Rule 424(b)(3)
File No. 33-62315
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
SUPPLEMENT TO PROSPECTUS
Dated June 4, 1997
LINCOLN NATIONAL CORPORATION
1986 STOCK OPTION PLAN
PROSPECTUS
7,438,119 Shares
LINCOLN NATIONAL CORPORATION
COMMON STOCK
(No Par Value)
Offered as set forth in this Prospectus pursuant to the
LINCOLN NATIONAL CORPORATION
1986 STOCK OPTION INCENTIVE PLAN
This Prospectus applies to shares of Common Stock of Lincoln National
Corporation to be offered and sold under the 1986 Stock Option Incentive Plan
(the "Plan") to eligible executive, managerial, supervisory, or professional
employees of Lincoln National Corporation and its subsidiaries or to eligible
persons holding either agents' or brokers' contracts with a subsidiary of
Lincoln National Corporation. Registration Statements relating to the shares
to be offered hereby have been filed with the Securities and Exchange
Commission (file Nos. 33-62315 and 33-13445).
FOR A DISCUSSION OF THE MATERIAL RISKS RELATED TO INVESTMENT IN THE SECURITIES
OFFERED HEREBY, SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offer contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any of the securities offered hereby in any
state to or from any person to whom it is unlawful to make or solicit such offer
in such state. Neither the delivery of this Prospectus nor any sales made
hereunder shall under any circumstances create any implication that there has
been no change in the information herein since the date hereof.
The date of this Prospectus is June 4, 1997.
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TABLE OF CONTENTS
Page
General Information . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of the Plan . . . . . . . . . . . . . . . . . . . . . .
1. Purpose. . . . . . . . . . . . . . . . . . . . . . . .
2. Administration . . . . . . . . . . . . . . . . . . . .
3. Shares Available, Resale . . . . . . . . . . . . . . .
4. Term, Amendment. . . . . . . . . . . . . . . . . . . .
5. Participants . . . . . . . . . . . . . . . . . . . . .
6. Stock Options. . . . . . . . . . . . . . . . . . . . .
7. Stock Appreciation Rights. . . . . . . . . . . . . . .
8. Restricted Stock Awards. . . . . . . . . . . . . . . .
9. Incentive Awards . . . . . . . . . . . . . . . . . . .
10. Performance Awards . . . . . . . . . . . . . . . . . .
11. Dividend Equivalent Rights . . . . . . . . . . . . . .
12. Other Material Provisions. . . . . . . . . . . . . . .
13. Certain Tax Aspects. . . . . . . . . . . . . . . . . .
14. Miscellaneous. . . . . . . . . . . . . . . . . . . . .
Incorporation of Documents by Reference . . . . . . . . . . . .
Annual Report to Shareholders . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy
statements, and other information with the Securities and Exchange Commission.
All reports, proxy statements and other information filed by the Company can be
inspected and copied at the Commission's public reference facilities at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the following
Regional Offices: Federal Building, 75 Park Place, Room 1228, New York, New
York 10007; and Everett McKinley Dirksen Building, 219 South Dearborn Street,
Chicago, Illinois 60604. Copies of these materials may also be obtained from
the Commission at the prescribed rates by mailing a request to: Public Reference
Branch, Securities and Exchange Commission, Washington, D.C. 20549. Such
material may also be accessed by means of the Commission's home page on the
Internet at http//www.sec.gov. In addition, the Company will provide, without
charge, to each person, including any beneficial owner, to whom this prospectus
is delivered, upon written or oral request of such person, a copy of any and all
of the information that has been incorporated by reference in this prospectus
(excluding unincorporated exhibits), but not delivered with it. Such requests
should be made to C. Suzanne Womack, Secretary, Lincoln National Corporation,
200 East Berry Street, Fort Wayne, Indiana 46802, telephone: (219) 455-3271.
The Company's Common Stock is listed on the following stock exchanges and
reports, proxy statements and other information concerning the Company can be
inspected at the offices of those exchanges: New York Stock Exchange, Chicago
Stock Exchange, Pacific Stock Exchange, London Stock Exchange, and Tokyo Stock
Exchange.
GENERAL INFORMATION
The Lincoln National Corporation 1986 Stock Option Incentive Plan (the
"Plan") was established subject to shareholder approval by the Board of
Directors (the "Board") of Lincoln National Corporation (the "Company") on
January 8, 1986, and amended on March 13, 1986, March 12, 1987, May 7, 1987,
May 5, 1988, January 11, 1989, March 12, 1992, January 13, 1993, and
November 11, 1993. The Plan was approved by the Company's shareholders at
their annual meeting held on May 8, 1986, and the amended and restated Plan was
approved at the May 12, 1994, meeting. The original effective date of the Plan
was January 8, 1986. As set forth in the Company's Proxy Statement dated
April 14, 1997, the Board has determined that the Plan will terminate on May 15,
1997, although awards made thereunder prior to that date will remain outstanding
in accordance with their terms.
The principal executive offices of the Company, an Indiana corporation, are
at 200 East Berry Street, Fort Wayne, Indiana 46802. Its telephone number is
(219) 455-2000. Certain executive, managerial, supervisory, or professional
employees of the Company and its subsidiaries and certain persons holding either
agents' or brokers' contracts with subsidiaries of the Company may participate
in the Plan.
RISK FACTORS
In addition to the risks typically associated with investing in equity
securities (particularly publicly traded equity securities), investing in shares
of LNC common stock entails certain risks that are specific to the industries in
which LNC's subsidiaries operate. These risk factors include, among other
things, the highly competitive nature of those industries, state and federal
regulation, changing economic conditions, ratings received by, and underwriting
losses and claims of, LNC's insurance subsidiaries, and the investment
performance of assets held by LNC's insurance subsidiaries and entities advised
by investment advisory subsidiaries of LNC. These risk factors are discussed
briefly below.
