 1486 573
1996 1531 0 1531 39.0 0.0 39.2 0 0 100.0 885 313
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 12399 10723
</TABLE>
***95**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 1R SECTION 2 PRODUCTS LIABILITY - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1987 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1988 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1989 0 0 0 0.0 0.0 0.0 0 0 85.0 0 0
1990 0 0 0 0.0 0.0 0.0 0 0 91.0 0 0
1991 0 0 0 0.0 0.0 0.0 0 0 91.0 0 0
1992 0 0 0 0.0 0.0 0.0 0 0 91.0 0 0
1993 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
1994 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
1995 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
1996 0 0 0 0.0 0.0 0.0 0 0 96.0 0 0
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
</TABLE>
**96**
<TABLE>
<CAPTION>
SCHEDULE P - PART 1S FINANCIAL GUARANTY / MORTGAGE GUARANTY
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
COL 13 COL 14 COL 15 COL 16 COL 17 COL 18 COL 19 COL 20 COL 21 COL 22 COL 23 COL 24
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
COL 25 COL 26 COL 27 COL 28 COL 29 COL 30 COL 31 COL 32 COL 33 COL 34 COL 35
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1995 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
1996 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
TOTAL 0 0 0 0.0 0.0 0.0 0 0 0.0 0 0
</TABLE>
**97**
<TABLE>
<CAPTION>
SCHEDULE P - PART 2A HOMEOWNERS/FARMOWNERS
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 15515 14425 14310 13904 14071 14130 17057 15359 15340 15203 -137 -156
1987 89969 78711 77147 76515 76078 75803 76105 76115 76072 76152 80 37
1988 0 121111 110870 110381 111977 110873 110984 111284 111726 111333 -393 49
1989 0 0 148257 134640 132074 130799 130543 130079 129939 129983 44 -96
1990 0 0 0 161173 145392 142104 142165 141532 141205 141099 -106 -433
1991 0 0 0 0 187912 178533 175867 175457 175400 175254 -146 -203
1992 0 0 0 0 0 175222 169922 169461 168592 168689 97 -772
1993 0 0 0 0 0 0 168925 169154 168473 168125 -348 -1029
1994 0 0 0 0 0 0 0 174703 171504 168173 -3331 -6530
1995 0 0 0 0 0 0 0 0 150667 148778 -1889 0
1996 0 0 0 0 0 0 0 0 0 180266 0 0
TOTAL -6129 -9133
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2B PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 56452 53938 54615 55316 54403 54298 56905 65997 65818 66073 255 76
1987 150518 127329 126939 127546 127454 127054 127350 126690 126655 126823 168 133
1988 0 221369 214404 215429 212450 212289 211664 212376 212502 212171 -331 -205
1989 0 0 214897 214251 212728 210028 209113 210307 209902 209413 -489 -894
1990 0 0 0 240387 242402 235741 233182 231420 229829 229578 -251 -1842
1991 0 0 0 0 269236 262149 251857 248041 247663 246364 -1299 -1677
1992 0 0 0 0 0 241094 233331 226213 221867 223522 1655 -2691
1993 0 0 0 0 0 0 233747 221430 219779 220376 597 -1054
1994 0 0 0 0 0 0 0 220299 211785 209968 -1817 -10331
1995 0 0 0 0 0 0 0 0 212640 209391 -3249 0
1996 0 0 0 0 0 0 0 0 0 216197 0 0
TOTAL -4761 -18485
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2C COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 63195 65404 65972 63646 63516 63745 66786 65235 65216 65263 47 28
1987 95177 101336 100090 101132 99984 98718 98367 97374 97225 97227 2 -147
1988 0 127041 127991 131479 131173 128537 129253 126791 126140 125996 -144 -795
1989 0 0 153203 157450 159500 158414 155071 157760 156764 155323 -1441 -2437
1990 0 0 0 175720 173792 175408 172885 168977 167712 166106 -1606 -2871
1991 0 0 0 0 189284 190645 182001 171620 169206 166155 -3051 -5465
1992 0 0 0 0 0 180793 164879 152175 148053 140697 -7356 -11478
1993 0 0 0 0 0 0 168205 160851 148502 137547 -10955 -23304
1994 0 0 0 0 0 0 0 150257 135387 130794 -4593 -19463
1995 0 0 0 0 0 0 0 0 137449 123794 -13655 0
1996 0 0 0 0 0 0 0 0 0 127169 0 0
TOTAL -42752 -65932
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2D WORKERS' COMPENSATION
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 62691 70819 74811 76582 81924 84305 87499 85421 86347 87945 1598 2524
1987 101145 99836 97726 101974 104225 107735 109152 109186 108039 108784 745 -402
1988 0 133846 147367 148936 155561 156039 156938 157992 157035 156800 -235 -1192
1989 0 0 160990 170739 176697 180125 178314 180895 179819 180069 250 -826
1990 0 0 0 185470 197001 199939 200905 201770 200037 199322 -715 -2448
1991 0 0 0 0 214236 221652 219670 214943 210480 209361 -1119 -5582
1992 0 0 0 0 0 178837 168465 159744 150263 148544 -1719 -11200
1993 0 0 0 0 0 0 161936 146338 137683 132991 -4692 -13347
1994 0 0 0 0 0 0 0 131446 120393 110602 -9791 -20844
1995 0 0 0 0 0 0 0 0 119523 103218 -16305 0
1996 0 0 0 0 0 0 0 0 0 92586 0 0
TOTAL -31983 -53317
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2E COMMERCIAL MULTIPLE PERIL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 89408 96086 102067 102697 104146 116335 122242 115527 123041 127563 4522 12036
1987 157909 130610 122777 120130 118534 123521 124664 127608 127523 134264 6741 6656
1988 0 193716 173508 176039 171772 170507 171932 174468 176940 187052 10112 12584
1989 0 0 238146 234233 230616 242500 235231 240264 255676 262813 7137 22549
1990 0 0 0 257492 256666 258617 254636 250937 264335 272844 8509 21907
1991 0 0 0 0 339244 335112 323209 315965 307741 304672 -3069 -11293
1992 0 0 0 0 0 337839 324277 322071 311617 300124 -11493 -21947
1993 0 0 0 0 0 0 292375 268571 249381 238254 -11127 -30317
1994 0 0 0 0 0 0 0 270919 245366 230664 -14702 -40255
1995 0 0 0 0 0 0 0 0 237911 234082 -3829 0
1996 0 0 0 0 0 0 0 0 0 250349 0 0
TOTAL -7199 -28080
</TABLE>
<PAGE>
**98**
<TABLE>
<CAPTION>
SCHEDULE P - PART 2F SECTION 1 MEDICAL MALPRACTICE - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 198 393 164 41 248 127 124 25 25 108 83 83
1987 0 0 0 0 0 3 -6 -6 -6 -6 0 0
1988 0 0 0 59 59 61 64 66 68 7 -61 -59
1989 0 0 58 222 470 233 212 212 212 212 0 0
1990 0 0 0 0 64 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 191 -7 373 139 139 0 -234
1993 0 0 0 0 0 0 0 20 22 513 491 493
