File No. 33-62315
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LINCOLN NATIONAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Indiana
(State or Other Jurisdiction of Incorporation or Organization)
35-1140070
(I.R.S. Employer Identification No.)
200 East Berry Street
Fort Wayne, Indiana 46802
(219) 455-2000
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Lincoln National Corporation
1986 Stock Option Incentive Plan
(Full Title of Plan)
_________________________
Jack D. Hunter
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
(219) 455-3072
(Name, Address, Including Zip Code, and Telephone Number, Including Area
Code, of Agent for Service)
Approximate date of commencement June 2, 1997, or as soon thereafter as this
of proposed sale to the public Registration Statement becomes effective
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box [ ].
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
reinvestment plans, check the following box [ X ] .
___________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering [ ].
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ].
If delivery of a prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ].
A fee of $72,450 was previously paid in connection with the initial filing
of the registration statement to which this pre-effective amendment relates
(File No. 33-62315).
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
STATEMENT PURSUANT TO RULE 429(b)
The prospectus contained in this Registration Statement is a combined
prospectus which also covers 2,438,119 shares of common stock covered by
Registration Statement No. 33-13445, which were unissued as of May 21, 1997.
LINCOLN NATIONAL CORPORATION
1986 STOCK OPTION INCENTIVE PLAN
Cross Reference Sheet
Showing Location in Prospectus of Information
Required by Items of the Form S-3
Pursuant to Rule 404(a)
Item of Form S-3 Location in Prospectus
1. Forepart of registration
Statement and Outside Front
Cover Page of Prospectus. . . . . . Forepart of Registration
Statement and Outside Front Cover
Page of Prospectus;
Cross-Reference Sheet
2. Inside Front and Outside Back
Cover Pages of Prospectus . . . . . Inside Front Cover Page of
Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges. . . . . . . . . . General Information
4. Use of Proceeds . . . . . . . . . . Summary of the Plan - The Purpose
5. Determination of Offering
Price . . . . . . . . . . . . . . . Summary of the Plan - Stock
Options, Stock Appreciation
Rights, Restricted Stock Awards
6. Dilution. . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . Not Applicable
8. Plan of Distribution . . . . . . . Summary of the Plan - Stock
Options, Stock Appreciation
Rights, Restricted Stock Awards,
Other Material provisions
9. Description of Securities to
be Registered . . . . . . . . . . . Incorporation of Documents by
Reference
10. Interests of Named Experts and
Counsel . . . . . . . . . . . . . . Experts
11. Material Changes. . . . . . . . . . Not Applicable
12. Incorporation of Certain
Documents by Reference. . . . . . . Incorporation of Documents by
Reference
13. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities . . . Indemnification of Directors and
Officers
PROSPECTUS
5,000,000 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.
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 2, 1997.
<PAGE>
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.
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Set forth below are estimates of all expenses incurred or to be incurred
by the Company in connection with the issuance and distribution of the Company
to be registered, other than underwriting discounts and commissions.
Registration fees $ 72,450
Photocopying and Printing 3,000*
Legal fees 50,000*
Accounting fees 8,000*
State blue sky fees and expenses 250*
----------
TOTAL $ 133,700
* Estimated
Item 15. Indemnification of Directors and Officers
The following discussion of the indemnification provisions of the
Indiana Business Corporation Law (Indiana Code Section 23-1-37) (the "Law"),
which applies to the Company, is a summary, is not meant to be complete, and
is qualified in its entirety by reference to the Law.
The Law provides that the Company may indemnify present and past
directors, officers, employees and agents of the Company and of other
entities, including partnerships, trusts and employee benefit plans, who
serve in such capacities at the request of the Company, against obligations
to pay as the result of threatened, pending or completed actions, suits or
proceedings, whether criminal, civil, administrative or investigations to
which they are parties, if it is determined by a majority of disinterested
directors, a committee of the board of directors or special counsel selected
by the board of directors that they acted in good faith and they reasonably
believed their conduct in their official capacity was in the Company's best
interests or if such conduct was not in their official capacity, that the
same was at least not opposed to the Company's best interests, and that in
criminal proceedings they had reasonable cause to believe their conduct was
lawful or no reasonable cause to believe that it was unlawful. Unless a
corporation's articles of incorporation provide otherwise (which the
Company's does not), the Law provides for mandatory indemnification for
directors and officers against reasonable expenses incurred if they were
wholly successful in the defense of such proceeding. Termination of a
proceeding by judgment, settlement or like disposition is not determinative
that the director, officer, employee or agent did not meet the standard of
conduct set forth in the Law. The indemnity provided by the Law may be
enforced in court and provision is made for advancement of expenses. The
Law also permits the Company to insure its liability on behalf of the
directors, officers, employees and agents so indemnified and the Law does
not exclude any other rights in indemnification and advancement of expenses
provided in the Company's Articles of Incorporation, Bylaws, or resolutions
of its board of directors or its shareholders.
