<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-49201
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 27, 1998)
8,000,000 FELINE PRIDES(SM)
(CONSISTING OF 7,000,000 INCOME PRIDES(SM) AND 1,000,000 GROWTH PRIDES(SM))
LINCOLN LOGO
1,000,000 PREFERRED SECURITIES
LINCOLN NATIONAL CAPITAL IV
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED TO
THE EXTENT SET FORTH HEREIN BY
LINCOLN NATIONAL CORPORATION
------------------------
The securities offered hereby are 8,000,000 FELINE PRIDES(SM) ("FELINE
PRIDES") of Lincoln National Corporation, an Indiana corporation ("Lincoln" or
the "Company"), consisting of separately offered and separately traded units
referred to as "Income PRIDES" and "Growth PRIDES" and 1,000,000 separately
offered and separately traded 6.40% Preferred
(Continued on following page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-24 OF THIS PROSPECTUS SUPPLEMENT FOR
CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN THE SECURITIES.
Prior to the offering made hereby, there has been no public market for the
Securities. The Income PRIDES and the Growth PRIDES have been approved for
listing on the New York Stock Exchange ("NYSE") under the symbols "LNCPrI" and
"LNCPrG", respectively, subject to official notice of issuance. Unless and until
substitution is made as described in "Description of the FELINE
PRIDES -- Creating Growth PRIDES" or "-- Creating Income PRIDES," neither the
Preferred Security component of an Income PRIDES nor the Treasury Security
component of a Growth PRIDES will trade separately from such Income PRIDES or
Growth PRIDES, and such Preferred Security component will trade as a unit with
the Purchase Contract component of the Income PRIDES and such Treasury Security
component will trade as a unit with the Purchase Contract component of the
Growth PRIDES. If Preferred Securities are separately traded to a sufficient
extent that applicable exchange listing requirements are met, the Company will
endeavor to cause such securities to be listed on the exchange on which the
Income PRIDES and Growth PRIDES are then listed. On August 10, 1998, the last
reported sale price of the Common Stock of the Company on the NYSE was $92 7/8
per share.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO PUBLIC(1)
$25.00 Per Income PRIDES
$21.34 Per Growth PRIDES
$25.00 Per Preferred Security
<TABLE>
<CAPTION>
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- --------------------------------------------------------------------------------------------------------------
UNDERWRITING PROCEEDS TO
DISCOUNT(2) COMPANY(3)
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Total(4).................................................... $6,000,000 $194,000,000
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus, as applicable, accrued distributions, interest and Contract Adjustment
Payments, if any, from August 14, 1998.
(2) The Company and the Trust have agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated at $925,000; such
amount does not include $21,341,000 used to purchase the Treasury Securities
component of the 1,000,000 Growth PRIDES.
(4) The Company and the Trust have granted to the Underwriters a 30-day option
to purchase up to an additional 1,200,000 Income PRIDES to cover
over-allotments, if any. If such option is exercised in full, the total
Underwriting Discount and Proceeds to Company will be $6,900,000 and
$223,100,000, respectively. See "Underwriting."
------------------------
The Securities are offered by the Underwriters, subject to prior sale, when,
as and if issued to and accepted by them and subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the
Securities offered hereby will be made in New York, New York on or about August
14, 1998.
------------------------
MERRILL LYNCH & CO.
BT ALEX. BROWN
CIBC OPPENHEIMER
------------------------
The date of this Prospectus Supplement is August 10, 1998.
- ------------------------
(SM) Service mark of Merrill Lynch & Co., Inc.
<PAGE> 2
(Cover continued from previous page)
Securities (the "Preferred Securities" and, together with the FELINE PRIDES, the
"Securities") of Lincoln National Capital IV, a statutory business trust created
under the laws of the State of Delaware (the "Trust"), having a stated
liquidation amount per Preferred Security equal to $25. In addition to the
separately offered and separately traded Preferred Securities, 7,000,000
Preferred Securities will be issued and will initially be held as a component of
the Income PRIDES and will not be offered or traded separately from the Income
PRIDES, unless and until substitution is made as described in "Description of
the FELINE PRIDES -- Creating Growth PRIDES."
The FELINE PRIDES offered hereby will initially consist of (A) 7,000,000
units (referred to as "Income PRIDES") with a stated amount per Income PRIDES
equal to $25 (the "Stated Amount") and (B) 1,000,000 units (referred to as
"Growth PRIDES") with a Stated Amount per Growth PRIDES equal to $25. Each
Income PRIDES will initially consist of a unit comprised of (a) a stock purchase
contract (a "Purchase Contract") under which (i) the holder will purchase from
the Company not later than August 16, 2001 (the "Purchase Contract Settlement
Date"), for $25, a number of shares of Common Stock of the Company equal to the
Settlement Rate described herein, and (ii) the Company will pay to the holder
unsecured contract adjustment payments ("Contract Adjustment Payments") at the
rate of 1.35% of the Stated Amount per annum and (b) either beneficial ownership
of a Preferred Security or, upon the occurrence of a Tax Event Redemption (as
defined herein) prior to the Purchase Contract Settlement Date, the Applicable
Ownership Interest (as defined herein) in the Treasury Portfolio (as defined
herein). Each Growth PRIDES will consist of a unit comprised of (a) a Purchase
Contract under which (i) the holder will purchase from the Company not later
than the Purchase Contract Settlement Date, for $25, a number of shares of
Common Stock of the Company, equal to the Settlement Rate, and (ii) the Company
will pay the holder Contract Adjustment Payments at the rate of 1.85% of the
Stated Amount per annum, and (b) a 1/40 undivided beneficial interest in a
zero-coupon U.S. Treasury Security (CUSIP No. 912820 BB 2) with a principal
amount at maturity equal to $1,000 and maturing on August 15, 2001 (each such
security a "Treasury Security" and, collectively, the "Treasury Securities").
The Company will, directly or indirectly, own all the common securities (the
"Common Securities" and, together with the Preferred Securities, the "Trust
Securities"), representing undivided beneficial ownership interests in the
assets of the Trust. The Trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds thereof in an equivalent amount of
Subordinated Debentures of the Company, due August 15, 2003 and initially
bearing interest at 6.40% per annum (the "Subordinated Debentures"). As long as
the FELINE PRIDES are in the form of Income PRIDES or Growth PRIDES, the related
Preferred Securities or the Treasury Portfolio or the Treasury Securities, as
applicable, will be pledged to the Collateral Agent (as defined herein), to
secure the holder's obligation to purchase Common Stock under the related
Purchase Contracts.
The number of shares of Common Stock issuable upon settlement of each
Purchase Contract on the Purchase Contract Settlement Date (the "Settlement
Rate") will be calculated as follows (subject to adjustment under certain
circumstances): (a) if the Applicable Market Value (as defined herein) is equal
to or greater than $111.45 (the "Threshold Appreciation Price," which is
approximately 20% above the last reported sale price of the Common Stock set
forth on the cover page of this Prospectus Supplement (the "Reference Price")),
the Settlement Rate will be .2243; (b) if the Applicable Market Value is less
than the Threshold Appreciation Price but greater than the Reference Price, the
Settlement Rate will be equal to the Stated Amount divided by the Applicable
Market Value; and (c) if the Applicable Market Value is less than or equal to
the Reference Price, the Settlement Rate will be .2692.
Aggregate payments of 7.75% of the Stated Amount per annum will be made or
accrue on each Income PRIDES quarterly in arrears on February 16, May 16, August
16 and November 16 of each year, commencing November 16, 1998, until the
Purchase Contract Settlement Date. These payments will consist of cumulative
cash distributions on the related Preferred Securities ("Distributions") or
Treasury Portfolio, as applicable, payable at the rate of 6.40% of the stated
liquidation amount per annum, and Contract Adjustment Payments payable by the
Company at the rate of 1.35% of the Stated Amount per annum, subject in the case
of Preferred Securities and Contract Adjustment Payments, to the Company's right
to defer payment of such amounts. Contract Adjustment Payments payable by the
Company at the rate of 1.85% of the Stated Amount
S-2
<PAGE> 3
per annum, will be made or accrue on each Growth PRIDES quarterly in arrears on
February 16, May 16, August 16 and November 16 of each year, commencing November
16, 1998, until the Purchase Contract Settlement Date, subject to the Company's
right to defer such payments. In addition, original issue discount ("OID") will
accrue on the related Treasury Security. Holders of each Preferred Security will
receive cumulative cash Distributions, payable quarterly in arrears, on February
16, May 16, August 16 and November 16 of each year, commencing November 16, 1998
at the rate of 6.40% of the stated liquidation amount per annum. Such quarterly
Distributions on the Preferred Securities will constitute all or a portion of
the quarterly distributions on the related Income PRIDES. The ability of the
Trust to make the quarterly Distributions on the Preferred Securities will be
solely dependent upon the receipt of corresponding interest payments from the
Company on the Subordinated Debentures. So long as no Junior Subordinated Debt
Security Event of Default (as defined in the accompanying Prospectus) has
occurred or is continuing, the Company will have the right at any time, and from
time to time, limited to a period not extending beyond the maturity date of the
Subordinated Debentures, to defer the interest payments due on the Subordinated
Debentures; provided that an Extension Period (as defined herein) must end on
one of the quarterly Interest Payment Dates (as defined herein). As a
consequence of such deferral, quarterly Distributions on the Preferred
Securities and a portion of the quarterly distributions on the Income PRIDES (to
the extent that such portion of the quarterly Distributions on the Income PRIDES
are comprised of the quarterly Distributions on the Preferred Securities) would
be deferred, but such Distributions would continue to accrue, compounded
quarterly, to the extent permitted by law, at the rate of 6.40% of the stated
liquidation amount per annum through and including August 15, 2001 and at the
Reset Rate (as defined herein) thereafter. The Company will have the right at
any time, and from time to time, limited to a period not extending beyond the
Purchase Contract Settlement Date, to defer Contract Adjustment Payments. As a
consequence of such deferral, such portion of the cumulative quarterly
distributions on the Income PRIDES that is comprised of the Contract Adjustment
Payments and the quarterly cash distributions on the Growth PRIDES would be
deferred; however, such deferred Contract Adjustment Payments will bear
additional Contract Adjustment Payments at the rate of 8.25% per annum until
paid, compounded quarterly (such deferred Contract Adjustment Payments together
with such additional Contract Adjustment Payments shall be referred to as
"Deferred Contract Adjustment Payments").
The Distribution rate on the Preferred Securities and the interest rate on
the related Subordinated Debentures outstanding on and after the Purchase
Contract Settlement Date will be reset on the third Business Day (as defined in
the accompanying Prospectus) immediately preceding the Purchase Contract
Settlement Date to a rate per annum (the "Reset Rate") to be determined by the
Reset Agent (as defined herein) equal to the sum of (x) a spread amount (the
"Reset Spread") and (y) the rate of interest on the Two-Year Benchmark Treasury
(as defined herein), provided that the Company may limit the Reset Rate or the
Reset Rate may be limited by applicable law as described herein.
The payment of Distributions and certain redemptions out of monies held by
the Trust and payments on liquidation of the Trust will be guaranteed by the
Company (the "Guarantee") to the extent described herein under "Description of
the Guarantee."
The Company's obligations in respect of the Subordinated Debentures and the
Guarantee are unsecured and will be subordinate and junior in right of payment,
to the extent set forth herein, to all existing and future Senior Debt (as
defined in the accompanying Prospectus) and will be effectively subordinated to
all existing and future liabilities and obligations of the Company's
subsidiaries. See "Description of Guarantee" and "Certain Terms of the
Subordinated Debentures." The Contract Adjustment Payments will also be
subordinated and junior in right of payment to the Company's obligations under
the Senior Debt. As of June 30, 1998, the Company had Senior Debt of $811.8
million.
If the holder of an Income PRIDES has not notified the Purchase Contract
Agent (as defined herein), in the manner described herein, of its intention to
settle the related Purchase Contract with separate cash, the Remarketing Agent
(as defined herein), pursuant to the terms of the Remarketing Agreement (as
defined herein), will use its reasonable efforts to remarket the related
Preferred Security (bearing the Reset Rate) on the third Business Day
immediately preceding the Purchase Contract Settlement Date for settlement on
the Purchase Contract Settlement Date at a price of approximately 100.5% of such
Preferred Security's stated
S-3
<PAGE> 4
liquidation amount plus accrued and unpaid Distributions (including deferred
distributions, if any) thereon. The portion of proceeds from such remarketing,
in an amount equal to the aggregate stated liquidation amount of such Preferred
Securities, will automatically be applied to satisfy in full such holder's
obligation to purchase Common Stock under the related Purchase Contract. In
addition, after deducting as a remarketing fee (the "Remarketing Fee") an amount
not exceeding 25 basis points (0.25%) of the aggregate stated liquidation amount
of the remarketed Preferred Securities from any amount received in connection
with such remarketing in excess of the aggregate stated liquidation amount of
such Preferred Securities plus any accrued and unpaid Distributions (including
deferred Distributions, if any), the Remarketing Agent will remit the remaining
portion of the proceeds, if any, to the Purchase Contract Agent for the benefit
of such holder. If, despite using its reasonable efforts, the Remarketing Agent
fails to remarket the Preferred Securities (other than to the Company) at a
price not less than 100% of their aggregate stated liquidation amount plus
accrued and unpaid Distributions (including deferred Distributions, if any), or
if the remarketing shall not have occurred because a condition precedent to the
remarketing shall not have been fulfilled, the remarketing will be deemed to
have failed (a "Failed Remarketing") and the Company will exercise its rights as
a secured party to dispose of the Preferred Securities in accordance with
applicable law and satisfy in full, from the proceeds of such disposition, such
holder's obligation to purchase Common Stock under the related Purchase
Contracts; provided that, if the Company exercises such rights as a secured
party with respect to such Preferred Securities, any accrued and unpaid
Distributions (including deferred Distributions, if any) on such Preferred
Securities will be paid in cash by the Company to the holder of record of such
Preferred Securities. Holders of Preferred Securities which are not components
of Income PRIDES may elect, in the manner described herein, to have their
Preferred Securities remarketed by the Remarketing Agent.
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder of Income PRIDES may substitute for the
related Preferred Securities or the Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, Treasury Securities in an amount payable
at the stated maturity thereof per Income PRIDES equal to the Stated Amount,
thereby creating Growth PRIDES. Such Treasury Securities will be pledged with
the Collateral Agent to secure the holder's obligation to purchase Common Stock
under the related Purchase Contracts. In the event that Contract Adjustment
Payments are at a higher rate for Growth PRIDES than for Income PRIDES, holders
of Income PRIDES wishing to create Growth PRIDES will also be required to
deliver cash in an amount equal to the excess of the Contract Adjustment
Payments that would have accrued since the last Payment Date (as defined herein)
on which cash distributions have been paid through the date of substitution on
the Growth PRIDES being created by such holders, over the Contract Adjustment
Payments that have accrued over the same time period on the related Income
PRIDES. Upon the substitution of Treasury Securities for the related Preferred
Securities as collateral, such Preferred Securities will be released to the
holder as described herein.
On or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date, each holder of Growth PRIDES may substitute for the
related Treasury Securities, Preferred Securities, thereby creating Income
PRIDES. Such Preferred Securities will be pledged with the Collateral Agent to
secure the holder's obligation to purchase Common Stock under the related
Purchase Contracts. Upon the substitution of Preferred Securities for the
related Treasury Securities as collateral, such Treasury Securities will be
released to the holder as described herein.
If a Failed Remarketing has occurred, each holder of Trust Securities (or,
following the distribution of the Subordinated Debentures upon a dissolution of
the Trust as described herein, the holders of such Subordinated Debentures)
following the Purchase Contract Settlement Date will have the right, in the case
of the Trust Securities, to require the Trust to distribute its pro rata share
of the Subordinated Debentures to The First National Bank of Chicago, as
exchange agent (the "Exchange Agent"), and the Exchange Agent will put such
Subordinated Debentures to the Company on behalf of such holders (or, in the
case of the persons who hold the Subordinated Debentures directly, such persons
will have the right to put their Subordinated Debentures directly to the
Company) on September 1, 2001, upon at least three Business Days' prior notice,
at a price equal to the principal amount thereof, plus accrued and unpaid
interest (including deferred interest), if any, thereon.
S-4
<PAGE> 5
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the
related Purchase Contracts through the early delivery of cash to the Purchase
Contract Agent in the manner described herein, (ii) in the case of Income
PRIDES, has settled the related Purchase Contracts with separate cash on the
Business Day immediately preceding the Purchase Contract Settlement Date
pursuant to prior notification to the Purchase Contract Agent, (iii) in the case
of Income PRIDES, has had the Preferred Securities related to such holder's
Purchase Contracts remarketed in the manner described herein in connection with
settling such Purchase Contracts, or (iv) an event described under "Description
of the Purchase Contracts -- Termination" has occurred, then (A) in the case of
Income PRIDES (unless a Tax Event Redemption has occurred) the Company will
exercise its rights as a secured party to dispose of the Preferred Securities in
accordance with applicable law and (B) in the case of Growth PRIDES or Income
PRIDES (in the event that a Tax Event Redemption has occurred), the principal
amount of the related Treasury Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as applicable, when paid at
maturity, will automatically be applied to satisfy in full such holder's
obligation to purchase Common Stock under the related Purchase Contracts.
In the event that a holder of either Income PRIDES or Growth PRIDES effects
the early settlement of the related Purchase Contracts through the delivery of
cash or settles (in the case of Income PRIDES) such Purchase Contracts with cash
on the Business Day immediately preceding the Purchase Contract Settlement Date,
the related Preferred Securities, the appropriate Applicable Ownership Interest
of the Treasury Portfolio or Treasury Securities, as the case may be, will be
released to the holder as described herein.
The Company will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities to creditors, cause the Subordinated
Debentures to be distributed to the holders of the Trust Securities. If the
Subordinated Debentures are distributed to the holders of the Preferred
Securities, the Company will use its best efforts to cause the Subordinated
Debentures to be listed on such exchange on which the Preferred Securities are
then listed.
The Subordinated Debentures (and, thus, the Trust Securities) are
redeemable at the option of the Company, in whole but not in part, upon the
occurrence and continuation of a Tax Event (as defined herein) under the
circumstances described herein (a "Tax Event Redemption"). If the Company so
redeems all of the Subordinated Debentures, the Trust must redeem all of the
Trust Securities at a redemption price (the "Redemption Price") per Trust
Security equal to the Redemption Amount (as defined herein) plus accrued and
unpaid Distributions including deferred Distributions, if any, thereon to the
date fixed for redemption, and pay in cash such Redemption Price to the holders
of such Trust Securities. If such Tax Event Redemption occurs prior to the
Purchase Contract Settlement Date, the Redemption Price payable in liquidation
of the Income PRIDES holders' interests in the Trust or in the Subordinated
Debentures will be distributed to the Collateral Agent, which in turn will apply
an amount equal to the Redemption Amount of such Redemption Price to purchase,
on behalf of the holders of Income PRIDES, the Treasury Portfolio and remit the
remaining portion, if any, of such Redemption Price to the Purchase Contract
Agent for payment to the holder of such Income PRIDES. See "Certain Terms of the
Subordinated Debentures -- Tax Event Redemption." Such Treasury Portfolio will
be substituted for the Preferred Securities and will be pledged to the
Collateral Agent to secure such Income PRIDES holders' obligations to purchase
the Common Stock under their Purchase Contracts.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES AND
THE COMMON STOCK OF THE COMPANY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING
TRANSACTIONS, THE PURCHASE OF SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
S-5
<PAGE> 6
The following information supplements and should be read in conjunction
with the information contained in the accompanying Prospectus. As used herein,
(i) the "Subordinated Indenture" means the Junior Subordinated Indenture, as
amended and supplemented from time to time, between Lincoln and The First
National Bank of Chicago, as trustee (the "Subordinated Indenture Trustee"),
(ii) the "Subordinated Debentures" means one of the series of the "Junior
Subordinated Debt Securities" issued under the Subordinated Indenture (also
referred to therein as "Corresponding Junior Subordinated Debt Securities"),
(iii) the "Trust Agreement" means the Amended and Restated Trust Agreement
relating to Lincoln National Capital IV among Lincoln, as Depositor, The First
National Bank of Chicago, as Property Trustee (the "Property Trustee"), First
Chicago Delaware Inc., as Delaware Trustee (the "Delaware Trustee"), and the
Administrative Trustees named therein (collectively, with the Property Trustee
and Delaware Trustee, the "Issuer Trustees") and (iv) "Common Stock" means the
common stock, no par value per share, of Lincoln, including the associated
common stock purchase rights issued pursuant to the Amended and Restated Rights
Agreement dated November 14, 1996 between Lincoln and The First National Bank of
Boston, as rights agent (the "Rights Agent"). Each of the other capitalized
terms used in this Prospectus Supplement and not otherwise defined in this
Prospectus Supplement has the meaning set forth in the accompanying Prospectus.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Lincoln with the Commission are
incorporated into this Prospectus Supplement by reference:
1. Lincoln's Annual Report on Form 10-K for the year ended December 31,
1997.
2. Lincoln's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1998 and June 30, 1998, as amended.
3. Lincoln's Current Reports on Form 8-K, dated January 13, 1998, March 24,
1998, May 28, 1998, July 23, 1998, July 30, 1998 and August 7, 1998.
Each document or report filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), after the date hereof and prior to the termination of any
offering of securities made by the Prospectus and this Prospectus Supplement
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing of such document. Any statement contained in the
Prospectus or this Prospectus Supplement, or in a document all or a portion of
which is incorporated or deemed to be incorporated by reference therein or
herein, shall be deemed modified or superseded for purposes of the Prospectus
and this Prospectus Supplement to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Prospectus or this Prospectus
Supplement.
The Company will provide without charge to any person to whom this
Prospectus Supplement is delivered, on the written or oral request of such
person, a copy of any or all of the foregoing documents incorporated by
reference herein (other than exhibits not specifically incorporated by reference
into the texts of such documents). Requests for such documents should be
directed to: C. Suzanne Womack, Secretary, Lincoln National Corporation, 200
East Berry Street, Fort Wayne, Indiana 46802-2706, telephone number (219)
455-3271.
S-6
<PAGE> 7
PROSPECTUS SUPPLEMENT SUMMARY
The following summary information is qualified in its entirety by, and
should be read in conjunction with, the more detailed information and
consolidated financial statements of the Company appearing elsewhere in the
accompanying Prospectus, this Prospectus Supplement or in the documents
incorporated herein or in the accompanying Prospectus by reference. Except as
otherwise noted, all information in this Prospectus Supplement assumes no
exercise of the Underwriters' over-allotment options.
A listing of the pages containing certain definitions of capitalized terms
used in this Prospectus Supplement Summary and elsewhere in the accompanying
Prospectus is set forth in the "Index of Certain Terms for Prospectus
Supplement" herein.
THE COMPANY
Lincoln National Corporation is a holding company with consolidated assets
of approximately $88 billion and shareholders' equity of $5.2 billion, as of
June 30, 1998. Through its subsidiaries, the Company operates multiple insurance
and investment management businesses. Operations are divided into four business
segments: (1) Life Insurance and Annuities, (2) Lincoln UK, (3) Reinsurance and
(4) Investment Management. See "The Company."
THE TRUST
Lincoln National Capital IV is a statutory business trust created under
Delaware law pursuant to (i) a trust agreement executed by the Company, as
sponsor, and the trustees of the Trust and (ii) the filing of a certificate of
trust with the Secretary of State of the State of Delaware. The Trust Agreement
will be amended and restated in its entirety substantially in the form filed as
an exhibit to the Registration Statement of which this Prospectus Supplement
forms a part. The Trust Agreement will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Trust
exists for the exclusive purposes of (i) issuing the Trust Securities, which
represent undivided beneficial ownership interests in the assets of the Trust,
(ii) investing the gross proceeds of the Trust Securities in the Subordinated
Debentures and (iii) engaging in only those other activities necessary or
incidental thereto. See "The Trust."
THE OFFERING
Securities Offered............ 8,000,000 FELINE PRIDES, consisting of
7,000,000 Income PRIDES and 1,000,000 Growth
PRIDES, and 1,000,000 separate Preferred
Securities. Preferred Securities will be
initially issued and held as a component of the
Income PRIDES.
Issuers....................... Lincoln National Corporation and Lincoln
National Capital IV.
Listing of the Income PRIDES
and Growth PRIDES............. The Income PRIDES and the Growth PRIDES have
been approved for listing on the NYSE, subject
to official notice of issuance. Unless and
until substitution has been made as described
in "Description of the FELINE PRIDES --
Creating Growth PRIDES" or "-- Creating Income
PRIDES," neither the Preferred Security
component of an Income PRIDES nor the Treasury
Security component of a Growth PRIDES will
trade separately from such Income PRIDES or
Growth PRIDES, and such Preferred Security
component will trade as a unit with the
Purchase Contract component of the Income
PRIDES and such Treasury Security component
will trade as a unit with the Purchase Contract
component of the Growth PRIDES. If the
Preferred Securities are separately traded to a
sufficient extent that the applicable exchange
listing requirements are met, the Company will
endeavor to cause such securities to be listed
on the exchange
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<PAGE> 8
on which the Income PRIDES and the Growth
PRIDES are then listed. See "Underwriting."
NYSE Symbol of Common Stock... "LNC"
Use of Proceeds............... Substantially all of the proceeds from the sale
of the Growth PRIDES will be used to purchase
the underlying Treasury Securities to be
transferred to the holder of the Growth PRIDES
pursuant to the terms hereof, and the
remainder, if any, will be paid to the Company.
All of the proceeds from the sale of the Income
PRIDES, the Preferred Securities that are not
components of the Income PRIDES and the Common
Securities will be invested by the Trust in
Subordinated Debentures of the Company, and the
Company will, in turn, receive these funds. The
Company currently anticipates using
substantially all of the net proceeds from the
sale of the Subordinated Debentures (net of
amounts paid to purchase the Common
Securities), estimated to be approximately
$193.1 million (approximately $222.2 million if
the Underwriters' over-allotment options are
exercised in full) (in each case after
deducting the underwriting commission and
estimated expenses payable by the Company) to
fund a portion of the costs of the acquisition
of a block of life insurance business from
Aetna Inc. ("Aetna") which is expected to close
in the fourth quarter of this year. The
proceeds will be invested in income producing
securities until such acquisition is
consummated.
Components of FELINE PRIDES... The 8,000,000 FELINE PRIDES offered hereby will
initially consist of (A) 7,000,000 units
referred to as Income PRIDES and (B) 1,000,000
units referred to as Growth PRIDES. Each Income
PRIDES will initially consist of a unit with a
Stated Amount of $25 comprised of (a) a
Purchase Contract under which (i) the holder
will purchase from the Company not later than
the Purchase Contract Settlement Date, for an
amount of cash equal to the Stated Amount, a
number of shares of Common Stock equal to the
Settlement Rate, and (ii) the Company will pay
to the holder Contract Adjustment Payments at
the rate of 1.35% of the Stated Amount per
annum, and (b) a beneficial ownership interest
in a Preferred Security having a stated
liquidation amount equal to $25 representing an
undivided beneficial ownership interest in the
assets of the Trust.
The Company may at any time dissolve the Trust
and, after satisfaction of liabilities to
creditors of the Trust, if any, cause the
Subordinated Debentures to be distributed to
the holders of the Preferred Securities.