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 69 69 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 582 283
</TABLE>
SCHEDULE P - PART 2F SECTION 2 MEDICAL MALPRACTICE - CLAIMS-MADE
<TABLE>
<CAPTION>
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2G SPECIAL LIABILITY (OCEAN, MARINE, AIRCRAFT (ALL PERILS), BOILER AND MACHINERY)
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 78 6 4 4 4 50 70 16 16 16 0 0
1987 541 411 401 401 401 396 397 396 396 396 0 0
1988 0 792 766 707 707 621 584 597 597 597 0 0
1989 0 0 642 556 547 558 560 546 546 546 0 0
1990 0 0 0 774 596 573 567 565 565 565 0 0
1991 0 0 0 0 742 589 594 589 589 589 0 0
1992 0 0 0 0 0 942 699 677 678 661 -17 -16
1993 0 0 0 0 0 0 870 825 809 809 0 -16
1994 0 0 0 0 0 0 0 1346 1501 1503 2 157
1995 0 0 0 0 0 0 0 0 778 690 -88 0
1996 0 0 0 0 0 0 0 0 0 1310 0 0
TOTAL -103 125
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2H SECTION 1 OTHER LIABILITY - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 80013 96030 91350 88935 97214 110716 111249 123640 138322 143165 4843 19525
1987 56357 61545 52053 46611 47988 46297 45389 45862 46708 49947 3239 4085
1988 0 75464 76334 69455 73506 71831 67127 67383 68090 71057 2967 3674
1989 0 0 79083 69536 80827 80116 77017 73660 72670 78710 6040 5050
1990 0 0 0 80398 81999 84298 85236 87867 80153 90968 10815 3101
1991 0 0 0 0 75182 71607 72017 72413 73602 77540 3938 5127
1992 0 0 0 0 0 56237 71253 67365 66210 68938 2728 1573
1993 0 0 0 0 0 0 74240 69463 65114 59851 -5263 -9612
1994 0 0 0 0 0 0 0 76221 62522 52744 -9778 -23477
1995 0 0 0 0 0 0 0 0 60781 48053 -12728 0
1996 0 0 0 0 0 0 0 0 0 54670 0 0
TOTAL 6801 9046
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2H SECTION 2 OTHER LIABILITY - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 491 -4 -4 93 -13 1509 1731 1373 896 637 -259 -736
1987 1785 12 12 12 12 1 1 1 1 20 19 19
1988 0 0 11 34 -4 167 167 167 165 187 22 20
1989 0 0 0 14 -1 147 -27 -27 -27 -8 19 19
1990 0 0 0 126 -4 330 176 151 0 0 0 -151
1991 0 0 0 0 0 12883 7327 7693 13606 13450 -156 5757
1992 0 0 0 0 0 10763 6499 5701 6790 5617 -1173 -84
1993 0 0 0 0 0 0 5377 4078 4493 4185 -308 107
1994 0 0 0 0 0 0 0 4099 3659 3256 -403 -843
1995 0 0 0 0 0 0 0 0 5694 2387 -3307 0
1996 0 0 0 0 0 0 0 0 0 4554 0 0
TOTAL -5546 4108
</TABLE>
**99**
<TABLE>
<CAPTION>
SCHEDULE P - PART 2I SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE, EARTHQUAKE, GLASS, BURGLARY & THEFT)
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 14572 15411 15743 332 1171
1995 0 0 0 0 0 0 0 0 44707 45560 853 0
1996 0 0 0 0 0 0 0 0 0 44772 0 0
TOTAL 1185 1171
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2J AUTO PHYSICAL DAMAGE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 17825 7714 5356 -2358 -12469
1995 0 0 0 0 0 0 0 0 161064 154022 -7042 0
1996 0 0 0 0 0 0 0 0 0 177875 0 0
TOTAL -9400 -12469
</TABLE>
SCHEDULE P - PART 2K FIDELITY / SURETY
<TABLE>
<CAPTION>
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 4791 2915 2517 -398 -2274
1995 0 0 0 0 0 0 0 0 2588 2190 -398 0
1996 0 0 0 0 0 0 0 0 0 1872 0 0
TOTAL -796 -2274
</TABLE>
SCHEDULE P - PART 2L OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
<TABLE>
<CAPTION>
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 43699 33892 40230 6338 -3469
1995 0 0 0 0 0 0 0 0 59122 57130 -1992 0
1996 0 0 0 0 0 0 0 0 0 67240 0 0
TOTAL 4346 -3469
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2M INTERNATIONAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 116 -6 -6 -6 -6 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0
</TABLE>
**100**
<TABLE>
<CAPTION>
SCHEDULE P - PART 2N REINSURANCE A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 5 5 -28 -19 41 -11 -64 -53 -105
1989 0 0 817 962 1036 1140 1153 1384 1356 1168 -188 -216
1990 0 0 0 0 0 -133 -489 -307 -264 -462 -198 -155
1991 0 0 0 0 0 -602 -1074 -789 -478 -459 19 330
1992 0 0 0 0 0 27601 20506 22820 22439 21899 -540 -921
1993 0 0 0 0 0 0 2749 4051 3776 3662 -114 -389
1994 0 0 0 0 0 0 0 0 -136 -168 -32 -168
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL -1106 -1624
</TABLE>
<PAGE>
SCHEDULE P - PART 2O REINSURANCE B
<TABLE>
<CAPTION>
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0 0 -842 -1261 149 -935 -834 101 -983
1989 0 0 0 0 0 873 -1478 224 637 418 -219 194
1990 0 0 0 6172 0 1403 -2185 940 1868 2303 435 1363
1991 0 0 0 0 0 -537 -4529 -1872 -1268 -293 975 1579
1992 0 0 0 0 0 9867 1585 4413 6229 6759 530 2346
1993 0 0 0 0 0 0 262 1551 2667 2886 219 1335
1994 0 0 0 0 0 0 0 0 1174 -44 -1218 -44
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 823 5790
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2P REINSURANCE C
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2Q REINSURANCE D
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 71384 79483 89207 105455 130033 145038 208306 212657 286110 313146 27036 100489
1987 0 0 0 0 0 -186 -321 -20 276 1046 770 1066
TOTAL 27806 101555
</TABLE>
**101**
<TABLE>
<CAPTION>
SCHEDULE P - PART 2R SECTION 1 PRODUCTS LIABILITY - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 3335 5469 6162 12237 6378 4728 5268 5344 6260 6247 -13 903
1987 2230 2746 3684 6367 3775 2753 2654 2863 2956 4559 1603 1696
1988 0 2567 4426 9739 6438 4353 4500 4629 5315 5795 480 1166
1989 0 0 3192 6654 5408 3337 3740 3414 4364 5742 1378 2328
1990 0 0 0 3642 4190 3544 4293 3250 4348 5127 779 1877
1991 0 0 0 0 4507 3338 5109 5263 6318 6526 208 1263
1992 0 0 0 0 0 1928 3170 3759 4194 4663 469 904
1993 0 0 0 0 0 0 2778 2841 3065 3396 331 555
1994 0 0 0 0 0 0 0 1840 2488 2169 -319 329
1995 0 0 0 0 0 0 0 0 2116 2256 140 0
1996 0 0 0 0 0 0 0 0 0 1200 0 0
TOTAL 5056 11021
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2R SECTION 2 PRODUCTS LIABILITY - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 2S FINANCIAL GUARANTY / MORTGAGE GUARANTY
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
TOTAL 0 0
</TABLE>
**102**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3A HOMEOWNERS/FARMOWNERS
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 4780 9190 10182 11767 12432 13444 13941 14828 15041 10 11