The Bylaws of the Company provide for the indemnification of its
officers, directors and employees against reasonable expenses, including
settlements, that may be incurred by them in connection with the defense of
any action, suit or proceeding to which they are made or threatened to be
made parties so long as (i) the individual's conduct was in good faith, (ii)
he reasonably believed that the conduct was in the Company's best interests
(or for non-corporate acts, not against the best interests of the Company),
and (iii) in the case of criminal proceedings, the individual either had
reason to believe the conduct was lawful, or no reasonable cause to believe
it was unlawful. In the case of directors, a determination as to whether
indemnification or reimbursement is proper shall be made by a majority of
disinterested directors, a committee of the board of directors or special
counsel selected by the board of directors. In the case of individuals who
are not directors, such determination shall be made by the chief executive
officer of the Company or, if the chief executive officer so directs, in the
manner it would be made if the individual were a director of the Company.
Such indemnification may apply to claims arising under the
Securities Act of 1933, as amended. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted for
directors, officers or persons controlling the Company pursuant to the
foregoing provisions, the Company has been informed that in the opinion of
the Securities and Exchange Commission such indemnification is against
public policy as expressed in that Act and therefore unenforceable.
The Company maintains a directors' and officers' liability
insurance program with minimum policy limits totaling $100,000,000 for each
wrongful act and subject to aggregate limits totaling $100,000,000 for the
policies in the program. There is no policy deductible for directors and
officers and a $5,000,000 deductible applicable to corporate reimbursement.
Item 16. Exhibits.
The following exhibits of this Registration Statement are included in
Item 16. (Note: The numbers preceding the exhibits correspond to the
specific numbers within Item 601 of Regulation S-K.)
Exhibit No. Description
4(a) The 1986 Stock Option Incentive Plan, as amended
(incorporated by reference to the registration statement on
Form S-3 filed by the Company on September 5, 1995 (File No.
33-62315))
4(b)(i) The Articles of Incorporation of the Company as last amended
May 12, 1994 are incorporated herein by reference to
Company's Form S-3/A filed with the Commission
on September 15, 1994.
4(b)(ii) The By-Laws of the Company as last amended May 15, 1997 are
attached hereto as Exhibit 4(b)(ii).
5 Opinion of Dennis L. Schoff, Esq., as to the legality of the
securities being registered.
8 Opinion of Sutherland, Asbill & Brennan as to the tax
consequences of the Plan.
23(a) Consent of Ernst & Young LLP, Independent Auditors
23(b) Consent to use of Opinion of Dennis L. Schoff, Esq., is
contained in Exhibit 5.
23(c) Consent to use of Opinion of Sutherland, Asbill & Brennan
contained in Exhibit 8.
24 Power of Attorney (incorporated by reference to the
registration statement on Form S-3 filed by the Company on
September 5, 1995 (File No. 33-62315)).
Item 17. Undertakings.
(a) Rule 415 Offering. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and (iii) To include any material information
with respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(e) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X is
not set forth in the prospectus, to deliver, or cause to be delivered
to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
SIGNATURES
(a) THE REGISTRANT. Pursuant to the requirements of the Securities
Act of 1933, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3, and
has duly caused this Pre-Effective Amendment to the Company's Registration
Statement on Form S-3 to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Fort Wayne, State of Indiana, on
the 23rd day of May, 1997.
LINCOLN NATIONAL CORPORATION
By: /S/JOHN L. STEINKAMP
(b) Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by John L. Steinkamp, as the
attorney-in-fact for the Board of Directors of Lincoln National Corporation
on the terms of the power of attorney filed as part of the Registration
Statement on Form S-3 filed on September 5, 1995 (Reg. No. 33-62315).
Signature Title Date
/S/JOHN L. STEINKAMP Vice President & Associate May 23, 1997
General Counsel
Before me the undersigned, a Notary Public, personally appeared each
of the above-named persons whose signature appears above and acknowledged
the execution of this instrument this 23rd day of May, 1997.
/S/VIRGINIA SCHROEDER
Notary Public
(seal) Resident of Allen County
My Commission Expires: May 14, 2000
INDEX TO EXHIBITS
Exhibit No. Description
4(b)(ii) Bylaws of the Company as amended May 15, 1997.
5 Opinion of Dennis L. Schoff, Esq., as to the legality of the
securities being registered.
8 Opinion of Sutherland, Asbill & Brennan as to the tax
consequences of the Plan.
23(a) Consent of Ernst & Young LLP, Independent Auditors.