Competition. The insurance, financial services and mutual funds
industries are highly competitive. Currently, there are thousands of insurance
companies actively engaged in business in the United States, some of which offer
insurance and annuity products not currently offered by subsidiaries of LNC. In
addition, LNC's life insurance and annuity subsidiaries encounter competition
from the expanding number of banks, security brokerage firms and other financial
intermediaries which are marketing insurance products and which offer competing
investments such as savings accounts and securities. Similarly, there are
thousands of open- and closed-end mutual funds available to public investors,
and a large number of investment advisers offer their services to pension funds
and other institutional investors. While the Company believes its subsidiaries
can effectively compete in the industries in which they operate, there can be no
assurance that such subsidiaries will be able to do so.
Regulation. The Company's insurance affiliates are subject to
regulation and supervision by the states, territories and foreign countries in
which they are admitted to do business. These jurisdictions generally maintain
supervisory agencies with broad discretionary 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 premium requirements, regulating
competitive matters, prescribing the form and content of financial statements
and reports, determining the reasonableness and adequacy of capital and surplus
and regulating the type and amount of investments permitted. The Company's
insurance subsidiaries conduct business in numerous jurisdictions and,
accordingly, are subject to the laws and regulations of each of those
jurisdictions. Most of the Company's principal insurance subsidiaries,
including The Lincoln National Life Insurance Company and American States
Insurance Company, are domiciled in Indiana and are primarily regulated by the
Indiana Commissioner.
As a holding company of insurance businesses, the Company is also subject
to regulatory requirements of the states where its insurance subsidiaries are
domiciled. For example, certain transactions involving an affiliated insurance
company, such as loans, extraordinary dividends or investments, in some cases
may require the prior approval of such company's primary regulators.
Additionally, these requirements restrict the ability of any person to acquire
control of the Company or any of its subsidiaries engaged in the insurance
business without prior regulatory approval. Control is generally deemed to
exist if an entity beneficially owns 10% or more of the voting securities of a
company. Such requirements may have the effect of preventing an acquisition of
the Company.
The Company's investment management subsidiaries are subject to a number of
federal and state laws and regulations, including without limitation, the
Investment Company Act of 1940, the Investment Adviser's Act of 1940 and the
National Association of Securities Dealers Rules of Fair Practice. These laws
and regulations generally grant supervisory agencies and self-regulatory
organizations broad administrative powers, including the power to limit or
restrict the subsidiaries from carrying on their businesses in the event that
they fail to comply with such laws and regulations.
Ratings. Insurance companies are generally assigned ratings by
various rating agencies, such as the A.M. Best Company and the Duff and Phelps
Rating Agency. A company's sales of insurance products are generally affected
by these ratings. A stronger rating can translate to a marketing advantage and
the ability to price less aggressively to generate sales. As of May 23, 1997,
The Lincoln National Life Insurance Company had financial strength ratings of
AA+ and A+ by Duff and Phelps and A.M. Best Company, respectively.
Similarly, while mutual funds are not rated, per se, many industry
periodicals and services provide rankings of mutual fund performance. These
rankings often have an impact on the decisions of public investors regarding
which mutual funds to invest in.
Economic Conditions. The operating results of LNC's insurance
subsidiaries are affected significantly by changes in interest rates and
inflation. Similarly, these economic factors significantly affect the
investment performance of the mutual funds and other entities advised by LNC
subsidiaries. The performance of these entities, in turn, affects their ability
to attract and retain clients and investors.
The investment income and market value of the investment portfolios of
LNC's insurance subsidiaries and of the fixed-income-oriented mutual funds and
private investment portfolios advised by LNC's investment advisory subsidiaries
are primarily related to yields on their investments in the fixed-income
markets. An increase in interest rates will generally decrease the market value
of the relevant investment portfolio, but will increase investment income as
investments mature and proceeds are reinvested at higher rates. Additionally,
changes in interest rates and inflation have implications for the volume and
profitability of the business of LNC's insurance subsidiaries. As interest
rates rise, competitors may respond by changing crediting rates and the
policyholders will evaluate the products of LNC's subsidiaries by comparison;
there can be no guarantee that the subsidiaries' products will be competitive
vis-a-vis products offered by other insurance companies.
Underwriting Losses and Claims. In addition to return on investment
income, the profitability of an insurance company is dependent upon its loss
experience in connection with its outstanding insurance contracts. Successful
underwriting experience is, in turn, dependent upon the quality, diversity, and
size of the insurer's pool of insureds. While LNC believes that the outstanding
insurance contracts of its subsidiaries were issued in accordance with adequate
underwriting guidelines, and that the pools of insureds of its insurance company
subsidiaries are of sufficient size and diversity, above average loss experience
could result in underwriting losses. No assurance can be given that the current
and future reserves of LNC's insurance subsidiaries will be sufficient to
provide for payment of all claims, or that the insurance operations of such
subsidiaries will be profitable.
SUMMARY OF THE PLAN
Although the Board has determined that no additional awards will be made
under the Plan after May 15, 1997 as set forth in the Company's Proxy
Statement dated April 14, 1997, the following describes the Plan, its
administration and certain relevant characteristics of the awards made
thereunder.
1. Purpose. The Plan was adopted because, in the judgment of the Board,
the Company and its shareholders would benefit from an incentive compensation
program which is attractive to executives and other key employees, agents and
brokers of the Company and its subsidiaries and encourages them to increase
their ownership of its Common Stock. The purpose of the Plan is to promote the
long-term financial performance of the Company by (1) attracting and retaining
executives and other key employees, agents and brokers who possess outstanding
abilities by offering competitive incentive compensation opportunities, (2)
motivating such persons to further the long-range goals of the Company, and (3)
furthering the similarity of interests of shareholders and participants. The
Company has no current specific plan for the use of any proceeds generated from
the sale of its Common Stock pursuant to this Plan.