1987 55834 69998 72765 73711 74596 75039 75481 75803 75966 76068 50148 2771
1988 0 80204 102335 103756 106394 107884 109648 110306 110745 111108 55267 3185
1989 0 0 95150 121258 125601 127219 128095 128828 129295 129760 59144 4455
1990 0 0 0 94038 129380 134130 136697 138224 139697 140204 75201 7274
1991 0 0 0 0 125957 159931 167329 170483 172330 173428 77277 7071
1992 0 0 0 0 0 118115 151094 159731 163250 164472 60823 5703
1993 0 0 0 0 0 0 124303 154978 160309 164322 62405 4846
1994 0 0 0 0 0 0 0 125964 158573 164725 53983 6185
1995 0 0 0 0 0 0 0 0 108470 138067 49546 16706
1996 0 0 0 0 0 0 0 0 0 131147 50047 18157
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3B PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 11760 36671 42022 47902 50807 55306 53010 53065 53442 10 9
1987 51641 69790 101893 113535 121004 123756 125634 126152 126311 126715 55005 11285
1988 0 79184 153350 181317 198743 205115 208315 209577 210802 211596 60966 13226
1989 0 0 80141 138440 174997 191310 199069 203634 206466 208424 58565 12689
1990 0 0 0 64585 153195 194391 214122 222563 225946 228223 63728 13748
1991 0 0 0 0 90118 172244 211454 230632 238983 242835 60159 12923
1992 0 0 0 0 0 82707 157035 191321 206988 213512 53690 11823
1993 0 0 0 0 0 0 81601 149324 185060 200733 53903 11752
1994 0 0 0 0 0 0 0 77916 142625 176857 44702 11799
1995 0 0 0 0 0 0 0 0 75454 138491 41295 15460
1996 0 0 0 0 0 0 0 0 0 77504 31576 11072
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3C COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 25391 38469 47003 54576 58108 59932 61591 63572 63791 42 26
1987 21950 47972 71392 83759 91533 94326 95489 96364 96691 96837 22518 4376
1988 0 31626 64233 89116 107746 117432 122158 124683 125234 125284 27501 5358
1989 0 0 37054 70347 104925 129278 141566 148676 152351 152794 29252 5775
1990 0 0 0 24807 85717 119563 141314 154046 160545 162867 31190 6181
1991 0 0 0 0 41655 90392 125533 146092 154377 158951 29316 5737
1992 0 0 0 0 0 36833 75275 107774 122672 127032 23671 5078
1993 0 0 0 0 0 0 35147 72894 101931 118325 21452 4540
1994 0 0 0 0 0 0 0 35704 71079 91279 20135 4803
1995 0 0 0 0 0 0 0 0 32693 63836 17801 6440
1996 0 0 0 0 0 0 0 0 0 33106 14206 4808
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3D WORKERS' COMPENSATION
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 2888 10425 14106 26058 33065 37179 43255 47492 51627 97 32
1987 22671 55130 71441 77348 85124 90260 92152 94172 95212 96105 40315 3706
1988 0 31204 82046 102015 119527 129321 134155 138139 140473 142132 49694 5128
1989 0 0 38738 80192 116615 136973 146273 152691 155997 159048 50539 5305
1990 0 0 0 26328 93474 131387 148729 160622 168258 173239 49284 5010
1991 0 0 0 0 50477 115234 144926 163582 174162 180742 44610 4907
1992 0 0 0 0 0 40039 80234 104254 116321 123472 32685 3487
1993 0 0 0 0 0 0 33989 76013 95307 105031 24787 2449
1994 0 0 0 0 0 0 0 26401 62018 78184 21958 2602
1995 0 0 0 0 0 0 0 0 25360 55302 18944 4610
1996 0 0 0 0 0 0 0 0 0 23193 12028 3067
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3E COMMERCIAL MULTIPLE PERIL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 22797 53605 61010 72475 82100 87667 91854 95721 99507 62 87
1987 47675 65022 79491 85928 97226 103464 107734 111624 114315 117135 30513 6485
1988 0 67310 103746 111875 129772 136758 144714 151749 159631 162919 35602 8378
1989 0 0 84883 116449 142680 163842 182307 194607 208638 217155 40540 10739
1990 0 0 0 57574 117121 144504 167930 187294 202265 216619 45564 12403
1991 0 0 0 0 116219 167627 190503 212240 229760 241347 46445 13199
1992 0 0 0 0 0 117405 172924 208026 232887 248357 39232 11325
1993 0 0 0 0 0 0 103225 144735 168340 184600 36555 10100
1994 0 0 0 0 0 0 0 103240 149241 171684 33333 11434
1995 0 0 0 0 0 0 0 0 104734 153925 32010 18187
1996 0 0 0 0 0 0 0 0 0 107183 26619 14376
</TABLE>
**103**
<TABLE>
<CAPTION>
SCHEDULE P - PART 3F SECTION 1 MEDICAL MALPRACTICE - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 -200 -224 -149 57 20 24 25 25 25 0 0
1987 0 0 0 0 0 -6 -6 -6 -6 -6 0 0
1988 0 0 0 -5 -5 -3 -4 -1 0 7 4 0
1989 0 0 0 -16 25 211 212 212 212 212 7 0
1990 0 0 0 0 0 0 0 0 0 0 0 4
1991 0 0 0 0 0 0 0 0 0 0 0 3
1992 0 0 0 0 0 0 -7 7 139 139 12 5
1993 0 0 0 0 0 0 0 20 22 136 3 3
1994 0 0 0 0 0 0 0 0 0 0 0 4
1995 0 0 0 0 0 0 0 0 0 0 0 4
1996 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3F SECTION 2 MEDICAL MALPRACTICE - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3G SPECIAL LIABILITY (OCEAN, MARINE, AIRCRAFT (ALL PERILS), BOILER AND MACHINERY)
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 3 4 4 4 -76 -81 -80 16 16 0 0
1987 309 397 401 401 401 390 393 393 396 396 0 0
1988 0 484 566 641 641 569 572 573 597 597 0 0
1989 0 0 392 544 544 505 524 526 546 546 0 0
1990 0 0 0 376 577 564 564 565 565 565 0 0
1991 0 0 0 0 405 545 588 589 589 589 0 0
1992 0 0 0 0 0 402 629 639 641 661 0 0
1993 0 0 0 0 0 0 670 800 809 809 0 0
1994 0 0 0 0 0 0 0 867 1481 1492 0 0
1995 0 0 0 0 0 0 0 0 478 675 0 0
1996 0 0 0 0 0 0 0 0 0 984 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3H SECTION 1 OTHER LIABILITY - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 18019 28549 42217 56699 63403 68572 77498 94923 100388 105 298
1987 5935 12700 18245 24049 30886 33587 37355 38811 41726 42886 8640 2586
1988 0 7168 17392 24585 39247 46921 51920 56883 59810 61848 9618 2938
1989 0 0 8990 12817 30940 41359 47761 55633 60658 63578 9022 2986
1990 0 0 0 2138 23451 35657 44194 54201 62841 68432 7630 2564
1991 0 0 0 0 6763 15456 23183 33970 43456 48299 6446 2649
1992 0 0 0 0 0 5699 11704 23081 31623 36280 5876 2393
1993 0 0 0 0 0 0 6981 15915 23756 25330 5307 2081
1994 0 0 0 0 0 0 0 6776 14946 21764 4615 2015
1995 0 0 0 0 0 0 0 0 5359 11459 3790 2283
1996 0 0 0 0 0 0 0 0 0 6098 2706 1443
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3H SECTION 2 OTHER LIABILITY - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 -3 -4 -13 -13 20 389 402 409 421 0 8