References herein to Preferred Securities,
unless the context otherwise requires, mean (i)
the Preferred Securities or (ii) the
Subordinated Debentures which have been
delivered to the holders of the Preferred
Securities upon dissolution of the Trust.
In addition, as described below, upon the
occurrence of a Tax Event (as defined herein)
prior to the Purchase Contract Settlement Date,
the Company may at its option cause the
Subordinated Debentures (and, thus, the
Preferred Securities) to be redeemed at the
Redemption Price and the Treasury Portfolio
will be substituted for the redeemed Preferred
Securities in the manner
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described herein to secure the Income PRIDES
holders' obligations under their related
Purchase Contracts. The Distribution rate and
the payment dates for the Preferred Securities
will be the same as the interest rate and the
payment dates for the Subordinated Debentures,
which will be the sole assets of the Trust.
As long as a FELINE PRIDES is in the form of an
Income PRIDES, the related Preferred Securities
or the Treasury Portfolio, as applicable, will
be pledged pursuant to a pledge agreement (the
"Pledge Agreement"), between the Company, The
Chase Manhattan Bank, as collateral agent for
the Company (together with any successor
thereto in such capacity, the "Collateral
Agent") and the Purchase Contract Agent (as
defined herein), to secure the holder's
obligation to purchase Common Stock under the
related Purchase Contract.
Each Growth PRIDES will consist of a unit with
a Stated Amount of $25 comprised of (a) a
Purchase Contract under which (i) the holder
will purchase from the Company not later than
the Purchase Contract Settlement Date, for an
amount of cash equal to the Stated Amount of
such Growth PRIDES, a number of shares of
Common Stock equal to the Settlement Rate and
(ii) the Company will pay to the holder
Contract Adjustment Payments at the rate of
1.85% of the Stated Amount per annum, and (b) a
1/40 undivided beneficial ownership interest in
a zero-coupon U.S. Treasury Security with a
principal amount at maturity equal to $1,000
and which matures on the Business Day
immediately preceding the Purchase Contract
Settlement Date.
The FELINE PRIDES will be issued under a
Purchase Contract Agreement (the "Purchase
Contract Agreement"), between the Company and
The First National Bank of Chicago, as agent
for the holders of the FELINE PRIDES (together
with any successor thereto in such capacity,
the "Purchase Contract Agent").
Stated Amount................. $25 per each Income PRIDES and Growth PRIDES.
Creating Growth PRIDES........ Each holder of Income PRIDES may substitute for
the related Preferred Securities or the
Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, held by the
Collateral Agent zero-coupon U.S. Treasury
Securities in an aggregate principal amount at
maturity equal to the aggregate stated
liquidation amount of such Preferred
Securities, thereby creating Growth PRIDES.
Such substitution may be made at any time on or
prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date
but only in integral multiples of 40 Income
PRIDES; provided, however, if the Treasury
Portfolio has become a component of the Income
PRIDES, holders of Income PRIDES may make such
substitutions only in integral multiples of
1,600,000 Income PRIDES at any time on or prior
to the second Business Day immediately
preceding the Purchase Contract Settlement
Date. Holders wishing to make such substitution
must hold at least 1,600,000 Income PRIDES. In
the event that Contract Adjustment Payments are
at a higher rate for Growth PRIDES than for
Income PRIDES, holders of Income PRIDES wishing
to create Growth PRIDES also will be required
to deliver
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<PAGE> 10
cash in an amount equal to the excess of the
Contract Adjustment Payments that would have
accrued since the last Payment Date to which
Contract Adjustment Payments have been paid to
the date of substitution on the Growth PRIDES
being created by such holders, over the
Contract Adjustment Payments that have accrued
over the same time period on the related Income
PRIDES.
Creating Income PRIDES........ At any time on or prior to the fifth Business
Day immediately preceding the Purchase Contract
Settlement Date, a holder of Growth PRIDES will
have the right to create Income PRIDES by
delivering 40 Growth PRIDES to the Purchase
Contract Agent plus 40 Preferred Securities
(which Preferred Securities must be purchased
by such holder in the open market at such
holder's expense) to the Collateral Agent in
exchange for 40 Income PRIDES and the release
of the related Treasury Security to such
holder; provided, however, that if a Tax Event
Redemption has occurred prior to the Purchase
Contract Settlement Date and the Treasury
Portfolio has become a component of the Income
PRIDES, holders of Growth PRIDES may make such
substitution (but using the Applicable
Ownership Interest of the Treasury Portfolio
rather than Preferred Securities) only in
integral multiples of 1,600,000 Growth PRIDES
at any time on or prior to the second Business
Day immediately preceding the Purchase Contract
Settlement Date. Holders wishing to make such
substitution must hold at least 1,600,000
Growth PRIDES. Such Preferred Securities or the
appropriate Applicable Ownership Interest of
the Treasury Portfolio, as the case may be,
will be pledged with the Collateral Agent to
secure the holder's obligation to purchase
Common Stock under the related Purchase
Contracts.
Current Payments.............. Holders of Income PRIDES will be entitled to
receive aggregate cash distributions at a rate
of 7.75% of the Stated Amount per annum,
payable quarterly in arrears, consisting of
cumulative cash Distributions on the related
Preferred Securities or on the Treasury
Portfolio, as applicable, payable at the rate
of 6.40% of the Stated Amount per annum, and
Contract Adjustment Payments payable by the
Company at the rate of 1.35% of the Stated
Amount per annum, subject (in the case of both
the distributions on the Preferred Securities
and of the Contract Adjustment Payments to the
Company's right to defer the payment of such
amounts. The ability of the Trust to make the
quarterly Distributions on the related
Preferred Securities will be solely dependent
upon the receipt of corresponding interest
payments from the Company on the Subordinated
Debentures. The Company's obligations with
respect to the Subordinated Debentures will be
unsecured and will be subordinate and junior in
the right of payment, to the extent set forth
herein, to all existing and future Senior Debt
of the Company and will be effectively
subordinated to all existing and future
liabilities and obligations of the Company's
subsidiaries. As of June 30, 1998, the Company
had Senior Debt of $811.8 million. If a Tax
Event Redemption has occurred, quarterly
distributions to the holders of Income PRIDES
will not be deferred.
Holders of Growth PRIDES will be entitled to
receive quarterly cash distributions of
Contract Adjustment Payments payable by
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<PAGE> 11
the Company at the rate of 1.85% of the Stated
Amount per annum, subject to the Company's
rights of deferral described herein. In
addition, OID will accrue on the related
Treasury Securities.
Contract Adjustment
Payments...................... Contract Adjustment Payments will be fixed at a
rate per annum of 1.35% of the Stated Amount
per Purchase Contract in the case of Income
PRIDES, and 1.85% of the Stated Amount per
Purchase Contract in the case of Growth PRIDES.
The Contract Adjustment Payments will be
subordinated and junior in right of payment to
the Senior Debt. See "Description of the
Purchase Contracts -- Contract Adjustment
Payments."
Option to Defer Current
Payments...................... The Company has the right at any time, and from
time to time, limited to a period not extending
beyond the maturity date of the Subordinated
Debentures, to defer the interest payments due
on the Subordinated Debentures for successive
extension periods (each, an "Extension
Period"). As a consequence of such deferral,
the corresponding quarterly Distributions to
holders of Preferred Securities and Income
PRIDES would be deferred (but despite such
deferral, would continue to accrue, compounded
quarterly, at the rate of 6.40% per annum
through and including August 15, 2001, and at
the Reset Rate thereafter). The Company also
has the right to defer the payment of Contract
Adjustment Payments on the related Purchase
Contracts until no later than the Purchase
Contract Settlement Date; however, such
Deferred Contract Adjustment Payments will bear
additional Contract Adjustment Payments at the
rate of 8.25% per annum until paid. See
"Description of the Purchase Contracts --
Contract Adjustment Payments." If interest
payments on the Subordinated Debentures or the
Contract Adjustment Payments are deferred, the
Company has agreed, among other things, not to
declare or pay any dividend on or repurchase
its capital stock (subject to certain
exceptions) during the period of such deferral.
If a Tax Event Redemption has occurred prior to
the Purchase Contract Settlement Date and the
Treasury Portfolio has become a component of
the Income PRIDES, quarterly distributions on
the appropriate Applicable Ownership Interest
of the Treasury Portfolio as a portion of the
cumulative quarterly distributions to the
holders of Income PRIDES will not be deferred.
See "Risk Factors -- Right to Defer Current
Payments."
In the event that the Company elects to defer
the payment of Contract Adjustment Payments on
the related Purchase Contracts until the
Purchase Contract Settlement Date, each holder
of the related Income PRIDES or Growth PRIDES
will receive on the Purchase Contract
Settlement Date in respect of such Deferred
Contract Adjustment Payments, in lieu of a cash
payment, a number of shares of Common Stock
equal to (x) the aggregate amount of Deferred
Contract Adjustment Payments payable to such
holder divided by (y) the Applicable Market
Value (as defined herein). See "Description of
the Purchase Contracts -- Option to Defer
Contract Adjustment Payments."
Payment Dates................. Subject to the deferral provisions described
herein, the current payments described above in
respect of the Income PRIDES and
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<PAGE> 12
Growth PRIDES will be payable quarterly in
arrears on February 16, May 16, August 16 and
November 16 of each year, commencing November
16, 1998, through and including (i) in the case
of the Contract Adjustment Payments, the
earlier of the Purchase Contract Settlement
Date or the most recent such quarterly date on
or prior to any early settlement of the related
Purchase Contracts and (ii) in the case of
Preferred Securities that are components of
Income PRIDES, the most recent such quarterly
date on or prior to the earlier of the Purchase
Contract Settlement Date and the date the
liquidation amount of any such Preferred
Security, together with all accumulated and
unpaid Distributions thereon (each, a "Payment
Date") is paid in full.
Remarketing................... Unless a Tax Event Redemption has occurred,
pursuant to a remarketing agreement (the
"Remarketing Agreement") among the Company, the
Trust, the Purchase Contract Agent and a
nationally recognized investment banking firm
chosen by the Company (the "Remarketing
Agent"), and subject to the terms of a
Remarketing Underwriting Agreement to be dated
as of the third Business Day immediately
preceding the Purchase Contract Settlement Date
among such parties (the "Remarketing
Underwriting Agreement"), the Preferred
Securities of such Income PRIDES holders who
have failed to notify the Purchase Contract
Agent on or prior to the fifth Business Day
immediately preceding the Purchase Contract
Settlement Date of their intention to settle
the related Purchase Contracts with separate
cash will be remarketed on the third Business
Day immediately preceding the Purchase Contract
Settlement Date. The Remarketing Agent will use
its reasonable efforts to remarket such
Preferred Securities (bearing the Reset Rate)
on such date for settlement on the Purchase
Contract Settlement Date at a price of
approximately 100.5% of the aggregate stated
liquidation amount of any such Preferred
Security, plus accrued and unpaid Distributions
(including any deferred Distributions), if any,
thereon. The portion of the proceeds from such
remarketing equal to the aggregate stated
liquidation amount of such Preferred Securities
will be automatically applied to satisfy in
full such Income PRIDES holders' obligations to
purchase Common Stock under the related
Purchase Contracts. In addition, after
deducting as the Remarketing Fee an amount not
exceeding 25 basis points (0.25%) of the
aggregate stated liquidation amount of the
remarketed Preferred Securities from any amount
of such proceeds in excess of the aggregate
stated liquidation amount of the remarketed
Preferred Securities plus any accrued and
unpaid Distributions (including any deferred
Distributions), the Remarketing Agent will
remit the remaining portion of the proceeds, if
any, for the benefit of such holder. Income
PRIDES holders whose Preferred Securities are
so remarketed will not otherwise be responsible
for any Remarketing Fee in connection
therewith. If, despite using its reasonable
efforts, the Remarketing Agent cannot remarket
the related Preferred Securities (other than to
the Company) of such holders of Income PRIDES
at a price not less than 100% of the aggregate
stated liquidation amount of such Preferred
Securities plus accrued and unpaid
Distributions, including deferred
Distributions, if any, or if the remarketing
shall
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<PAGE> 13
not have occurred because a condition precedent
to the remarketing shall not have been
fulfilled thereby resulting in a Failed
Remarketing, the Company will exercise its
rights as a secured party to dispose of the
Preferred Securities in accordance with
applicable law and to satisfy in full, from the
proceeds of such disposition, such holder's
obligation to purchase Common Stock under the
related Purchase Contracts; provided, that if
the Company exercises such rights as a secured
party with respect to such Preferred
Securities, any accrued and unpaid
Distributions (including any deferred
Distributions) on such Preferred Securities
will be paid in cash by the Company to the
holder of record of such Preferred Securities.
The Company will cause a notice of such Failed
Remarketing to be published on the second
Business Day immediately preceding the Purchase
Contract Settlement Date. Holders of Preferred
Securities that are not components of Income
PRIDES may elect, in the manner described
herein, to have their Preferred Securities
remarketed by the Remarketing Agent. It is
currently anticipated that Merrill Lynch,
Pierce, Fenner & Smith Incorporated will be the
Remarketing Agent. See "Description of the
Purchase Contracts -- Remarketing."
Settlement of Purchase
Contracts..................... The Purchase Contract Settlement Date is August
16, 2001. On the Business Day immediately
preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or
Growth PRIDES (i) has settled the related
Purchase Contracts through the early delivery
of cash to the Purchase Contract Agent in the
manner described herein, (ii) in the case of
Income PRIDES, has settled the related Purchase
Contracts with separate cash on the Business
Day prior to the Purchase Contract Settlement
Date pursuant to prior notification to the
Purchase Contract Agent, (iii) in the case of
Income PRIDES, has had the Preferred Securities
related to such holder's Purchase Contracts
remarketed in the manner described herein in
connection with settling such Purchase
Contracts (and such remarketing has not
"failed" (as described herein)), or (iv) an
event described under "Description of the
Purchase Contracts -- Termination" has
occurred, then (A) in the case of Income PRIDES
(unless a Tax Event Redemption has occurred),
the Company will exercise its rights as a
secured party to dispose of the related
Preferred Securities in accordance with
applicable law and will satisfy in full from
the proceeds of such disposition, such holder's
obligation to purchase Common Stock under the
related Purchase Contracts, and (B) in the case
of Growth PRIDES or Income PRIDES (if a Tax
Event Redemption has occurred) the principal
amount of the related Treasury Securities or
the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as applicable, when
paid at maturity, will automatically be applied
pursuant to the exercise of such rights by the
Company to satisfy in full such holder's
obligation to purchase Common Stock under the
related Purchase Contracts.
In the event that a holder of either Income
PRIDES or Growth PRIDES effects the early
settlement of the related Purchase Contracts
through the delivery of cash or, in the case of
an Income PRIDES, settles such Purchase
Contracts with cash on the Business
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<PAGE> 14
Day immediately preceding the Purchase Contract
Settlement Date, the related Preferred
Securities, the appropriate Applicable
Ownership Interest of the Treasury Portfolio or
the Treasury Securities, as the case may be,
will be released to such holder as described
herein.
Settlement Rate............... The number of shares of Common Stock issuable
upon settlement of each Purchase Contract on
the Purchase Contract Settlement Date will be
calculated as follows (subject to adjustment
under certain circumstances): (a) if the
Applicable Market Value is equal to or greater
than the Threshold Appreciation Price of
$111.45, which is approximately 20% above the
Reference Price, the Settlement Rate (which
will be equal to the Stated Amount divided by
the Threshold Appreciation Price) will be
.2243; (b) if the Applicable Market Value is
less than the Threshold Appreciation Price but
greater than the Reference Price, the
Settlement Rate will be equal to the Stated
Amount divided by the Applicable Market Value;
and (c) if the Applicable Market Value is less
than or equal to the Reference Price, the
Settlement Rate (which will be equal to the
Stated Amount divided by the Reference Price)
will be .2692. "Applicable Market Value" means
the average of the Closing Price (as defined
herein) per share of Common Stock on the twenty
consecutive Trading Days (as defined herein)
ending on the third Trading Day immediately
preceding the Purchase Contract Settlement
Date. See "Description of the Purchase
Contracts -- General."
Early Settlement.............. A holder of Income PRIDES may settle the
related Purchase Contracts at any time on or
prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date
in the manner described herein, but only in
integral multiples of 40 Income PRIDES;
provided, however, if a Tax Event Redemption
has occurred prior to the Purchase Contract
Settlement Date and the Treasury Portfolio has
become a component of the Income PRIDES,
holders of Income PRIDES may settle early only
in integral multiples of 1,600,000 Income
PRIDES at any time on or prior to the second
Business Day immediately preceding the Purchase
Contract Settlement Date. A holder of Growth
PRIDES may settle the related Purchase
Contracts at any time on or prior to the second
Business Day immediately preceding the Purchase
Contract Settlement Date in the manner
described herein (in either case, an "Early
Settlement"). Upon Early Settlement, (i) the
holder's rights to receive Deferred Contract
Adjustment Payments on the Purchase Contracts
being settled will be forfeited, (ii) the
holder's right to receive future Contract
Adjustment Payments in respect of such Purchase
Contracts will terminate and (iii) no
adjustment will be made to or for the holder on
account of Deferred Contract Adjustment
Payments or any amount accrued in respect of
Contract Adjustment Payments. See "Description
of the Purchase Contracts -- Early Settlement."
Termination................... The Purchase Contracts, and the rights and
obligations of the Company and the holders of
the FELINE PRIDES thereunder (including the
right thereunder to receive accrued or Deferred
Contract Adjustment Payments and the right and
obligation to purchase Common Stock), will
automatically terminate upon the
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<PAGE> 15
occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to
the Company. Upon such termination, the
Collateral Agent will release the related
Preferred Securities, the appropriate
Applicable Ownership Interest of the Treasury
Portfolio or the Treasury Securities, as the
case may be, held by it to the Purchase
Contract Agent for distribution to the holders,
subject in the case of the Treasury Portfolio
to the Purchase Contract Agent's disposition of
the subject securities for cash, and the
payment of such cash to the holders, to the
extent that the holder would otherwise have
been entitled to receive less than $1,000
principal amount at maturity of any such
security. Upon such termination, there may be a
delay before such release and distribution. In
the event that the Company becomes the subject
of a case under the United States Bankruptcy
Code of 1978, as amended (the "Bankruptcy
Code"), such delay may occur as a result of the
automatic stay under the Bankruptcy Code and
continue until such automatic stay has been
lifted. See "Description of the Purchase
Contracts -- Termination."
Voting and Certain Other
Rights........................ Holders of Preferred Securities will not be
entitled to vote to appoint, remove or replace,
or to increase or decrease the number of
Administrative Trustees (as defined herein) and
will generally have no voting rights except in
the limited circumstances described under
"Description of Preferred Securities -- Voting
Rights; Amendment of Each Trust Agreement" in
the accompanying Prospectus. Holders of
Purchase Contracts forming part of the Income
PRIDES or Growth PRIDES, in their capacities as
such holders, will have no voting or other
rights in respect of the Common Stock.
PREFERRED SECURITIES
Amount and Designation........ 6.40% Preferred Securities (liquidation amount
$25 per Preferred Security), representing
undivided beneficial ownership interests in the
assets of the Trust.
Distributions................. Distributions on the Preferred Securities that
are components of Income PRIDES will constitute
a portion of the distributions on the Income
PRIDES, will be cumulative and will accrue from
the first date of issuance of the Preferred
Securities. Such Distributions will be payable
initially at the annual rate of 6.40% of the
liquidation amount of $25 per Preferred
Security to, but excluding, the Purchase
Contract Settlement Date, and in the case of
Preferred Securities that remain outstanding on
and after the Purchase Contract Settlement
Date, from the Purchase Contract Settlement
Date to, but excluding, August 15, 2003, at the
Reset Rate, in each case, when, as and if funds
are available for payment. Subject to the
distribution deferral provisions, Distributions
will be payable quarterly in arrears on each
February 16, May 16, August 16 and November 16,
commencing November 16, 1998.
Market Rate Reset............. Unless a Tax Event Redemption has occurred, the
interest rate on the Subordinated Debentures
(and therefore the Distribution rate on the
Preferred Securities) on and after the Purchase
Contract Settlement Date will be reset on the
third Business Day immediately preceding the
Purchase Contract Settlement Date to the Reset
Rate determined by the Reset Agent as the rate
the Preferred Securities should bear in order
for a Preferred Security to have an approximate
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<PAGE> 16
market value of 100.5% of the Stated Amount on
the third Business Day immediately preceding
the Purchase Contract Settlement Date,
provided, that the Company may limit such Reset
Rate to be no higher than the rate on the
Two-Year Benchmark Treasury plus 200 basis
points (2%) and, provided further that the
Reset Rate may not exceed the maximum rate
permitted by applicable law. It is possible
that such market value may be less than 100.5%,
particularly where the Reset Spread is limited
to the maximum of 2% or if the Reset Rate were
to be limited by applicable law. The Reset Rate
will be determined by Merrill Lynch, Pierce,
Fenner & Smith Incorporated as the Reset Agent.
See "Certain Terms of the Preferred Securities
-- Market Rate Reset."
Optional Remarketing.......... Pursuant to the Remarketing Agreement and
subject to the terms of a Remarketing
Underwriting Agreement, on or prior to the
fifth Business Day immediately preceding the
Purchase Contract Settlement Date, but no
earlier than the Payment Date immediately
preceding the Purchase Contract Settlement
Date, holders of separate Preferred Securities
that are not components of Income PRIDES may
elect to have their Preferred Securities
remarketed by delivering their Preferred
Securities along with a notice of such election
to The Chase Manhattan Bank, as custodial agent
(the "Custodial Agent"). Holders of Preferred
Securities electing to have their Preferred
Securities remarketed will also have the right
to withdraw such election on or prior to the
fifth Business Day immediately preceding the
Purchase Contract Settlement Date.
Distribution Deferral
Provisions.................... The ability of the Trust to pay Distributions
on the Preferred Securities will be solely
dependent on the receipt of interest payments
from the Company on the Subordinated
Debentures. So long as no Junior Subordinated
Debt Security Event of Default has occurred and
is continuing, the Company will have the right
at any time, and from time to time, to defer
the interest payments due on the Subordinated
Debentures for successive Extension Periods
limited, in the aggregate, to a period not
extending beyond the maturity date of the
Subordinated Debentures; provided that an
Extension Period must end on one of the
quarterly Interest Payment Dates. The
corresponding quarterly Distributions on the
Preferred Securities would be deferred by the
Trust (but would continue to accrue, compounded
quarterly, at the rate of 6.40% per annum
through and including August 15, 2001, and at
the Reset Rate thereafter) until the end of any
such Extension Period. If a deferral of an
interest payment occurs, the holders of the
Preferred Securities will be required to accrue
OID for United States federal income tax
purposes in advance of the receipt of any
corresponding cash Distribution with respect to
such deferred interest payment. See "Risk
Factors -- Right to Defer Current Payments,"
"Certain Terms of the Preferred Securities --
Distributions" and "Federal Income Tax
Consequences -- Income PRIDES -- Preferred
Securities -- Interest Income and Original
Issue Discount."
Rights Upon Deferral of
Distribution.................. During any period in which interest payments on
the Subordinated Debentures are deferred,
interest will accrue on the Subordinated
Debentures (compounded quarterly) and the
corresponding quarterly
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<PAGE> 17
Distributions on the Preferred Securities will
continue to accrue, compounded quarterly, at
the rate of 6.40% per annum through and
including August 15, 2001, and at the Reset
Rate thereafter.
Liquidation Amount............ In the event of any liquidation of the Trust,
and after satisfaction of liabilities to
creditors of the Trust, if any, holders will be
entitled to receive Subordinated Debentures in
an aggregate principal amount equal to the
aggregate stated liquidation amount of the
Preferred Securities.
Put Option Upon a
Failed Remarketing............ If a Failed Remarketing has occurred, each
holder of Trust Securities (or, following the
distribution of the Subordinated Debentures
upon a dissolution of the Trust as described
herein, each holder of such Subordinated
Debentures), holding such Trust Securities (or
Subordinated Debentures, as the case may be),
following the Purchase Contract Settlement Date
will have the right, in the case of Trust
Securities, to require the Trust to distribute
its pro rata share of the Subordinated
Debentures to the Exchange Agent which will put
such Subordinated Debentures to the Company on
behalf of such holders (or, in the case of
persons who hold the Subordinated Debentures
directly, such persons shall have the right to
put such Subordinated Debentures directly to
the Company) on September 1, 2001, upon at
least three Business Days' prior notice, at a
price equal to the principal amount, plus
accrued and unpaid interest (including deferred
interest), if any, thereon.
Distribution of Subordinated
Debentures.................... In certain circumstances involving an
Investment Company Event (as defined herein),
the Trust would be dissolved, with the result
that, after satisfaction of liabilities to
creditors of the Trust, if any, Subordinated
Debentures with an aggregate principal amount
equal to the aggregate stated liquidation
amount of the Preferred Securities would be
distributed to the holders of the Preferred
Securities, including the Collateral Agent, on
a pro rata basis. In such event, an Income
PRIDES would thereafter consist of beneficial
ownership of a Subordinated Debenture with a
principal amount equal to $25 and the related
Purchase Contract, and such Subordinated
Debenture would otherwise be treated as if it
were a Preferred Security. See "Certain Terms
of the Preferred Securities -- Distribution of
the Subordinated Debentures."
Tax Event Redemption.......... The Subordinated Debentures (and, thus, the
Trust Securities) are redeemable, at the option
of the Company, on not less than 30 days or
more than 60 days prior written notice, in
whole but not in part, upon the occurrence and
continuation of a Tax Event under the
circumstances described herein at a Redemption
Price equal to, for each Subordinated
Debenture, the Redemption Amount together with
accrued and unpaid interest (including deferred
interest). See "Certain Terms of the
Subordinated Debentures -- Tax Event
Redemption." If the Company so redeems all of
the Subordinated Debentures, the Trust must
redeem all of the Trust Securities and pay in
cash such Redemption Price to the holders of
such Trust Securities. If such Tax Event
Redemption occurs prior to the Purchase
Contract Settlement Date, the Redemption Price
payable in liquidation of any Income PRIDES
holders' interest in the
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<PAGE> 18
Trust will be distributed to the Collateral
Agent, which in turn will apply an amount equal
to the Redemption Amount of such Redemption
Price to purchase the Treasury Portfolio on
behalf of the holders of Income PRIDES and
remit the remaining portion, if any, of such
Redemption Price to the Purchase Contract Agent
for payment to holders of such Income PRIDES.
The Treasury Portfolio will be substituted for
the Preferred Securities and will be pledged
with the Collateral Agent to secure such Income
PRIDES holders' obligations to purchase the
Common Stock under their Purchase Contracts.
Other than in the event of a Tax Event
Redemption, the Company will not have the
ability to redeem the Subordinated Debentures
prior to their stated maturity date. See
"Certain Terms of the Subordinated
Debentures -- Tax Event Redemption."
Guarantee..................... The Company will irrevocably and
unconditionally guarantee pursuant to the
Guarantee, on a subordinated basis, the payment
in full of (i) distributions on the Preferred
Securities to the extent the Trust has funds
available therefor, (ii) the redemption price
of Preferred Securities called for redemption
by the Trust, to the extent the Trust has funds
available therefor, and (iii) generally, the
liquidation amount of the Preferred Securities
to the extent the Trust has assets available
for distribution to holders of Preferred
Securities in the event of a dissolution of the
Trust. The Company's obligations under the
Guarantee are unsecured and will be subordinate
and junior in right of payment to all Senior
Debt of the Company and will rank on a parity
with all other guarantees issued by the
Company. See "Description of the Guarantee."