EX-4(b)(ii)
Adopted January 17, 1968; as Last Amended May 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 board of directors. Only business within the purpose or purposes
described in the meeting notice may be conducted at a special shareholders
meeting. (Last amended May 15, 1997)
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 were such 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 effective May 11, 1978)
<PAGE>
EX-5
(219) 455-1263
May 27, 1997
Securities and Exchange Commission
Division of Corporation Finance
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: Lincoln National Corporation 1986 Stock Option Incentive Plan ("Plan")
Ladies and Gentlemen:
I have acted as counsel for Lincoln National Corporation, an Indiana corporation
("Issuer"), in connection with the registration of 5,000,000 shares of the
Issuer's Common Stock to be issued upon exercise of options granted for no
consideration to certain of the Company's employees and non-employee agents of
the Company.
At the request of the Management of Lincoln National Corporation, I have made
such examination of law and have examined such records and documents as I have
deemed necessary to render the opinion expressed below.
Based upon my examination of such documents and corporate proceedings as I have
deemed relevant, I am of the opinion that:
1. The Company is a duly organized and existing corporation under the laws of
the state of Indiana;
2. The issued shares of Common Stock of the Company have been duly authorized
and are validly issued, fully paid and nonassessable; and
3. The shares of Common Stock covered by the registration statement on Form
S-3 have been duly authorized and, when issued as provided in the Plan,
such shares will be validly issued, fully paid and nonassessable.
I hereby consent to the conclusion of this opinion as an exhibit to this
Registration Statement on Form S-3.
Sincerely,
/S/ DENNIS L. SCHOFF
Dennis L. Schoff
Associate General Counsel
<PAGE>
EX-8
May 23, 1997
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
Gentlemen:
In connection with the registration of certain shares of Common Stock
of Lincoln National Corporation (the "Company") pursuant to the Lincoln National
Corporation 1986 Stock Option Incentive Plan (the "Plan"), as described in a
Registration Statement on Form S-3 to be filed by the Company on or about May
23, 1997 (the "Registration Statement"), we have been asked to render our
opinion to you with respect to certain income tax consequences, under the
Internal Revenue Code of 1986, as amended (the "Code"), of various transactions
contemplated by the Plan.
We have examined the provisions of the Plan and made such other
investigations and inquiries as we deem necessary in order to enable us to
render this opinion. Assuming that the transactions contemplated by the Plan
are carried out in conformity with the terms of the Plan, it is our opinion that
the tax consequences of each transaction will be as described in the relevant
section below.
THE PLAN
The Company's Board of Directors has determined that the Plan will be
terminated on May 15, 1997, although awards made prior to that time will remain
outstanding in accordance with their terms. The Plan provides that it is to be
administered by a committee (the "Committee") of no fewer than three directors
who are generally members of the Compensation Committee of the Board and who are
"disinterested persons" within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934 (the "Act"), as in effect prior to August 15, 1996.
Effective August 15, 1996, Rule 16b-3 was amended in relevant part to refer to
approvals of grant transactions by a committee consisting solely of two or more
"non-employee directors" (as defined in new Rule 16(b)-3(b)(3)). It is our
understanding that, since the date the Company became subject to new Rule 16b-3,
each member of the Committee has fallen within the definition of "non-employee
director." The Committee, in its sole discretion, determines the timing of any
award and the type and amount of the award to be granted to any participant from
among the various forms available under the Plan: incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock awards,
incentive awards, performance awards, and dividend equivalent rights. The Plan
further specifies the maximum aggregate number of shares of Company Common Stock
for which stock options or awards may be granted, the earliest permissible
exercise date, the maximum exercise period of stock options and stock
appreciation rights, and other terms and conditions regarding the exercise of
options or enjoyment of rights under the Plan.
TAX TREATMENT OF AWARDS UNDER THE PLAN
Incentive Stock Options
Under Code Section 421, special tax treatment is available for
incentive stock options, within the meaning of Code Section 422(b), provided
certain holding and exercise timing requirements are met <F1>. Consistent with
Code Section 422(b), only those options that are designated by the Committee as
incentive stock options and that meet certain requirements will be treated as
such. Specifically, an option will be treated as an incentive stock option only
if, consistent with Code Section 422(b), it:
(1) is granted pursuant to a plan that specifies the aggregate number
of shares that may be issued pursuant to options and the
employees (or class(es) of employees) who are eligible to receive
options, and that is approved by shareholders of the corporation
granting the options within 12 months of the date on which the
plan is adopted;
(2) is granted within ten years of the earlier of the date on plan
was adopted or the date on which the plan was approved by
shareholders;
(3) is not, by its terms, exercisable after the expiration of ten
years from the date of grant;
(4) is exercisable for a price not less than the fair market of the
underlying stock on the date of grant;
(5) is not transferable by the grantee other than by will or by the
laws of descent and distribution, and is exercisable during the
grantee's lifetime only by the grantee; and
(6) is granted to an individual who, at the time of grant, does not
own stock possessing more than ten percent of the total combined
voting power of all classes of stock of the employer corporation
or of its parent or subsidiary corporation.