1987 1 12 12 12 12 1 1 1 1 1 89 95
1988 0 0 0 -4 -4 167 167 167 165 167 58 60
1989 0 0 0 -1 -1 -18 -27 -27 -27 -27 58 69
1990 0 0 0 -4 -4 21 0 0 0 0 84 116
1991 0 0 0 0 0 2527 2873 3264 11372 11496 63 117
1992 0 0 0 0 0 23 855 1605 5002 5008 52 146
1993 0 0 0 0 0 0 1564 1720 2139 2897 37 132
1994 0 0 0 0 0 0 0 173 1438 2016 28 116
1995 0 0 0 0 0 0 0 0 92 421 17 95
1996 0 0 0 0 0 0 0 0 0 983 5 41
</TABLE>
**104**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3I SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE, EARTHQUAKE, GLASS, BURGLARY & THEFT)
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 11858 13070 0 0
1995 0 0 0 0 0 0 0 0 35559 43416 0 0
1996 0 0 0 0 0 0 0 0 0 34523 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3J AUTO PHYSICAL DAMAGE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 6995 4143 0 0
1995 0 0 0 0 0 0 0 0 143766 153746 129229 24713
1996 0 0 0 0 0 0 0 0 0 159346 123957 22047
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3K FIDELITY / SURETY
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 790 1057 0 0
1995 0 0 0 0 0 0 0 0 304 957 0 0
1996 0 0 0 0 0 0 0 0 0 208 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3L OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 20882 15745 0 0
1995 0 0 0 0 0 0 0 0 21428 45338 0 0
1996 0 0 0 0 0 0 0 0 0 25675 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3M INTERNATIONAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 -6 -6 -6 -6 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
**105**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3N REINSURANCE A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 4 5 -122 -45 0 -109 -82 0 0
1989 0 0 123 833 946 754 950 1160 1061 1039 0 0
1990 0 0 0 0 0 -598 -637 -489 -533 -548 0 0
1991 0 0 0 0 0 -2068 -1389 -1343 -1161 -889 0 0
1992 0 0 0 0 0 10521 18761 20489 20751 21023 0 0
1993 0 0 0 0 0 0 2321 2977 3240 3419 0 0
1994 0 0 0 0 0 0 0 0 -168 -168 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
SCHEDULE P - PART 3O REINSURANCE B
<TABLE>
<CAPTION>
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0 0 -1617 -1413 -1249 -1712 -1580 0 0
1989 0 0 0 0 0 -2378 -2031 -1885 -1827 -1521 0 0
1990 0 0 0 0 0 -3179 -2682 -2138 -2133 -1387 0 0
1991 0 0 0 0 0 -4916 -4945 -4278 -4356 -3686 0 0
1992 0 0 0 0 0 599 1117 1770 -720 686 0 0
1993 0 0 0 0 0 0 143 340 7 660 0 0
1994 0 0 0 0 0 0 0 0 -741 -389 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3P REINSURANCE C
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3Q REINSURANCE D
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 23666 12875 35719 52911 47743 59457 64705 63120 78533 0 0
1987 0 0 0 0 0 -657 -562 -469 -684 -531 0 0
</TABLE>
**106**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3R SECTION 1 PRODUCTS LIABILITY - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 732 60 1420 2625 3499 3875 4321 4740 4713 0 5
1987 227 283 663 1197 2364 2414 2470 2592 2696 2670 69 68
1988 0 298 769 1464 3317 3693 3779 3873 4322 4983 83 87
1989 0 0 392 691 1318 1666 1878 2284 3026 3382 210 141
1990 0 0 0 179 825 1071 1195 1564 2292 2399 711 257
1991 0 0 0 0 553 786 1400 2187 2700 3592 892 224
1992 0 0 0 0 0 101 172 781 1951 2157 111 83
1993 0 0 0 0 0 0 69 231 481 1083 124 74
1994 0 0 0 0 0 0 0 91 236 469 98 70
1995 0 0 0 0 0 0 0 0 106 330 85 106
1996 0 0 0 0 0 0 0 0 0 87 48 37
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3R SECTION 2 PRODUCTS LIABILITY - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 3S FINANCIAL GUARANTY / MORTGAGE GUARANTY
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12 COL 13
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
**107**
<TABLE>
<CAPTION>
SCHEDULE P - PART 4A HOMEOWNERS/FARMOWNERS
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 1982 452 322 231 237 81 1872 80 33 20
1987 16841 2416 249 230 203 46 18 9 5 5
1988 0 18817 2155 654 780 223 60 18 13 4
1989 0 0 29253 3648 1104 179 77 47 19 6
1990 0 0 0 34711 4923 792 391 115 64 11
1991 0 0 0 0 29706 4701 731 306 194 28
1992 0 0 0 0 0 26630 2440 718 357 91
1993 0 0 0 0 0 0 16846 3987 677 91
1994 0 0 0 0 0 0 0 22197 4196 232
1995 0 0 0 0 0 0 0 0 11488 3077
1996 0 0 0 0 0 0 0 0 0 15331
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4B PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 1569 535 55 56 46 9 33 36 20 43
1987 37984 6990 1458 1054 101 21 13 28 16 9
1988 0 48535 9326 3602 763 58 33 49 31 23
1989 0 0 40764 15874 5005 1326 80 36 24 30
1990 0 0 0 53278 19611 3289 740 144 38 101
1991 0 0 0 0 56431 12233 1467 699 104 97
1992 0 0 0 0 0 48577 6491 5011 466 649
1993 0 0 0 0 0 0 40230 9101 2133 1306
1994 0 0 0 0 0 0 0 32944 10786 4536
1995 0 0 0 0 0 0 0 0 32549 12677
1996 0 0 0 0 0 0 0 0 0 37662
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4C COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 5511 2269 410 324 112 38 2603 788 193 28
1987 29049 8992 4147 2378 389 163 77 105 110 47
1988 0 33446 11023 6938 1910 363 994 211 342 115
1989 0 0 40334 22413 8578 1134 682 323 819 215
1990 0 0 0 63143 24978 9737 1648 669 1065 499
1991 0 0 0 0 61167 23974 7543 2594 2483 1481
1992 0 0 0 0 0 67383 16944 10057 9573 2024
1993 0 0 0 0 0 0 47730 20709 8149 2238
1994 0 0 0 0 0 0 0 37938 16340 7781
1995 0 0 0 0 0 0 0 0 40451 16030
1996 0 0 0 0 0 0 0 0 0 20570
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4D WORKERS' COMPENSATION
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 5653 4047 3174 3749 6457 8768 9509 7494 7809 9306
1987 49103 11750 3312 3878 3585 4450 3705 3484 3103 3519
1988 0 58229 18466 11331 8829 6122 5044 4873 4294 4890
1989 0 0 66627 29108 19441 14789 7225 6334 6437 6646
1990 0 0 0 86055 38400 23450 18240 8159 7822 7625
1991 0 0 0 0 92736 42931 28746 13554 8264 7672
1992 0 0 0 0 0 86312 39160 21067 8809 7856
1993 0 0 0 0 0 0 80969 25054 10871 7103
1994 0 0 0 0 0 0 0 57210 18643 8792
1995 0 0 0 0 0 0 0 0 42151 10438
1996 0 0 0 0 0 0 0 0 0 23479