Subordinated Debentures....... Unless a Tax Event Redemption has occurred, the
Subordinated Debentures will mature on August
15, 2003, and will bear interest initially at
the rate of 6.40% per annum, payable quarterly
in arrears on each February 16, May 16, August
16 and November 16, commencing November 16,
1998. The interest rate on the Subordinated
Debentures, and the Distribution rate on the
Preferred Securities that remain outstanding
after the Purchase Contract Settlement Date,
will be reset on the third Business Day
immediately preceding the Purchase Contract
Settlement Date to the Reset Rate determined by
the Reset Agent. See "Certain Terms of the
Subordinated Debentures -- General." So long as
no Junior Subordinated Debt Security Event of
Default has occurred and is continuing,
interest payments on the Subordinated
Debentures may be deferred from time to time by
the Company for successive Extension Periods
not extending, in the aggregate, beyond the
stated maturity date of the Subordinated
Debentures. During any Extension Period,
interest at the rate of 6.40% per annum through
and including August 15, 2001, and at the Reset
Rate thereafter, would continue to accrue and
compound quarterly. Upon the termination of any
Extension Period and the payment of all amounts
then due, the Company may commence a new
Extension Period, provided such new Extension
Period does not extend beyond the stated
maturity date of the Subordinated Debentures.
No interest shall be due during an Extension
Period until the end of such period. An
Extension Period may only end on an Interest
Payment Date. During an Extension Period,
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<PAGE> 19
the Company will be prohibited (subject to
certain exceptions) from paying dividends on or
purchasing any of its capital stock and making
certain other restricted payments until
quarterly interest payments are resumed and all
amounts then due on the Subordinated Debentures
are paid. The obligations of the Company under
the Subordinated Debentures are unsecured and
will be subordinate and junior in right of
payment, to the extent set forth herein, to all
existing and future Senior Debt. The Company
had $811.8 million of Senior Debt as of June
30, 1998. See "Certain Terms of the
Subordinated Debentures."
Federal Income Tax
Consequences
Related to the Income
PRIDES,
Growth PRIDES and Preferred
Securities.................. Provided the Company does not exercise its
right to defer interest on the Subordinated
Debentures, a beneficial owner of Income PRIDES
and Preferred Securities will include in gross
income its pro rata share of the stated
interest on the Subordinated Debentures when
such interest income is paid or accrued in
accordance with its regular method of tax
accounting. The Company intends to report the
Contract Adjustment Payments as income to
holders of Income PRIDES and Growth PRIDES, but
holders should consult their tax advisors
concerning the possibility that the Contract
Adjustment Payments may be treated as loans,
swap payments, purchase price adjustments,
rebates or option premiums rather than being
includible in income on a current basis. A
beneficial owner of Growth PRIDES will be
required to include in gross income any OID
with respect to the Treasury Securities as it
accrues on a constant yield to maturity basis.
If a Tax Event Redemption has occurred, a
beneficial owner of Income PRIDES will be
required to include in gross income its
allocable share of OID on the Treasury
Portfolio as it accrues on a constant yield to
maturity basis. See "Federal Income Tax
Consequences."
S-19
<PAGE> 20
EXPLANATORY DIAGRAMS
For illustrative purposes only, the following diagrams demonstrate some of
the key features of Purchase Contracts, Income PRIDES, Growth PRIDES and
Preferred Securities and the transformation of Income PRIDES into Growth PRIDES
and Preferred Securities.
The following diagrams and the related text are not complete, are general
in nature and are qualified in their entirety by more detailed information
appearing elsewhere in the accompanying Prospectus, this Prospectus Supplement
and in documents which are on file with the Securities and Exchange Commission
(the "Commission").
FELINE PRIDES PURCHASE CONTRACT
- Income PRIDES and Growth PRIDES both include a Purchase Contract under
which the investor agrees to purchase shares of Common Stock of the
Company at the end of three years. In addition, such Purchase Contracts
include specified Contract Adjustment Payments shown in the diagrams on
the following pages.
[GRAPH]
PURCHASE CONTRACT
<TABLE>
<S><C>
VALUE OF DELIVERED SHARES PERCENTAGE OF SHARES DELIVERED
AT MATURITY AT MATURITY*
- ------------------------------------------------------ ------------------------------------------------------
DELIVER DELIVER DELIVER
100% OF BETWEEN 83.3% OF
SHARES** 83.3% AND SHARES****
100% OF
SHARES***
100% 120%
REFERENCE THRESHOLD REFERENCE THRESHOLD
PRICE APPRECIATION PRICE PRICE APPRECIATION PRICE
$92.875 $111.45 $92.875 $111.45
COMMON STOCK PRICE COMMON STOCK PRICE
[RIGHT ARROW] [RIGHT ARROW]
</TABLE>
- -------------------------
* For each of the percentage categories shown, the percentage of shares to
be delivered at maturity to an investor in Income PRIDES or Growth PRIDES
is determined by dividing the related number of shares to be delivered, as
indicated in the footnote for each such category, by an amount equal to
the Stated Amount divided by the Reference Price.
** The number of shares to be delivered will be calculated by dividing the
Stated Amount by the Reference Price.
*** The number of shares to be delivered will be calculated by dividing the
Stated Amount by the Applicable Market Value.
**** The number of shares to be delivered will be calculated by dividing the
Stated Amount by the Threshold Appreciation Price.
S-20
<PAGE> 21
INCOME PRIDES
- Income PRIDES consist of two components as described below:
[GRAPH]
PURCHASE CONTRACT PREFERRED SECURITY
- ----------------------------------- -----------------------------------
(OWED TO INVESTOR) (OWED TO INVESTOR)
SHARES 6.40% PER ANNUM
+ PAID QUARTERLY
CONTRACT ADJUSTMENT (RESET AT END OF YEAR 3)
PAYMENT
1.35% PER ANNUM +
PAID QUARTERLY
$25 AT MATURITY $25 AT MATURITY
(END OF YEAR 3) (END OF YEAR 5)
(OWED TO COMPANY) (OWED TO INVESTOR)
- The investor owns the Preferred Security but will pledge it to the
Collateral Agent for the benefit of the Company to secure its obligations
under the Purchase Contract.
GROWTH PRIDES
- Growth PRIDES consist of two components as described below:
[GRAPH]
ZERO-COUPON
PURCHASE CONTRACT TREASURY SECURITY
- ----------------------------------- -----------------------------------
(OWED TO INVESTOR)
SHARES
+
CONTRACT ADJUSTMENT
PAYMENT
1.85% PER ANNUM
PAID QUARTERLY +
$25 AT MATURITY $25 AT MATURITY
(END OF YEAR 3) (END OF YEAR 3)
(OWED TO COMPANY) (OWED TO INVESTOR)
- The investor owns the zero-coupon Treasury Security but will pledge it to
the Collateral Agent for the benefit of the Company to secure its
obligations under the Purchase Contract.
S-21
<PAGE> 22
PREFERRED SECURITIES
- Preferred Securities have the terms described below:
[GRAPH]
(OWED TO INVESTOR)
6.40 PER ANNUM
PAID QUARTERLY
(RESET AT END OF YEAR 3)
$25 AT MATURITY
(END OF YEAR 5)
(OWED TO INVESTOR)
- The holder of Preferred Securities that are a component of Income PRIDES
has an option at the end of year 3 to either:
* Cash settle the Purchase Contract for $25 and receive Preferred
Securities whose rate has been reset at the end of year 3, or
* Cash settle the Purchase Contract by allowing the Preferred Securities
to be included in the remarketing process.
- The holder of Preferred Securities that are separate and not a component
of Income PRIDES has the option at the end of year 3 to either:
* Continue to hold the Preferred Securities whose rate has been reset at
the end of year 3, or
* Deliver the Preferred Securities to the Custodial Agent to be included
in the remarketing process.
S-22
<PAGE> 23
TRANSFORMING INCOME PRIDES INTO GROWTH PRIDES AND PREFERRED SECURITIES
- To create a Growth PRIDES, the investor separates an Income PRIDES into
its components -- the Purchase Contract and the Preferred Security -- and
then combines the Purchase Contract with a specific zero-coupon Treasury
Security that matures concurrently with the maturity of the Purchase
Contract.
- The investor owns the zero-coupon Treasury Security but will pledge it to
the Collateral Agent for the benefit of the Company to secure its
obligations under the Purchase Contract.
- The zero-coupon Treasury Security together with the Purchase Contract
constitute a Growth PRIDES. The Preferred Securities, which are no longer
a component of the Income PRIDES, are tradeable as separate securities.
[GRAPH]
<TABLE>
<CAPTION>
PREFERRED ZERO-COUPON PREFERRED
PURCHASE CONTRACT SECURITY PURCHASE CONTRACT TREASURY SECURITY SECURITIES
- ----------------- --------- ----------------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
(OWED TO INVESTOR) (OWED TO INVESTOR)
SHARES SHARES
+ (OWED TO INVESTOR) + (OWED TO INVESTOR)
CONTRACT ADJUSTMENT + 6.40% PER ANNUM [RIGHT CONTRACT ADJUSTMENT + + 6.40% PER ANNUM
PAYMENT PAID QUARTERLY ARROW] PAYMENT PAID QUARTERLY
1.35% PER ANNUM (RESET AT END 1.85% PER ANNUM (RESET AT END
PAID QUARTERLY OF YEAR 3) PAID QUARTERLY OF YEAR 3)
$25 AT MATURITY $25 AT MATURITY $25 AT MATURITY $25 AT MATURITY $25 AT MATURITY
(END OF YEAR 3) (END OF YEAR 5) (END OF YEAR 3) (END OF YEAR 3) (END OF YEAR 5)
(OWED TO COMPANY) (OWED TO INVESTOR) (OWED TO COMPANY) (OWED TO INVESTOR) (OWED TO INVESTOR)
INCOME PRIDES GROWTH PRIDES
</TABLE>
- The investor can also transform Growth PRIDES and Preferred Securities
into Income PRIDES.
- The transformation of Income PRIDES into Growth PRIDES and Preferred
Securities, and the transformation of Growth PRIDES and Preferred
Securities into Income PRIDES, require certain minimum amounts of
securities, as more fully provided herein.
S-23
<PAGE> 24
RISK FACTORS
Potential purchasers of the FELINE PRIDES offered hereby should carefully
consider the risk factors set forth herein as well as other information
contained in this Prospectus Supplement, including, without limitation, those
factors set forth under the caption "Forward-Looking Statements," the
accompanying Prospectus and in the documents incorporated by reference herein.
INVESTMENT IN FELINE PRIDES REQUIRES HOLDERS TO PURCHASE COMMON STOCK; RISK OF
DECLINE IN EQUITY VALUE
Although holders of the FELINE PRIDES will be the beneficial owners of the
related Preferred Securities, Treasury Portfolio or Treasury Securities, as the
case may be, prior to the Purchase Contract Settlement Date, unless a holder of
FELINE PRIDES settles the related Purchase Contracts through the delivery of
cash to the Purchase Contract Agent in the manner described below or the
Purchase Contracts are terminated (upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company), the
proceeds derived from the remarketing of the Preferred Securities or the
principal of the related Treasury Securities, or the applicable Appropriate
Ownership Interest of the Treasury Portfolio, when paid at maturity, as the case
may be, will automatically be applied to the purchase of a specified number of
shares of Common Stock on behalf of such holder. See "Description of the
Purchase Contracts -- General." There can be no assurance that the market value
of the Common Stock received by the holder on the Purchase Contract Settlement
Date will be equal to or greater than the Stated Amount of the FELINE PRIDES
held by such holder. If the Applicable Market Value of the Common Stock is less
than the Reference Price, the aggregate market value of the Common Stock issued
to the holder in settlement of each Purchase Contract on the Purchase Contract
Settlement Date (assuming that such market value is the same as the Applicable
Market Value of such Common Stock) will be less than the Stated Amount paid for
the FELINE PRIDES and the market value per share of such Common Stock will be
less than the effective price per share paid by each holder for such Common
Stock on the date hereof, in which case an investment in the Securities will
result in an economic loss as of the Purchase Contract Settlement Date.
Accordingly, a holder of the FELINE PRIDES assumes the risk that the market
value of the Common Stock may decline, and that such decline could be
substantial.
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION
The opportunity for equity appreciation afforded by an investment in the
FELINE PRIDES is less than the opportunity for equity appreciation afforded by a
direct investment in the Common Stock because the market value of the Common
Stock to be received by a holder of Purchase Contracts on the Purchase Contract
Settlement Date (assuming that such market value is the same as the Applicable
Market Value of such Common Stock) will only exceed the Stated Amount if the
Applicable Market Value of the Common Stock exceeds the Threshold Appreciation
Price (which represents an appreciation of approximately 20% over the Reference
Price). Moreover, in such event, holders of FELINE PRIDES would receive on the
Purchase Contract Settlement Date only approximately 83.3% (the percentage equal
to the Reference Price divided by the Threshold Appreciation Price) of the
shares of Common Stock that such holders would have received if they had made a
direct investment in the Common Stock on the date hereof, and therefore would
receive on the Purchase Contract Settlement Date only approximately 83.3% of the
appreciation in the value of the Common Stock in excess of the Threshold
Appreciation Price. See "Prospectus Supplement Summary -- Explanatory Diagrams
- -- FELINE PRIDES Purchase Contract."
FACTORS AFFECTING TRADING PRICES
The trading prices of Income PRIDES and Growth PRIDES in the secondary
market will be directly affected by the trading prices of the Common Stock, the
general level of interest rates and the credit quality of the Company. It is
impossible to predict whether the price of the Common Stock or interest rates
will rise or fall. Trading prices of the Common Stock will be influenced by the
Company's operating results and prospects and by economic, financial and other
factors and market conditions that can affect the capital markets generally,
including the level of, and fluctuations in, the trading prices of stocks
generally and sales of substantial amounts of Common Stock in the market
subsequent to the offering of the Securities or the
S-24
<PAGE> 25
perception that such sales could occur. Fluctuations in interest rates may give
rise to opportunities of arbitrage based upon changes in the relative value of
the Common Stock underlying the Purchase Contracts and of the other components
of the FELINE PRIDES. Any such arbitrage could, in turn, affect the trading
prices of the Income PRIDES, Growth PRIDES, Preferred Securities and Common
Stock.
VOTING AND CERTAIN OTHER RIGHTS
Holders of Preferred Securities will not be entitled to vote to appoint,
remove or replace or to increase or decrease the number of Issuer Trustees, and
generally will have no voting rights except in the limited circumstances
described under "Description of Preferred Securities -- Voting Rights; Amendment
of Each Trust Agreement" in the accompanying Prospectus. Holders of FELINE
PRIDES will not be entitled to any rights with respect to the Common Stock
(including, without limitation, voting rights and rights to receive any
dividends or other distributions in respect thereof) unless and until such time
as the Company shall have delivered shares of Common Stock for FELINE PRIDES on
the Purchase Contract Settlement Date or as a result of Early Settlement, as the
case may be, and unless the applicable record date, if any, for the exercise of
such rights occurs after such date. For example, in the event that an amendment
is proposed to the Articles of Incorporation or By-Laws of the Company and the
record date for determining the shareholders of record entitled to vote on such
amendment occurs prior to such delivery, holders of FELINE PRIDES will not be
entitled to vote on such amendment.
DILUTION OF COMMON STOCK
The number of shares of Common Stock that holders of the FELINE PRIDES are
entitled to receive on the Purchase Contract Settlement Date or as a result of
Early Settlement is subject to adjustment for certain events arising from stock
splits and combinations, stock dividends and certain other actions of the
Company that modify its capital structure. See "Description of the Purchase
Contracts -- Anti-Dilution Adjustments." Such number of shares of Common Stock
to be received by such holders on the Purchase Contract Settlement Date or as a
result of Early Settlement will not be adjusted for other events, such as
offerings of Common Stock for cash or in connection with acquisitions. The
Company is not restricted from issuing additional Common Stock during the term
of the Purchase Contracts and has no obligation to consider the interests of the
holders of FELINE PRIDES for any reason. Additional issuances may materially and
adversely affect the price of the Common Stock and, because of the relationship
of the number of shares to be received on the Purchase Contract Settlement Date
to the price of the Common Stock, such other events may adversely affect the
trading price of Income PRIDES or Growth PRIDES.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how Income PRIDES, Growth PRIDES or Preferred
Securities will trade in the secondary market or whether such market will be
liquid or illiquid. Income PRIDES and Growth PRIDES are novel securities and
there is currently no secondary market for either Income PRIDES or Growth
PRIDES. The Income PRIDES and Growth PRIDES have been approved for listing on
the NYSE, subject to official notice of issuance. If Preferred Securities are
separately traded to a sufficient extent that applicable exchange listing
requirements are met, the Company will endeavor to cause such securities to be
listed on such exchange on which the Income PRIDES and Growth PRIDES are then
listed. There can be no assurance as to the liquidity of any market that may
develop for the Income PRIDES, the Growth PRIDES or the Preferred Securities,
the ability of holders to sell such securities or whether a trading market, if
it develops, will continue. In addition, in the event that holders of Income
PRIDES or Growth PRIDES were to substitute Treasury Securities for Preferred
Securities or Preferred Securities for Treasury Securities, thereby converting
their Income PRIDES to Growth PRIDES or their Growth PRIDES to Income PRIDES, as
the case may be, the liquidity of Income PRIDES or Growth PRIDES could be
adversely affected. There can be no assurance that the Income PRIDES or Growth
PRIDES will not be delisted from the NYSE or that trading in the Income PRIDES
or Growth PRIDES and Preferred Securities will not be suspended as a result of
the election by holders to create Income PRIDES or Growth PRIDES through the
substitution of collateral, which could cause the number of Income PRIDES or
Growth PRIDES to fall below the requirement for
S-25
<PAGE> 26
listing securities on the NYSE that at least 1,000,000 Income PRIDES or Growth
PRIDES be outstanding at any time.
PLEDGED SECURITIES ENCUMBERED
Although the beneficial owners of FELINE PRIDES will be the beneficial
owners of the related Preferred Securities, Treasury Portfolio or Treasury
Securities (together, the "Pledged Securities"), as applicable, those Pledged
Securities will be pledged with the Collateral Agent to secure the obligations
of the holders under the related Purchase Contracts. Thus, rights of the holders
to their Pledged Securities will be subject to the Company's security interest.
Additionally, notwithstanding the automatic termination of the Purchase
Contracts, in the event that the Company becomes the subject of a case under the
Bankruptcy Code, the delivery of the Pledged Securities to holders of the FELINE
PRIDES may be delayed by the imposition of the automatic stay of Section 362 of
the Bankruptcy Code.
INVESTMENT COMPANY EVENT DISTRIBUTION
Upon the occurrence of an Investment Company Event, the Trust will be
dissolved (except in the limited circumstances described in the following
sentence) with the result that Subordinated Debentures with an aggregate
principal amount equal to the aggregate stated liquidation amount of the
Preferred Securities would be distributed to the holders of the Preferred
Securities on a pro rata basis. Such dissolution and distribution shall be
conditioned on the Company being unable to avoid such Investment Company Event
within a 90-day period by taking some ministerial action or pursuing some other
reasonable measure that will have no adverse effect on the Trust, the Company or
the holders of the Preferred Securities, and will involve no material cost. In
addition, the Company will have the right at any time to dissolve the Trust. See
"Certain Terms of the Preferred Securities -- Distribution of the Subordinated
Debentures."
There can be no assurance as to the impact on the market prices for Income
PRIDES of a distribution of the Subordinated Debentures in exchange for
Preferred Securities upon a dissolution of the Trust. Because Income PRIDES will
consist of Subordinated Debentures and related Purchase Contracts upon the
occurrence of the dissolution of the Trust as a result of an Investment Company
Event or otherwise, prospective purchasers of Income PRIDES are also making an
investment decision with regard to the Subordinated Debentures and should
carefully review all the information regarding the Subordinated Debentures
contained herein. See "Certain Terms of the Preferred Securities -- Distribution
of the Subordinated Debentures" and "Certain Terms of the Subordinated
Debentures -- General."
TAX EVENT REDEMPTION
The Subordinated Debentures (and, thus, the Trust Securities) are
redeemable, at the option of the Company, on not less than 30 days or more than
60 days prior written notice, in whole but not in part, at any time prior to the
Purchase Contract Settlement Date upon the occurrence and continuation of a Tax
Event under the circumstances described herein at a Redemption Price equal to,
for each Subordinated Debenture, the Redemption Amount plus accrued and unpaid
interest (including deferred interest, if any). See "Certain Terms of the
Subordinated Debentures -- Tax Event Redemption." If the Company so redeems all
of the Subordinated Debentures, the Trust must redeem all of the Trust
Securities and pay in cash such Redemption Price to the holders of such Trust
Securities. If the Tax Event Redemption has occurred prior the Purchase Contract
Settlement Date, the Redemption Price payable in liquidation of the Income
PRIDES holders' interest in the Trust will be distributed to the Collateral
Agent, which in turn will apply an amount equal to the Redemption Amount of such
Redemption Price to purchase the Treasury Portfolio on behalf of the holders of
Income PRIDES. Holders of Preferred Securities not held in the form of Income
PRIDES will receive redemption payments directly. The Treasury Portfolio will be
substituted for the Preferred Securities and will be pledged with the Collateral
Agent to secure such Income PRIDES holders' obligations to purchase the
Company's Common Stock under their Purchase Contracts. There can be no assurance
as to the impact on the market prices for the Income PRIDES of the substitution
of the Treasury Portfolio as collateral in replacement of any Preferred
Securities so redeemed. See "Certain Terms of the Preferred Securities --
Optional Redemption." A Tax Event Redemption will be a taxable event to the
beneficial owners of the
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<PAGE> 27
Preferred Securities. See "Federal Income Tax Consequences -- Tax Event
Redemption of Preferred Securities."
RIGHT TO DEFER CURRENT PAYMENTS
The Company may, at its option, defer the payment of Contract Adjustment
Payments on the Purchase Contracts until the Purchase Contract Settlement Date.
However, deferred installments of Contract Adjustment Payments will bear
additional Contract Adjustment Payments at the rate of 8.25% per annum
(compounding on each succeeding Payment Date) until paid. If the Purchase
Contracts are settled early or terminated (upon the occurrence of certain events
of bankruptcy, insolvency or reorganization with respect to the Company), the
right to receive Contract Adjustment Payments and Deferred Contract Adjustment
Payments will also terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of Purchase Contracts will receive on the Purchase
Contract Settlement Date in respect of the Deferred Contract Adjustment
Payments, in lieu of a cash payment, a number of shares of Common Stock equal to
(x) the aggregate amount of Deferred Contract Adjustment Payments payable to
such holder divided by (y) the Applicable Market Value. See "Description of the
Purchase Contracts -- Contract Adjustment Payments."
So long as no Junior Subordinated Debt Security Event of Default has
occurred and is continuing, the Company will also have the right under the
Subordinated Indenture to defer payments of interest on the Subordinated
Debentures by extending the interest payment period at any time, and from time
to time, on the Subordinated Debentures. As a consequence of such an extension,
quarterly Distributions on the Preferred Securities, held either as a component
of the Income PRIDES or held separately, would be deferred (but despite such
deferrals would continue to accrue at a rate of 6.40% per annum through and
including August 15, 2001, and at the Reset Rate thereafter, compounded on a
quarterly basis) by the Trust during any such Extension Period. Such right to
extend the interest payment period for the Subordinated Debentures will be
limited such that an Extension Period may not extend beyond the stated maturity
of the Subordinated Debentures or end on other than an Interest Payment Date.
During any such Extension Period, the Company may not, and may not permit any
subsidiary of the Company to, (i) declare or pay any dividends or distributions
on, or redeem, purchase, acquire, or make a liquidation payment with respect to,
any of the Company's capital stock or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem any debt
securities of the Company (including other Junior Subordinated Debt Securities)
that rank pari passu with or junior in interest to the Subordinated Debentures
or make any guarantee payments with respect to any guarantee by the Company of
the debt securities of any subsidiary of the Company if such guarantee ranks
pari passu or junior in interest to the Subordinated Debentures (other than (a)
dividends or distributions in Common Stock of the Company, (b) redemptions or
purchases of any rights pursuant to the Company's Rights Plan, or any successor
to such Rights Plan, and the declaration of a dividend of such rights or the
issuance of stock under such plans in the future, (c) payments under any
guarantee, and (d) purchases of Common Stock related to the issuance of Common
Stock under any of the Company's benefit plans for its directors, officers or
employees). Prior to the termination of any such Extension Period, the Company
may further extend the interest payment period; provided, that such Extension
Period may not extend beyond the stated maturity of the Subordinated Debentures
or end on other than an Interest Payment Date. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the above requirements. See "Certain
Terms of the Preferred Securities -- Distributions" and "Certain Terms of the
Subordinated Debentures -- Option to Extend Interest Payment Period."
The Company believes, and intends to take the position, that as of the
issue date of the Subordinated Debentures, the likelihood that it will exercise
its right to defer payments of stated interest on the Subordinated Debentures is
remote and that, therefore, the Subordinated Debentures should not be considered
to have been issued with OID as a result of the Company's right to defer
payments of stated interest on the Subordinated Debentures until such time that
the Company actually exercises such deferral right. There is no assurance that
the Internal Revenue Service (the "IRS") will agree with such position. See
"Federal Income Tax Consequences -- Preferred Securities -- Interest Income and
Original Issue Discount."
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<PAGE> 28
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each U.S. Holder (as defined herein) of
Preferred Securities held either as a component of the Income PRIDES or held
separately would be required to include such U.S. Holder's share of the stated
interest on the Subordinated Debentures in gross income, as OID, on a daily
economic accrual basis, regardless of such U.S. Holder's method of tax
accounting. As a result, each U.S. Holder of Preferred Securities would
recognize income for United States federal income tax purposes in advance of the
receipt of cash attributable to such income, and would not receive the cash from
the Trust related to such income if such holder disposes of its Preferred
Securities prior to the record date for the date on which Distributions of such
amounts are made. See "Federal Income Tax Consequences -- Preferred Securities
- -- Interest Income and Original Issue Discount." In addition, as a result of the
existence of the Company's right to defer interest payments, the market price of
the Preferred Securities (which represent undivided beneficial ownership
interests in the assets of the Trust) may be more volatile than the market price
of other securities that are not subject to such deferral. Should the Company
exercise such right in the future, the market price of the Preferred Securities
is likely to be adversely affected. A holder that disposes of its Preferred
Securities during an Extension Period, therefore, might not receive the same
return on its investment as a holder that continues to hold its Preferred
Securities.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE, THE SUBORDINATED
DEBENTURES AND THE CONTRACT ADJUSTMENT PAYMENTS
The Company's obligations under the Guarantee are unsecured and will rank
subordinate and junior in right of payment to all other liabilities of the
Company except those made pari passu or subordinate by their terms. The
obligations of the Company under the Subordinated Debentures are unsecured and
will be subordinate and junior in right of payment, to the extent set forth
herein, to all present and future Senior Debt and will be effectively
subordinated to all existing and future liabilities and obligations of the
Company's subsidiaries. As of June 30, 1998, the aggregate amount of Senior Debt
was approximately $811.8 million. The Contract Adjustment Payment will be
subordinated and junior in right of payment to all liabilities of the Company
(other than the Guarantee, with which they will rank pari passu). There are no
terms in the Preferred Securities, the Subordinated Debentures or the Guarantee
that limit the ability of the Company or any of its subsidiaries to incur
additional indebtedness, liabilities or obligations, including indebtedness,
liabilities or obligations that rank senior to the Subordinated Debentures, the
Guarantee and the Contract Adjustment Payments. See "Description of the
Guarantee -- Status of the Guarantee" herein and "Description of Junior
Subordinated Debt Securities -- Subordination" in the accompanying Prospectus.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
No statutory, judicial or administrative authority directly addresses the
treatment of the FELINE PRIDES or instruments similar to the FELINE PRIDES for
United States federal income tax purposes. As a result, certain United States
federal income tax consequences of the purchase, ownership and disposition of
FELINE PRIDES are not entirely clear. See "Federal Income Tax Consequences."
PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT; LIMITED
OBLIGATIONS OF PURCHASE CONTRACT AGENT
Although the Preferred Securities constituting a part of the Income PRIDES
will be issued pursuant to the Trust Agreement, which will be qualified under
the Trust Indenture Act, the Purchase Contract Agreement will not be qualified
as an indenture under the Trust Indenture Act and the Purchase Contract Agent
will not be required to qualify as a trustee thereunder. Accordingly, holders of
FELINE PRIDES will not have the benefit of the protections of the Trust
Indenture Act. The protections generally afforded the holder of the security
issued under an indenture that has been qualified under the Trust Indenture Act
include disqualification of the indenture trustee for "conflicting interests" as
defined under the Trust Indenture Act, provisions preventing a trustee that is
also a creditor of the issuer from improving its own credit position at the
expense of the security holders immediately prior to or after a default under
such indenture and the requirement that the indenture trustee deliver reports at
least annually with respect to certain matters concerning the indenture trustee
and the securities. Under the terms of the Purchase Contract Agreement, the
Purchase Contract Agent will have only limited obligations to the holders of
FELINE PRIDES. See "Certain
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Provisions of the Purchase Contract Agreement and the Pledge Agreement --
Information Concerning the Purchase Contract Agent."
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act. The Guarantee Trustee will act as indenture trustee under the Guarantee for
the purposes of compliance with the provisions of the Trust Indenture Act. The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of the
Preferred Securities. The Guarantee guarantees to the holders of the Preferred
Securities, generally on a subordinated basis, the payment of (i) any accrued
and unpaid Distributions that are required to be paid on the Preferred
Securities, to the extent the Trust has funds available therefor, (ii) the
redemption price, including all accumulated and unpaid Distributions to the date
of redemption, of Preferred Securities called for redemption by the Trust, to
the extent the Trust has funds available therefor, and (iii) upon a voluntary or
involuntary dissolution of the Trust (other than in connection with the
distribution of Subordinated Debentures to the holders of Preferred Securities),
the lesser of (a) the aggregate of the liquidation amount and all accrued and
unpaid Distributions on the Preferred Securities to the date of payment to the
extent the Trust has funds available therefor or (b) the amount of assets of the
Trust remaining available for distribution to holders of the Preferred
Securities in liquidation of the Trust. The holders of a majority in liquidation
amount of the Preferred Securities will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Guarantee Trustee or to direct the exercise of any trust or power conferred upon
the Guarantee Trustee under the Guarantee. Notwithstanding the foregoing, but
only under the limited circumstances described under "-- Enforcement of Certain
Rights by Holders of Preferred Securities," any holder of the Preferred
Securities may institute a legal proceeding directly against the Company to
enforce such holder's rights under the Guarantee without first instituting a
legal proceeding against the Trust, the Guarantee Trustee or any other person or
entity. If the Company were to default on its obligation to pay amounts payable
on the Subordinated Debentures or otherwise, the Trust would lack funds for the
payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and, in such event, holders of the Preferred Securities
would not be able to rely upon the Guarantee for payment of such amounts.
Instead, holders of the Preferred Securities would rely on the enforcement (1)
by the Property Trustee of its rights as registered holder of the Subordinated
Debentures against the Company pursuant to the terms of the Subordinated
Indenture and the Subordinated Debentures or (2) by such holder of the Property
Trustee's or such holder's own rights against the Company to enforce payments on
the Subordinated Debentures. See "-- Enforcement of Certain Rights by Holders of
Preferred Securities," "Certain Terms of the Subordinated Debentures" and
"Description of the Guarantee." The Trust Agreement provides that each holder of
Preferred Securities, by acceptance thereof, agrees to the provisions of the
Guarantee and the Subordinated Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Trust Agreement Event of Default (as defined herein) occurs and is
continuing, the holders of Preferred Securities would rely on the enforcement by
the Property Trustee of its rights as registered holder of the Subordinated
Debentures against the Company. In addition, the holders of a majority in
liquidation amount of the Preferred Securities will have the right to direct the
time, method, and place of conducting any proceeding for any remedy available to
the Property Trustee or to direct the exercise of any trust or power conferred
upon the Property Trustee under the Trust Agreement, including the right to
direct the Property Trustee to exercise the remedies available to it as the
holder of the Subordinated Debentures. The Subordinated Indenture provides that
the Subordinated Indenture Trustee (as defined herein) shall give holders of
Subordinated Debentures notice of all defaults or events of default within 30
days after occurrence. However, except in the cases of a default or an event of
default in payment on the Subordinated Debentures, the Subordinated Indenture
Trustee will be protected in withholding such notice if its responsible officers
in good faith determine that withholding of such notice is in the interest of
such holders.
If the Property Trustee fails to enforce its rights under the Subordinated
Debentures in respect of a Junior Subordinated Debt Security Event of Default
(as defined in the accompanying Prospectus) after a holder of record of
Preferred Securities has made a written request, such holder of record of
Preferred Securities may, to
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the extent permitted by applicable law, institute a legal proceeding against the
Company to enforce the Property Trustee's rights under the Subordinated
Debentures. In addition, if the Company fails to pay interest or principal on
the Subordinated Debentures on the date such interest or principal is otherwise
payable, and such failure to pay is continuing, a holder of Preferred Securities
may directly institute a proceeding for enforcement of payment to such holder of
the principal of or interest on the Subordinated Debentures having a principal
amount equal to the aggregate stated liquidation amount of the Preferred
Securities of such holder (a "Direct Action") after the respective due date
specified in the Subordinated Debentures. In connection with such a Direct
Action, the Company shall have the right under the Property Indenture to set off
any payment made to such holder by the Company. The holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Subordinated Debentures.
If the Guarantee Trustee fails to enforce its rights under the Guarantee
after a holder of record of Preferred Securities has made a written request of
the Guarantee Trustee to do so, such holder of record of Preferred Securities
may, to the extent permitted by applicable law, institute a legal proceeding
against the Company to enforce its rights under the Guarantee. In addition, if
the Company fails to make a Guarantee Payment, a holder of Preferred Securities
may directly institute a proceeding for enforcement of the Guarantee for such
payment. See "Certain Terms of the Preferred Securities -- Trust Agreement
Events of Default; Notice."
LIMITED RIGHTS OF ACCELERATION
The Property Trustee, as holder of the Subordinated Debentures, may
accelerate payment of the principal and accrued and unpaid interest on the
Subordinated Debentures only upon the occurrence and continuation of a Junior
Subordinated Debt Security Event of Default, which generally is limited to
payment defaults, breach of certain covenants and certain events of bankruptcy,
insolvency and reorganization of the Company. See "Description of the Junior
Subordinated Debt Securities -- Junior Subordinated Debt Security Events of
Default" in the accompanying Prospectus. Accordingly, there is no right to
acceleration upon default by the Company of its payment obligations under the
Guarantee.
HOLDING COMPANY STRUCTURE
As a holding company with no significant business operations of its own,
the Company relies on dividends and interest from its insurance company
subsidiaries, which are primarily domiciled in Indiana, as the principal source
of cash to meet its obligations, including the payment of principal (and
premium, if any) and any interest on debt obligations of the Company (including
the Subordinated Debentures), and to pay dividends to holders of its capital
stock. An Indiana-domiciled insurer may not pay a dividend without notifying the
Indiana Insurance Department and providing the Department with certain
information. Such an insurer may not pay interest on surplus notes without the
prior approval of the Indiana Insurance Department. In addition, the payment of
dividends by Indiana-domiciled insurers is limited under the Indiana insurance
holding company laws which require notice to and approval by the state insurance
commissioner for the declaration or payment of any dividend, which together with
other dividends or distributions made within the preceding twelve months,
exceeds the greater of (i) 10% of the insurer's statutory surplus as of December
31 of the preceding year or (ii) the net gain from operations for the
twelve-month period ending on December 31 of the preceding year. The Indiana
insurance laws also require domiciled insurers to seek the prior approval of the
Indiana Insurance Commissioner for the payment of any dividend from other than
earned surplus. The insurance holding company laws of the other jurisdictions in
which the Company's insurance subsidiaries are incorporated generally contain
similar (although in certain instances somewhat more restrictive) limitations on
the payment of dividends. Based upon these regulations, and without giving
effect to the 1998 acquisitions described below, the Company's insurance
subsidiaries would have been able to pay dividends to the Company in 1998 of
approximately $396.2 million without obtaining specific approval from the
insurance commissioners. Dividends payable by non-insurance subsidiaries are not
subject to regulatory limitations.
The Company's primary insurance subsidiary, The Lincoln National Life
Insurance Company ("LNL"), acquired a block of individual life insurance and
annuity business from CIGNA in January 1998 and anticipates acquiring a block of
individual life insurance from Aetna in the fourth quarter of 1998. See "The
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Company -- Recent Developments." These acquisitions were structured as indemnity
reinsurance transactions. The statutory accounting regulations do not allow
goodwill to be recognized on indemnity reinsurance transactions and, therefore,
the related statutory ceding commission flows through the statement of
operations as an expense resulting in a reduction of earned surplus. As a result
of these acquisitions, LNL's earned surplus will be negative and it will be
necessary for LNL to obtain the prior approval of the Indiana Insurance
Department before paying any dividends to the Company until such time as earned
surplus is positive. It is expected that earned surplus will return to a
positive position within two years from the closing of the Aetna transaction
described above assuming a level of statutory earnings coinciding with recent
earnings patterns. If statutory earnings are less than recent patterns due, for
example, to adverse operating conditions or further indemnity reinsurance
transactions of this nature, the earned surplus may not return to a positive
position as soon as expected. Although no assurance can be given, management
believes that the approvals for the payments of dividends in amounts consistent
with those paid in the past can be obtained. In the event such approvals are not
obtained, management believes that the Company can obtain the funds required to
satisfy its obligations, including the payment of distributions on the
Securities offered hereby, from its existing credit facilities and other
sources.
In connection with the acquisition of the CIGNA individual life insurance
and annuity business, LNL issued a $500 million surplus note to the Company. The
note bears interest at a fixed 6.56% rate. Principal repayments are not required
until the note matures in 2028. However, beginning in the year 2003, the Company
has an annual demand right for repayment of all, or any portion, of the
outstanding principal balance of the surplus note. Under applicable law,
approval of the Commissioner of Insurance of the State of Indiana must be
obtained prior to the payment of any interest or principal on the surplus note.
It is anticipated that an additional intercompany surplus note will be issued in
connection with the acquisition of a block of life insurance business from Aetna
by LNL.
TRADING PRICE OF THE PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. A holder who disposes of his Preferred Securities
between record dates for payments of Distributions thereon will be required to
include accrued but unpaid interest on the Subordinated Debentures through the
date of disposition in income as ordinary income (i.e., interest or, possibly,
OID), and to add such amount to his adjusted tax basis in his pro rata share of
the underlying Subordinated Debentures deemed disposed of. To the extent the
selling price is less than the holder's adjusted tax basis, a holder will
recognize a loss. See "Federal Income Tax Consequences -- Preferred Securities
- -- Interest Income and Original Issue Discount" and "-- Sales, Exchanges or
Other Taxable Dispositions of Preferred Securities."
FORWARD-LOOKING STATEMENTS
Investors are cautioned that certain statements contained or incorporated
by reference in this Prospectus are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 (the "Act").
Statements which are predictive in nature, which depend upon or refer to future
events or conditions, or which include words such as "expects," "anticipates,"
"intends," "plans," "believes," "estimates" and similar expressions constitute
forward-looking statements. In addition, any statements concerning future
financial performance (including future revenues, earnings or growth rates),
ongoing business strategies or prospects, and possible future Company actions,
are also forward-looking statements as defined by the Act. Forward-looking
statements are based on current expectations and projections about future events
and are subject to, among other things, risks, uncertainties and assumptions
about the Company, economic factors and the insurance industry generally. Such
statements are not guaranties of future performance and the Company has no
specific intentions to update those statements.
Actual events and results could differ materially from those indicated in
the forward-looking statements made by the Company due to, among other changes
not currently known, subsequent significant changes in: the Company (e.g.,
acquisitions, the integration of acquisitions, and dispositions), financial
markets (e.g., interest rates and securities markets), legislation (e.g., taxes
and product taxation), regulation (insurance and securities regulation), acts of
God (e.g., hurricanes, earthquakes and storms), insurance risks (e.g.,
policyholder mortality and morbidity) and competition.
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THE COMPANY
Lincoln National Corporation is a holding company with consolidated assets
as of June 30, 1998 of approximately $88 billion and shareholders' equity of
approximately $5.2 billion. Through subsidiaries, the Company operates multiple
insurance and investment management businesses. Operations are divided into four
business segments: (1) Life Insurance and Annuities, (2) Lincoln UK, (3)
Reinsurance and (4) Investment Management. Lincoln is an Indiana corporation
with its principal office at 200 East Berry Street, Fort Wayne, Indiana,
46802-2706. Its telephone number is (219) 455-2000.
Life Insurance and Annuities. The Life Insurance and Annuities segment is
comprised of the operations of Lincoln National Life Insurance Company, First
Penn-Pacific Life Insurance Company, Lincoln Life & Annuity Company of New York
and Lincoln Financial Advisors Corporation. A network of 68 life insurance
agencies, independent life insurance brokers, insurance agencies located within
financial institutions and specifically trained employees sells fixed annuities,
variable annuities, pension products, universal life insurance, variable
universal life insurance, whole life and other individual insurance coverages in
most states of the United States. The distribution network includes
approximately 2,200 career agents, 15,600 brokers and access to 51,800
stockbrokers and financial planners. This segment reported record income from
operations of $255.8 million in 1997, a 20% increase over the $212.5 million
reported in 1996. This earnings growth is primarily attributable to the annuity
business where earnings increased 23% in 1997 to $203.0 million.
Account values for this segment's annuities, 401(k) retirement plans, life
insurance and pensions totaled $53.7 billion as of December 31, 1997, an
increase of 14.5% over the account values as of December 31, 1996. Life
insurance in-force in this segment as of December 31, 1997, totaled $63.5
billion, an increase of 29% over $49.1 billion as of December 31, 1996. Income
from operations for the six months ended June 30, 1998 was $192.7 million
compared to $118.1 million in the prior year period. This increase is the result
of the addition of the life and annuity business acquired from CIGNA Corporation
("CIGNA") and the continuation of strong earnings from annuities. As of June 30,
1998, account values and life insurance in-force totaled $64.0 billion and
$114.1 billion, respectively. The growth since December 31, 1997 as shown above
includes $6.2 billion of account value and $41 billion of life insurance
in-force acquired from CIGNA as of January 2, 1998.
Prior to the acquisition of additional life insurance and annuities
business (see "Recent Developments" below), this segment accounted for
approximately 50% of income from operations. Following the completion of these
acquisitions, it is anticipated that this segment will account for approximately
75% of Lincoln's consolidated income from operations.
Lincoln UK. Lincoln UK offers life, investment and income protection and
retirement planning products in the U.K. market, primarily through 1,800 direct
sales representatives and tied agents. The products offered are primarily
unit-linked products where investment risk is borne by the policyholder. The
segment reported income from operations of $66.6 million in 1997, excluding an
after-tax charge of $174.9 million to strengthen reserves for future liabilities
concerning past sales of pension products to individuals. Excluding the charge,
this segment's 1997 income from operations was slightly higher than the $66.0
million in 1996.
Income from operations for the six months ended June 30, 1998 was $34.4
million compared to $33.4 million in the prior year period.
Reinsurance. The Reinsurance segment, conducted through Lincoln's
reinsurance companies ("Lincoln Re"), is one of the leading life-health
reinsurers in the world, with worldwide net premium income of $1.7 billion in
1997. As of December 31, 1997, Lincoln Re's individual and group life business
in-force was $183.5 billion, an increase of 14% over the prior year.
By providing innovative programs, tailored to clients' needs, Lincoln Re
has achieved a client base of more than 1,700 U.S. and 350 international
companies and a client retention rate of more than 95%. Lincoln Re does business
in more than 50 countries and has offices in Toronto, Brussels, London, Mexico
City, Buenos Aires, Manila and Singapore. Lincoln also maintains representative
offices in China.
This segment had income from operations, excluding special charges, of
$92.1 million in 1997, a 24% increase over the $74 million reported in 1996. Two
special charges were taken in 1997: (i) $130 million
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(after-tax) for disability income reserve strengthening, a business that has
proven to be one of the most difficult for the insurance industry in this
decade, and (ii) $113.7 million (after-tax) for reserve strengthening for
certain personal accident reinsurance business (certain excess-of-loss personal
accident reinsurance programs created in the London market have produced
unexpectedly heavy losses). These charges resulted in a net operating loss of
$151.6 million in 1997.
Income from operations for the six months ended June 30, 1998 was $48.1
million compared to $38.9 million in the prior year period (excluding the
special charge for strengthening disability income reserves). Individual and
group life insurance in-force was $200 billion as of June 30, 1998.
Investment Management. The investment management segment is composed of the
operations of Delaware Management Holdings, Inc., Lynch & Mayer, Inc. and
Vantage Investment Advisors, Inc. Each of these operating companies operates
autonomously and is encouraged to preserve its distinctive investment style.
Lincoln is focused on expanding its role as a money manager for both retail and
institutional business. Particular emphasis is being given to accelerating the
growth of the segment's retail mutual funds operation.
The investment management segment had assets under management of $54.0
billion at December 31, 1997, a 25% increase over the preceding year. The
segment's retail mutual fund and wrap fee assets totaled $22.5 billion at
December 31, 1997, which was a 40% increase from the $16.1 billion at December
31, 1996. While some of this growth was due to the acquisition in 1997 of the
Voyageur Fund Managers, representing $2.6 billion in assets, most of the growth
was internal and is attributable to enhanced service quality and the expansion
of distribution channels. The institutional investment management business had
assets under management of $31.5 billion at December 31, 1997, compared with
$27.1 billion at December 31, 1996.
The investment management segment had income from operations of $4.5
million in 1997, compared with $10.2 million in 1996. This decrease in income
was due to increased spending to expand retail operations at Delaware
Management, including increasing marketing personnel, broadening product
offerings and upgrading customer service. Lincoln believes such efforts are key
to the growth of the retail mutual funds operation.
Income from operations for the six months ended June 30, 1998 was $8.4
million versus $200,000 in the prior year period. This increase resulted from
the expansion of distribution channels during 1997. Retail and institutional
assets under management were $25.9 billion and $33.6 billion, respectively as of
June 30, 1998.
Recent Developments. On January 2, 1998, Lincoln completed the purchase of
a block of individual life insurance and annuity business from CIGNA for
approximately $1.4 billion. This acquisition also required additional
expenditures to cover expenses associated with the purchase and to provide
additional capital for the Life Insurance and Annuities segment to support this
business totaling $228.5 million. This transaction is being accounted for using
purchase accounting and, accordingly, the operating results generated by this
block of business have been included in Lincoln's consolidated financial
statements starting January 2, 1998. In addition to approximately $41 billion of
individual life insurance in-force, Lincoln acquired a career agency force with
600 financial planners, expanded estate and financial planning capabilities, a
life brokerage operation and an annuity distribution system. During 1997, this
block produced premiums, fees and deposits of approximately $1.2 billion and net
earnings of $98 million on a basis of generally accepted accounting principles
and prior to any adjustments required by purchase accounting.
Lincoln recorded a restructuring charge to its Life Insurance and Annuities
segment during the first quarter of 1998 of $20.0 million ($30.8 million
pre-tax) to cover certain costs of integrating the existing operations with the
new block of business.
On May 21, 1998, Lincoln announced that it had signed a definitive
agreement to acquire a block of individual life insurance business from Aetna
for $1.0 billion. The transaction includes approximately $50 billion of
individual life insurance in-force and access to existing life insurance
distribution arrangements. The acquisition is expected to involve additional
expenditures totaling approximately $165 million to cover expenses associated
with the purchase and to provide additional capital to the Life Insurance and
Annuities segment to support this business. The transaction will be accounted
for using purchase accounting and, accordingly, the operating results generated
by this block of business after the closing will be included in
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Lincoln's consolidated financial statements from the closing date. The
transaction is expected to close in the fourth quarter of 1998. As of December
31, 1997, this block of business had liabilities, measured on a statutory basis,
of $3.0 billion. The liabilities as updated to the closing date will become
Lincoln's obligation at the time of closing. Lincoln will also receive assets
equal to the liabilities. During 1997, this block produced premiums and fees of
$277 million and net income of $77 million on the basis of generally accepted
accounting principles, prior to adjustments required by purchase accounting and
excluding realized capital gains and losses. An initial application of purchase
accounting to this block of business would indicate that goodwill and other
intangible assets will be approximately $300 million and $800 million,
respectively. Additional analysis of this block of business after closing could
result in a change in these amounts or the shifting of amounts between goodwill
and other intangible assets. Approximately one-half of the funding for this
acquisition is expected to be financed from available cash reserves and the
other one-half is expected to be financed from the net proceeds of the sale of
securities, including the Securities offered hereby. See "Use of Proceeds."
THE TRUST
The Trust is a statutory business trust created under Delaware law pursuant
to (i) the Trust Agreement, executed by the Sponsor and the Issuer Trustees and
(ii) the filing of a certificate of trust with the Secretary of State of the
State of Delaware. Such Trust Agreement will be amended and restated in its
entirety substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus Supplement forms a part. The Trust Agreement
will be qualified as an indenture under the Trust Indenture Act. Although upon
issuance of the Preferred Securities, the holders of Income PRIDES will be the
beneficial owners of the related Preferred Securities, such Preferred Securities
will be pledged with the Collateral Agent to secure the obligations of the
holders under the related Purchase Contracts. See "Description of the Purchase
Contracts -- Pledged Securities and Pledge Agreement" and "Certain Terms of the
Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company." The Company will directly or indirectly acquire Common Securities in
an aggregate liquidation amount equal to at least 3% of the total capital of the
Trust. The Trust exists for the exclusive purposes of (i) issuing the Trust
Securities representing undivided beneficial ownership interests in the assets
of the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debentures and (iii) engaging in only those other activities
necessary or incidental thereto. The Trust will have a term of seven years, but
may dissolve earlier as provided in the Trust Agreement.
The number of Issuer Trustees is initially four. Two individual Trustees
(the "Administrative Trustees") are persons who are employees or officers of, or
who are affiliated with, the Company. Pursuant to the Trust Agreement, the third
trustee, the Property Trustee, is The First National Bank of Chicago, which is a
financial institution that is unaffiliated with the Company and which trustee
serves as property trustee under the Trust Agreement and as indenture trustee
for the purposes of compliance with the provisions of the Trust Indenture Act.
The fourth trustee, First Chicago Delaware Inc., an entity that is unaffiliated
with the Company, will serve as the Delaware Trustee, until removed or replaced
by the holder of the Common Securities. For purposes of compliance with the
provisions of the Trust Indenture Act, The First National Bank of Chicago will
also act as the guarantee trustee (the "Guarantee Trustee") under the Guarantee.
See "Description of the Guarantee" and "Description of Preferred
Securities -- Voting Rights; Amendment of Each Trust Agreement" in the
accompanying Prospectus.
The Property Trustee will hold title to the Subordinated Debentures for the
benefit of the holders of the Trust Securities and will have the power to
exercise all rights, powers and privileges under the Subordinated Indenture as
the holder of the Subordinated Debentures. In addition, the Property Trustee
will maintain exclusive control of a segregated noninterest bearing bank account
(the "Property Account") to hold all payments made in respect of the
Subordinated Debentures for the benefit of the holders of the Trust Securities.
The Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Preferred Securities. The
Company, as the direct or indirect holder of all the Common Securities, will
have the right to appoint, remove or replace any Issuer Trustee and to increase
or decrease the number of Issuer Trustees; provided, however, that the number
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of Issuer Trustees shall be no fewer than two, at least one of which shall be an
Administrative Trustee. The Company, in its capacity as borrower, will pay all
fees and expenses related to the Trust and the offering of the Trust Securities.
See "Certain Terms of the Subordinated Debentures -- General."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the Trust
Agreement, the Business Trust Act of the State of Delaware (the "Trust Act") and
the Trust Indenture Act. See "Certain Terms of the Preferred Securities" herein
and "Description of Preferred Securities" in the accompanying Prospectus.
The Company will pay all fees and expenses related to the Trust and the
offering of the Preferred Securities and will pay, directly or indirectly, all
ongoing costs, expenses and liabilities of the Trust.
The principal place of business of the Trust is 200 East Berry Street, Fort
Wayne, Indiana 46802-2706 and its telephone number is (219) 455-2000.
USE OF PROCEEDS
Substantially all of the proceeds from the sale of the Growth PRIDES will
be used to purchase the underlying Treasury Securities to be transferred to the
holder of the Growth PRIDES pursuant to the terms thereof, and the remainder, if
any, will be paid to the Company. All of the proceeds from the sale of the
Income PRIDES, the Preferred Securities that are not components of the Income
PRIDES and the Common Securities will be invested by the Trust in the
Subordinated Debentures of the Company, and the Company will, in turn, receive
those funds.
The Company currently anticipates using substantially all of the net
proceeds from the sale of the Subordinated Debentures (net of amounts paid by
the Company to purchase the Common Securities), estimated to be approximately
$193.1 million (or approximately $222.2 million if the Underwriters' over-
allotment options are exercised in full) (in each case after deducting the
underwriting commission and estimated expenses payable by the Company) to fund a
portion of the costs of the acquisition of a block of life insurance business
from Aetna which is expected to close in the fourth quarter of this year. See
"The Company -- Recent Developments." The proceeds will be invested in income
producing securities until such acquisition is consummated.
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PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Company's Common Stock is listed on the NYSE (as well as the Chicago,
Pacific and London Stock Exchanges) under the symbol "LNC". The following table
sets forth the high and low sales prices per share of the Common Stock, as
reported on the New York Stock Exchange Composite Tape, and the regular
quarterly dividends per share of Common Stock declared by the Company, in each
case for the calendar quarter indicated.