2. Administration. While in effect, the Plan will be administered by a
committee (the "Committee") of no fewer than three directors who are members of
the Compensation Committee of the Board and who are not eligible and who have
not been eligible during the preceding year to participate in this Plan or any
other plan of the Company or any of its subsidiaries under which stock, stock
options or stock appreciation rights may be granted other than the LNC 1993
Stock Plan for Non-employee Directors. 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 to serve on the
Committee until such time as three members of the Compensation Committee are
eligible to serve. Present members of the Committee are Thomas D. Bell, Jr.,
Earl L. Neal, John M. Pietruski, Jill S. Ruckelshaus, and Gordon A. Walker.
They may be contacted in care of the Secretary of the Company at 200 East Berry
Street, Fort Wayne, Indiana 46802.
Subject to the provisions of the Plan, the Committee is authorized, in its
discretion, to (a) interpret the provisions of the Plan; (b) adopt, amend and
rescind rules and regulations for the administration of the Plan; and (c) make
all other determinations deemed by it to be necessary or advisable for the
administration of the Plan. The Committee shall determine the type and amount
of the award to be granted to any participant, and the timing of any such award;
however, the Committee may delegate to the chief operating officer or chief
executive officer of the Company the right to select individuals who are not
reporting persons under Section 16 of the 1934 Act to participate in the Plan.
More than one type of award may be made to any participant. To provide a
flexible and competitive program, the Plan gives the Committee full discretion
to select awards from among the various forms available under the Plan:
incentive stock options, non-qualified stock options, stock appreciation rights,
restricted stock awards, incentive awards, performance awards, and dividend
equivalent rights.
3. Shares Available; Resale. The aggregate number of shares of Company
Common Stock for which incentive stock options and non-qualified stock options
may be granted, or which may be granted under a restricted stock award, a stock
appreciation right, an incentive award, a performance award, or pursuant to the
reinvestment of amounts earned under an award of dividend equivalent rights, may
not exceed 10,000,000. Shares with respect to which an incentive stock option
or a non-qualified stock option is awarded under this Plan shall be authorized
but unissued for so long as the incentive stock option or the non-qualified
stock option remains unexercised. If all or a portion of an incentive stock
option or a non-qualified stock option expires or is terminated without being
exercised in full and without having been surrendered to exercise any related
stock appreciation rights, or a restricted stock award, an incentive award or a
performance award is forfeited, the shares which were forfeited or not purchased
will again become available for distribution under the Plan. The Plan permits
adjustments in the number of shares issuable under the Plan in the event of
mergers, stock dividends, stock splits and similar changes in the corporate
structure or capitalization of the Company affecting the Common Stock. This
prospectus reflects such an adjustment for the stock dividend declared by the
Company's Board of Directors on May 13, 1993.
Except as described under "Restricted Stock Awards" below, the Plan
does not impose any restriction on the resale of shares of the Company's Common
Stock acquired pursuant to a grant under the Plan. However, any "affiliate" of
the Company (defined in Rule 405 under the Securities Act of 1933 to include
persons who directly or indirectly, through one or more intermediaries, control,
or are controlled by, or are under common control with, the Company) may not use
this Prospectus to offer and sell shares of Common Stock they acquire under the
Plan. They may, however, sell such shares:
(1) pursuant to an effective registration statement under the Securities
Act of 1933;
(2) in compliance with Rule 144 under the Act; or
(3) in a transaction otherwise exempt from the registration requirements
of that Act.
Each participant who is the beneficial owner of at least 10% of the
outstanding shares of the Company's Common Stock (the "Common Stock") and each
participant who is director or policy making officer of the Company is subject
to Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), which requires such persons to disgorge to the Company any "profits"
resulting from a sale and purchase (or purchase and sale) of shares of the
Common Stock within a six month period. For such participants, sales of certain
shares of Common Stock occurring within six months of the grant of an option or
the grant of a restricted stock award may result in such Section 16(b)
liability, unless one or both of those transactions are exempt, as described
below in more detail.
New rules regarding Section 16(b) became effective August 15, 1996 and the
Company became subject to those new rules on November 1, 1996. Under new Rule
16b-3, because the Plan is administered by a committee consisting solely of at
least two "Non-Employee Directors" (as defined in Rule 16b-3(b)(3)), the grant
of an option, a stock appreciation right, a restricted stock award, an incentive
award, a performance award or a dividend equivalent right to a participant
subject to Section 16(b) will not be deemed, for purposes of Section 16(b), to
be a purchase of the shares that underlie the option, award or right for
purposes of determining whether a participant is liable to the Company for any
profits derived from the purchase and sale of Common Stock.
In addition, if at least six months have elapsed between the award of an
option, a stock appreciation right, a restricted stock award, an incentive
award, or a performance award, or a dividend equivalent right and the
disposition of the underlying Common Stock, no purchase of Common Stock would be
deemed to have occurred under Section 16(b) for purposes of determining whether
a participant is liable to the Company for any profits derived from the purchase
and sale of Common Stock. Similarly, under Rule 16b-3, as applicable to the
Company prior to November 1, 1996, such awards would not be considered purchases
of Common Stock if (i) the Plan was administered by at least two "disinterested
directors," as defined in Rule 16b-3 as in effect with respect to the Company
prior to November 1, 1996 (administration of the Plan prior to November 1, 1996
satisfied this condition), and (ii) at least six months have elapsed from the
date the option, award or right was granted to the date of the disposition of
shares of Common Stock that underlie the option, award or right. In this latter
regard, the Plan contains provisions that effectively prohibit the disposition
of stock acquired pursuant to a stock option, a stock appreciation right or a
restricted stock award for at least six months from the date of grant, thereby
making it impossible for a participant to be subject to suit under Section 16(b)
in connection with the grant of a stock option, a stock appreciate right or a
restricted stock award. There is no Plan provision, however, that ensures
satisfaction of the holding period requirement with respect to an incentive
award or a performance award.