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4E COMMERCIAL MULTIPLE PERIL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 19450 11853 8641 8972 4384 10404 11453 10531 13434 13478
1987 76202 31304 12083 10503 6088 6095 5073 6303 5772 7133
1988 0 83056 32618 24133 13472 10918 11067 8972 8376 10027
1989 0 0 98211 56704 33285 30992 18144 18916 24841 21489
1990 0 0 0 130753 71188 45917 33478 27711 31859 24611
1991 0 0 0 0 147438 87517 54857 42987 37923 23500
1992 0 0 0 0 0 141292 68894 47575 35140 18825
1993 0 0 0 0 0 0 117900 61281 28691 11341
1994 0 0 0 0 0 0 0 96565 38222 10554
1995 0 0 0 0 0 0 0 0 69106 26147
1996 0 0 0 0 0 0 0 0 0 73284
</TABLE>
**108**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4F SECTION 1 MEDICAL MALPRACTICE - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 170 186 38 39 90 37 47 0 0 0
1987 0 0 0 0 0 9 0 0 0 0
1988 0 0 0 34 42 42 45 44 34 0
1989 0 0 56 6 20 21 0 0 0 0
1990 0 0 0 0 47 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 189 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 67
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4F SECTION 2 MEDICAL MALPRACTICE - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4G SPECIAL LIABILITY (OCEAN, MARINE, AIRCRAFT (ALL PERILS),
BOILER AND MACHINERY)
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 7 0 0 0 0 0 38 0 0 0
1987 107 0 0 0 0 0 0 0 0 0
1988 0 127 5 6 6 0 0 0 0 0
1989 0 0 133 0 0 0 0 0 0 0
1990 0 0 0 250 0 8 0 0 0 0
1991 0 0 0 0 186 14 0 0 0 0
1992 0 0 0 0 0 349 0 0 0 0
1993 0 0 0 0 0 0 105 0 0 0
1994 0 0 0 0 0 0 0 66 0 0
1995 0 0 0 0 0 0 0 0 178 0
1996 0 0 0 0 0 0 0 0 0 196
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4H SECTION 1 OTHER LIABILITY - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 12249 9607 6178 7709 4815 15444 11636 18744 18905 18828
1987 32052 23842 11894 7095 6042 4270 2056 1757 1842 2560
1988 0 46809 27301 12983 9530 8699 4558 2652 2780 3236
1989 0 0 50669 24726 18932 16076 11582 5545 4295 6019
1990 0 0 0 47092 25306 17219 18868 16593 6258 9887
1991 0 0 0 0 42082 28188 19282 17456 13233 13746
1992 0 0 0 0 0 36869 27300 19982 14497 11599
1993 0 0 0 0 0 0 47884 31534 20240 14681
1994 0 0 0 0 0 0 0 48760 27505 12186
1995 0 0 0 0 0 0 0 0 41699 22730
1996 0 0 0 0 0 0 0 0 0 31117
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4H SECTION 2 OTHER LIABILITY - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 460 0 0 61 0 377 983 700 349 133
1987 1716 0 0 0 0 0 0 0 0 9
1988 0 0 0 0 0 0 0 0 0 9
1989 0 0 0 0 0 88 0 0 0 9
1990 0 0 0 82 0 14 0 0 0 0
1991 0 0 0 0 0 30 0 0 0 0
1992 0 0 0 0 0 0 31 25 21 0
1993 0 0 0 0 0 0 54 62 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 21 0
1996 0 0 0 0 0 0 0 0 0 63
</TABLE>
**109**
<TABLE>
<CAPTION>
SCHEDULE P - PART 4I SPECIAL PROPERTY (FIRE, ALLIED LINES, INLAND MARINE, EARTHQUAKE, GLASS, BURGLA
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 3909 11 3
1995 0 0 0 0 0 0 0 0 1341 7
1996 0 0 0 0 0 0 0 0 0 2711
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4J AUTO PHYSICAL DAMAGE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 7292 64 897
1995 0 0 0 0 0 0 0 0 2784 -9
1996 0 0 0 0 0 0 0 0 0 1397
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4K FIDELITY / SURETY
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 1075 0 0
1995 0 0 0 0 0 0 0 0 1053 0
1996 0 0 0 0 0 0 0 0 0 1051
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4L OTHER (INCLUDING CREDIT, ACCIDENT AND HEALTH)
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 30796 6954 16931
1995 0 0 0 0 0 0 0 0 27386 8827
1996 0 0 0 0 0 0 0 0 0 26725
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4M INTERNATIONAL
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 116 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
**110**
<TABLE>
<CAPTION>
SCHEDULE P - PART 4N REINSURANCE A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0 0 0 0 0 30 0
1989 0 0 23 0 0 0 0 0 34 0
1990 0 0 0 0 0 0 0 0 56 0
1991 0 0 0 0 0 0 0 0 85 91
1992 0 0 0 0 0 8524 0 500 64 60
1993 0 0 0 0 0 0 0 500 0 47
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4O REINSURANCE B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0 0 6 0 900 295 364
1989 0 0 0 0 0 1604 0 900 1351 1060
1990 0 0 0 6172 0 2419 0 1400 1803 1997
1991 0 0 0 0 0 3085 0 1400 1306 1928
1992 0 0 0 0 0 8521 0 1400 2570 2536
1993 0 0 0 0 0 0 0 500 805 722
1994 0 0 0 0 0 0 0 0 1576 172
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4P REINSURANCE C
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1988 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4Q REINSURANCE D
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 32550 22409 10996 6304 16405 16228 48529 43584 111753 124561
1987 0 0 0 0 0 0 0 0 302 1060
</TABLE>
**111**
<TABLE>
<CAPTION>
SCHEDULE P - PART 4R SECTION 1 PRODUCTS LIABILITY - OCCURRENCE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 384 189 343 831 139 72 249 190 97 246
1987 1418 1522 912 1542 272 136 57 82 135 1082
1988 0 1442 1410 2361 1407 303 219 89 40 146
1989 0 0 1912 3370 1910 955 763 404 559 1241
1990 0 0 0 2401 1830 1022 1497 441 767 1008
1991 0 0 0 0 2255 936 1679 1406 714 414
1992 0 0 0 0 0 963 1162 1060 830 547
1993 0 0 0 0 0 0 1238 1109 799 821
1994 0 0 0 0 0 0 0 1225 1151 591
1995 0 0 0 0 0 0 0 0 1523 1194
1996 0 0 0 0 0 0 0 0 0 875
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4R SECTION 2 PRODUCTS LIABILITY - CLAIMS-MADE
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 4S FINANCIAL GUARANTY / MORTGAGE GUARANTY
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
**112**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5A HOMEOWNERS/FARMOWNERS
SECTION 1
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 5350 536 174 122 63 23 20 23 10 10
1987 39834 49609 49905 50046 50100 50120 50129 50137 50144 50148
1988 0 47794 54603 55023 55141 55198 55233 55253 55260 55267
1989 0 0 47591 58533 58930 59034 59099 59122 59136 59144
1990 0 0 0 63447 74508 74961 75091 75149 75187 75201
1991 0 0 0 0 67986 76574 77053 77180 77239 77277
1992 0 0 0 0 0 52540 60318 60666 60768 60823