<TABLE>
<CAPTION>
MARKET PRICE
--------------------------------- CASH DIVIDEND
HIGH LOW PER SHARE
---- --- -------------
<S> <C> <C> <C> <C> <C>
1996
First Quarter.................................. $57 $48 $0.46
Second Quarter................................. 52 7/8 45 7/8 0.46
Third Quarter.................................. 47 40 3/4 0.46
Fourth Quarter................................. 54 5/8 44 0.49
1997
First Quarter.................................. $61 5/8 $51 3/8 $0.49
Second Quarter................................. 68 5/8 49 0.49
Third Quarter.................................. 73 63 13/16 0.49
Fourth Quarter................................. 78 1/8 64 5/8 0.52
1998
First Quarter.................................. $86 1/2 $72 1/4 $0.52
Second Quarter................................. 94 1/8 83 11/16 0.52
Third Quarter (through August 10, 1998)........ 98 7/8 91 --
</TABLE>
The last reported sale price for the Common Stock on the NYSE on August 10,
1998 is set forth on the cover page of this Prospectus.
The dividends on the Common Stock are considered and declared each quarter
by Company's Board of Directors, after considering items such as the Company's
financial condition, including current and expected earnings, projected cash
flow and anticipated financing needs.
As a holding company, the Company relies on dividends from its insurance
company subsidiaries, which are primarily domiciled in Indiana, as a principal
source of cash to meet its obligations and to pay dividends to holders of its
capital stock. See "Risk Factors -- Holding Company Structure."
S-36
<PAGE> 37
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company and its subsidiaries as of June 30, 1998, and as adjusted to give
effect to the issuance of 7.40% Trust Originated Preferred Securities, Series C,
on July 24, 1998 and the consummation of the offering of the Growth PRIDES, the
Income PRIDES and the Preferred Securities (without giving effect to any
exercise of the Underwriters' over-allotment options). See "Use of Proceeds."
The following data should be read in conjunction with the unaudited consolidated
financial statements and notes thereto of the Company and its subsidiaries
incorporated herein by reference.
<TABLE>
<CAPTION>
JUNE 30, 1998
-------------------------------------------------
ADJUSTMENT ADJUSTMENT
FOR THE FOR THE
ISSUANCE ISSUANCE OF
OF SERIES C FELINE AS
ACTUAL TOPRS PRIDES ADJUSTED
------ ----------- ----------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Short-term debt (including current maturities of long-term
debt)..................................................... $ 277.1 $ 277.1
======== ========
Long-term debt less current portion:
7 1/8% Note due 1999...................................... 99.8 99.8
7 5/8% Notes due 2002..................................... 99.5 99.5
7 1/4% Debentures due 2005................................ 191.4 191.4
6 1/2% Notes due 2008..................................... 100.2 100.2
7% Notes due 2018......................................... 200.3 200.3
9 1/8% Debentures due 2024................................ 119.8 119.8
Mortgages and other notes................................. .8 .8
-------- --------
Total long-term debt (less current portion)............. 811.8 811.8
Minority Interest -- Preferred Securities of Subsidiary
Companies, Series A, Series B and Series C(1)............. 315.0 200.0 515.0
Minority Interest -- Preferred Securities of Subsidiary
Companies, Series D....................................... -- 200.0(2) 200.0
-------- ------ ------ --------
Total long-term debt (less current portion) and minority
interests............................................. 1,126.8 200.0 200.0 1,526.8
Shareholders' Equity:
Preferred Stock, without par value:
Authorized: 10,000,000 shares
Issued and outstanding: 35,091 shares of $3.00
Convertible Cumulative Preferred Stock, Series A...... 1.1 1.1
Common Stock, without par value:
Authorized: 800,000,000 shares
Issued and outstanding: 100,521,755 shares.............. 969.4 (13.1)(3) 956.3
Earned surplus.............................................. 3,659.0 3,659.0
Foreign currency translation adjustment..................... 51.8 51.8
Net unrealized gain on securities available-for-sale........ 469.5 469.5
-------- --------
Total shareholders' equity.............................. 5,150.8 5,137.7
-------- ------ ------ --------
Total capitalization.................................. $6,277.6 $200.0 $186.9 $6,664.5
======== ====== ====== ========
</TABLE>
- -------------------------
(1) In July, 1996, Lincoln National Capital I issued 8,600,000 8 3/4% Cumulative
Quarterly Income Preferred Securities, Series A. The sole assets of Lincoln
National Capital I are the 8 3/4% Junior Subordinated Deferrable Interest
Debentures, Series A, issued by Lincoln to the trust. In August, 1996,
Lincoln National Capital II issued 4,000,000 8.35% Trust Originated
Preferred Securities, Series B. The sole assets of Lincoln National Capital
II are the 8.35% Junior Subordinated Deferrable Interest Debentures, Series
B, issued by Lincoln to the trust. These Series A Debentures and Series B
Debentures will mature on September 30, 2026, which date may be extended to
a date not later than September 30, 2045 if certain conditions are met. On
July 24, 1998, Lincoln National Capital III issued 8,000,000 7.40% Trust
Originated Preferred Securities, Series C. The sole assets of Lincoln
National Capital III are the 7.40% Junior Subordinated Deferrable Interest
Debentures, Series C, issued by Lincoln to the trust. The Series C
Debentures will mature on September 30, 2028, which may be extended to
September 30, 2047 if certain conditions are met. Lincoln owns all of the
common securities of Lincoln National Capital I, Lincoln National Capital II
and Lincoln National Capital III.
The obligations of Lincoln, under certain documents, including without
limitation guarantee agreements, constitute a full and unconditional
guarantee by Lincoln of the obligations of Lincoln National Capital I,
Lincoln National Capital II and Lincoln National Capital III under the
preferred securities. Lincoln National Capital I, Lincoln National Capital
II and Lincoln National Capital III are not subject to the reporting
requirements under the Exchange Act.
(2) Represents the issuance of the Preferred Securities, including the Preferred
Securities initially issued and held as a component of the Income PRIDES,
offered hereby. Subsequent to the completion of the offering, the assets of
Lincoln National Capital IV will consist solely of approximately $206.2
million in aggregate principal amount of Subordinated Debentures, maturing
on August 15, 2003. Lincoln will own all of the Common Securities of the
Trust.
(3) Reflects certain issuance costs related to the FELINE PRIDES and the present
value of the Contract Adjustment Payments.
S-37
<PAGE> 38
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of the
Company. The data at December 31, 1997, 1996 and 1995 and for the three years
ended December 31, 1997 are derived from the Company's audited financial
statements for those years. Selected unaudited financial data at June 30, 1998
and 1997 and for each of the six month periods ended June 30, 1998 and 1997
reflect, in the opinion of the Company, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the results
of operations for these periods. The results of operations for the six months
ended June 30, 1998 are not necessarily indicative of results to be expected for
the full year. The following data should be read in conjunction with the
financial statements and the related notes thereto incorporated by reference in
this Prospectus Supplement and the accompanying Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Total revenue............................ $2,955.5 $2,326.1 $4,898.5 $4,733.6 $4,586.5
======== ======== ======== ======== ========
Net income from continuing
operations(1).......................... 270.7 35.1 $ 22.2 $ 356.4 $ 301.4
Net income from discontinued
operations............................. -- 88.5 134.9 157.2 180.8
Gain on sale of discontinued
operations............................. -- -- 776.9 -- --
-------- -------- -------- -------- --------
Net Income(1).......................... $ 270.7 $ 123.6 $ 934.0 $ 513.6 $ 482.2
======== ======== ======== ======== ========
Per Share Data:(2)
Net income from continuing operations.... $ 2.66 $ .34 $ .21 $ 3.38 $ 2.88
Net income from discontinued
operations............................. -- .84 1.30 1.49 1.72
Gain on sale of discontinued
operations............................. -- -- 7.47 -- --
-------- -------- -------- -------- --------
Net Income-Diluted..................... $ 2.66 $ 1.18 $ 8.98 $ 4.87 $ 4.60
======== ======== ======== ======== ========
Net Income-Basic....................... $ 2.70 $ 1.19 $ 9.11 $ 4.95 $ 4.78
======== ======== ======== ======== ========
Common stock dividend.................... $ 1.04 $ .98 $ 1.99 $ 1.87 $ 1.75
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
---------------------- -----------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Assets................................... $88,364.6 $76,874.4 $77,174.7 $71,713.4 $63,257.7
Long-term debt........................... 811.8 513.3 511.0 626.3 659.3
Minority interest-preferred securities of
subsidiary companies................... 315.0 315.0 315.0 315.0 --
Shareholders' equity..................... 5,150.8 4,484.7 4,982.9 4,470.0 4,378.1
Per Share Data:(2)
Shareholders' equity (Securities at
market)................................ $ 51.10 $ 43.00 $ 49.27 $ 43.00 $ 41.89
Shareholders' equity (Securities at
cost).................................. 46.44 38.90 44.96 39.00 35.21
</TABLE>
- -------------------------
(1) Net income from continuing operations and net income for the years ended
1995 and 1997 and the six months ended June 30, 1997 includes the impact of
the changes in estimate of the reserve level needed for the Company's
disability income business ($121.6 million, $130.0 million and $130.0
million, respectively, after-tax). Also, 1997 includes a change in estimate
for reserves of (1) Lincoln UK's pension business of $174.9 million
after-tax and (2) Reinsurance's personal accident programs of $113.7 million
after-tax. See "The Company."
(2) Per share amounts were also affected by the issuance of 1,398,112 shares of
Common Stock in 1997, and the retirement of 694,582, 4,948,900 and 623,281
shares of Common Stock in 1996, 1997 and the six months ended June 30, 1998,
respectively.
S-38
<PAGE> 39
ACCOUNTING TREATMENT
Under generally accepted accounting principles, alternatives exist with
respect to the accounting treatment and presentation of the Preferred Securities
in the Company's consolidated financial statements. This Prospectus Supplement
assumes the following accounting treatment: the financial statements of the
Trust will be reflected in the Company's consolidated financial statements, with
the Preferred Securities shown on the Company's balance sheet under the caption
"Minority Interest -- Preferred Securities of Subsidiary Companies" as Series D,
and appropriate disclosures about the Preferred Securities, the Guarantee and
the Subordinated Debentures will be included in the notes to the consolidated
financial statements. The financial statement footnotes to the Company's
consolidated financial statements will reflect that the sole asset of the Trust
will be the Subordinated Debentures. Distributions on the Preferred Securities
will be reflected as a charge to the Company's consolidated income, identified
as Minority Interest in Net Income of Consolidated Subsidiaries, whether paid or
accrued.
The Company may elect an alternative accounting treatment for the Preferred
Securities. Such treatment would involve the following: The financial statements
of the Trust would be reflected in the Company's consolidated financial
statements, with the Preferred Securities shown as debt on the Company's balance
sheet. The financial statement footnotes to the Company's consolidated financial
statements would reflect that the sole asset of the Trust would be the
Subordinated Debentures. Distributions on the Preferred Securities would be
reflected as a charge to the Company's consolidated income, identified as
Interest Expense, whether paid or accrued.
The Purchase Contracts are forward transactions in the Company's Common
Stock. Under generally accepted accounting principles, the Purchase Contracts
(which include Contract Adjustment Payments) will be valued at fair value at the
date of issuance. Upon settlement of a Purchase Contract, the Company will
receive the Stated Amount on such Purchase Contract and will issue the requisite
number of shares of Common Stock. The Stated Amount thus received will be
credited to shareholders' equity.
Prior to the issuance of shares of Common Stock upon settlement of the
Purchase Contracts, it is anticipated that the FELINE PRIDES will be reflected
in the Company's earnings per share calculations using the treasury stock
method. Under this method, the number of shares of Common Stock used in
calculating earnings per share is deemed to be increased by the excess, if any,
of the number of shares issuable upon settlement of the Purchase Contracts over
the number of shares that could be purchased by the Company in the market (at
the average market price during the period) using the proceeds receivable upon
settlement. Consequently, it is anticipated there will be no dilutive effect on
the Company's earnings per share except during periods when the average market
price of Common Stock is above the Threshold Appreciation Price.
S-39
<PAGE> 40
DESCRIPTION OF THE FELINE PRIDES
The summaries of certain provisions of documents described below do not
purport to be complete, and in each instance reference is hereby made to the
copies of the forms of such documents (including the definitions therein of
certain terms) which are on file with the Commission and copies of which may be
obtained as described under "Available Information." Wherever particular
sections of, or terms defined in, such documents are referred to herein, such
sections or defined terms are incorporated by reference herein. As used under
this caption, references to the Company mean Lincoln National Corporation,
excluding, unless otherwise expressly stated or the context otherwise requires,
its subsidiaries.
Each FELINE PRIDES will be issued under the Purchase Contract Agreement
between the Company and the Purchase Contract Agent. The FELINE PRIDES offered
hereby initially will consist of (A) 7,000,000 units referred to as Income
PRIDES with a Stated Amount per Income PRIDES equal to $25 and (B) 1,000,000
units referred to as Growth PRIDES with a Stated Amount per Growth PRIDES equal
to $25. Each Income PRIDES will initially consist of a unit comprised of (a) a
Purchase Contract under which (i) the holder (including, initially, an
Underwriter) will purchase from the Company not later than the Purchase Contract
Settlement Date, for an amount of cash equal to the Stated Amount, a number of
shares of Common Stock equal to the Settlement Rate described below under
"Description of the Purchase Contracts -- General," and (ii) the Company will
pay Contract Adjustment Payments to the holder at the rate of 1.35% of the
Stated Amount per annum, and (b) (i) a beneficial ownership interest in a
related Preferred Security, having a stated liquidation amount per Preferred
Security equal to the Stated Amount, representing an undivided beneficial
ownership interest in the assets of the Trust, which will consist solely of the
Subordinated Debentures, (ii) in the case of a distribution of the Subordinated
Debentures upon the dissolution of the Trust as a result of an Investment
Company Event, as described below, or otherwise, Subordinated Debentures having
a principal amount equal to the stated liquidation amount of the Preferred
Securities or (iii) upon the occurrence of a Tax Event Redemption prior to the
Purchase Contract Settlement Date, the appropriate Applicable Ownership Interest
in the Treasury Portfolio. "Applicable Ownership Interest" means, with respect
to an Income PRIDES and the U.S. Treasury Securities in the Treasury Portfolio,
(A) a 1/40, or 2.5% undivided beneficial ownership interest in a $1,000
principal or interest amount of a principal or interest strip in a U.S. Treasury
Security included in such Treasury Portfolio which matures on or prior to August
15, 2001 and (B) for each scheduled interest payment date on the Subordinated
Debentures that occurs after the Tax Event Redemption Date, a .04% undivided
beneficial ownership interest in a $1,000 face amount of such U.S. Treasury
Security which is a principal or interest strip maturing on such date.
Each Growth PRIDES will consist of a unit comprised of (a) a Purchase
Contract under which (i) the holder will purchase from the Company not later
than the Purchase Contract Settlement Date, for an amount in cash equal to the
Stated Amount, a number of shares of Common Stock of the Company equal to the
Settlement Rate, and (ii) the Company will pay to the holder Contract Adjustment
Payments at the rate of 1.85% of the Stated Amount per annum, and (b) a 1/40
undivided beneficial ownership interest in a zero-coupon U.S. Treasury Security.
The purchase price of each FELINE PRIDES will be allocated between the
related Purchase Contract and the related Preferred Security or interest in a
Treasury Security in proportion to their respective fair market values at the
time of purchase. The Company expects that the entire purchase price of a FELINE
PRIDES will be allocated to the related Preferred Security or interest in a
Treasury Security and that no amount will be allocated to the related Purchase
Contract. Such position generally will be binding on each beneficial owner of
each Income PRIDES (but not on the IRS). See "Federal Income Tax Consequences --
FELINE PRIDES -- Allocation of Purchase Price." As long as a FELINE PRIDES is in
the form of an Income PRIDES or Growth PRIDES, the related Preferred Securities
or the appropriate Applicable Ownership Interest of the Treasury Portfolio or
the Treasury Securities, as applicable, will be pledged to the Collateral Agent
to secure the holder's obligation to purchase Common Stock under the related
Purchase Contracts.
S-40
<PAGE> 41
CREATING GROWTH PRIDES
Each holder of Income PRIDES (unless a Tax Event Redemption has occurred)
will have the right, at any time on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date, to substitute for
the related Preferred Securities held by the Collateral Agent Treasury
Securities in an aggregate principal amount at maturity equal to the aggregate
stated liquidation amount of such Preferred Securities, thereby creating Growth
PRIDES. Because Treasury Securities are issued in integral multiples of $1,000,
holders of Income PRIDES may make such substitution only in integral multiples
of 40 Income PRIDES; provided, however, if a Tax Event Redemption has occurred
prior to the Purchase Contract Settlement Date and the Treasury Portfolio has
become a component of the Income PRIDES, holders of such Income PRIDES may make
such substitutions only in integral multiples of 1,600,000 Income PRIDES (but
obtaining the release of the appropriate Applicable Ownership Interest in the
Treasury Portfolio rather than the Preferred Securities), at any time on or
prior to the second Business Day immediately preceding the Purchase Contract
Settlement Date. Holders wishing to make such substitution must hold at least
1,600,000 Income PRIDES. To create 40 Growth PRIDES (unless a Tax Event
Redemption has occurred), the Income PRIDES holder will (a) deposit with the
Collateral Agent a Treasury Security having a principal amount at maturity of
$1,000 and (b) transfer 40 Income PRIDES to the Purchase Contract Agent
accompanied by a notice stating that such Income PRIDES holder has deposited a
Treasury Security with the Collateral Agent and requesting that the Purchase
Contract Agent instruct the Collateral Agent to release to such holder the 40
Preferred Securities relating to such 40 Income PRIDES. In the event that
Contract Adjustment Payments are at a higher rate for Growth PRIDES than for
Income PRIDES, holders of Income PRIDES wishing to create Growth PRIDES will
also be required to deliver cash in an amount equal to the excess of the
Contract Adjustment Payments that would have accrued since the last Payment Date
on which Contract Adjustment Payments have been paid to the date of substitution
on the Growth PRIDES being created by such holders, over the Contract Adjustment
Payments that have accrued over the same time period on the related Income
PRIDES. Upon such deposit and receipt of an instruction from the Purchase
Contract Agent, the Collateral Agent will effect the release of the related 40
Preferred Securities from the pledge under the Pledge Agreement free and clear
of the Company's security interest therein to the Purchase Contract Agent, which
will (i) cancel the 40 Income PRIDES, (ii) transfer the 40 related Preferred
Securities to such holder and (iii) deliver 40 Growth PRIDES to the holder. The
Treasury Security will be substituted for the Preferred Securities and will be
pledged with the Collateral Agent to secure the holder's obligation to purchase
Common Stock under the related Purchase Contracts. The related Preferred
Securities released to the holder thereafter will trade separately from the
resulting Growth PRIDES. Contract Adjustment Payments will be payable by the
Company on such Growth PRIDES on each Payment Date from the later of August 14,
1998 (the "Original Issue Date") and the last Payment Date on which Contract
Adjustment Payments were paid. In addition, OID will accrue on the related
Treasury Securities.
CREATING INCOME PRIDES
Each holder of a Growth PRIDES (unless a Tax Event Redemption has occurred)
will have the right, at any time on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date, to substitute for
the related Treasury Securities held by the Collateral Agent Preferred
Securities in an aggregate stated liquidation amount equal to the aggregate
principal amount at stated maturity of such Treasury Securities, thereby
creating Income PRIDES. Because Treasury Securities are issued in integral
multiples of $1,000, holders of Growth PRIDES may make such substitutions only
in integral multiples of 40 Growth PRIDES; provided, however, if a Tax Event
Redemption has occurred and the Treasury Portfolio has become a component of the
Income PRIDES, holders of the Growth PRIDES may make such substitution only in
integral multiples of 1,600,000 Growth PRIDES at any time on or prior to the
second Business Day immediately preceding the Purchase Contract Settlement Date.
Holders wishing to make such substitution must hold at least 1,600,000 Growth
PRIDES. To create 40 Income PRIDES (unless a Tax Event Redemption has occurred),
the Growth PRIDES holder will (a) deposit with the Collateral Agent 40 Preferred
Securities (which Preferred Securities must be purchased by such holder in the
open market at such holder's expense) and (b) transfer 40 Growth PRIDES
certificates to the Purchase Contract Agent accompanied by a notice stating that
such Growth PRIDES holder has deposited 40 Preferred Securities with
S-41
<PAGE> 42
the Collateral Agent and requesting that the Purchase Contract Agent instruct
the Collateral Agent to release to such Growth PRIDES holder the Treasury
Security relating to such Growth PRIDES. Upon such deposit and receipt of an
instruction from the Purchase Contract Agent, the Collateral Agent will effect
the release of the related Treasury Security from the pledge under the Pledge
Agreement free and clear of the Company's security interest therein to the
Purchase Contract Agent, which will (i) cancel the 40 Growth PRIDES, (ii)
transfer the related Treasury Security to such holder of Growth PRIDES and (iii)
deliver 40 Income PRIDES to such holder of Growth PRIDES. The substituted
Preferred Securities will be pledged with the Collateral Agent to secure such
Income PRIDES holder's obligation to purchase Common Stock under the related
Purchase Contracts. Cumulative cash distributions, payable quarterly at a rate
of 7.75% of the Stated Amount per annum (subject to the Company's deferral
rights) on such Income PRIDES, will be payable on such Income PRIDES by the
Company on each Payment Date from the later of the Original Issue Date and the
last Payment Date on which such cumulative cash distributions were paid. Holders
who elect to substitute Pledged Securities, thereby creating Growth PRIDES or
Income PRIDES or recreating Income PRIDES or Growth PRIDES (as discussed below),
shall be responsible for any fees or expenses payable in connection with such
substitution. See "Certain Provisions of the Purchase Contract Agreement and the
Pledge Agreement -- Miscellaneous."
CURRENT PAYMENTS
Holders of Income PRIDES are entitled to receive aggregate cash
distributions at a rate of 7.75% of the Stated Amount per annum from and after
the Original Issue Date payable quarterly in arrears. The quarterly payments on
the Income PRIDES will consist of (i) cumulative cash Distributions on the
related Preferred Securities or the Treasury Portfolio, as applicable, payable
at the rate of 6.40% of the Stated Amount per annum and (ii) Contract Adjustment
Payments payable by the Company at the rate of 1.35% of the Stated Amount per
annum, subject (in the case of both the Distributions on the Preferred
Securities and the Contract Adjustment Payments) to the Company's right of
deferral as described herein.
Each holder of Growth PRIDES will be entitled to receive quarterly Contract
Adjustment Payments payable by the Company at the rate of 1.85% of the Stated
Amount per annum, subject to the Company's rights of deferral as described
herein. In addition, OID will accrue on the related Treasury Securities.
The ability of the Trust to make the quarterly Distributions on the
Preferred Securities is solely dependent upon the receipt of corresponding
interest payments from the Company on the Subordinated Debentures. The Company
has the right at any time, and from time to time, limited to a period not
extending beyond the maturity of the Subordinated Debentures, to defer the
interest payments on the Subordinated Debentures. As a consequence of such
deferral, the corresponding quarterly distributions (unless a Tax Event
Redemption has occurred) to holders of Income PRIDES (or any Preferred
Securities outstanding after the Purchase Contract Settlement Date or after a
substitution of collateral resulting in the creation of Growth PRIDES) would be
deferred (but despite such deferral, would continue to accrue, compounded
quarterly, at the rate of 6.40% per annum through and including August 15, 2001
and at the Reset Rate thereafter). The Company also has the right to defer the
payment of Contract Adjustment Payments on the related Purchase Contracts until
no later than the Purchase Contract Settlement Date; however, such deferred
Contract Adjustment Payments will bear additional Contract Adjustment Payments
at the rate of 8.25% per annum until paid. See "Description of the Purchase
Contracts -- Contract Adjustment Payments" and "Certain Terms of the Preferred
Securities -- Distributions." If a Tax Event Redemption has occurred and the
Treasury Portfolio has become a component of the Income PRIDES, quarterly
distributions on the Treasury Portfolio, as a portion of the cumulative
quarterly distributions to the holders of Income PRIDES, will not be deferred.
The Company's obligations with respect to the Subordinated Debentures will
be unsecured and will be subordinate and junior in right of payment, to the
extent set forth herein, to all existing and future Senior Debt and will be
effectively subordinated to all existing and future liabilities and obligations
of the Company's subsidiaries. The Company's obligations with respect to the
Contract Adjustment Payments will also be subordinated and junior in right of
payment to the Company's Senior Debt.
S-42
<PAGE> 43
VOTING AND CERTAIN OTHER RIGHTS
Holders of Preferred Securities, in their capacities as such holders, will
not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of Administrative Trustees and will generally have no voting
rights except in the limited circumstances described under "Description of
Preferred Securities -- Voting Rights; Amendment of Each Trust Agreement" in the
accompanying Prospectus. Holders of Purchase Contracts forming part of the
Income PRIDES or Growth PRIDES, in their capacities as such holders, will have
no voting or other rights in respect of the Common Stock.
LISTING OF THE SECURITIES
The Income PRIDES and the Growth PRIDES have been approved for listing on
the NYSE, subject to official notice of issuance. Unless and until substitution
has been made as described in "Description of the FELINE PRIDES -- Creating
Growth PRIDES" or "-- Creating Income PRIDES," neither the Preferred Security
component of an Income PRIDES nor the Treasury Security component of a Growth
PRIDES will trade separately from such Income PRIDES or Growth PRIDES, and such
Preferred Security component will trade as a unit with the Purchase Contract
component of the Income PRIDES and such Treasury Security component will trade
as a unit with the Purchase Contract component of the Growth PRIDES. If
Preferred Securities are separately traded to a sufficient extent that the
applicable exchange listing requirements are met, the Company will endeavor to
cause such securities to be listed on the exchange on which the Income PRIDES
and the Growth PRIDES are then listed. See "Underwriting."
NYSE SYMBOL OF COMMON STOCK
The Common Stock is listed on the NYSE under the symbol "LNC."
MISCELLANEOUS
The Company or its affiliates may from time to time purchase any of the
Securities offered hereby which are then outstanding by tender, in the open
market or by private agreement.
DESCRIPTION OF THE PURCHASE CONTRACTS
The summaries of certain provisions of documents described below do not
purport to be complete, and in each instance reference is hereby made to the
copies of the forms of such documents (including the definitions therein of
certain terms) which are on file with the Commission and copies of which may be
obtained as described under "Available Information." Wherever particular
sections of, or terms defined in, such documents are referred to herein, such
sections or defined terms are incorporated by reference herein. As used under
this caption, references to the Company mean Lincoln National Corporation
excluding, unless otherwise expressly stated or the context otherwise requires,
its subsidiaries.