However, even if a transaction is exempt under Section 16(b), the general
prohibition of federal and state securities laws on trading securities while in
possession of material non-public information concerning the issuer continue to
apply.
4. Term; Amendment. As set forth in the Company's Proxy Statement dated
April 14, 1997, the Board has determined that the Plan will terminate on May 15,
1997. All awards made prior to that time will remain outstanding after
termination of the Plan in accordance with their terms. Without the consent of
the participant, amendment or termination of the Plan will not adversely affect
the rights of any participant with respect to awards previously granted.
5. Participants. The Committee may select any key executive, managerial,
supervisory or professional employee of the Company or its subsidiaries or any
person holding either an agent's or broker's contract with a subsidiary of the
Company to participate in the Plan. Because the Board has determined to
terminate the Plan, no additional awards are expected to be made under the Plan.
Certain United Kingdom directors and officers who are employed by any body
corporate, including Lincoln National (UK) PLC, which is under the control of
the Company, may also be selected by the Committee to participate in the Plan.
Stock options granted to and Company Common Stock issued to United Kingdom
officers and directors shall be granted or issued subject to applicable United
Kingdom laws and regulations. The terms and conditions of stock options or
Company Common Stock so granted or issued, and the tax consequences of such
grant or issuance, may vary from those relating to United States persons
described below. PARTICIPATING UNITED KINGDOM OFFICERS AND DIRECTORS ARE
ESPECIALLY URGED TO CONSULT THEIR OWN LEGAL AND TAX ADVISORS.
6. Stock Options. The Committee may award two types of stock options to
purchase the Company's Common Stock, incentive stock options and non-qualified
stock options, and may determine the terms and conditions of the stock options
within the limits described below. For purposes of the Plan, an "incentive
stock option" is an option which meets the requirements of Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code"), and which has been
designated by the Committee as an incentive stock option. A "non-qualified
stock option" is an option which is not an "incentive stock option" and which is
designated by the Committee as a non-qualified stock option. In addition, an
option that is intended to be an incentive stock option but that fails to
satisfy the requirements of Section 422(b) of the Code shall be treated as a
non-qualified stock option. The award of either type of stock option shall be
evidenced by an agreement between the Company and the participant, the
provisions of which shall be determined by the Committee in accordance with the
Plan. Under either type of stock option, the option price per share may not be
less than the fair market value of a share of Common Stock on the date of the
grant. For purposes of the Plan, the fair market value of a share of Common
Stock means the average of the highest and lowest prices of a share of stock, as
quoted on the composite transactions table on the New York Stock Exchange, on
the last trading day prior to the date on which the determination of fair market
value is being made.
No stock options may be exercised before six months after the date of grant
and, except in the event of the death, disability or retirement of the
participant or in the discretion of the Committee, options may not be exercised
before the first anniversary of the date of grant. Further, and unless the
terms of the grant provide for an earlier termination date, the right to
exercise a stock option shall terminate by the earliest of (a) the tenth
anniversary of grant, (b) the first anniversary of the participant's termination
of employment by reason of death or disability, (c) the fifth anniversary of the
participant's retirement (although a participant who wishes to obtain
non-recognition tax treatment for the exercise of an incentive stock option must
exercise such option within three months of retirement), (d) the sixth
anniversary of the participant's termination of employment after a change of
control of the Company, or (e) three months after the date the participant
terminates employment for any other reason. During any period that a stock
option is exercisable, it may be exercised by delivering a written notice which
specifies the number of shares purchased and the full purchase price to the
Secretary of the Company during regular business hours. Upon exercise of a
stock option, the participant may pay the option price in cash, in shares of the
Company's Common Stock which have been owned by the participant for at least six
months with an aggregate fair market value equal to the option price, or in a
combination of cash and shares. Stock options are not transferable except at
the participant's death by will or the laws of descent and distribution.
The aggregate fair market value (determined at the time an incentive stock
option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by a participant during any calendar year
cannot exceed $100,000. For purposes of this $100,000 limitation, all of the
plans of the Company and its subsidiaries will be taken into account. The
maximum number of Options awarded to one individual cannot exceed 100,000
options per year. Information regarding outstanding options may be provided in
the Company's annual reports to shareholders, proxy statements, or appendices to
this prospectus.
7. Stock Appreciation Rights. The Committee may, in the event it
determines it to be necessary or desirable to create a reasonable opportunity
for a participant to acquire an increased ownership interest in the Company,
award a stock appreciation right in conjunction with either an incentive stock
option or a non-qualified stock option. Under a stock appreciation right, the
participant may surrender all or a part of a stock option and receive in
exchange payment of no more than 100% of the increase in the fair market value
of shares of Common Stock since the date of grant. The award of a stock
appreciation right shall be evidenced by an agreement between the Company and
the participant, the provisions of which shall be determined by the Committee
in accordance with the provisions of the Plan.
A stock appreciation right may be exercisable at any date with respect to
no more than the number of shares for which the related stock option is
exercisable at that date. A stock appreciation right issued in connection with
an incentive stock option may be exercisable only when there has been an
increase in the fair market value of the related shares over the relevant
period.
Each stock appreciation right shall terminate no later than the termination
date of the related stock option, and is transferable only with and to the
extent that the related stock option is transferable.
During any period in which a stock appreciation right is exercisable, it
may be exercised by delivering to the Secretary of the Company a written notice
which specifies the extent to which the stock appreciation right is being
exercised.
The Committee may limit the payment on exercise of a stock appreciation
right to less than 100% of the increase in value, as aforesaid, or it may set a
maximum amount of payment. Payment may be made in cash, in shares of Common
Stock, or in a combination of cash and shares. Upon exercise of a stock
appreciation right, the right to exercise the related stock option shall
automatically terminate to the same extent the stock appreciation right was
exercised.