1993 0 0 0 0 0 0 55678 61978 62290 62405
1994 0 0 0 0 0 0 0 47715 53696 53983
1995 0 0 0 0 0 0 0 0 43119 49546
1996 0 0 0 0 0 0 0 0 0 50047
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5A HOMEOWNERS/FARMOWNERS
SECTION 3
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 4657 376 128 75 45 44 35 25 15 11
1987 43773 52134 52337 52428 52461 52474 52489 52498 52506 52510
1988 0 52356 57859 58181 58280 58314 58343 58357 58368 58376
1989 0 0 52320 61098 61360 61445 61512 61529 61542 61549
1990 0 0 0 72941 81828 82169 82299 82341 82367 82378
1991 0 0 0 0 77053 83878 84282 84375 84415 84439
1992 0 0 0 0 0 59799 66009 66287 66370 66401
1993 0 0 0 0 0 0 61538 67009 67261 67338
1994 0 0 0 0 0 0 0 53641 60124 60334
1995 0 0 0 0 0 0 0 0 62905 66711
1996 0 0 0 0 0 0 0 0 0 74072
</TABLE>
**113**
<TABLE>
<CAPTION>
SCHEDULE P - PART 5B PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
SECTION 1
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 7994 2162 661 298 116 57 26 33 20 10
1987 41214 52919 54225 54707 54879 54942 54975 54993 55000 55005
1988 0 48118 58624 60214 60684 60831 60906 60938 60951 60966
1989 0 0 43490 56237 57757 58217 58389 58493 58543 58565
1990 0 0 0 48728 61274 62843 63343 63587 63684 63728
1991 0 0 0 0 47261 57771 59261 59854 60072 60159
1992 0 0 0 0 0 41280 51271 52959 53512 53690
1993 0 0 0 0 0 0 41908 51806 53378 53903
1994 0 0 0 0 0 0 0 33693 43017 44702
1995 0 0 0 0 0 0 0 0 31638 41295
1996 0 0 0 0 0 0 0 0 0 31576
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5A HOMEOWNERS/FARMOWNERS
SECTION 2
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 601 257 194 111 51 61 53 25 17 8
1987 2283 369 165 85 34 21 16 11 9 9
1988 0 2492 379 210 130 70 37 18 16 11
1989 0 0 3763 485 153 104 64 31 14 8
1990 0 0 0 4406 441 229 120 57 22 11
1991 0 0 0 0 3785 577 233 121 67 34
1992 0 0 0 0 0 3369 506 226 121 61
1993 0 0 0 0 0 0 2427 469 200 92
1994 0 0 0 0 0 0 0 2322 414 170
1995 0 0 0 0 0 0 0 0 5747 457
1996 0 0 0 0 0 0 0 0 0 5867
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5B PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
SECTION 2
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 3531 1763 638 343 172 102 81 58 48 37
1987 13212 3144 958 435 182 82 35 20 13 9
1988 0 13771 2875 1100 383 192 94 43 29 16
1989 0 0 11962 3274 1090 436 206 92 41 16
1990 0 0 0 13483 3192 1177 466 180 73 25
1991 0 0 0 0 11686 3053 1099 417 157 68
1992 0 0 0 0 0 11045 2811 1007 384 181
1993 0 0 0 0 0 0 10767 2714 1015 414
1994 0 0 0 0 0 0 0 10536 2827 1030
1995 0 0 0 0 0 0 0 0 12669 2936
1996 0 0 0 0 0 0 0 0 0 12809
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5B PRIVATE PASSENGER AUTO LIABILITY/MEDICAL
SECTION 3
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 5689 765 176 111 49 30 20 16 21 10
1987 62014 66173 66525 66676 66731 66751 66772 66777 66782 66786
1988 0 68501 74477 75050 75212 75263 75293 75303 75308 75312
1989 0 0 61025 68982 69480 69636 69698 69727 69737 69741
1990 0 0 0 67288 74788 75336 75528 75575 75596 75604
1991 0 0 0 0 61649 67312 67889 68016 68048 68067
1992 0 0 0 0 0 55002 60404 60825 60926 60959
1993 0 0 0 0 0 0 54359 59161 59500 59590
1994 0 0 0 0 0 0 0 52172 57178 57529
1995 0 0 0 0 0 0 0 0 56191 59692
1996 0 0 0 0 0 0 0 0 0 55456
</TABLE>
**114**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5C COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
SECTION 1
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 4739 1020 420 197 90 37 18 7 12 42
1987 16368 21294 22017 22307 22426 22471 22493 22503 22511 22518
1988 0 20705 26202 27025 27304 27411 27464 27489 27496 27501
1989 0 0 21449 27776 28632 29005 29168 29213 29238 29252
1990 0 0 0 22275 28486 29617 30078 30195 30255 31190
1991 0 0 0 0 20976 26168 28568 28867 29007 29316
1992 0 0 0 0 0 17650 22603 23250 23509 23671
1993 0 0 0 0 0 0 16722 20456 21161 21452
1994 0 0 0 0 0 0 0 15741 19413 20135
1995 0 0 0 0 0 0 0 0 14291 17801
1996 0 0 0 0 0 0 0 0 0 14206
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5C COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
SECTION 2
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 1805 807 374 221 108 86 60 49 98 65
1987 4248 1311 463 233 98 49 32 22 20 10
1988 0 4758 1243 573 262 110 64 37 28 20
1989 0 0 4842 1519 665 299 136 158 125 21
1990 0 0 0 5459 2545 1615 1151 1036 980 41
1991 0 0 0 0 5888 2656 812 508 376 62
1992 0 0 0 0 0 3968 1288 582 295 103
1993 0 0 0 0 0 0 3795 1306 539 210
1994 0 0 0 0 0 0 0 3878 1333 539
1995 0 0 0 0 0 0 0 0 4563 1261
1996 0 0 0 0 0 0 0 0 0 4679
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5C COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
SECTION 3
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 3224 361 107 65 27 34 20 25 82 35
1987 22904 26178 26353 26458 26499 26512 26524 26533 26554 26564
1988 0 28680 32159 32497 32586 32616 32645 32665 32685 32699
1989 0 0 29509 33782 34252 34362 34430 34555 34574 34588
1990 0 0 0 30884 36054 36411 36715 37306 37355 37389
1991 0 0 0 0 30637 33887 34190 34945 35008 35052
1992 0 0 0 0 0 24806 27550 28519 28617 28644
1993 0 0 0 0 0 0 23499 25925 26143 26202
1994 0 0 0 0 0 0 0 22572 25291 25485
1995 0 0 0 0 0 0 0 0 23714 25505
1996 0 0 0 0 0 0 0 0 0 23692
</TABLE>
**115**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5D WORKERS' COMPENSATION
SECTION 1
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 9420 2459 1179 757 359 255 145 130 87 97
1987 26874 37534 39082 39712 39977 40135 40209 40260 40292 40315
1988 0 35594 46530 48293 49021 49350 49504 49589 49653 49694
1989 0 0 35085 47158 49110 49897 50231 50402 50488 50539
1990 0 0 0 34507 46080 47926 48655 48988 49172 49284
1991 0 0 0 0 31676 41592 43431 44078 44418 44610
1992 0 0 0 0 0 23357 30751 32004 32444 32685
1993 0 0 0 0 0 0 17824 23575 24444 24787
1994 0 0 0 0 0 0 0 16020 21068 21958
1995 0 0 0 0 0 0 0 0 13734 18944
1996 0 0 0 0 0 0 0 0 0 12028
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5D WORKERS' COMPENSATION
SECTION 2