GENERAL
Each Purchase Contract underlying a FELINE PRIDES (unless earlier
terminated, or earlier settled at the holder's option) will obligate the holder
of such Purchase Contract to purchase, and the Company to sell, not later than
the Purchase Contract Settlement Date, for an amount in cash equal to the Stated
Amount of such FELINE PRIDES, a number of shares of Common Stock equal to the
Settlement Rate. The Settlement Rate will be calculated as follows (subject to
adjustment under certain circumstances): (a) if the Applicable Market Value is
equal to or greater than the Threshold Appreciation Price of $111.45, which is
approximately 20% above the Reference Price, the Settlement Rate will be .2243
(which is equal to the Stated Amount divided by the Threshold Appreciation
Price); accordingly, if, between the date of this Prospectus Supplement and the
period during which the Applicable Market Value is measured, the market price
for the Common Stock increases to an amount that is higher than the Threshold
Appreciation Price, the aggregate market value of the shares of Common Stock
issued upon settlement of each Purchase Contract (assuming that such market
value is the same as the Applicable Market Value of such Common Stock) will be
higher than the
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Stated Amount, and if such market price is the same as the Threshold
Appreciation Price, the aggregate market value of such shares (assuming that
such market value is the same as the Applicable Market Value of such Common
Stock) will be equal to the Stated Amount; (b) if the Applicable Market Value is
less than the Threshold Appreciation Price but greater than the Reference Price,
the Settlement Rate will be equal to the Stated Amount divided by the Applicable
Market Value; accordingly, if the market price for the Common Stock increases
between the date of this Prospectus Supplement and the period during which the
Applicable Market Value is measured but such market price is less than the
Threshold Appreciation Price, the aggregate market value of the shares of Common
Stock issued upon settlement of each Purchase Contract (assuming that such
market value is the same as the Applicable Market Value of such Common Stock)
will be equal to the Stated Amount; and (c) if the Applicable Market Value is
less than or equal to the Reference Price, the Settlement Rate (which is equal
to the Stated Amount divided by the Reference Price) will be .2692; accordingly,
if the market price for the Common Stock decreases between the date of this
Prospectus Supplement and the period during which the Applicable Market Value is
measured, the aggregate market value of the shares of Common Stock issued upon
settlement of each Purchase Contract (assuming that such market value is the
same as the Applicable Market Value of such Common Stock) will be less than the
Stated Amount, and if such market price stays the same, the aggregate market
value of such shares (assuming that such market value is the same as the
Applicable Market Value of such Common Stock) will be equal to the Stated
Amount. "Closing Price" of the Common Stock on any date of determination means
the closing sale price (or, if no closing price is reported, the last reported
sale price) of the Common Stock on the NYSE on such date or, if the Common Stock
is not listed for trading on the NYSE on any such date, as reported in the
composite transactions for the principal United States securities exchange on
which the Common Stock is so listed, or if the Common Stock is not so listed on
a United States national or regional securities exchange, as reported by the
Nasdaq Stock Market, or, if the Common Stock is not so reported, the last quoted
bid price for the Common Stock in the over-the-counter market as reported by the
National Quotation Bureau or similar organization, or, if such bid price is not
available, the market value of the Common Stock on such date as determined by a
nationally recognized independent investment banking firm retained for this
purpose by the Company. A "Trading Day" means a day on which the Common Stock
(A) is not suspended from trading on any national or regional securities
exchange or association or over-the-counter market at the close of business and
(B) has traded at least once on the national or regional securities exchange or
association or over-the-counter market that is the primary market for the
trading of the Common Stock.
No fractional shares of Common Stock will be issued by the Company pursuant
to the Purchase Contracts. In lieu of fractional shares otherwise issuable
(calculated on an aggregate basis) in respect of Purchase Contracts being
settled by a holder of Income PRIDES or Growth PRIDES, the holder will be
entitled to receive an amount of cash equal to such fraction of a share times
the Applicable Market Value.
On the Business Day immediately preceding the Purchase Contract Settlement
Date, unless a holder of Income PRIDES or Growth PRIDES (i) has settled the
related Purchase Contracts prior to the Purchase Contract Settlement Date
through the early delivery of cash to the Purchase Contract Agent in the manner
described under "-- Early Settlement," (ii) in the case of Income PRIDES, has
settled the related Purchase Contracts with separate cash on the Business Day
immediately preceding the Purchase Contract Settlement Date pursuant to prior
notice in the manner described under "-- Notice to Settle with Cash", (iii) has
had the Preferred Securities related to such holder's Purchase Contracts
remarketed in the manner described herein in connection with settling such
Purchase Contracts, or (iv) an event described under "-- Termination" below has
occurred, then (A) in the case of Income PRIDES (unless a Tax Event Redemption
has occurred) the Company will exercise its rights as a secured party to dispose
of the Preferred Securities in accordance with applicable law and (B) in the
case of Growth PRIDES or Income PRIDES (in the event that a Tax Event Redemption
has occurred), the principal amount of the related Treasury Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as
applicable, when paid at maturity, will automatically be applied to satisfy in
full the holder's obligation to purchase Common Stock under the related Purchase
Contracts. Such Common Stock will then be issued and delivered to such holder or
such holder's \designee, upon presentation and surrender of the certificate
evidencing such FELINE PRIDES (a "FELINE PRIDES Certificate") and payment by the
holder of any transfer or similar taxes payable in connection with the issuance
of the Common Stock to any person other than such holder.
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Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the related Purchase
Contracts be deemed to have (a) irrevocably agreed to be bound by the terms and
provisions of the related Purchase Contracts and the Pledge Agreement and to
have covenanted and agreed to perform its obligations thereunder for so long as
such holder remains a holder of such FELINE PRIDES, and (b) duly appointed the
Purchase Contract Agent as such holder's attorney-in-fact to enter into and
perform the related Purchase Contracts and Pledge Agreement on behalf of and in
the name of such holder. In addition, each beneficial owner of Income PRIDES or
Growth PRIDES, by acceptance of such interest, will be deemed to have agreed to
treat (i) itself as the owner of the related Preferred Securities, the
appropriate Applicable Ownership Interest of the Treasury Portfolio or the
Treasury Securities, as the case may be, and (ii) the Subordinated Debentures as
indebtedness of the Company for all United States federal tax purposes.
REMARKETING
Pursuant to the Remarketing Agreement and subject to the terms of the
Remarketing Underwriting Agreement among the Remarketing Agent, the Purchase
Contract Agent, the Company and the Trust, unless a Tax Event Redemption has
occurred, the Preferred Securities of Income PRIDES holders who have failed to
notify the Purchase Contract Agent on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date in the manner
described under "-- Notice to Settle with Cash" of their intention to settle the
related Purchase Contracts with separate cash on the Business Day immediately
preceding the Purchase Contract Settlement Date will be remarketed on the third
Business Day immediately preceding the Purchase Contract Settlement Date. The
Remarketing Agent will use its reasonable efforts to remarket such Preferred
Securities on such date at a price of approximately 100.5% of the aggregate
stated liquidation amount of such Preferred Securities, plus any accrued and
unpaid Distributions (including deferred Distributions, if any), thereon. The
portion of the proceeds from such remarketing equal to the aggregate stated
liquidation amount of such Preferred Securities will be automatically applied to
satisfy in full such Income PRIDES holders' obligations to purchase Common Stock
under the related Purchase Contracts. In addition, after deducting as the
Remarketing Fee an amount not exceeding 25 basis points (0.25%) of the aggregate
stated liquidation amount of the remarketed Preferred Securities from any amount
of such proceeds in excess of the aggregate stated liquidation amount of the
remarketed Preferred Securities plus any accrued and unpaid distributions
(including deferred distributions, if any), the Remarketing Agent will remit the
remaining portion of the proceeds, if any, for the benefit of such holder.
Income PRIDES holders whose Preferred Securities are so remarketed will not
otherwise be responsible for the payment of any Remarketing Fee in connection
therewith. If, despite using its reasonable efforts, the Remarketing Agent
cannot remarket the related Preferred Securities (other than to the Company) of
such holders of Income PRIDES at a price not less than 100% of the aggregate
stated liquidation amount of such Preferred Securities plus any accrued and
unpaid Distributions (including deferred Distributions, if any) or if the
remarketing shall not have occurred because a condition precedent to the
remarketing shall not have been fulfilled, resulting in a Failed Remarketing,
the Company will exercise its rights as a secured party to dispose of the
Preferred Securities in accordance with the applicable law and satisfy in full,
from the proceeds of such disposition, such holder's obligation to purchase
Common Stock under the related Purchase Contracts; provided, that if the Company
exercises such rights as a secured creditor, any accrued and unpaid
Distributions (including deferred Distributions, if any) on such Preferred
Securities will be paid in cash by the Company to the holders of record of such
Preferred Securities. The Company will cause a notice of such Failed Remarketing
to be published on the second Business Day immediately preceding the Purchase
Contract Settlement Date by publication in a daily newspaper in the English
language of general circulation in The City of New York, which is expected to be
The Wall Street Journal. In addition, the Company will request, not later than
seven nor more than 15 calendar days prior to the remarketing date, that the
Depositary notify its participants holding Preferred Securities, Income PRIDES
and Growth PRIDES of such remarketing, including, in the case of a Failed
Remarketing, the procedures that must be followed if a Preferred Security holder
wishes to exercise its right to put its Preferred Security to the Company as
described herein. If required, the Company will endeavor to ensure that a
registration statement with regard to the full amount of the Preferred
Securities to be remarketed shall be effective in such form as will enable the
Remarketing Agent to rely on it in
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connection with the remarketing process. It is currently anticipated that
Merrill Lynch, Pierce, Fenner & Smith Incorporated will be the Remarketing
Agent.
EARLY SETTLEMENT
A holder of Income PRIDES may settle the related Purchase Contracts at any
time on or prior to the fifth Business Day immediately preceding the Purchase
Contract Settlement Date by presenting and surrendering the FELINE PRIDES
Certificate evidencing such Income PRIDES at the offices of the Purchase
Contract Agent with the form of "Election to Settle Early" on the reverse side
of such certificate completed and executed as indicated, accompanied by payment
(payable to the Company in immediately available funds) of an amount equal to
(i) the Stated Amount times the number of Purchase Contracts being settled, but
only in integral multiples of 40 Income PRIDES plus (ii) if such delivery is
made with respect to any Purchase Contracts during the period from the close of
business on any record date next preceding any Payment Date to the opening of
business on such Payment Date, an amount equal to the sum of (x) the Contract
Adjustment Payments payable on such Payment Date with respect to such Purchase
Contracts plus (y) the distributions on the related Preferred Securities payable
on such Payment Date; provided, however, that if a Tax Event Redemption has
occurred prior to the Purchase Contract Settlement Date and the Treasury
Portfolio has become a component of the Income PRIDES, holders of such Income
PRIDES may settle early only in integral multiples of 1,600,000 Income PRIDES at
any time on or prior to the second Business Day immediately preceding the
Purchase Contract Settlement Date, and, in such case, a holder must hold at
least 1,600,000 Income PRIDES to settle early. A holder of Growth PRIDES may
settle the related Purchase Contracts at any time on or prior to the second
Business Day immediately preceding the Purchase Contract Settlement Date by
presenting and surrendering the FELINE PRIDES Certificate evidencing such Growth
PRIDES at the offices of the Purchase Contract Agent with the form of "Election
to Settle Early" on the reverse side of such certificate completed and executed
as indicated, accompanied by payment in immediately available funds of an amount
equal to (i) the Stated Amount times the number of Purchase Contracts being
settled plus (ii) if such delivery is made with respect to any Purchase Contract
during the period from the close of business on any Record Date next preceding
any Payment Date to the opening of business on such Payment Date, an amount
equal to the Contract Adjustment Payments payable on such Payment Date with
respect to such Purchase Contract; provided that no payment shall be required if
the Company shall have elected to defer the Contract Adjustment Payments which
would otherwise be payable on such Payment Date. So long as the FELINE PRIDES
are evidenced by one or more global security certificates deposited with the
Depositary (as defined herein), procedures for early settlement will also be
governed by standing arrangements between the Depositary and the Purchase
Contract Agent.
Upon Early Settlement of the Purchase Contracts related to any Income
PRIDES or Growth PRIDES, (a) the holder will receive .2243 shares of Common
Stock per Income PRIDES or Growth PRIDES having a Stated Amount of $25
(regardless of the market price of the Common Stock on the date of such Early
Settlement), subject to adjustment under the circumstances described in
"-- Anti-Dilution Adjustments" below, accompanied by this Prospectus, as amended
or stickered, (b) the Preferred Securities, the appropriate Applicable Ownership
Interest of the Treasury Portfolio or the Treasury Securities, as the case may
be, related to such Income PRIDES or Growth PRIDES will thereupon be transferred
to the holder free and clear of the Company's security interest therein, (c) the
holder's right to receive Deferred Contract Adjustment Payments on the Purchase
Contracts being settled will be forfeited, (d) the holder's right to receive
future Contract Adjustment Payments will terminate and (e) no adjustment will be
made to or for the holder on account of Deferred Contract Adjustment Payments or
any amounts accrued in respect of Contract Adjustment Payments.
If the Purchase Contract Agent receives a FELINE PRIDES Certificate,
accompanied by the completed "Election to Settle Early" and requisite
immediately available funds, from a holder of FELINE PRIDES by 5:00 p.m., New
York City time, on a Business Day, that day will be considered the settlement
date. If the Purchase Contract Agent receives the foregoing after 5:00 p.m., New
York City time, on a Business Day or at any time on a day that is not a Business
Day (other than from Income PRIDES holders after the occurrence of a Tax Event
Redemption), the next Business Day will be considered the settlement date. Upon
Early
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Settlement of Purchase Contracts in the manner described above, presentation and
surrender of the FELINE PRIDES Certificate evidencing the related Income PRIDES
or Growth PRIDES and payment of any transfer or similar taxes payable by the
holder in connection with the issuance of the related Common Stock to any person
other than the holder of such Income PRIDES or Growth PRIDES, the Company will
cause the shares of Common Stock being purchased to be issued, and the related
Preferred Securities, the appropriate Applicable Ownership Interest of the
Treasury Portfolio or the Treasury Securities, as the case may be, securing such
Purchase Contracts to be released from the pledge under the Pledge Agreement
(described in "-- Pledged Securities and Pledge Agreement") and transferred,
within three Business Days following the settlement date, to the purchasing
holder or such holder's designee.
NOTICE TO SETTLE WITH CASH
A holder of an Income PRIDES wishing to settle the related Purchase
Contract with separate cash on the Business Day immediately preceding the
Purchase Contract Settlement Date must notify the Purchase Contract Agent by
presenting and surrendering the Income PRIDES Certificate evidencing such Income
PRIDES at the offices of the Purchase Contract Agent with the form of "Notice to
Settle by Separate Cash" on the reverse side of the certificate completed and
executed as indicated on or prior to 5:00 p.m., New York City time, on the
second Business Day immediately preceding the Purchase Contract Settlement Date
(if a Tax Event Redemption has occurred) or on the fifth Business Day
immediately preceding the Purchase Contract Settlement Date (if a Tax Event has
not occurred). If a holder that has given notice of such holder's intention to
settle the related Purchase Contract with separate cash fails to deliver such
cash to the Collateral Agent on the Business Day immediately preceding the
Purchase Contract Settlement Date, the Company will exercise its right as a
secured party to dispose of, in accordance with applicable law, the related
Preferred Security to satisfy in full, from the disposition of such Preferred
Security, such holder's obligation to purchase Common Stock under the related
Purchase Contracts.
CONTRACT ADJUSTMENT PAYMENTS
Contract Adjustment Payments will be fixed at a rate per annum of 1.35% of
the Stated Amount per Purchase Contract in the case of Income PRIDES, and at a
rate per annum of 1.85% of the Stated Amount per Purchase Contract in the case
of Growth PRIDES. Contract Adjustment Payments that are not paid when due (after
giving effect to any permitted deferral thereof) will bear interest thereon at
the rate per annum of 8.25% thereof, compounded quarterly, until paid. Contract
Adjustment Payments payable for any period will be computed on the basis of a
360-day year of twelve 30-day months. Contract Adjustment Payments will accrue
from the Original Issue Date and will be payable quarterly in arrears on
February 16, May 16, August 16 and November 16 of each year, commencing November
16, 1998.
Contract Adjustment Payments will be payable to the holders of Purchase
Contracts as they appear on the books and records of the Purchase Contract Agent
on the relevant record dates, which, as long as the Income PRIDES or Growth
PRIDES remain in book-entry only form, will be one Business Day prior to the
relevant payment dates. Such distributions will be paid through the Purchase
Contract Agent, which will hold amounts received in respect of the Contract
Adjustment Payments for the benefit of the holders of the Purchase Contracts
relating to such Income PRIDES or Growth PRIDES. Subject to any applicable laws
and regulations, each such payment will be made as described under
"-- Book-Entry System." In the event that the Income PRIDES or Growth PRIDES do
not continue to remain in book-entry only form, the relevant record dates shall
be one Business Day prior to the relevant payment dates. In the event that any
date on which Contract Adjustment Payments are to be made on the Purchase
Contracts related to the Income PRIDES or Growth PRIDES is not a Business Day,
then payment of the Contract Adjustment Payments payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, such payment shall be made
on the immediately preceding Business Day, in each case with the same force and
effect as if made on such payment date. A "Business Day" shall mean any day
other than Saturday, Sunday or any other day on which banking institutions in
New York City (in the State of New York) are permitted or required by any
applicable law to close.
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<PAGE> 48
The Company's obligations with respect to Contract Adjustment Payments will
be subordinated and junior in right of payment to the Company's obligations
under any Senior Debt.
\OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
The Company may, at its option and upon prior written notice to the holders
of the FELINE PRIDES and the Purchase Contract Agent, defer the payment of
Contract Adjustment Payments on the related Purchase Contracts until no later
than the Purchase Contract Settlement Date. However, Deferred Contract
Adjustment Payments will bear additional Contract Adjustment Payments at the
rate of 8.25% per annum (computed on the basis of a 360-day year of twelve 30
day months), compounding on each succeeding Payment Date, until paid. If the
Purchase Contracts are terminated (upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company), the right
to receive Contract Adjustment Payments and Deferred Contract Adjustment
Payments will also terminate.
No fractional shares of Common Stock will be issued by the Company with
respect to the payment of Deferred Contract Adjustment Payments on the Purchase
Contract Settlement Date. In lieu of fractional shares otherwise issuable with
respect to such payment of Deferred Contract Adjustment Payments, the holder
will be entitled to receive an amount in cash equal to such fraction of a share
times the Applicable Market Value.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of FELINE PRIDES will receive on the Purchase
Contract Settlement Date in respect of the Deferred Contract Adjustment
Payments, in lieu of a cash payment, a number of shares of Common Stock equal to
(x) the aggregate amount of Deferred Contract Adjustment Payments payable to
such holder divided by (y) the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments until the Deferred Contract Adjustment Payments
have been paid, the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock or make guarantee
payments with respect to the foregoing (other than (i) purchases or acquisitions
of shares of capital stock of the Company in connection with the satisfaction by
the Company of its obligations under any employee benefit plans or the
satisfaction by the Company of its obligations pursuant to any contract or
security outstanding on the date of such event requiring the Company to purchase
capital stock of the Company, (ii) as a result of a reclassification of the
Company's capital stock or the exchange or conversion of one class or series of
the Company's capital stock for another class or series of such capital stock,
(iii) the purchase of fractional interests in shares of the Company's capital
stock pursuant to the conversion or exchange provisions of such capital stock or
the security being converted or exchanged, (iv) dividends or distributions in
capital stock of the Company (or rights to acquire capital stock) or repurchases
or redemptions of capital stock solely from the issuance or exchange of capital
stock or (v) redemptions or repurchases of any rights outstanding under a
shareholder rights plan or the declaration thereunder of a dividend of rights in
the future).
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment (without duplication) upon the occurrence of certain events,
including: (a) the payment of dividends (and other distributions) of Common
Stock on Common Stock; (b) the issuance to all holders of Common Stock of
rights, warrants or options (other than any dividend reinvestment or share
purchase plans) entitling them, for a period of up to 45 days, to subscribe for
or purchase Common Stock at less than the Current Market Price (as defined
herein) thereof; (c) subdivisions, splits and combinations of Common Stock; (d)
distributions to all holders of Common Stock of evidences of indebtedness of the
Company, shares of capital stock, securities, cash or property (excluding any
dividend or distribution covered by clause (a) or (b) above and any dividend or
distribution paid exclusively in cash); (e) distributions (other than regular
quarterly cash distributions) consisting exclusively of cash to all holders of
Common Stock in an aggregate amount that, together with (i) other all-cash
distributions (other than regular quarterly cash distributions) made within the
preceding 12
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months and (ii) any cash and the fair market value, as of the expiration of the
tender or exchange offer referred to below, of consideration payable in respect
of any tender or exchange offer (other than consideration payable in respect of
any odd-lot tender offer) by the Company or a subsidiary thereof for Common
Stock concluded within the preceding 12 months, exceeds 15% of the Company's
aggregate market capitalization (such aggregate market capitalization being the
product of the Current Market Price of Common Stock multiplied by the number of
shares of Common Stock then outstanding) on the date of such distribution; and
(f) the successful completion of a tender or exchange offer made by the Company
or any subsidiary thereof for Common Stock which involves an aggregate
consideration that, together with (i) any cash and the fair market value of
other consideration payable in respect of any tender or exchange offer (other
than consideration payable in respect of any odd-lot tender offer) by the
Company or a subsidiary thereof for the Common Stock concluded within the
preceding 12 months and (ii) the aggregate amount of any all-cash distributions
(other than regular quarterly cash distributions) to all holders of Common Stock
made within the preceding 12 months, exceeds 15% of the Company's aggregate
market capitalization on the expiration of such tender or exchange offer. The
"Current Market Price" per share of Common Stock on any day means the average of
the daily Closing Prices for the five consecutive Trading Days selected by the
Company commencing not more than 30 Trading Days before, and ending not later
than, the earlier of the day in question and the day before the "ex date" with
respect to the issuance or distribution requiring such computation. For purposes
of this paragraph, the term "ex date," when used with respect to any issuance or
distribution, shall mean the first date on which the Common Stock trades regular
way on such exchange or in such market without the right to receive such
issuance or distribution.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions (any such event, a "Reorganization
Event") pursuant to which the Common Stock is converted into the right to
receive other securities, cash or property, each Purchase Contract then
outstanding would, without the consent of the holders of the related Income
PRIDES or Growth PRIDES, as the case may be, become a contract to purchase only
the kind and amount of securities, cash and other property receivable upon such
Reorganization Event (except as otherwise specifically provided, without any
interest thereon and without any right to dividends or distributions thereon
which have a record date that is prior to the Purchase Contract Settlement Date)
which would have been received by the holder of the related Income PRIDES or
Growth PRIDES immediately prior to the date of consummation of such transaction
if such holder had then settled such Purchase Contract. If all or a portion of
the consideration payable to the holders of Common Stock in a Reorganization
Event is cash, the Settlement Rate shall be further adjusted to provide that
each holder of Income PRIDES or Growth PRIDES will receive on such Purchase
Contract Settlement Date with respect to each Purchase Contract forming a part
thereof an amount equal to interest that could otherwise accrue on such cash,
such interest to accumulate and compound quarterly from the date the
Reorganization Event is consummated to the Purchase Contract Settlement Date
(or, in the case of an Early Settlement, the date of Early Settlement) at 7.75%
per annum.
If at any time the Company makes a distribution of property to its
shareholders which would be taxable to such shareholders as a dividend for
United States federal income tax purposes (i.e., distributions out of the
Company's current or accumulated earnings and profits of evidences of
indebtedness or assets of the Company, but generally not stock dividends or
rights to subscribe to capital stock) and, pursuant to the Settlement Rate
adjustment provisions of the Purchase Contract Agreement, the Settlement Rate is
increased, such increase may give rise to a taxable dividend to holders of
FELINE PRIDES. See "Federal Income Tax Consequences -- Purchase
Contracts -- Adjustment to Settlement Rate."
In addition, the Company may make such increases in the Settlement Rate as
the Board of Directors of the Company deems advisable to avoid or diminish any
income tax to holders of its capital stock resulting from any dividend or
distribution of capital stock (or rights to acquire capital stock) or from any
event treated as such for income tax purposes or for any other reasons.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the Settlement Rate; provided, however, that any adjustments which by
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reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
The Company will be required, within ten Business Days following the
adjustment of the Settlement Rate, to provide written notice to the Purchase
Contract Agent of the occurrence of such event and a statement in reasonable
detail setting forth the method by which the adjustment to the Settlement Rate
was determined and setting forth the revised Settlement Rate. Each adjustment to
the Settlement Rate will result in a corresponding adjustment to the number of
shares of Common Stock issuable upon early settlement of a Purchase Contract.
TERMINATION
The Purchase Contracts, and the rights and obligations of the Company and
of the holders of the FELINE PRIDES thereunder (including the right thereunder
to receive accrued Contract Adjustment Payments or Deferred Contract Adjustment
Payments and the right and obligation to purchase Common Stock), will
immediately and automatically terminate upon the occurrence of certain events of
bankruptcy, insolvency or reorganization with respect to the Company. Upon such
termination, the Collateral Agent will release the related Preferred Securities,
the appropriate Applicable Ownership Interest of the Treasury Portfolio or the
Treasury Securities, as the case may be, held by it to the Purchase Contract
Agent for distribution to the holders, subject in the case of the Treasury
Portfolio to the Purchase Contract Agent's disposition of the subject securities
for cash, and the payment of such cash to the holders, to the extent that the
holders would otherwise have been entitled to receive less than $1,000 principal
amount at maturity of any such security. Upon such termination, however, such
release and distribution may be subject to a delay. In the event that the
Company becomes the subject of a case under the Bankruptcy Code, such delay may
occur as a result of the automatic stay under the Bankruptcy Code and continue
until such automatic stay has been lifted.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
Pledged Securities will be pledged to the Collateral Agent, for the benefit
of the Company, pursuant to the Pledge Agreement to secure the obligations of
holders of FELINE PRIDES to purchase Common Stock under the related Purchase
Contracts. The rights of holders of FELINE PRIDES to the related Pledged
Securities will be subject to the Company's security interest therein created by
the Pledge Agreement. No holder of Income PRIDES or Growth PRIDES will be
permitted to withdraw the Pledged Securities related to such Income PRIDES or
Growth PRIDES from the pledge arrangement except (i) to substitute Treasury
Securities for the related Preferred Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, (ii) to
substitute Preferred Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be, for the related Treasury
Securities (for both (i) and (ii), as provided for under "Description of the
FELINE PRIDES -- Creating Growth PRIDES" and "-- Creating Income PRIDES") or
(iii) upon the termination or Early Settlement of the related Purchase
Contracts. Subject to such security interest and the terms of the Purchase
Contract Agreement and the Pledge Agreement, each holder of Income PRIDES
(unless a Tax Event Redemption has occurred) will be entitled through the
Purchase Contract Agent and the Collateral Agent to all of the proportional
rights and preferences of the related Preferred Securities (including
Distribution, voting, redemption, repayment and liquidation rights), and each
holder of Growth PRIDES or Income PRIDES (if a Tax Event Redemption has
occurred) will retain beneficial ownership of the related Treasury Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
applicable, pledged in respect of the related Purchase Contracts. The Company
will have no interest in the Pledged Securities other than its security
interest.
Except as described in "-- General," the Collateral Agent will, upon
receipt of distributions on the Pledged Securities, distribute such payments to
the Purchase Contract Agent, which will in turn distribute those payments,
together with Contract Adjustment Payments received from the Company, to the
persons in whose names the related Income PRIDES or Growth PRIDES are registered
at the close of business on the record date immediately preceding the date of
such distribution.
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BOOK ENTRY-SYSTEM
The Depository Trust Company (the "Depositary", which term includes its
successors in such capacity) will act as securities depositary for the FELINE
PRIDES. The FELINE PRIDES will be issued only as fully-registered securities
registered in the name of Cede & Co. (the Depositary's nominee). One or more
fully-registered global security certificates ("Global Security Certificates"),
representing the total aggregate number of FELINE PRIDES, will be issued and
will be deposited with the Depositary and will bear a legend regarding the
restrictions on exchanges and registration of transfer thereof referred to
below. See "Book-Entry Issuance" in the accompanying Prospectus.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the FELINE PRIDES so
long as such FELINE PRIDES are represented by Global Security Certificates.
Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the Global Security Certificates among
Participants, the Depositary is under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
None of the Company, the Trust or any Issuer Trustee will have any
responsibility for the performance by the Depositary or its Direct Participants
or Indirect Participants under the rules and procedures governing the
Depositary. In the event that (i) the Depositary notifies the Company that it is
unwilling or unable to continue as a depositary for such Global Security
Certificates and no successor depositary shall have been appointed within 90
days after notice thereof to the Company, (ii) the Depositary at any time ceases
to be a clearing agency registered under the Exchange Act at which time the
Depositary is required to be so registered to act as such depositary and no
successor depositary shall have been appointed within 90 days after the Company
learns that the Depositary has ceased to be so registered, (iii) the Company, in
its sole discretion, determines that such Global Security Certificates shall be
so exchangeable or (iv) there shall have occurred and be continuing a Junior
Subordinated Debt Security Event of Default, certificates for the FELINE PRIDES
will be printed and delivered in exchange for beneficial interests in the Global
Security Certificates. Any global Preferred Security that is exchangeable
pursuant to the preceding sentence shall be exchangeable for FELINE PRIDES
Certificates registered in such names as the Depositary shall direct. It is
expected that such instructions will be based upon directions received by the
Depositary from its Participants with respect to ownership of beneficial
interests in such Global Security Certificates.
As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the Global Security
Certificates and all FELINE PRIDES represented thereby for all purposes under
the FELINE PRIDES and the Purchase Contract Agreement. Except in the limited
circumstances referred to above, owners of beneficial interests in Global
Security Certificates will not be entitled to have such Global Security
Certificates or the FELINE PRIDES represented thereby registered in their names,
will not receive or be entitled to receive physical delivery of FELINE PRIDES
Certificates in exchange therefor and will not be considered to be owners or
holders of such Global Security Certificates or any FELINE PRIDES represented
thereby for any purpose under the FELINE PRIDES or the Purchase Contract
Agreement. All payments on the FELINE PRIDES represented by the Global Security
Certificates and all transfers and deliveries of Preferred Securities, Treasury
Portfolio, Treasury Securities and Common Stock with respect thereto will be
made to the Depositary or its nominee, as the case may be, as the holder
thereof.
Ownership of beneficial interests in the Global Security Certificates will
be limited to Participants or persons that may hold beneficial interests through
institutions that have accounts with the Depositary or its nominee. Ownership of
beneficial interests in Global Security Certificates will be shown only on, and
the transfer of those ownership interests will be effected only through, records
maintained by the Depositary or its nominee (with respect to Participants'
interests) or any such Participant (with respect to interests of persons held by
such Participants on their behalf). Procedures for settlement of Purchase
Contracts on the Purchase Contract Settlement Date or upon Early Settlement will
be governed by arrangements among the Depositary, Participants and persons that
may hold beneficial interests through Participants designed to permit such
settlement without the physical movement of certificates. Payments, transfers,
deliveries, exchanges and other
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matters relating to beneficial interests in Global Security Certificates may be
subject to various policies and procedures adopted by the Depositary from time
to time. None of the Company, the Purchase Contract Agent or any agent of the
Company or the Purchase Contract Agent will have any responsibility or liability
for any aspect of the Depositary's or any Participant's records relating to, or
for payments made on account of, beneficial interests in Global Security
Certificates, or for maintaining, supervising or reviewing any of the
Depositary's records or any Participant's records relating to such beneficial
ownership interests.
The information in this section concerning the Depositary and its
book-entry system has been obtained from sources that the Company and the Trust
believe to be reliable, but neither the Company nor the Trust have attempted to
verify the accuracy thereof.
CERTAIN PROVISIONS OF THE PURCHASE CONTRACT
AGREEMENT AND THE PLEDGE AGREEMENT
GENERAL
Distributions on the FELINE PRIDES will be payable, Purchase Contracts (and
documents related thereto) will be settled and transfers of the FELINE PRIDES
will be registrable at the office of the Purchase Contract Agent in the Borough
of Manhattan, The City of New York. In addition, in the event that the FELINE
PRIDES do not remain in book-entry form, payment of distributions on the FELINE
PRIDES may be made, at the option of the Company, by check mailed to the address
of the person entitled thereto as shown on the Security Register.
Shares of Common Stock will be delivered on the Purchase Contract
Settlement Date (or earlier upon Early Settlement), or, if the Purchase
Contracts have terminated, the related Pledged Securities will be delivered
potentially after a delay as a result of the imposition of the automatic stay
under the Bankruptcy Code (see "Description of the Purchase Contracts --
Termination"), in each case upon presentation and surrender of the FELINE PRIDES
Certificate at the office of the Purchase Contract Agent.
If a holder of outstanding Income PRIDES or Growth PRIDES fails to present
and surrender the FELINE PRIDES Certificate evidencing such Income PRIDES or
Growth PRIDES to the Purchase Contract Agent on the Purchase Contract Settlement
Date, the shares of Common Stock issuable in settlement of the related Purchase
Contract and in payment of any Deferred Contract Adjustment Payments will be
registered in the name of the Purchase Contract Agent and, together with any
distributions thereon, shall be held by the Purchase Contract Agent as agent for
the benefit of such holder, until such FELINE PRIDES Certificate is presented
and surrendered or the holder provides satisfactory evidence that such
certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Purchase Contract Agent and the Company.
If the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, the related Pledged Securities have been transferred to the
Purchase Contract Agent for distribution to the holders entitled thereto and a
holder fails to present and surrender the FELINE PRIDES Certificate evidencing
such holder's Income PRIDES or Growth PRIDES to the Purchase Contract Agent, the
related Pledged Securities delivered to the Purchase Contract Agent and payments
thereon shall be held by the Purchase Contract Agent as agent for the benefit of
such holder, until such FELINE PRIDES Certificate is presented or the holder
provides the evidence and indemnity described above.
The Purchase Contract Agent will have no obligation to invest or to pay
interest on any amounts held by the Purchase Contract Agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or exchange
of the FELINE PRIDES, except for any tax or other governmental charge that may
be imposed in connection therewith.
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MODIFICATION
The Purchase Contract Agreement and the Pledge Agreement will contain
provisions permitting the Company and the Purchase Contract Agent or Collateral
Agent, as the case may be, with the consent of the holders of not less than a
majority of the Purchase Contracts at the time outstanding, to modify the terms
of the Purchase Contracts, the Purchase Contract Agreement and the Pledge
Agreement, except that no such modification may, without the consent of the
holder of each outstanding Purchase Contract affected thereby, (a) change any
Payment Date, (b) change the amount or type of Pledged Securities related to
such Purchase Contract, impair the right of the holder of any Pledged Securities
to receive distributions on such Pledged Securities or otherwise adversely
affect the holder's rights in or to such Pledged Securities, (c) change the
place or currency of payment or reduce any Contract Adjustment Payments or any
Deferred Contract Adjustment Payments, (d) impair the right to institute suit
for the enforcement of such Purchase Contract, any Contract Adjustment Payments
or any Deferred Contract Adjustment Payments, (e) reduce the number of shares of
Common Stock purchasable under such Purchase Contract, increase the price to
purchase Common Stock upon settlement of such Purchase Contract, change the
Purchase Contract Settlement Date or the right to Early Settlement or otherwise
adversely affect the holder's rights under such Purchase Contract or (f) reduce
the above-stated percentage of outstanding Purchase Contracts the consent of
whose holders is required for the modification or amendment of the provisions of
the Purchase Contracts, the Purchase Contract Agreement or the Pledge Agreement;
provided, that if any amendment or proposal referred to above would adversely
affect only the Income PRIDES or the Growth PRIDES, then only the affected class
of holders will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the consent of the
holders of not less than a majority of such class.
NO CONSENT TO ASSUMPTION
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Income PRIDES or
Growth PRIDES, as applicable, be deemed expressly to have withheld any consent
to the assumption (i.e., affirmance) of the related Purchase Contracts by the
Company or its trustee in the event that the Company becomes the subject of a
case under the Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company will covenant in the Purchase Contract Agreement that it will
not merge or consolidate with or into any other entity or sell, assign,
transfer, lease or convey all or substantially all of its properties and assets
to any person or entity, unless the Company is the continuing corporation or the
successor entity is a corporation organized and existing under the laws of the
United States of America or a state hereof or the District of Columbia and such
corporation expressly assumes the obligations of the Company under the Purchase
Contracts, the Subordinated Debentures, the Purchase Contract Agreement, the
Pledge Agreement, the Subordinated Indenture (including any supplemental
indenture thereto) and the Remarketing Agreement and the Company or such
successor corporation is not, immediately after such merger, consolidation,
sale, assignment, transfer, lease or conveyance, in default of its payment
obligations thereunder or in material default in the performance of any of its
other obligations thereunder.
TITLE
The Company, the Purchase Contract Agent and the Collateral Agent may treat
the registered owner of any FELINE PRIDES as the owner thereof for the purpose
of making payment and settling the related Purchase Contracts and for all other
purposes.
REPLACEMENT OF FELINE PRIDES CERTIFICATES
In the event that physical certificates have been issued, any mutilated
FELINE PRIDES Certificate will be replaced by the Company at the expense of the
holder upon surrender of such certificate to the Purchase Contract Agent. FELINE
PRIDES Certificates that become destroyed, lost or stolen will be replaced by
the
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Company at the expense of the holder upon delivery to the Company and the
Purchase Contract Agent of evidence of the destruction, loss or theft thereof
satisfactory to the Company and the Purchase Contract Agent. In the case of a
destroyed, lost or stolen FELINE PRIDES Certificate, an indemnity satisfactory
to the Purchase Contract Agent and the Company may be required at the expense of
the holder of the FELINE PRIDES evidenced by such certificate before a
replacement will be issued.
Notwithstanding the foregoing, the Company will not be obligated to issue
any Income PRIDES or Growth PRIDES on or after the Business Day immediately
preceding the earlier of the Purchase Contract Settlement Date (or the Early
Settlement date) or the date the Purchase Contracts have terminated. The
Purchase Contract Agreement will provide that in lieu of the delivery of a
replacement FELINE PRIDES Certificate following the Purchase Contract Settlement
Date, the Purchase Contract Agent, upon delivery of the evidence and indemnity
described above, will deliver the Common Stock issuable pursuant to the Purchase
Contracts included in the Income PRIDES or Growth PRIDES evidenced by such
certificate, or, if the Purchase Contracts have terminated prior to the Purchase
Contract Settlement Date, transfer the Pledged Securities included in the Income
PRIDES or Growth PRIDES evidenced by such certificate.
GOVERNING LAW
The Purchase Contract Agreement, the Pledge Agreement and the Purchase
Contracts will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The First National Bank of Chicago will be the Purchase Contract Agent. The
Purchase Contract Agent will act as the agent for the holders of Income PRIDES
and Growth PRIDES from time to time. The Purchase Contract Agreement will not
obligate the Purchase Contract Agent to exercise any discretionary actions in
connection with a default under the terms of the Income PRIDES and Growth PRIDES
or the Purchase Contract Agreement.
The Purchase Contract will contain provisions limiting the liability of the
Purchase Contract Agent. The Purchase Contract Agreement will contain provisions
under which the Purchase Contract Agent may resign or be replaced. Such
resignation or replacement would be effective upon the appointment of a
successor.
The First National Bank of Chicago maintains commercial banking
relationships with the Company.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will be the Collateral Agent. The Collateral Agent
will act solely as the agent of the Company and will not assume any obligation
or relationship of agency or trust for or with any of the holders of the Income
PRIDES and Growth PRIDES except for the obligations owed by a pledgee of
property to the owner thereof under the Pledge Agreement and applicable law.
The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which the
Collateral Agent may resign or be replaced. Such resignation or replacement
would be effective upon the appointment of a successor.
The Chase Manhattan Bank maintains commercial banking relationships with
the Company.
MISCELLANEOUS
The Purchase Contract Agreement will provide that the Company will pay all
fees and expenses related to (i) the offering of the FELINE PRIDES, (ii) the
retention of the Collateral Agent and (iii) the enforcement by the Purchase
Contract Agent of the rights of the holders of the FELINE PRIDES; provided,
however, that holders who elect to substitute the related Pledged Securities,
thereby creating Growth PRIDES or Income PRIDES or recreating Income PRIDES or
Growth PRIDES, shall be responsible for any fees or expenses payable in
connection with such substitution, as well as any commissions, fees or other
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expenses incurred in acquiring the Pledged Securities to be substituted, and the
Company shall not be responsible for any such fees or expenses.
CERTAIN TERMS OF THE PREFERRED SECURITIES
The Preferred Securities, a certain portion of which will initially form a
component of the Income PRIDES, and a certain portion of which will initially
trade separately, will be issued pursuant to the terms of the Trust Agreement.
See "Description of the FELINE PRIDES -- Creating Income PRIDES." The Trust
Agreement will be qualified as an indenture under the Trust Indenture Act. The
Property Trustee, The First National Bank of Chicago, an independent trustee,
will act as indenture trustee for the Preferred Securities under the Trust
Agreement for purposes of compliance with the provisions of the Trust Indenture
Act.
The following summary of certain terms and provisions of the Preferred
Securities supplements the description of the terms and provisions of the
Preferred Securities set forth in the accompanying Prospectus under the heading
"Description of Preferred Securities," to which description reference is hereby
made. The terms of the Preferred Securities will include those stated in the
Trust Agreement and those made part of the Trust Agreement by the Trust
Indenture Act. The following summary of certain provisions of the Preferred
Securities and the Trust Agreement does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Trust Agreement
(including the definitions therein of certain terms) which is filed as an
exhibit to the Registration Statement relating to this Prospectus Supplement,
the Trust Act and the Trust Indenture Act. Whenever particular defined terms are
referred to in this Prospectus Supplement, such defined terms are incorporated
herein by reference. As used under this caption, references to the Company mean
Lincoln National Corporation excluding, unless otherwise expressly stated or the
context otherwise requires, its subsidiaries.
GENERAL
The Preferred Securities will rank pari passu, and payments will be made
thereon pro rata, with the Common Securities except as described under
"Description of Preferred Securities -- Subordination of Common Securities" in
the accompanying Prospectus. Legal title to the Subordinated Debentures will be
held by the Property Trustee in trust for the benefit of the holders of the
Preferred Securities and Common Securities. The Guarantee executed by the
Company for the benefit of the holders of the Preferred Securities will be a
guarantee on a subordinated basis with respect to the Preferred Securities but
will not guarantee payment of Distributions or amounts payable on redemption or
liquidation of the Preferred Securities when the Trust does not have funds on
hand available to make such payments. See "Description of the Guarantee." The
Guarantee, when taken together with the Company's obligations under the
Subordinated Debentures and the Subordinated Indenture and its obligations under
the Trust Agreement and Expense Agreement, including the obligations to pay
costs, expenses, debts and liabilities of the Trust (other than with respect to
the Preferred Securities), provides a full and unconditional guarantee of
amounts due on the Preferred Securities.
DISTRIBUTIONS
The Preferred Securities represent beneficial interests in the Trust, and
Distributions on each Preferred Securities will initially be payable at the
annual rate of 6.40% of the stated Liquidation Amount of $25. The distribution
rate on the Preferred Securities that remain outstanding on and after the
Purchase Contract Settlement Date will be reset on the third Business Day
immediately preceding the Purchase Contract Settlement Date to the Reset Rate.
See "-- Market Rate Reset." Distributions on the Preferred Securities in arrears
for more than one quarter will bear interest at the rate of 6.40% per annum
through and including August 15, 2001 and at the Reset Rate thereafter,
compounded quarterly. Distributions on the Preferred Securities will be
cumulative and will accrue from the date of original issuance and will be
payable quarterly in arrears on February 16, May 16, August 16 and November 16
of each year, commencing November 16, 1998, when, as and if funds are available
for payment. The amount of Distributions payable for any period will be computed
on the basis of a 360-day year of twelve 30-day months. In the event that any
date on which Distributions are payable on the Preferred Securities is not a
Business Day, then payment of the Distributions
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payable on such date will be made on the next succeeding day that is a Business
Day (and without any additional Distributions or other payment in respect of any
such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on the date such
payment was originally payable. See "Description of Preferred Securities --
Distributions" in the accompanying Prospectus.
So long as no Junior Subordinated Debt Security Event of Default has
occurred and is continuing, Lincoln has the right under the Subordinated
Indenture to defer the payment of interest on the Subordinated Debentures at any
time or from time to time (though such interest would continue to accrue,
compounded quarterly, to the extent permitted by law, at the rate of 6.40% per
annum through and including August 15, 2001 and at the Reset Rate thereafter).
Such right to extend the interest payment period for the Subordinated Debentures
is limited to a period, in the aggregate, not extending beyond the maturity date
of the Subordinated Debentures; provided that an Extension Period must end on
one of the quarterly Interest Payment Dates. As a consequence of any such
election, quarterly Distributions on the Preferred Securities will be deferred
by the Trust during any such Extension Period (though such Distributions would
continue to accrue, compounded quarterly, to the extent permitted by law, at the
rate of 6.40% per annum through and including August 15, 2001 and at the Reset
Rate thereafter). The term "Distributions" as used herein shall include any such
additional Distributions. During any such Extension Period, Lincoln may not, and
may not permit any subsidiary of Lincoln to, (i) declare or pay any dividends or
distributions on, or redeem, purchase, acquire, or make a liquidation payment
with respect to, any of Lincoln's capital stock or (ii) make any payment of
principal, interest or premium, if any, on or repay, repurchase or redeem any
debt securities of Lincoln (including other Junior Subordinated Debt Securities
(as defined in the accompanying Prospectus)) that rank pari passu with or junior
in interest to the Subordinated Debentures or make any guarantee payments with
respect to any guarantee by Lincoln of the debt securities of any subsidiary of
Lincoln if such guarantee ranks pari passu or junior in interest to the
Subordinated Debentures (other than (a) dividends or distributions in common
stock of Lincoln, (b) redemptions or purchases of any rights pursuant to
Lincoln's Rights Plan, or any successor to such Rights Plan, and the declaration
of a dividend of such rights or the issuance of stock under such plans in the
future, (c) payments under any Guarantee, and (d) purchases of common stock
related to the issuance of common stock or rights under any of Lincoln's benefit
plans for its directors, officers or employees). Prior to the termination of any
such Extension Period, Lincoln may further extend the interest payment period,
provided that no Extension Period may extend beyond the stated maturity of the
Subordinated Debentures. Upon the termination of any such Extension Period and
the payment of all amounts then due, Lincoln may elect to begin a new Extension
Period. There is no limitation on the number of times that Lincoln may elect to
begin an Extension Period. See "Certain Terms of Subordinated Debentures --
Option to Extend Interest Payment Period" and "Federal Income Tax Consequences
- -- Preferred Securities -- Interest Income and Original Issue Discount."
Lincoln has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Subordinated
Debentures.
MARKET RATE RESET
The interest rate on the Subordinated Debentures that remain outstanding on
and after the Purchase Contract Settlement Date (and therefore the Distribution
rate on the Preferred Securities) will be reset on the third Business Day
immediately preceding the Purchase Contract Settlement Date to the Reset Rate,
which will be equal to the sum of the Reset Spread and the rate of interest on
the Two-Year Benchmark Treasury in effect on the third Business Day immediately
preceding the Purchase Contract Settlement Date and will be determined by the
Reset Agent as the rate the Preferred Securities should bear in order for a
Preferred Security to have an approximate market value on the third Business Day
immediately preceding the Purchase Contract Settlement Date of 100.5% of the
Stated Amount; provided that the Company may limit such Reset Rate to be no
higher than the rate on the Two-Year Benchmark Treasury on the Purchase Contract
Settlement Date plus 200 basis points (2%), and provided, further that the Reset
Rate shall in no event exceed the maximum rate permitted by applicable law. Such
market value may be less than 100.5%, including where the Reset Spread is
limited to the maximum of 2% or if the Reset Rate were to be limited by
applicable
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law. The "Two-Year Benchmark Treasury" shall mean a direct obligation of the
United States (which may be an obligation traded on a when-issued basis only)
having a maturity comparable to the remaining term to maturity of the Preferred
Securities, as agreed upon by the Company and the Reset Agent. The rate for the
Two-Year Benchmark Treasury will be the bid side rate displayed at 10:00 A.M.,
New York City time, on the third Business Day immediately preceding the Purchase
Contract Settlement Date in the Telerate system (or if the Telerate system is
(a) no longer available on the third Business Day immediately preceding the
Purchase Contract Settlement Date, or (b) in the opinion of the Reset Agent
(after consultation with the Company) no longer an appropriate system from which
to obtain such rate, in either case such other nationally recognized quotation
system as, in the opinion of the Reset Agent (after consultation with the
Company), is appropriate). If such rate is not so displayed, the rate for the
Two-Year Benchmark Treasury shall be, as calculated by the Reset Agent, the
yield to maturity for the Two-Year Benchmark Treasury, expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and applied
on a daily basis, and computed by taking the arithmetic mean of the secondary
market bid rates, as of 10:30 A.M., New York City time, on the third Business
Day immediately preceding the Purchase Contract Settlement Date of three leading
United States government securities dealers selected by the Reset Agent (after
consultation with the Company) (which may include the Reset Agent or an
affiliate thereof). It is currently anticipated that Merrill Lynch, Pierce,
Fenner & Smith Incorporated will be the investment banking firm acting as the
Reset Agent.
On the tenth Business Day immediately preceding the Purchase Contract
Settlement Date, the Two-Year Benchmark Treasury to be used to determine the
Reset Rate on the Purchase Contract Settlement Date will be selected and the
Reset Spread to be added to the rate on the Two-Year Benchmark Treasury in
effect on the third Business Day immediately preceding the Purchase Contract
Settlement Date will be established by the Reset Agent, and the Reset Spread and
the Two-Year Benchmark Treasury will be announced by the Company (the "Reset
Announcement Date"). The Company will cause a notice of the Reset Spread and
such Two-Year Benchmark Treasury to be published on the Business Day following
the Reset Announcement Date by publication in a daily newspaper in the English
language of general circulation in The City of New York, which is expected to be
The Wall Street Journal. The Company will request, not later than 7 nor more
than 15 calendar days prior to the Reset Announcement Date, that the Depositary
notify its participants holding Preferred Securities, Income PRIDES or Growth
PRIDES of such Reset Announcement Date and of the procedures that must be
followed if any owner of Income PRIDES wishes to settle the related Purchase
Contract with cash on the Business Day immediately preceding the Purchase
Contract Settlement Date.
OPTIONAL REMARKETING
Pursuant to the Remarketing Agreement and subject to the terms of the
Remarketing Underwriting Agreement, on or prior to the fifth Business Day
immediately preceding the Purchase Contract Settlement Date, but no earlier than
the Payment Day immediately preceding the Purchase Contract Settlement Date,
holders of separate Preferred Securities which are not components of Income
PRIDES may elect to have their Preferred Securities remarketed in the same
manner as Preferred Securities which are components of Income PRIDES by
delivering their Preferred Securities along with a notice of such election to
the Custodial Agent. The Custodial Agent will hold such Preferred Securities in
an account separate from the collateral account in which the Pledged Securities
will be held. Holders of Preferred Securities electing to have their Preferred
Securities remarketed will also have the right to withdraw such election on or
prior to the fifth Business Day immediately preceding the Purchase Contract
Settlement Date.
OPTIONAL REDEMPTION
The Subordinated Debentures are redeemable at the option of the Company, in
whole but not in part, on not less than 30 days nor more than 60 days notice,
upon the occurrence and continuation of a Tax Event under the circumstances
described under "Certain Terms of the Subordinated Debentures -- Tax Event
Redemption." If the Company redeems the Subordinated Debentures upon the
occurrence and continuation of a Tax Event, the proceeds from such redemption
shall simultaneously be applied on a pro rata basis to redeem Trust Securities
having an aggregate stated liquidation amount equal to the aggregate principal
amount of the Subordinated Debentures so redeemed at a Redemption Price, per
Trust Security, equal to the
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Redemption Amount plus accrued and unpaid distributions thereon to the date of
such redemption. Such proceeds will be payable in cash to the holders of such
Trust Securities. If the Tax Event Redemption occurs prior to the Purchase
Contract Settlement Date, the Redemption Price payable to the Collateral Agent,
in liquidation of the Income PRIDES holders' interests in the Trust, will be
simultaneously applied by the Collateral Agent to purchase on behalf of the
holders' of the Income PRIDES the Treasury Portfolio. The Treasury Portfolio
will be pledged with the Collateral Agent to secure the obligation of Income
PRIDES holders' to purchase Common Stock under the related Purchase Contracts.
MANDATORY REDEMPTION
In addition, upon any repayment (other than upon optional redemption) of
any Subordinated Debentures held by the Trust, whether at stated maturity or
otherwise, the proceeds from such repayment shall simultaneously be applied by
the Property Trustee, upon not less than 30 nor more than 60 days notice to
holders of Trust Securities, to redeem, on a pro rata basis, Preferred
Securities and Common Securities having an aggregate stated liquidation amount
equal to the aggregate principal amount of the Subordinated Debentures so
redeemed at a Redemption Price, per Trust Security, equal to the stated
liquidation amount thereof plus accrued and unpaid distributions thereon to the
date of such redemption.
PUT OPTION UPON A FAILED REMARKETING
If a Failed Remarketing has occurred, holders of Trust Securities
(including, following the distribution of the Subordinated Debentures upon a
dissolution of the Trust as described herein, such holders of Subordinated
Debentures), holding such Trust Securities (or Subordinated Debentures, as the
case may be) following the Purchase Contract Settlement Date will have the
right, in the case of Trust Securities, to require the Trust to distribute their
pro rata share of the Subordinated Debentures to the Exchange Agent, who will
put such Subordinated Debentures to the Company on behalf of such holders (or in
the case of Subordinated Debentures held directly, the holders of such
Subordinated Debentures shall have the right to put such Subordinated Debentures
directly to the Company) on September 1, 2001, upon at least three Business
Days' prior notice, at a price equal to the principal amount, plus accrued and
unpaid interest (including deferred interest), if any, thereon.
LIQUIDATION VALUE
The amount payable on the Preferred Securities in the event of any
liquidation of the Trust is $25 per Preferred Security plus accumulated and
unpaid Distributions, which may be in the form of a distribution of such amount
in Subordinated Debentures, subject to certain exceptions. See "Description of
Preferred Securities -- Liquidation Distribution upon Termination" in the
accompanying Prospectus.