The Plan includes provisions designed to comply with the above
requirements of Code Section 422(b). Consequently, the options granted to
employees as incentive stock options in accordance with the terms of the Plan
satisfy the requirements of Code Section 422(b), and the employees who receive
these options will be taxed in accordance with the rules of Code Section 421.
Thus, under Code Section 421, the granting of an incentive stock option will not
result in taxable income to the participant at the time of grant. Code Section
83(e); see, Commissioner v. LoBue, 351 U.S. 243 (1956). The exercise of the
incentive stock option also will ordinarily have no federal income tax
consequences to the participant, provided that the incentive stock option is
exercised during a particular time period. Specifically, the incentive stock
option must be exercised: (1) while the participant is employed by the Company
or a subsidiary; (2) within three months after the participant ceases to be an
employee of the Company or a subsidiary; (3) after the participant's death,
where the participant was an employee of the Company within three months before
his death; or (4) within one year after the participant ceases to be an employee
of the Company or a subsidiary, if the participant's employment is terminated
because of permanent and total disability (within the meaning of Code Section
22(e)(3)). Code Sections 421(a)(1), 422(a)(2), 422(b)(5), 422(c)(6); Treas.
Reg. Section 1.421-8(c)(1). If an incentive stock option is not exercised
during one of these periods, it will be treated for tax purposes as a
nonqualified stock option (the tax treatment of which is described below).
If the shares acquired pursuant to the timely exercise of an incentive
stock option are held for at least one year after they are acquired and two
years after the date on which the incentive stock option was granted to the
participant (the "required period"), and if the shares constitute a capital
asset in the hands of the participant, then any gain on disposition of the
shares will be taxable as long-term capital gain and no corresponding deduction
will be allowed to the Company. See, Code Sections 421(a), 1001, 1221, 1222.
If the shares acquired pursuant to a timely exercise of an incentive
stock option are disposed of before the expiration of the required period (in
what is referred to as a "disqualifying disposition"), then the nonrecognition
treatment of Code Section 421(a) does not apply. Code Section 421(a)(1). <F2>
Instead, pursuant to the provisions of Code Section 83, any gain realized on the
disposition, up to the difference between the participant's basis (as defined
below) in the shares and the fair market value of the shares at the date of
exercise will be taxable as ordinary income. In addition, the Company will be
allowed a contemporaneous deduction in the amount of such income. The Company
will only be allowed such a deduction, however, if (1) the Company reports the
income to the participant on Form W-2 or W-2c (as applicable) and files it with
the Internal Revenue Service on or before the date on which the Company files
its tax return claiming the deduction relating to the disqualifying disposition,
or (2) the Company can demonstrate that the employee actually included the
amount in income. Treas. Reg. Section 1.83-6.
To the extent that the shares acquired in connection with the
disqualifying disposition constitute a capital asset in the hands of a
participant, any additional gain realized will generally be taxable to the
participant as long or short-term capital gain depending on the period for which
the shares were deemed to have been held. Code Sections 1001, 1221, 1222. If
the shares are disposed of at a loss, the loss generally will be long or
short-term capital loss depending on the holding period. Code Sections 1001,
1221, 1222. A discussion of holding periods and the federal income tax
treatment of a long-term capital gain is addressed under "Capital Gains
Treatment," infra.
A participant's basis in shares of Common Stock acquired pursuant to
the exercise of an incentive stock option will equal the sum 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, we believe, although we cannot
opine, that, under Code Sections 1031(d) and 1036, the participant will
recognize no gain in connection with the transaction and that the basis of the
shares that the participant surrenders carries over to the same number of shares
received upon the exercise of the option; the participant's basis in any
remaining shares so acquired will be equal to the exercise price of the option.
<F3> We also believe, although we cannot opine, that, under Code Sections
1031(d), 1036 and 1223, the participant's holding period in such same number of
shares will include the participant's holding period in the shares surrendered.
Cf., Weir v. Commissioner, 10 T.C. 996 (1948), aff'd per curiam, 173 F.2d 222,
(3d Cir. 1949).
If (1) a participant uses shares of the Company's Common Stock to
exercise his incentive stock option, (2) such shares were acquired upon a prior
exercise of an incentive stock option or another type of statutory option, and
(3) such shares were not held for the required period, the participant is not
able to avoid recognition of gain on the transaction because Code Section
424(c)(3) provides that Code Section 1036 does not apply in these circumstances.