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 3408 2216 1610 1360 1011 763 667 577 506 439
1987 7489 2412 991 666 399 241 178 130 89 64
1988 0 8645 2588 1436 758 407 278 202 138 97
1989 0 0 8352 3226 1507 743 424 257 182 131
1990 0 0 0 9579 3335 1526 859 482 316 203
1991 0 0 0 0 8831 3179 1514 844 482 276
1992 0 0 0 0 0 6320 2206 1008 556 316
1993 0 0 0 0 0 0 4872 1583 764 422
1994 0 0 0 0 0 0 0 4236 1553 664
1995 0 0 0 0 0 0 0 0 5380 1431
1996 0 0 0 0 0 0 0 0 0 5719
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5D WORKERS' COMPENSATION
SECTION 3
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 5555 593 263 263 138 108 71 92 58 60
1987 36175 42614 42758 42934 42989 43014 43030 43041 43045 43051
1988 0 47342 53520 53976 54128 54169 54195 54218 54226 54231
1989 0 0 46314 53860 54383 54552 54591 54631 54659 54670
1990 0 0 0 47009 53916 54249 54342 54373 54402 54416
1991 0 0 0 0 43389 49171 49476 49578 49607 49627
1992 0 0 0 0 0 31819 35813 36058 36115 36154
1993 0 0 0 0 0 0 24213 27422 27600 27657
1994 0 0 0 0 0 0 0 21673 25082 25225
1995 0 0 0 0 0 0 0 0 22719 24987
1996 0 0 0 0 0 0 0 0 0 20813
</TABLE>
**116**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5E COMMERCIAL MULTIPLE PERIL
SECTION 1
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 6399 1279 579 400 201 117 94 68 65 62
1987 21449 28884 29621 29970 30157 30290 30362 30412 30457 30513
1988 0 26291 33649 34630 34998 35190 35334 35427 35522 35602
1989 0 0 28071 38151 39260 39713 40020 40214 40374 40540
1990 0 0 0 33070 43149 44309 44871 45169 45386 45564
1991 0 0 0 0 35181 44211 45401 45950 46247 46445
1992 0 0 0 0 0 29800 37501 38487 38939 39232
1993 0 0 0 0 0 0 28830 35354 36138 36555
1994 0 0 0 0 0 0 0 26072 32466 33333
1995 0 0 0 0 0 0 0 0 25435 32010
1996 0 0 0 0 0 0 0 0 0 26619
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5E COMMERCIAL MULTIPLE PERIL
SECTION 2
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 3119 1572 910 629 469 536 338 332 287 271
1987 4494 1513 688 483 311 208 181 175 125 144
1988 0 5451 1522 925 547 377 303 258 197 212
1989 0 0 5813 2086 1137 761 516 425 330 324
1990 0 0 0 6787 2281 1294 828 554 401 346
1991 0 0 0 0 6799 2524 1436 831 493 418
1992 0 0 0 0 0 5722 2253 1178 671 419
1993 0 0 0 0 0 0 5375 1981 1145 659
1994 0 0 0 0 0 0 0 5468 2011 1072
1995 0 0 0 0 0 0 0 0 7925 1928
1996 0 0 0 0 0 0 0 0 0 8262
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5E COMMERCIAL MULTIPLE PERIL
SECTION 3
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 5970 1177 467 313 282 372 96 224 154 135
1987 28947 35133 35673 35977 36147 36274 36403 36537 36618 36743
1988 0 36011 42106 42938 43274 43473 43669 43850 43967 44143
1989 0 0 39252 48086 49084 49585 49914 50227 50438 50701
1990 0 0 0 46392 55735 56852 57369 57717 57957 58237
1991 0 0 0 0 49586 57785 58857 59371 59601 59924
1992 0 0 0 0 0 42003 49109 49970 50385 50671
1993 0 0 0 0 0 0 40100 46146 46943 47316
1994 0 0 0 0 0 0 0 37660 45007 45839
1995 0 0 0 0 0 0 0 0 46978 52125
1996 0 0 0 0 0 0 0 0 0 49257
</TABLE>
**117**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5F SECTION 1 MEDICAL MALPRACTICE - OCCURRENCE
SECTION 1A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 1 1 3 2 3 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 4
1989 0 0 0 3 3 7 7 7 7 7
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 4 5 8 12 12
1993 0 0 0 0 0 0 0 3 3 3
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5F SECTION 1 MEDICAL MALPRACTICE - OCCURRENCE
SECTION 2A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 3 7 7 6 3 0 0 0 0 4
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 3 3 4 4 3 3 0
1989 0 0 3 3 4 0 0 0 0 0
1990 0 0 0 0 3 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 5 0 4 0 0
1993 0 0 0 0 0 0 0 0 0 4
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 4
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5F SECTION 1 MEDICAL MALPRACTICE - OCCURRENCE
SECTION 3A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 2 7 0 2 0 0 0 0 4
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 3 3 3 3 3 3 3
1989 0 0 3 5 6 6 6 6 6 6
1990 0 0 0 0 3 5 5 5 5 5
1991 0 0 0 0 3 3 3 3 3 3
1992 0 0 0 0 0 7 7 12 12 12
1993 0 0 0 0 0 0 4 7 7 11
1994 0 0 0 0 0 0 0 0 0 4
1995 0 0 0 0 0 0 0 0 0 4
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
**118**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5F SECTION 2 MEDICAL MALPRACTICE - CLAIMS-MADE
SECTION 1B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5F SECTION 2 MEDICAL MALPRACTICE - CLAIMS-MADE
SECTION 2B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5F SECTION 2 MEDICAL MALPRACTICE - CLAIMS-MADE
SECTION 3B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
*119**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5H SECTION 1 OTHER LIABILITY - OCCURRENCE
SECTION 1A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 2352 796 645 410 128 113 272 249 67 105
1987 5577 7679 8143 8342 8412 8486 8536 8571 8611 8640
1988 0 6299 8576 9000 9187 9378 9472 9532 9577 9618
1989 0 0 6013 7972 8247 8610 8798 8885 8955 9022
1990 0 0 0 4930 6183 6923 7212 7325 7419 7630
1991 0 0 0 0 3465 4886 5660 5885 6012 6446
1992 0 0 0 0 0 3562 5167 5453 5622 5876
1993 0 0 0 0 0 0 3576 4881 5159 5307
1994 0 0 0 0 0 0 0 3261 4359 4615
1995 0 0 0 0 0 0 0 0 2856 3790
1996 0 0 0 0 0 0 0 0 0 2706
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5H SECTION 1 OTHER LIABILITY - OCCURRENCE
SECTION 2A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 2108 1519 1243 902 671 1006 1147 1291 773 675
1987 1370 842 496 336 203 165 147 140 91 101
1988 0 1550 755 585 406 301 181 148 128 118
1989 0 0 1299 757 684 555 385 216 165 126
1990 0 0 0 1150 1374 1209 660 348 288 136
1991 0 0 0 0 1427 1078 607 708 593 191
1992 0 0 0 0 0 940 631 604 484 225
1993 0 0 0 0 0 0 1078 585 433 260
1994 0 0 0 0 0 0 0 982 569 351
1995 0 0 0 0 0 0 0 0 1151 518
1996 0 0 0 0 0 0 0 0 0 1133
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5H SECTION 1 OTHER LIABILITY - OCCURRENCE