8. Restricted Stock Awards. The Committee may also grant restricted stock
awards which entitle participants to receive shares of Common Stock. The
aggregate number of shares of LNC Common Stock that may be awarded during any
calendar year as restricted stock shall not exceed three-tenths of one percent
(0.3%) of the number of shares of Common Stock outstanding as of December 31 of
the prior year. 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 in accordance with this limitation, the balance of such unused shares
may be added to the maximum number of shares of restricted stock that may be
awarded in following years. To the extent that an award lapses, the rights of
the participant to whom the award is made 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 shall not be included in calculating shares
available in accordance with this limitation. Each restricted stock award shall
be evidenced by an agreement between the Company and the participant, the
provisions of which, including any restrictions upon the Common Stock, shall be
determined by the Committee in accordance with the provisions of the Plan.
In its sole discretion, the Committee may also designate that a participant
who is entitled to receive a cash award under the Company's Management Incentive
Plan II or the Company's Executive Value Sharing Plan shall receive all or a
portion of such award in the form of a restricted stock award subject to the
terms of the Plan. The Committee may also convert outstanding restricted stock
awards to stock units under the Company's deferred compensation plan in its sole
discretion.
Shares granted to a participant pursuant to a restricted stock award will be
subject to such restrictions as the Committee may determine. In all events,
these restrictions will generally remain in effect throughout the six-month
period beginning on the date of award. Thereafter, the restrictions will remain
in effect until the participant's death, disability, retirement, completion of a
specified period of continued employment or the occurrence of some other event
specified by the Committee. If the participant terminates employment prior to
the time that the restrictions lapse, the participant will forfeit any shares
subject to the restrictions. Shares of Common Stock subject to restriction are
generally not transferable other than by will or the laws of descent and
distribution; other restrictions may apply as well.
A restricted stock award may also provide for the current payment or
crediting to a participant of any dividends that are paid on the shares subject
to the restrictions. Any dividends that remain unpaid or undistributed at a
time when the participant forfeits shares subject to restrictions will also be
forfeited.
9. Incentive Awards. The Committee may also grant incentive awards which
entitle participants to receive shares of Common Stock. Shares may be granted
pursuant to an incentive award for no cash consideration, for such minimum cash
consideration as may be required under applicable law, or for such other
consideration as may be specified by the Committee. Shares granted pursuant to
an incentive award may be paid to the participant in a single installment or in
installments, may be paid at the time of the grant or at a later date or dates,
and may be forfeited if the participant is not employed by the Company on the
scheduled payment date, all as determined by the Committee. Each incentive
award shall be evidenced by an agreement between the Company and the
participant, which shall set forth all the relevant terms and conditions of the
award.
10. Performance Awards. The Committee may also grant performance awards
which entitle the participant to receive stock units. Each stock unit awarded
to a participant represents a credit to a bookkeeping reserve account equivalent
in value to one share of Common Stock. Stock units will be converted to cash,
shares of Common Stock or a combination of cash and Common Stock upon the
participant's satisfaction of performance criteria and/or vesting periods
established by the Committee. Stock units may be granted pursuant to a
performance award for no cash consideration, for such minimum cash consideration
as may be required under applicable law, or for such other consideration as may
be specified by the Committee. Stock units granted pursuant to a performance
award may be paid to the participant in a single installment or in installments,
may be paid at the time of the grant or at a later date or dates, and may be
forfeited if the participant is not employed by the Company on the scheduled
payment date, all as determined by the Committee. Each performance award shall
be evidenced by an agreement between the Company and the participant, which
shall set forth all the relevant terms and conditions of the award.
In its sole discretion, the Committee may designate that a participant who
is eligible to receive a cash award under the Company's Executive Value Sharing
Plan shall receive such award in stock as a performance award. The Committee
may also convert outstanding restricted stock awards to stock units under the
Company's deferred compensation plan in its sole discretion.
11. Dividend Equivalent Rights. The Committee may also grant to a
participant, independently or in conjunction with another award under the Plan,
dividend equivalent rights. Dividend equivalent rights entitle the participant
to receive amounts equivalent to the dividends paid on the number of shares of
the Company's Common Stock for which the participant has dividend equivalent
rights. Dividend equivalent rights may be paid in cash currently or may be
reinvested in additional shares of Common Stock (which may thereafter accrue
dividend equivalents). Dividend equivalent rights may be settled in cash,
shares of Common Stock, or a combination of cash and shares. Each award of
dividend equivalent rights shall be evidenced by an agreement between the
Company and the participant, which shall set forth all relevant terms and
conditions of the award.
12. Other Material Provisions. The Company shall not be obligated to
distribute shares under the Plan in violation of any law, and any postponement
of the distribution shall not extend the term of any incentive stock option,
non-qualified stock option, or stock appreciation right. Neither the Company
nor its officers or directors shall have any obligation or liability to any
participant, or successor in interest to a participant, because of the loss of
rights due to a postponement permitted under the Plan.
The Company and its subsidiaries 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 and its subsidiaries also have the
right to require payment to them from any participant entitled to receive
Company Common Stock pursuant to the Plan of the amount of any tax required by
law to be withheld with respect to that Common Stock prior to its delivery.
A participant may, however, elect with respect to any non-qualified stock
option, any stock appreciation right which is paid in whole or in part in
Company Common Stock, any performance award and any restricted stock award, to
surrender shares of Company Common Stock, the fair market value of which on the
date of the surrender satisfies all or part of the withholding requirements.
Any such election must be made by filing a written, irrevocable stock surrender
withholding election prior to the date that the amount of tax to be withheld is
determined. Any stock surrender withholding election made by a participant who
is an "officer" of the Company within the meaning of Section 16 of the
Securities Exchange Act of 1934, as amended, must be made (1) more than six (6)
months after the date of grant of the award with respect to which such election
is made (except where such election is made by a disabled participant or the
estate or personal representative of a deceased participant), and (2) either at
least six (6) months prior to the date that the amount of tax to be withheld is
determined or during the ten (10) day window period beginning on the third
business day following the release for publication of the Company's summary
statement of earnings for a quarter or fiscal year. 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 participant to make a stock surrender withholding
election at any time prior to the making of such election.