Accordingly, 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, plus any income recognized on the
disposition of the surrendered shares by reason of Code Section 421(b).
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 purpose of determining the
participant's alternative minimum taxable income. Code Section 56(b)(3). Such
adjustments are potentially subject to alternative minimum tax, at a rate of 26
percent or 28 percent, as determined by a formula involving special deductions,
additions and exemptions. See, e.g., Code Section 55. 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 was
increased due to the earlier exercise of the stock option. Code Section
56(b)(3).
Nonqualified Stock Options
The grant of a nonqualified stock option under the Plan is a transfer
of property within the meaning of Code Section 83. Nevertheless, the grant of a
nonqualified stock option will not result in taxable income to the participant
at the time of grant, because a nonqualified stock option granted under the Plan
is of a type not actively traded on an established market, is not transferable
by the participant, and has no readily ascertainable fair market value. Code
Section 83(e); Treas. Reg. Section 1.83-7. Upon exercise of a nonqualified
stock option, however, the participant will be subject to tax. Treas. Reg.
Section 1.83-7. Specifically, at the time of exercise, the participant will
recognize ordinary income equal to the excess, if any, of the fair market value
of the shares on the date of exercise over the option price of the shares. Code
Section 83(a).
When the participant recognizes taxable income as a result of the
exercise of a nonqualified stock option, the Company will generally be entitled
to claim a deduction in the amount of the participant's income inclusion. Code
Section 83(h). The Company will be able to claim such a deduction, however,
only if the participant includes the related income in his or her taxable
income. Id. The participant will be deemed to have included the amount in
income if the Company properly completes Form W-2 or 1099 (as applicable) and
timely files the form with both the participant and the Internal Revenue
Service. If the applicable form is not timely filed, the Company will be
entitled to a deduction only if it can demonstrate that the participant actually
included the amount in income. Treas. Reg. Section 1.83-6.
If a participant exercises his nonqualified stock option using cash,
the basis of the shares he acquires will equal the option price plus the amount
included in his income upon exercise. Treas. Reg. Sections 1.61-2(d)(2)(i),
1.61-2(d)(6)(i). If the participant uses shares of the Company's Common Stock
to exercise his nonqualified stock option, the basis of the shares he surrenders
carries over to the same number of shares received upon the exercise of the
option. Code Sections 1031(d), 1036; Rev. Rul. 80-244, 1980-2 C.B. 234. We
believe, although we cannot opine, that, under Code Sections 1031(d), 1036 and
1223, the participant's holding period in the same number of shares will include
the participant's holding period in the shares surrendered. Cf., Weir. The
basis of any additional shares received is the same as the amount included in
his gross income plus any cash the participant pays in connection with the
exercise of the option. Treas. Reg. Sections 1.61-2(d)(2)(i), 1.61-2(d)(6)(1);
Rev. Rul. 80-244. To the extent that the shares constitute a capital asset in
the hands of a participant, on subsequent disposition of the shares acquired
under a nonqualified stock option, the difference between the amount received
for the shares and the basis of the shares will be treated as long-term or
short-term capital gain or loss, depending on the holding period. Code Sections
1001, 1221, 1222. A discussion of holding periods and the federal income tax
treatment of a long-term capital gain is addressed under "Capital Gains
Treatment," infra.
Stock Appreciation Rights
A stock appreciation right is not property within the meaning of Code
Section 83 because, unlike an option, it represents nothing more than the
Company's promise to pay the participant cash and/or shares of Company Common
Stock when the participant elects to exercise the stock appreciation right.
See, Treas. Reg. Section 1.83-3(e); e.g., Priv. Ltr. Rul. 8230147, (April 30,
1982). Thus, the granting of a stock appreciation right will not result in
taxable income to the participant at the time of grant. When and to the extent
that a stock appreciation right is paid in cash, the participant will recognize
ordinary income equal to the amount of cash received. See, Code Section 61;
Rev. Rul. 80-300, 1980-2 C.B. 165. When and to the extent that a stock
appreciation right is paid in shares of the Company's Common Stock, the
participant will recognize taxable income equal to the fair market value of any
shares received. Code Section 83(a); see also, Rev. Rul. 80-300.
When the participant recognizes taxable income as a result of the
exercise of a stock appreciation right, the Company will generally be entitled
to claim a deduction in the amount of the participant's income inclusion. Code
Sections 404(a)(5), 83(h); e.g., Priv. Ltr. Rul. 8230147, (April 30, 1982). To
the extent, however, that the participant's income inclusion is attributable to
payment of the stock appreciation right in the form of shares of Company Common
Stock, the Company will be able to claim such a deduction only if the
participant includes or is deemed to have included the related income in his or
her taxable income, as described above. Treas. Reg. Section 1.83-6.