SECTION 3A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 2794 930 611 447 151 632 848 1006 406 304
1987 7752 10059 10513 10719 10738 10812 10913 11018 11081 11159
1988 0 8884 11155 11674 11732 11841 11982 12095 12204 12292
1989 0 0 8437 10599 10638 10833 11071 11211 11328 11408
1990 0 0 0 6991 9580 9955 10242 10228 10400 10567
1991 0 0 0 0 6359 7853 8361 9076 9278 9411
1992 0 0 0 0 0 5309 6921 7834 8128 8303
1993 0 0 0 0 0 0 5440 6970 7445 7644
1994 0 0 0 0 0 0 0 5051 6630 6978
1995 0 0 0 0 0 0 0 0 5476 6589
1996 0 0 0 0 0 0 0 0 0 5283
</TABLE>
**120**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5H SECTION 2 OTHER LIABILITY - CLAIMS-MADE
SECTION 1B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 47 10 10 2 0 0 0 3 0 0
1987 30 65 75 80 83 85 86 89 89 89
1988 0 20 44 49 52 54 54 58 58 58
1989 0 0 12 40 46 50 51 55 58 58
1990 0 0 0 21 56 64 67 73 80 84
1991 0 0 0 0 15 41 50 55 59 63
1992 0 0 0 0 0 12 21 37 45 52
1993 0 0 0 0 0 0 8 22 30 37
1994 0 0 0 0 0 0 0 11 22 28
1995 0 0 0 0 0 0 0 0 6 17
1996 0 0 0 0 0 0 0 0 0 5
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5H SECTION 2 OTHER LIABILITY - CLAIMS-MADE
SECTION 2B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 31 12 3 0 0 0 0 37 12 5
1987 107 47 23 10 7 5 5 4 4 5
1988 0 84 19 10 7 7 7 0 0 4
1989 0 0 83 24 13 11 10 5 5 4
1990 0 0 0 97 29 20 18 11 4 4
1991 0 0 0 0 100 39 29 14 8 5
1992 0 0 0 0 0 106 62 29 14 6
1993 0 0 0 0 0 0 111 60 29 14
1994 0 0 0 0 0 0 0 104 42 17
1995 0 0 0 0 0 0 0 0 113 45
1996 0 0 0 0 0 0 0 0 0 98
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5H SECTION 2 OTHER LIABILITY - CLAIMS-MADE
SECTION 3B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 14 1 20 0 0 3 0 0 12 4
1987 162 172 176 176 177 177 177 177 177 182
1988 0 149 166 168 170 170 172 172 175 179
1989 0 0 131 142 145 145 145 145 149 153
1990 0 0 0 173 183 183 185 190 190 194
1991 0 0 0 0 167 170 170 173 173 173
1992 0 0 0 0 0 174 179 185 190 194
1993 0 0 0 0 0 0 147 170 174 174
1994 0 0 0 0 0 0 0 143 154 154
1995 0 0 0 0 0 0 0 0 147 152
1996 0 0 0 0 0 0 0 0 0 141
</TABLE>
**121**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5R SECTION 1 PRODUCTS LIABILITY - OCCURRENCE
SECTION 1A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 100 0 6 6 9 0
1987 0 0 0 0 53 53 55 60 65 69
1988 0 0 0 0 63 63 68 74 79 83
1989 0 0 0 0 171 171 179 188 202 210
1990 0 0 0 0 670 672 686 696 706 711
1991 0 0 0 0 835 839 855 868 878 892
1992 0 0 0 0 0 40 68 84 100 111
1993 0 0 0 0 0 0 70 99 110 124
1994 0 0 0 0 0 0 0 59 85 98
1995 0 0 0 0 0 0 0 0 53 85
1996 0 0 0 0 0 0 0 0 0 48
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5R SECTION 1 PRODUCTS LIABILITY - OCCURRENCE
SECTION 2A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 65 28 29 24 14 8
1987 0 0 0 0 16 8 8 10 7 11
1988 0 0 0 0 36 11 13 10 5 5
1989 0 0 0 0 54 23 23 21 20 11
1990 0 0 0 0 53 23 28 15 14 11
1991 0 0 0 0 64 31 45 37 28 21
1992 0 0 0 0 0 26 34 32 22 25
1993 0 0 0 0 0 0 29 25 25 25
1994 0 0 0 0 0 0 0 26 29 19
1995 0 0 0 0 0 0 0 0 42 26
1996 0 0 0 0 0 0 0 0 0 25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5R SECTION 1 PRODUCTS LIABILITY - OCCURRENCE
SECTION 3A
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 246 -12 20 16 10 0
1987 0 0 0 0 111 111 117 130 136 144
1988 0 0 0 0 306 303 312 323 329 333
1989 0 0 0 0 782 779 793 807 826 834
1990 0 0 0 0 501 509 541 552 563 573
1991 0 0 0 0 352 356 402 424 438 452
1992 0 0 0 0 0 68 121 163 192 209
1993 0 0 0 0 0 0 121 166 194 216
1994 0 0 0 0 0 0 0 111 171 185
1995 0 0 0 0 0 0 0 0 164 215
1996 0 0 0 0 0 0 0 0 0 108
</TABLE>
**122**
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5R SECTION 2 PRODUCTS LIABILITY - CLAIMS-MADE
SECTION 1B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5R SECTION 2 PRODUCTS LIABILITY - CLAIMS-MADE
SECTION 2B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 5R SECTION 2 PRODUCTS LIABILITY - CLAIMS-MADE
SECTION 3B
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0
1990 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0 0 0 0
1995 0 0 0 0 0 0 0 0 0 0
1996 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
**123**
<TABLE>
<CAPTION>
SCHEDULE P - PART 6C COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
SECTION 1
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 2
1988 0 0 0 0 0 0 0 0 0 0 3
1989 0 0 0 0 0 0 0 0 0 0 4
1990 0 0 0 0 0 0 0 0 0 0 2
1991 0 0 0 0 0 0 0 0 0 0 4
1992 0 0 0 0 0 0 0 0 0 0 4
1993 0 0 0 0 0 0 218124 216720 216518 216474 -44
1994 0 0 0 0 0 0 0 196771 192367 192309 -57
1995 0 0 0 0 0 0 0 0 190279 190122 -159
1996 0 0 0 0 0 0 0 0 0 182420 182420
Total 0 0 0 0 0 0 0 0 0 0 182180
Earned Premiums
(Sch P-Pt 1) 175699 210865 204024 239071 262584 242412 216682 195680 185788 182180 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 6C COMMERCIAL AUTO/TRUCK LIABILITY/MEDICAL
SECTION 2
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 0
1989 0 0 0 0 0 0 0 0 0 0 0
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 0 0 0 0 0 0 0 0 0 0 0
1991 0 0 0 0 0 0 0 0 0 0 0
1992 0 0 0 0 0 0 0 0 0 0 0
1993 0 0 0 0 0 0 3235 3329 3354 3354 0
1994 0 0 0 0 0 0 0 3532 3543 3543 0
1995 0 0 0 0 0 0 0 0 3389 3476 87
1996 0 0 0 0 0 0 0 0 0 3174 3174
Total 0 0 0 0 0 0 0 0 0 0 3260
Earned Premiums
(Sch P-Pt 1) 31357 35501 2548 9294 16329 10968 3276 3907 3476 3260 0
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE P - PART 6D WORKERS' COMPENSATION
SECTION 1
COL 1 COL 2 COL 3 COL 4 COL 5 COL 6 COL 7 COL 8 COL 9 COL 10 COL 11 COL 12
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIOR 0 0 0 0 0 0 0 0 0 0 0
1987 0 0 0 0 0 0 0 0 0 0 0
1988 0 0 0 0 0 0 0 0 0 0 -69
1989 0 0 0 0 0 0 0 0 0 0 -6
1990 0 0 0 0 0 0 0 0 0 0 -3
1991 0 0 0 0 0 0 0 0 0 0 158
1992 0 0 0 0 0 0 0 0 0 0 -76
1993 0 0 0 0 0 0 238981 225370 224973 224953 -20
1994 0 0 0 0 0 0 0 219279 202989 201918 -1072
1995 0 0 0 0 0 0 0 0 220290 225538 5249
1996 0 0 0 0 0 0 0 0 0 152472 152472
Total 0 0 0 0 0 0 0 0 0 0 156631
Earned Premiums
(Sch P-Pt 1) 145358 206887 218760 240860 277049 241105 225021 205194 204085 156631 0
</TABLE>