13. Certain Tax Aspects. THE FOREGOING TAX DISCUSSION AND THE TAX
DISCUSSION SET FORTH BELOW ARE INCLUDED HEREIN FOR GENERAL INFORMATION ONLY. IN
VIEW OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH PARTICIPANT SHOULD
CONSULT HIS OR HER TAX ADVISOR FOR MORE SPECIFIC INFORMATION, INCLUDING THE
EFFECT OF APPLICABLE FEDERAL, STATE AND OTHER TAX LAWS.
Under present law the federal income tax consequences of grants and awards
under the Plan are generally as follows:
Incentive Stock Options. Incentive stock options may be awarded only to
those participants who are "employees" (as that term is defined in Section
3401(c) of the Code and the regulations promulgated thereunder) of the Company
or one of its subsidiaries at the time of the granting of the option. In
addition, an option that qualifies as an incentive stock option at the time of
grant generally will not be treated as an incentive stock option for income tax
purposes if the optionee is not an "employee" at the time of exercise (except
when the optionee was an employee within three months of his death or at the
time of his disability or termination of employment and the option is exercised
within a specified period of time after his death, disability or termination of
employment). Those persons who are eligible to participate in the Plan because
they hold either agents' or brokers' licenses with a subsidiary of the Company
may or may not, depending on their particular facts and circumstances, be
"employees" for this purpose. For the tax treatment of options granted to or
exercised by non-employees, see Non-qualified Stock Options, below.
The granting of an incentive stock option will not result in taxable income
to the participant at the time of grant. The exercise of the incentive stock
option will also ordinarily have no federal income tax consequences to the
participant, although an incentive stock option exercised more than three months
after retirement (or one year after retirement, when retirement was as a result
of the participant's disability) will be treated as a non-qualified stock option
and taxed as described in Non-qualified Stock Options, below, unless the option
is exercised by the heirs or the estate of the deceased participant who was
employed on the date of his death and throughout the three-month period ending
on the date of death. If, however, a participant tenders payment upon the
exercise of an incentive stock option by surrendering shares obtained upon a
prior exercise of an incentive stock option which shares were not held for the
"required holding period" (as defined below), that participant may recognize
income upon the surrendering of the previously acquired shares under those rules
described below pertaining to the disposition of shares acquired pursuant to an
incentive stock option.
If the shares acquired pursuant to a timely exercise of an incentive
stock option are held for at least one year after they were acquired by exercise
of the incentive stock option and two years after the date on which the
incentive stock option was granted to the participant (the "required period"),
then any gain on disposition of the shares will generally be taxable as
long-term capital gain and no corresponding deduction will be allowed to the
Company. For a discussion of the federal income tax consequences of a long-term
capital gain, see Capital Gains Treatment, below.
If the shares acquired pursuant to a timely exercise of an incentive
stock option are disposed of before the expiration of the required period, then
the difference between the participant's "basis" (as defined below) and the fair
market value of the shares at the date of exercise, will generally be taxable as
ordinary income and a contemporaneous deduction in the amount of such income
will be allowed to the Company. Any additional gain (or loss) realized on a
disposition of such shares will generally be taxable to the participant as long
or short-term capital gain (or loss) depending on the period for which the
shares were deemed to have been held. For a discussion of holding periods and
the federal income tax treatment of long-term capital gains, see Capital Gains
Treatment, below.
For purposes of determining whether shares acquired pursuant to the
exercise of an incentive stock option have been disposed of before the
expiration of the required period, the term "disposition" will include a sale,
exchange, gift or transfer of legal title of the shares, but does not include a
transfer from a decedent to an estate, a transfer by bequest or inheritance, a
pledge or hypothecation, or transfers pursuant to certain non-recognition
transactions such as like-kind exchanges (except as noted above with respect to
the exchange of shares acquired pursuant to an incentive stock option that have
not been held for the required period and are surrendered to exercise an
incentive stock option) or exchanges pursuant to reorganizations.
A participant's "basis" in shares of common stock acquired pursuant to
the exercise of an incentive stock option will equal the amount of any cash paid
for such shares plus the basis of any shares surrendered, as determined
immediately before the surrender, plus any income recognized on the disposition
of the surrendered shares. If a participant uses shares of the Company's Common
Stock to exercise his incentive stock option and such shares either were not
acquired by the prior exercise of an incentive stock option, or were so acquired
but were held by him for the required period, it is expected that the basis and
holding period (for the purpose of determining whether amounts realized or lost
upon the subsequent disposition of the shares constitute short-term or long-term
capital gains or losses) of the shares that the participant surrenders carries
over to the same number of shares received upon the exercise of the option.
If a participant uses shares of the Company's Common Stock to exercise
his incentive stock option, and such shares were acquired upon a prior exercise
of incentive stock option and were not held for the required period, the
participant's basis in the shares acquired upon exercise of his incentive stock
option will equal the sum of the basis of shares surrendered, as determined
immediately before the surrender, and any income recognized on the disposition
of the surrendered shares. In addition, the holding period of the newly
acquired stock should begin on the date of the most recent exercise of the
incentive stock option.
The amount by which the fair market value, determined at the time of
exercise, of a share of Company Common Stock acquired pursuant to the exercise
of an incentive stock option exceeds the option price shall, along with other
specified items, constitute an adjustment for the purposes of calculating the
alternative minimum taxable income of the participant for the taxable year in
which the option was exercised. Such adjustment items are potentially subject
to a 26% - 28% alternative minimum tax as determined by a complex formula
involving special deductions, additions and exemptions. As a result, the
exercise of an incentive stock option may subject a participant to an
alternative minimum tax depending on that participant's particular
circumstances.