To the extent that any shares acquired upon exercise of a stock
appreciation right constitute a capital asset in the hands of a participant, on
the disposition of any such shares, 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. Code Sections 1001, 1221, 1222. A
discussion of holding period and the federal income tax treatment of a long-term
capital gain is included under "Capital Gains Treatment," infra.
Restricted Stock Awards
Shares of Company Common Stock granted to a participant pursuant to a
restricted stock award will be property subject to taxation under Code Section
83. The Plan provides that: (1) such shares will be subject to such
restrictions as the Committee may determine; (2) these restrictions will
generally 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; (3) if the
participant terminates employment prior to the time that the restrictions
lapse, the participant will forfeit any shares subject to the restrictions; and
(4) shares subject to restriction are generally not transferable other than by
will or the laws of descent and distribution. Consequently, if the restricted
stock awards are made pursuant to agreements that are consistent with the terms
of the Plan, the shares transferred pursuant to such an award should be
considered to be subject to a "substantial risk of forfeiture" within the
meaning of Code Section 83. Code Section 83(c)(1); Treas. Reg. Section
1.83-3(c). Thus, the granting of a restricted stock award or issuance of
restricted shares will not result in taxable income to the participant at the
time of grant or issuance. Code Section 83(a); Treas. Reg. Section 1.83-3(c)(4)
(Example (1)).
Instead, the participant will normally recognize ordinary income on
the lapse of the restrictions in an amount equal to the fair market value of the
shares on the date of lapse. Code Section 83(a). Nevertheless, the participant
may elect, within 30 days after issuance of the restricted stock, to treat the
fair market value of the restricted stock at issuance as ordinary income, in
which case any subsequent appreciation in the value of the shares will not be
taxed to the participant on the date of lapse. Code Section 83(b). On the
other hand, the participant will also not be entitled to a deduction at the date
of lapse for any portion of the amount included in income as a result of the
Section 83(b) election if there is a subsequent decline in the value of the
shares or if the participant forfeits the shares. Id. If, however, the stock
is a capital asset in the hands of the participant, the participant will be
allowed to treat any decline in value or any forfeiture as giving rise to a
capital loss. Treas. Reg. Section 1.83-2(a).
At the time a participant recognizes income pursuant to a restricted
stock award, the Company will be entitled to a corresponding and contemporaneous
deduction only if the participant includes or is deemed to have included the
related income in his or her taxable income, as described above. Treas. Reg.
Section 1.83-6.
To the extent that the restricted shares are a capital asset in the
hands of the 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. Code Sections 1001, 1221, 1222.
A participant's holding period in the shares will begin just after the
restrictions to which they are subject lapse unless he makes an election as
noted above, in which case the holding period in his shares will begin just
after the date the Company Common Stock is transferred to him. Code Section
83(f); Treas. Reg. Section 1.83-4(a).
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
should be allowed to the Company unless the participant made the election
permitted under Code Section 83(b), as described above. See, Treas. Reg.
Section 1.83-1(a)(1); see, e.g, Priv. Ltr. Rul. 8139032 (June 30, 1981). If
such an election was made, dividends paid on restricted stock will be taxable as
dividends and no corresponding deduction will be allowed. Rev. Rul. 83-22,
1983-1 C.B. 17; see also, Treas. Reg. Section 1.83-2(a).
The foregoing analysis applies equally to any restricted stock awards
and any shares acquired pursuant to such an award, regardless of whether the
awards were made under the Plan or as a result of a conversion to restricted
stock awards of cash awards made under the Company's Management Incentive Plan
II or the Company's Executive Value Sharing Plan.
Incentive Awards, Performance Awards and Dividend Equivalent Rights
Like a stock appreciation right, incentive awards, performance awards
and dividend equivalent rights granted under the Plan represent nothing more
than the Company's promise to pay the participant cash and/or shares of Company
Common Stock at some point in the future; therefore, at the time of grant, these
awards and rights are not property subject to taxation under Code Section 83.
See, Treas. Reg. Section 1.83-3(e). Thus, the granting of such an award or
right will not result in taxable income to the participant at the time of grant.
When and to the extent that an award or right is paid in cash, the participant
will normally recognize ordinary income equal to the amount of cash received.
Code Section 61. To the extent that an award or right is paid in shares of the
Company's Common Stock, the participant will normally recognize taxable income
equal to the fair market value of any shares received as of the later of when
the shares are received or when the shares cease to be subject to a substantial
risk of forfeiture. Code Section 83(a). Generally, shares acquired pursuant to
an incentive award, a performance award or a dividend equivalent right are not
subject to a substantial risk of forfeiture for purposes of Code Section 83.
Nevertheless, such shares will be considered to be subject to a substantial risk
of forfeiture so long as sale of the shares could subject the participant to
suit under the provisions of Section 16(b) of the Act. Under the Plan, a sale
can subject a participant to suit under Section 16(b) of the Act only in limited
circumstances. <F5> In the event a participant sells in such circumstances, the
participant may nevertheless be taxed on the date of exercise if the participant
makes the election permitted under Code Section 83(b). Code Section 83(c)(3).
<F6> On the other hand, the participant will not be entitled to a deduction
(upon the lapse of the restrictions of Section 16(b) of the Act) for any portion
of the amount included in income as a result of this election if there is a
subsequent decline in the value of the shares. Id. If the stock is a capital
asset in the hands of the participant, however, the participant will be allowed
to treat the decline in value as giving rise to a capital loss. Treas. Reg.
Section 1.83-2(a).
When the participant recognizes taxable income as a result of the
payment of an incentive award, a performance award or a dividend equivalent
right, the Company will generally be entitled to claim a deduction in the
amount of the participant's income inclusion. Code Sections 404(a)(5), 83(h).
To the extent, however, that the participant's income inclusion is attributable
to payment of the award or right in the form of shares of Company Common Stock,
the Company will be able to claim such a deduction only if the participant
includes or is deemed to have included the related income in his or her taxable
income, as described above. Treas. Reg. Section 1.83-6.
To the extent that any shares acquired upon payment of an award or
right constitute a capital asset in the hands of a participant, on the
disposition of any such shares, 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. Code Sections 1001, 1221, 1222. A
discussion of holding period and the federal income tax treatment of a long-term
capital gain is included under "Capital Gains Treatment," infra.
The foregoing analysis applies to any shares acquired pursuant to
performance awards regardless of whether the awards were made under the Plan or
as a result of a conversion to performance awards of cash awards made under the
Company's Executive Value Sharing Plan.
Capital Gains Treatment
Gain or loss from the sale or exchange of property will be treated as
long-term capital gain or loss if that property is deemed to have been held for
more than one year. Code Section 1222(3). Any gain or loss other than
long-term capital gain or loss will be treated as short-term capital gain or
loss. Code Section 1222(1).
Generally, the holding period of shares acquired pursuant to the
exercise of an incentive stock option, nonqualified stock option or stock
appreciation right begins on the date immediately following the date the shares
are acquired by exercising the option or right. Weir; Frederick v. United
States, 68-1 USTC Paragraph 9195 (E.D. Mich. 1968). In certain circumstances,
however, as discussed above, the holding period of stock acquired pursuant to
the exercise of an option using existing shares of the Company's Common Stock
includes the holding period of the existing shares. The holding period of
shares acquired pursuant to a restricted stock award, an incentive award, a
performance award or a dividend equivalent right begins on the date following
the date of acquisition, if the stock is transferred to the participant without
restriction or if it is transferred with restrictions and the participant makes
an election under Code Section 83(b). Rev. Rul 70-598, 1970-2 C.B. 168; Treas.
Reg. Section 1.83-4(a). If, however, such shares are transferred with
restrictions and the participant does not make a Section 83(b) election, the
holding period begins on the date following the date on which the restrictions
lapse. Treas. Reg. Section 1.83-4(a).
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).
* * *
We are rendering no opinion as to the tax consequences of those
provisions of the Plan which relate to United Kingdom participants. We hereby
consent to the filing of this opinion as Exhibit 8 to the Registration
Statement.
Very truly yours,
Sutherland, Asbill & Brennan
By: /s/ Carol A. Weiser
<F1> Note, however, that the tax treatment accorded to incentive stock options
under Code Section 421 only applies with respect to optionees who are
"employees" of the corporation granting the option (or a related corporation).
Treas. Reg. Section 1.421-7(h). The following discussion of the tax treatment
of grantees of incentive stock options applies only to those participants in the
Plan who are "employees" (as that term is defined in Code Section 3401(c) and
the regulations promulgated thereunder) of the Company or one of its
subsidiaries at the time of the granting and exercise of an incentive stock
option. We are rendering no opinion as to the status of any individual holding
an agent's or broker's contract with a subsidiary of the Company as an
"employee." The tax treatment of options granted to or exercised by
non-employees is addressed under "Nonqualified Stock Options" above.
<F2> 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" includes 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 certain exchanges in connection with a corporate
reorganization. Code Section 424(c).
<F3> The Internal Revenue Service reached this result in the context of the
exercise of a nonqualified stock option using shares of stock acquired through
the prior exercise of a qualified stock option. Rev. Rul. 80-244, 1980-2 C.B.
234. A qualified option (which is no longer recognized under the Code) is
substantially similar to an incentive stock option (compare prior version of
Code Section 422 with the current version of that section). In addition, Prop.