For purposes of computing alternative minimum taxable income realized
on a subsequent disposition of shares acquired pursuant to the exercise of an
incentive stock option, the participant's basis in the stock so acquired shall
be increased by the amount that alternative minimum taxable income realized was
increased due to the earlier exercise of the stock option.
Non-Qualified Stock Options. The granting of a non-qualified stock
option will not result in taxable income to the participant at the time of
grant. On exercise of a non-qualified stock option, the participant will
normally realize taxable ordinary income equal to any excess of the fair market
value of the shares at the time of exercise over the option price of the shares.
At the time this ordinary income is recognized by the participant, the Company
will be entitled to a corresponding deduction.
If a participant exercises his non-qualified stock option with a cash
payment, the basis of the shares he acquires will generally equal the option
price plus the amount included in his income upon exercise. If the participant
uses shares of the Company's Common Stock to exercise his non-qualified stock
option, the basis and holding period of the shares he surrenders carries over to
the same number of the shares received upon the exercise of the option. The
basis of the remaining shares received is the fair market value of the shares on
the date of exercise.
To the extent that the shares constitute a capital asset in the hands
of a participant, on the disposition of the shares acquired upon exercise of a
non-qualified stock option, the difference between the amount received for the
shares and the basis, i.e. fair market value of the shares on exercise of the
option, will be treated as long-term or short-term capital gain or loss,
depending on the holding period. For a discussion of holding periods and the
federal income tax treatment of a long-term capital gain, see Capital Gains
Treatment, below.
Stock Appreciation Rights. The granting of a stock appreciation right
should not result in taxable income to the participant at the time of grant. On
exercise of a stock appreciation right, the participant will realize taxable
ordinary income equal to the cash and fair market value of any shares received.
At the time the participant recognizes ordinary income on the exercise of a
stock appreciation right, the Company will be entitled to a corresponding
deduction.
To the extent that any such shares constitute a capital asset in the
hands of a participant, on the disposition of any shares acquired under a stock
appreciation right, the difference between the amount received for the shares
and the fair market value of the shares as of the exercise of the stock
appreciation right will be treated as long-term or short-term capital gain or
loss, depending on the holding period. For a discussion of holding periods and
the federal income tax treatment of a long-term capital gain, see Capital Gains
Treatment, below.
Restricted Stock Awards. The granting of a restricted stock award or
issuance of restricted shares generally will not result in taxable income to the
participant at the time of grant or issuance. Instead, the participant will
normally realize taxable ordinary income when the restrictions on the shares
lapse in an amount equal to the fair market value of the shares on the date of
lapse. Notwithstanding the foregoing, a participant may elect (pursuant to
Section 83(b) of the Code), within 30 days of the date of a restricted stock
award, to be taxed on the value of the shares as of the date of grant. If the
participant subsequently forfeits the shares, the participant will not be
entitled to a deduction. At the time the participant recognizes ordinary income
with respect to shares issued pursuant to a restricted stock award, the Company
will be entitled to a corresponding deduction.
To the extent that the shares constitute a capital asset in the hands
of a participant, on disposition of the shares after restrictions lapse, the
difference between the amount received and the fair market value of the shares
on the date of lapse (or on the date of issuance if the participant made the
election described above) will be treated as long-term or short-term capital
gain or loss, depending on the holding period. For a discussion of holding
periods and the federal income tax treatment of capital gains, see Capital Gains
Treatment, below. A participant's holding period in the shares will begin when
the restrictions to which they are subject lapse unless he makes the election
provided for under Code Section 83(b) (as noted above), in which case the
holding period in his shares will begin on the day after the Company Common
Stock is transferred to him.
Amounts equivalent to dividends received by the participant under the
restricted stock award and dividends paid on restricted stock received by the
participant prior to the lapse of restrictions will be taxable as ordinary
income to the participant and a corresponding and contemporaneous deduction will
be allowed to the participant's employer unless the participant made the Section
83(b) election described above. If the election was made, dividends actually
paid on restricted stock will be taxable as dividends and no corresponding
deduction will be allowed to the employer. In addition, if the election was
made and the participant later forfeits the restricted stock, the participant
will be allowed no loss deduction.
Incentive Awards. Generally, a participant will be subject to tax, and the
Company will receive a corresponding deduction, with respect to an incentive
award (whether granted under the Plan or as a result of a conversion to an
incentive award of an award under the Company's Management Incentive Plan II or
Executive Value Sharing Plan) on the date that the award is granted. However,
if the award is paid in shares of Common Stock which are subject to restrictions
or to forfeiture, the participant will be subject to tax, and the Company will
be entitled to a deduction, when the shares cease to be subject to the
restrictions or the risk of forfeiture. The amount of taxable income a
participant will be required to recognize, and the amount of the deduction to
which the Company will be entitled, will equal the amount of cash, and the fair
market value of the shares, received on the date as of which the participant is
required to recognize income.
Performance Awards. Generally, a participant will be subject to tax, and
the Company will receive a corresponding deduction, with respect to a
performance award (whether granted under the Plan or as a result of a conversion
to an incentive award of an award under the Company's Executive Value-Sharing
Plan) on the date that the award is granted. However, if the award is paid in
shares of Common Stock which are subject to restrictions or to forfeiture, the
participant will be subject to tax, and the Company will be entitled to a
deduction, when the shares cease to be subject to the restrictions or the risk
of forfeiture. The amount of taxable income a participant will be required to
recognize, and the amount of the deduction to which the Company will be
entitled, will equal the amount of cash, and the fair market value of the
shares, received on the date as of which the participant is required to
recognize income.
Dividend Equivalent Rights. Generally, a participant will be subject to
tax, and the Company will be entitled to a corresponding deduction, with respect
to a grant of dividend equivalent rights as of the date or dates on which the
dividend equivalents are paid to the participant. If dividend equivalents are
automatically reinvested in additional shares of Common Stock, the participant
does not recognize tax, and the Company does not get to claim a corresponding
deduction, until the dividend equivalent rights are settled. At that time, the
participant will be liable for tax, and the Company will be entitled to a
deduction, equal to the amount of cash and the fair market value of the shares
the participant receives in settlement of the dividend equivalent rights.