Treas. Reg. Section 1.422A-2(i) indicates that the nonrecognition treatment of
Code Section 1036 and the basis substitution provided for under Code Section
1031(d) apply in the case of an exercise of an incentive stock option.
Nevertheless, until 1992, the Internal Revenue Service had an explicit policy of
not ruling on whether the holding of Rev. Rul. 80-244 applies to incentive stock
options. Rev. Proc. 91-3, 1991-1 C.B. 364. This no-ruling policy does not
appear in any revenue procedure subsequent to Rev. Proc. 91-3, but, because we
are unaware of any ruling subsequent to that time addressing the issue, we
believe the issue is not free from doubt.
<F4> If a dividend equivalent is reinvested in additional dividend equivalent
rights, the participant will recognize no taxable income at that time.
<F5> In accordance with Rule 16b-3 as in effect prior to November 1, 1996
(i.e., the date on which the Company became subject to new Rule 16b-3), because
the Plan had been administered by at least two disinterested directors, the
grant of an option, a stock appreciation right, a restricted stock award, an
incentive award or a performance award to a participant subject to Section 16(b)
(i.e., participants who are policy-making officers, directors or 10% beneficial
owners of the Company) would have been deemed, for purposes of Section 16(b), to
be a purchase of the shares that underlie the option or award unless at least
six months had elapsed from the date the option or award was granted to the date
of the disposition of shares of Common Stock underlying the option or other
award. Failure to comply with this holding period requirement would have
resulted in a grant of options or awards under the Plan being deemed a
"purchase" of the underlying Common Stock for Section 16(b) purposes, which
could have been matched with any sale of Common Stock (including, but not
limited to, a sale of the Common Stock obtained by exercising the option or
pursuant to the award) within the preceding or succeeding six-month period to
determine whether a participant was liable to the Company for any profits
derived from the purchase and sale of Common Stock.
Therefore, if at least six months had elapsed between the date of an award
under the Plan and the disposition of the underlying Common Stock, no purchase
of Common Stock would have been deemed to have occurred under Section 16(b) for
purposes of determining whether a participant was liable to the Company for any
profits derived from the purchase and sale of Common Stock. Effective November
1, 1996 (i.e., the date the Company became subject to new Rule 16b-3), because
the Plan is administered by a committee consisting solely of two or more
"non-employee directors" (as defined in Rule 16b-3), the grant of an option,
a stock appreciation right, a restricted stock award, an incentive award or a
performance award to a participant subject to Section 16(b) (i.e., participants
who are policy making officers, directors or 10% beneficial owners of the
Company) will not be deemed, for purposes of Section 16(b), to be a purchase of
the shares that underlie the option or award in determining whether a
participant is liable to the Company for any profits derived from the purchase
and sale of Common Stock.
In addition, if the Plan were not administered by a committee consisting
solely of two or more "non-employee directors, but at least six months have
elapsed between the date of an award under the Plan 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.
At all relevant times, the Plan has contained 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
appreciation right or a restricted stock award. No similar provisions are set
forth in the Plan with respect to incentive awards, performance awards or
dividend equivalent rights. In all events, stock acquired pursuant to a stock
option, a stock appreciation right or a restricted stock award will be taxed
when received (in the case of nonqualified stock options and stock appreciation
rights), when disposed of (in the case of incentive stock options), or upon the
lapse of any substantial risk of forfeiture (in the case of restricted stock
awards). For incentive awards, performance awards and dividend equivalent
rights made before November 1, 1996, taxation will be delayed beyond the date of
payment of the award or right, but only until the expiration of six months from
the date of grant of the award or right. On or after November 1, 1996, taxation
of incentive awards, performance awards and dividend equivalent rights will be
delayed for this six-month period only where such an award is granted at a time
that the Plan is not administered by non-employee directors.
<F6> As noted above, under Code Section 83(b), a participant may elect, within
30 days after receipt of property subject to taxation under Code Section 83, to
treat the fair market value (determined as of the date received) of the stock
received pursuant to the award or right as ordinary income.
<PAGE>
EX-23
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in
Pre-Effective Amendment No. 1 to the Registration Statement (Form S-3 No.
33-62315) and related Prospectus of Lincoln National Corporation for the
registration of 5,000,000 shares of its common stock for use in the Lincoln
National Corporation 1986 Stock Option Incentive Plan and to the incorporation
by reference therein of our report dated February 6, 1997, with respect to the
consolidated financial statements and schedules of Lincoln National Corporation
included in its Annual Report (Form 10-K) for the year ended December 31, 1996,
filed with the Securities and Exchange Commission.
Fort Wayne, Indiana
May 21, 1997