Capital Gains Treatment. Gain or loss from the sale or exchange of
property will be treated as long-term capital gain or loss if it was deemed to
have been held for more than one year. Any gain or loss other than long-term
capital gain or loss will be treated as short-term capital gain.
Except in those situations expressly described above (relating to the
"tacking" of holding periods where Company Common Stock is used to exercise a
stock option and to optionees subject to Section 16(b) of the Securities
Exchange Act of 1934), it is expected that the holding period of shares acquired
pursuant to the exercise of an incentive stock option, non-qualified stock
option or stock appreciation right will generally begin on the date following
the date of acquisition through such exercise. Similarly, the holding period of
awarded shares acquired pursuant to a restricted stock award is expected to
begin on the date following the date on which the restrictions lapse, subject to
the exception relating to elections under Code Section 83(b).
For net capital gains recognized by individuals, the Code imposes a
preferential maximum tax rate of 28% (as compared with a 39.6% maximum tax rate
on ordinary income).
Participants Subject to Section 16(b). Notwithstanding the general
tax treatment of the various types of awards as discussed above, a participant
who is subject to the application of Section 16(b) of the 1934 Act, will not be
subject to tax with respect to an award until such time as the stock acquired
pursuant to the exercise of an option or the grant of another type of award may
no longer be considered a purchase of the shares underlying the option or award.
Different rules have applied to the Plan under section 16(b) for different
periods. Prior to November 1, 1996, if stock acquired pursuant to an award under
the Plan could be disposed of by the participant before the expiration of six
months from the date of award, the participant would not be subject to tax, and
the Company would not be entitled to a corresponding deduction, until the
expiration of such a period. The participant could, however, have accelerated
taxation by making the election permitted under Code Section 83(b), as described
above. Effective November 1, 1996, because the Plan has been administered by
"non-employee directors" within the meaning of section 16(b), the acquisition of
stock pursuant to an award under the Plan would not be considered a purchase of
that stock. Thus, the general rules of taxation described above apply. For
capital gains tax purposes, the participant's holding period begins to run on
the date, on which he is subject to taxation on the award of stock.
Payment of Withholding Obligations Through Surrender of Shares.
The federal income tax treatment of the surrender of shares of Company Common
Stock to satisfy a participant's federal income tax withholding obligation under
the Plan is complex and uncertain. To the extent that a participant surrenders
shares of Company Common Stock for this purpose, the participant will be treated
as having sold such shares to the Company for their fair market value and may
recognize income as a result thereof. The nature and extent of this income will
depend upon the manner in which the surrendered shares were acquired, the basis
of the surrendered shares, the holding period of the surrendered shares and
other factors as described above. Depending upon the effect of the surrender
upon the participant's proportionate share ownership interest in the Company,
the participant may be treated as having received a dividend equal to the fair
market value of the shares surrendered. A participant who satisfies a
withholding obligation by surrendering shares acquired pursuant to an earlier
exercise of an incentive stock option may also be treated as having made a
disqualifying disposition of such shares if the applicable holding period
requirements have not been satisfied. For a discussion of disqualifying
dispositions of shares acquired pursuant to the exercise of an incentive stock
option and the tax treatment thereof, see Incentive Stock Options, above.
For a discussion of the times when elections to surrender shares to satisfy
withholding obligations must be made, including specific requirements applicable
to elections by "officers" under Section 16 of the Securities Exchange Act of
1934, see Other Material Provisions, above. PARTICIPANTS ELECTING TO SATISFY A
WITHHOLDING OBLIGATION BY SURRENDERING SHARES OF COMPANY COMMON STOCK ARE
STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS.
14. Miscellaneous. The Plan is not qualified under Section 401(a) of the
Internal Revenue Code and is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into its Prospectus the
following documents filed with the Securities and Exchange Commission (the
"Commission"):
(a) The Company's Annual Report on Form 10-K filed pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the "1934
Act") for the fiscal year ended December 31, 1996;
(b) All other reports of the Company filed pursuant to Section 13(a) or
15(d) of the 1934 Act since December 31, 1996; and
(c) The section entitled "Description of Capital Stock" contained on
pages 31 through 35 of the Company's Prospectus dated December 22,
1992, relating to 4,000,000 shares of the Company's Common Stock.
All reports and documents subsequently filed with the Commission by the
Company subsequent to the date of this registration statement pursuant to
Section 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as
amended, prior to the filing of a post-effective amendment which indicates that
all securities offered have been sold or which deregisters all securities then
remaining unsold, shall be deemed to be incorporated by reference into this
Registration Statement and to be part thereof from the date of filing of those
documents. Additional updating information with respect to the securities and
Plan covered herein may be provided in the future to participants by means of
appendices to the Prospectus.
ANNUAL REPORT TO SHAREHOLDERS
The Company will deliver with this Prospectus to each employee or agent to
whom it is sent or given a copy of the Company's Annual Report to Shareholders
for its last fiscal year, unless the employee or agent otherwise has received a
copy, in which case the Company will promptly furnish, without charge, an
additional copy on written request by the employee or agent. Except as
indicated herein, the Annual Report to Shareholders is not incorporated by
reference into the Prospectus.
EXPERTS
The consolidated financial statements and schedules of Lincoln National
Corporation and subsidiaries appearing in the Lincoln National Corporation's
Annual Report (Form 10-K) for the year ended December 31, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such
consolidated financial statements and schedules are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The legality of the securities to be issued pursuant to the Plan will be
passed upon for the Company by Dennis L. Schoff. Mr. Schoff is employed by the
Company as a Second Vice President and Associate General Counsel and owns
options to purchase common stock and owns, through the Company's Employees'
Savings and Profit-Sharing Plan, shares of the Company's Common Stock.