REDEMPTION PROCEDURES
If the Trust gives a notice of redemption (which notice will be
irrevocable) in respect of Trust Securities, then, by 12:00 noon, New York City
time, on the redemption date, provided that the Company has paid to the Property
Trustee a sufficient amount of cash in connection with the related redemption or
maturity of the Subordinated Debentures, the Trust will irrevocably deposit with
the Depositary, the Purchase Contract Agent or the Collateral Agent, as
applicable, funds sufficient to pay the applicable Redemption Price and will
give the Depositary, the Purchase Contract Agent or the Collateral Agent, as
applicable, irrevocable instructions and authority to pay the Redemption Price
to the holders of the Trust Securities so called for redemption. If notice of
redemption shall have been given and funds deposited as required, then
immediately prior to the close of business on the date of such deposit,
Distributions will cease to accrue and all rights of holders of such Preferred
Securities so called for redemption will cease, except the right of the holders
of such Trust Securities to receive the Redemption Price but without interest on
such Redemption Price. Notwithstanding the foregoing, Distributions on Preferred
Securities which are due and payable on a Payment Date falling on or prior to
the relevant redemption date shall be payable to the holders of such Trust
Securities registered as such at the close of business on the relevant record
dates. In the event that any date fixed for redemption of Preferred Securities
is not a Business Day, then payment of the Redemption Price payable on such date
will
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be made on the next succeeding day that is a Business Day (without any interest
or other payment in respect of any such delay), except that, if such Business
Day falls in the next calendar year, such payment will be made on the
immediately preceding Business Day. The proceeds from the redemption or other
repayment of the Subordinated Debentures shall be allocated to the pro rata
redemption of Preferred Securities, except as described under "Description of
Preferred Securities -- Subordination of Common Securities" in the accompanying
Prospectus. The Redemption Price for Preferred Securities to be redeemed on any
redemption date shall be the same as the Redemption Price for Common Securities
to be redeemed on such date. See "Description of Preferred Securities --
Redemption Procedures" in the accompanying Prospectus.
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
"Investment Company Event" means the receipt by the Trust of an opinion of
counsel experienced in such matters to the effect that, as a result of the
occurrence of a change in law or regulation or a change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or
will be considered an "investment company" that is required to be registered
under the Investment Company Act of 1940, as amended (the "Investment Company
Act"), which Change in 1940 Act Law becomes effective on or after the date of
original issuance of the Preferred Securities.
If, at any time, an Investment Company Event shall occur and be continuing,
the Trust shall be dissolved, with the result that Subordinated Debentures with
an aggregate principal amount equal to the aggregate stated liquidation amount
of, with an interest rate identical to the distribution rate of, and accrued and
unpaid interest equal to accrued and unpaid Distributions on, the Preferred and
Common Securities, would be distributed to the holders of the Preferred and
Common Securities in liquidation of such holders' interests in the Trust on a
pro rata basis within 90 days following the occurrence of such Investment
Company Event; provided, however, that such dissolution and distribution shall
be conditioned on the Company being unable to avoid such Investment Company
Event within such 90-day period by taking some ministerial action or pursuing
some other similar reasonable measure that will have no adverse effect on the
Trust, the Company or the holders of the Preferred and Common Securities and
will involve no material cost. If an Investment Company Event occurs,
Subordinated Debentures distributed to the Collateral Agent in liquidation of
such holder's interest in the Trust would be pledged (in lieu of the Preferred
Securities) to secure Income PRIDES holders' obligations to purchase Common
Stock under the Purchase Contracts.
The Company will have the right at any time to dissolve the Trust and,
after satisfaction of liabilities of creditors of the Trust as provided by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of the Trust Securities. As of the date of any distribution of
Subordinated Debentures upon dissolution of the Trust, (i) the Preferred
Securities will no longer be deemed to be outstanding, (ii) the Depositary or
its nominee, as the record holder of the Preferred Securities, will receive a
registered global certificate or certificates representing the Subordinated
Debentures to be delivered upon such distribution, and (iii) any certificates
representing Preferred Securities not held by the Depositary or its nominee will
be deemed to represent beneficial interests in the Subordinated Debentures
having an aggregate principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid Distributions on, such
Preferred Securities until such certificates are presented to the Company or its
agent for transfer or reissuance. Subordinated Debentures distributed to the
Collateral Agent in liquidation of the interest of the holders of the Preferred
Securities in the Trust would be substituted for the Preferred Securities and
pledged to secure Income PRIDES holders' obligations to purchase Common Stock
under the Purchase Contracts.
There can be no assurance as to the market prices for either the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for the Preferred Securities if a dissolution of the Trust were to occur.
Accordingly, the Preferred Securities or such Subordinated Debentures that an
investor may receive if a dissolution of the Trust were to occur may trade at a
discount to the price that the investor paid to purchase the Preferred
Securities forming a part of the Income PRIDES offered hereby.
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LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution of the Trust
(unless a Tax Event Redemption has occurred), the holders of the Preferred
Securities will be entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors, Subordinated Debentures in an
aggregate principal amount equal to the aggregate stated liquidation amount of,
with an interest rate identical to the Distribution rate of, and bearing accrued
and unpaid interest in an amount equal to accrued and unpaid Distributions on,
the Preferred Securities on a pro rata basis in exchange for such Preferred
Securities.
The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the
Preferred Securities, except that if a Trust Agreement Event of Default (as
defined below) has occurred and is continuing, the Preferred Securities shall
have a preference over the Common Securities with regard to such distributions.
Pursuant to the Trust Agreement, the Trust shall automatically terminate
upon expiration of its term and shall terminate on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of the Company; (ii)
the distribution of a Like Amount (as defined the accompanying Prospectus) of
the Subordinated Debenture to the holders of its Trust Securities, if the
Company, as Depositor, has given written direction to the Property Trustee to
terminate such Trust (which direction is optional and wholly within the
discretion of the Company, as Depositor); (iii) the redemption of all of the
Trust's Trust Securities following a Tax Event; (iv) redemption of all of the
Trust's Preferred Securities as described under "Description of Preferred
Securities -- Redemption or Exchange -- Mandatory Redemption"; and (v) the entry
of an order for the dissolution of the Trust by a court of competent
jurisdiction. See "Description of Preferred Securities -- Liquidation
Distribution upon Termination" in the accompanying Prospectus.
TRUST AGREEMENT EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under the
Trust Agreement (a "Trust Agreement Event of Default") with respect to the
Preferred Securities issued thereunder (whatever the reason for such Event of
Default and whether it shall be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) the occurrence of a Junior Subordinated Debt Security Event of
Default under the Subordinated Indenture (see "Description of Junior
Subordinated Debt Securities -- Junior Subordinated Debt Security Events of
Default" in the accompanying Prospectus); or
(ii) default by the Property Trustee in the payment of any
Distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Issuer Trustees in such Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the defaulting Issuer
Trustee or Trustees by the holders of at least 25% in aggregate liquidation
preference of the outstanding Preferred Securities of the Trust, a written
notice specifying such default or breach and requiring it to be remedied
and stating that such notice is a "Notice of Default" under the Trust
Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within 90 days after the occurrence of any Trust Agreement Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of the Trust's Preferred
Securities, the Administrative Trustees and the Company, as Depositor, unless
such Event of
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Default shall have been cured or waived. The Company, as Depositor, and the
Administrative Trustees are required to file annually with the Property Trustee
a certificate as to whether or not they are in compliance with all the
conditions and covenants applicable to them under each Trust Agreement.
If a Junior Subordinated Debt Security Event of Default has occurred and is
continuing, the Preferred Securities shall have a preference over the Common
Securities upon termination of the Trust as described above. See "Description of
Preferred Securities -- Liquidation Distribution upon Termination" in the
accompanying Prospectus. The existence of a Trust Agreement Event of Default
does not entitle the holders of Preferred Securities to accelerate the maturity
thereof.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depositary will act as securities depositary for any Preferred
Securities that are held separately from the Income PRIDES. In such event, the
Preferred Securities will be issued only as fully-registered securities
registered in the name of Cede & Co. (the Depositary's nominee). However, under
certain circumstances, the Administrative Trustees with the consent of the
Company may decide not to use the system of book-entry transfers through the DTC
with respect to the Preferred Securities. In that event, certificates of the
Preferred Securities will be printed and delivered to the holders. In addition,
Preferred Securities which are components of Income PRIDES will be issued in
definitive form, registered in the name of The First National Bank of Chicago,
as Purchase Contract Agent.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Preferred
Securities as represented by a global certificate.
Purchases of Preferred Securities within the Depositary's system must be
made by or through Direct Participants, which will receive a credit for the
Preferred Securities on the Depositary's records. The ownership interest of each
actual purchaser of each Preferred Security (a "Beneficial Owner") is in turn to
be recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depositary of their purchases,
but Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which the Beneficial Owners
purchased Preferred Securities. Transfers of ownership interests in the
Preferred Securities are to be accomplished by entries made on the books of
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in the Preferred
Securities, except in the event that use of the book-entry system for the
Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with the Depositary will initially be registered in the name of
the Depositary's nominee, Cede & Co. The deposit of Preferred Securities with
the Depositary and their registration in the name of Cede & Co. effect no change
in beneficial ownership. The Depositary has no knowledge of the actual
Beneficial Owners of the Preferred Securities. The Depositary's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
So long as the Depositary or its nominee is the registered owner or holder
of a global certificate, the Depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the Preferred Securities
represented thereby for all purposes under the Trust Agreement and the Preferred
Securities. No Beneficial Owner of an interest in a global certificate will be
able to transfer that interest except in accordance with the Depositary's
applicable procedures, in addition to those provided for under the Trust
Agreement.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Preferred Securities (including the
presentation of Preferred Securities for exchange as described below) only at
the direction of one or more Participants to whose account the Depositary's
interests in the global certificates are credited and only in respect of such
portion of the stated liquidation amount of Preferred Securities as to which
such Participant or Participants has or have given such directions. However, if
there is a
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Trust Agreement Event of Default under the Preferred Securities, the Depositary
will exchange the global certificates for certificated securities, which it will
distribute to its Participants.
Conveyance of notices and other communications by the Depositary to Direct
Participants and Indirect Participants and by Direct Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements that may be in effect from
time to time.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither the Depositary nor Cede & Co. will
itself consent or vote with respect to Preferred Securities. Under its usual
procedures, the Depositary would mail an omnibus proxy to the Trust as soon as
possible after the record date. The omnibus proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Preferred Securities are credited on the record date (identified in a listing
attached to the omnibus proxy). The Company and the Trust believe that the
arrangements among the Depositary, Direct and Indirect Participants, and
Beneficial Owners will enable the Beneficial Owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a record
holder of a Preferred Security.
Payments on the Preferred Securities issued in the form of one or more
global certificates will be made to the Depositary in immediately available
funds. The Depositary's practice is to credit Direct Participants' accounts on
the relevant payment date in accordance with their respective holdings shown on
the Depositary's records unless the Depositary has reason to believe that it
will not receive payments on such payment date. Payments by Participants to
Beneficial Owners will be governed by standing instructions and customary
practices, as is the case with securities held for the account of customers in
bearer form or registered in "street name," and such payments will be the
responsibility of such Participants and not of the Depositary, the Trust or the
Company, subject to any statutory or regulatory requirements to the contrary
that may be in effect from time to time. Payment of Distributions to the
Depositary is the responsibility of the Trust, disbursement of such payments to
Direct Participants is the responsibility of the Depositary, and disbursement of
such payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Security certificate will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of the Depositary to exercise any rights under the Preferred
Securities.
Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interests in the global certificates among Participants,
the Depositary is under no obligation to perform or continue to perform such
procedures and such procedures may be discontinued at any time. None of the
Company, the Trust or any Issuer Trustee will have any responsibility for the
performance by the Depositary or its Direct Participants or Indirect
Participants under the rules and procedures governing the Depositary. In the
event that (i) the Depositary notifies the Company that it is unwilling or
unable to continue as a depositary for such global Preferred Securities and no
successor depositary shall have been appointed within 90 days after notice
thereof to the Company, (ii) the Depositary at any time ceases to be a clearing
agency registered under the Exchange Act at which time the Depositary is
required to be so registered to act as such depositary and no successor
depositary shall have been appointed within 90 days after the Company learns
that the Depositary has ceased to be so registered, (iii) the Company, in its
sole discretion, determines that such global Preferred Securities shall be so
exchangeable or (iv) there shall have occurred and be continuing a Trust
Agreement Event of Default, certificates for the Preferred Securities will be
printed and delivered in exchange for beneficial interests in the global
Preferred Securities. Any global Preferred Securities that are exchangeable
pursuant to the preceding sentence shall be exchangeable for Preferred
Securities registered in such names as the Depositary shall direct. It is
expected that such instructions will be based upon directions received by the
Depositary from its Participants with respect to ownership of beneficial
interests in such global Preferred Securities.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
and the Trust believe to be reliable, but neither the Company nor the Trust have
attempted to verify the accuracy hereof.
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GOVERNING LAW
The Trust Agreement and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
DESCRIPTION OF THE GUARANTEE
This summary of certain provisions of the Guarantee does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of the Guarantee Agreement, including the definitions therein
of certain terms, and the Trust Indenture Act. The form of the Guarantee has
been filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and the Prospectus form a part. Reference in this summary to
Preferred Securities means the Trust's Preferred Securities to which the
Guarantee relates. The First National Bank of Chicago, the Guarantee Trustee,
will hold the Guarantee for the benefit of the holders of the Preferred
Securities.
GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Preferred Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that the Trust may have or assert other than
the defense of payment. The following payments with respect to the Preferred
Securities, to the extent not paid by or on behalf of the Trust (the "Guarantee
Payments"), will be subject to the Guarantee: (i) any accumulated and unpaid
Distributions required to be paid on such Preferred Securities, to the extent
that the Trust has funds on hand available therefor at such time, (ii) the
redemption price, including all accrued and unpaid Distributions to the date of
redemption, with respect to the Preferred Securities called for redemption to
the extent that the Trust has funds on hand available therefor at such time, or
(iii) upon a voluntary or involuntary dissolution, winding up or liquidation of
the Trust (unless the Subordinated Debentures are distributed to holders of such
Preferred Securities), the lesser of (a) the Liquidation Distribution and (b)
the amount of assets of the Trust remaining available for distribution to
holders of Preferred Securities. The Company's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of the Preferred Securities or by causing the Trust to
pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Trust's obligations under the Preferred Securities, but will apply only to
the extent that the Trust has funds sufficient to make such payments, and is not
a guarantee of collection.
If the Company does not make interest payments on the Subordinated
Debentures held by the Trust, the Trust will not be able to pay distributions on
the Securities and will not have funds legally available therefor. The Guarantee
will rank subordinate and junior in right of payment to all Senior Debt of the
Company. See "Description of Guarantees -- Status of the Guarantees" in the
accompanying Prospectus. The Company is a non-operating holding company and
almost all of the operating assets of the Company and its consolidated
subsidiaries are owned by such subsidiaries. The Company relies primarily on
dividends from such subsidiaries to meet its obligations for payment of
principal and interest on its outstanding debt obligations and corporate
expenses. Accordingly, the Company's obligations under the Guarantee will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, and claimants should look only to the assets of the Company for
payments thereunder. The payment of dividends by the Company's insurance company
subsidiaries is limited under the insurance holding company laws in which such
subsidiaries are domiciled. See "Risk Factors -- Holding Company Structure." The
Guarantee does not limit the incurrence or issuance of other secured or
unsecured debt of the Company, whether under the Subordinated Indenture, any
other indenture that the Company may enter into in the future or otherwise.
The Company's obligations, through the Guarantee, when taken together with
the Trust Agreement, the Subordinated Debentures, the Subordinated Indenture,
and the Expense Agreement, constitute a full, irrevocable and unconditional
guarantee by the Company of payments due on the Preferred Securities. No
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single document standing alone or operating in conjunction with fewer than all
of the other documents constitutes such guarantee. It is only the combined
operation of these documents that has the effect of providing a full,
irrevocable and unconditional guarantee of the Trust's obligations under the
Preferred Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the Preferred Securities (in which case no vote will be
required), the Guarantee may not be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of the
outstanding Preferred Securities. All guarantees and agreements contained in the
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder; provided,
however, that except with respect to a default in the payment of Guarantee
Payments, the Company shall have received notice of default and shall not have
cured such default within 60 days after receipt of such notice. The holders of
not less than a majority in aggregate Liquidation Amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Guarantee Trustee in respect of such
Guarantee or to direct the exercise of any trust or power conferred upon the
Guarantee Trustee under such Guarantee.
If the Guarantee Trustee fails to enforce the Guarantee Agreements, any
holder of the Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under such Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee or any
other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of any Guarantee, undertakes to perform
only such duties as are specifically set forth in each Guarantee and, after
default with respect to any Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Guarantee Trustee is under no obligation
to exercise any of the powers vested in it by any Guarantee at the request of
any holder of any Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
TERMINATION
The Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the Preferred Securities, upon full
payment of the amounts payable upon liquidation of the Trust or upon
distribution of the Subordinated Debentures to the holders of the Preferred
Securities. Each Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of the Preferred Securities must
restore payment of any sums paid under such Preferred Securities or such
Guarantee.
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
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THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by the Company under the
Trust Agreement (the "Expense Agreement"), the Company will irrevocably and
unconditionally guarantee to each person or entity to whom the Trust becomes
indebted or liable, the full payment of any costs, expenses or liabilities of
the Trust, other than obligations of the Trust to pay to the holders of the
Preferred Securities or other similar interests in the Trust of the amounts due
such holders pursuant to the terms of the Preferred Securities or such other
similar interests, as the case may be.
CERTAIN TERMS OF THE SUBORDINATED DEBENTURES
GENERAL
The following summary of certain terms and provisions of the Subordinated
Debentures supplements the description of the terms and provisions of the
Corresponding Junior Subordinated Debt Securities set forth in the accompanying
Prospectus under the headings "Description of Junior Subordinated Debt
Securities" and "Description of Junior Subordinated Debentures -- Corresponding
Junior Subordinated Debt Securities," to which description reference is hereby
made. The summary of certain terms and provisions of the Subordinated Debentures
set forth below does not purport to be complete and is subject to, and qualified
in its entirety by reference to, the Subordinated Indenture. The Subordinated
Indenture has been filed as an exhibit to the Registration Statement of which
this Prospectus Supplement and accompanying Prospectus is a part. Certain
capitalized terms used herein are defined in the Subordinated Indenture. As used
under this caption, references to the Company mean Lincoln National Corporation
excluding, unless otherwise expressly stated or the context otherwise requires,
its subsidiaries.
Concurrently with the issuance of the Preferred Securities, the Trust will
invest the proceeds thereof, together with the consideration paid by Lincoln for
the Common Securities, in the Subordinated Debentures issued by Lincoln. The
Subordinated Debentures will bear interest accruing from the date of original
issuance, at the initial annual rate of 6.40% of the principal amount thereof,
payable quarterly in arrears on February 16, May 16, August 16 and November 16
of each year (each, an "Interest Payment Date"), commencing November 16, 1998,
to the person in whose name each Subordinated Debenture is registered, subject
to certain exceptions, at the close of business on the Business Day next
preceding such Interest Payment Date. The applicable interest rate on the
Subordinated Debentures and the Distribution rate on the Preferred Securities
outstanding on and after the Purchase Contract Settlement Date will be reset on
the third Business Day immediately preceding the Purchase Contract Settlement
Date to the Reset Rate. It is anticipated that, until the liquidation, if any,
of the Trust, the Subordinated Debentures will be held in the name of the
Property Trustee in trust for the benefit of the holders of the Preferred
Securities. The amount of interest payable for any period will be computed on
the basis of a 360-day year of twelve 30-day months. The amount of interest
payable for any partial period shall be computed on the basis of the number of
days elapsed in a 360-day year of twelve 30-day months. In the event that any
date on which interest is payable on the Subordinated Debentures is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on the date such payment was originally payable.
The Subordinated Debentures will not be subject to a sinking fund
provision. Unless a Tax Event redemption has occurred prior to the Purchase
Contract Settlement Date, the entire principal amount of the Subordinated
Debentures will mature and become due and payable, together with any accrued and
unpaid interest thereon, including Compounded Interest (as defined herein) and
Additional Sums (as defined herein), if any, on August 15, 2003.
The Company will have the right at any time to dissolve the Trust and cause
the Subordinated Debentures to be distributed to the holders of the Trust
Securities. If Subordinated Debentures are distributed to holders of Trust
Securities in liquidation of such holders' interests in the Trust, such
Subordinated
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Debentures will initially be issued as a Global Security (as defined herein). As
described herein, under certain limited circumstances, Subordinated Debentures
may be issued in certificated form in exchange for a Global Security. See "--
Book-Entry and Settlement" below. In the event that Subordinated Debentures are
issued in certificated form, such Subordinated Debentures will be in
denominations of $25 and integral multiples thereof, without coupons, and may be
transferred or exchanged, without service charge but upon payment of any taxes
or other governmental charges payable in connection therewith, at the offices
described below. Payments on Subordinated Debentures issued as a Global Security
will be made to the Depositary, a successor depositary or, in the event that no
depositary is used, to a paying agent for the Subordinated Debentures. In the
event Subordinated Debentures are issued in certificated form, principal and
interest will be payable, the transfer of the Subordinated Debentures will be
registrable and Subordinated Debentures will be exchangeable for Subordinated
Debentures of other denominations of a like aggregate principal amount, at the
office or agency maintained by the Company for such purpose in the Borough of
Manhattan, The City of New York; provided, that at the option of the Company,
payment of interest may be made by check mailed to the address of the holder
entitled thereto or by wire transfer to an account appropriately designated by
the holder entitled thereto. Notwithstanding the foregoing, so long as the
holder of any Subordinated Debentures is the Property Trustee, the payment of
principal and interest on the Subordinated Debentures held by the Property
Trustee will be made at such place and to such account as may be designated by
the Property Trustee. The Company will appoint the Subordinated Indenture
Trustee as the initial paying agent, transfer agent and registrar for the
Subordinated Debentures. The Company may at any time designate additional
transfer agents and paying agents with respect to the Subordinated Debentures,
and may remove any transfer agent, paying agent or registrar for the
Subordinated Debentures; provided, that at such time as the Subordinated
Debentures are issued in certificated form, the Company will be required to
maintain a paying agent and transfer agent for the Subordinated Debentures in
the Borough of Manhattan, The City of New York.
The Subordinated Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior Debt of Lincoln. See "Description
of Junior Subordinated Debt Securities -- Subordination" in the accompanying
Prospectus. Lincoln is a non-operating holding company and almost all of the
operating assets of Lincoln and its consolidated subsidiaries are owned by such
subsidiaries. Lincoln relies primarily on interest and dividends from such
subsidiaries to meet its obligations for payment of principal and interest on
its outstanding debt obligations and corporate expenses. Accordingly, the
Subordinated Debentures will be subordinated to all Senior Debt of Lincoln and
effectively subordinated to all existing and future liabilities of Lincoln's
subsidiaries, and holders of Subordinated Debentures should look only to the
assets of Lincoln for payments on the Subordinated Debentures. The Subordinated
Debentures will rank pari passu with the 8 3/4% Junior Subordinated Deferrable
Interest Debentures, Series A, issued on July 2, 1996, the 8.35% Junior
Subordinated Deferrable Interest Debentures, Series B, issued on August 21,
1996, and the 7.40% Junior Subordinated Deferrable Interest Debentures, Series
C, issued on July 24, 1998. The Subordinated Indenture does not limit the
incurrence or issuance of other secured or unsecured debt of Lincoln, whether
under the Subordinated Indenture or any existing or other indenture that Lincoln
may enter into in the future or otherwise, including Lincoln's Senior Indenture
and Subordinated Indenture entered into with The Bank of New York and The First
National Bank of Chicago, respectively. See "Description of Junior Subordinated
Debt Securities -- Subordination" in the accompanying Prospectus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Junior Subordinated Debt Security Event of Default has
occurred or is continuing, Lincoln has the right under the Subordinated
Indenture at any time during the term of the Subordinated Debentures to defer
the payment of interest at any time or from time to time with respect to each
Extension Period. Such right to extend the interest payment period for the
Subordinated Debentures is limited to a period, in the aggregate, not extending
beyond the maturity date of the Subordinated Debentures; provided that an
Extension Period must end on one of the quarterly Interest Payment Dates. At the
end of such Extension Period, Lincoln must pay all interest then accrued and
unpaid (together with interest thereon at the annual rate of 6.40%, compounded
quarterly, through and including August 15, 2001, and at the Reset Rate
thereafter, to the extent permitted by applicable law ("Compounded Interest")).
During an Extension Period, interest will continue to accrue and holders of
Subordinated Debentures (or holders of Preferred Securities
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while such series is outstanding) will be required to accrue interest income for
United States federal income tax purposes. See "Federal Income Tax Consequences
- -- Original Issue Discount."
During any such Extension Period, Lincoln may not, and may not permit any
subsidiary of Lincoln to, (i) declare or pay any dividends or distributions on,
or redeem, purchase, acquire, or make a liquidation payment with respect to, any
of Lincoln's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of
Lincoln (including other Junior Subordinated Debt Securities) that rank pari
passu with or junior in interest to the Subordinated Debentures or make any
guarantee payments with respect to any guarantee by Lincoln of the debt
securities of any subsidiary of Lincoln if such guarantee ranks pari passu or
junior in interest to the Subordinated Debentures (other than (a) dividends or
distributions in common stock of Lincoln, (b) redemptions or purchases of any
rights pursuant to Lincoln's Rights Plan, or any successor to such Rights Plan,
and the declaration of a dividend of such rights or the issuance of stock under
such plans in the future, (c) payments under any Guarantee, and (d) purchases of
Common Stock related to the issuance of Common Stock under any of Lincoln's
benefit plans for its directors, officers or employees). Prior to the
termination of any such Extension Period, Lincoln may further extend the
interest payment period, provided that no Extension Period may extend beyond the
stated maturity of the Subordinated Debentures. Upon the termination of any such
Extension Period and the payment of all amounts then due on any Interest Payment
Date, Lincoln may elect to begin a new Extension Period subject to the above
requirements. No interest shall be due and payable during an Extension Period,
except at the end thereof Lincoln must give the Property Trustee, the
Administrative Trustees and the Subordinated Indenture Trustee notice of its
election of such Extension Period at least one Business Day prior to the earlier
of (i) the date the Distributions on the Preferred Securities would have been
payable except for the election to begin such Extension Period or (ii) the date
the Administrative Trustees are required to give notice to the New York Stock
Exchange, the Nasdaq National Market or other applicable self regulatory
organization or to holders of such Preferred Securities of the record date or
the date such Distributions are payable, but in any event not less than one
Business Day prior to such record date. The Subordinated Indenture Trustee shall
give notice of Lincoln's election to begin a new Extension Period to the holders
of the Preferred Securities. There is no limitation on the number of times that
Lincoln may elect to begin an Extension Period. See "Description of Junior
Subordinated Debt Securities -- Option to Extend Interest Payment Date" in the
accompanying Prospectus.
Lincoln has no current intention of exercising its right to defer payments
of interest by extending the interest payment period on the Subordinated
Debentures.
ADDITIONAL SUMS
If the Trust is required to pay any additional taxes, duties or other
governmental charges ("Additional Sums") as a result of a Tax Event, Lincoln
will pay as additional amounts on the Subordinated Debentures such amounts as
shall be required so that the Distributions payable by the Trust shall not be
reduced as a result of any such additional taxes, duties or other governmental
charges, subject to the conditions described under "Description of Preferred
Securities -- Redemption or Exchange -- Special Event Redemption or Distribution
of Corresponding Junior Subordinated Debt Securities" in the accompanying
Prospectus.
TAX EVENT REDEMPTION
If a Tax Event shall occur and be continuing, the Company may, at its
option, on not less than 30 days or more than 60 days notice, redeem
Subordinated Debentures in whole (but not in part) at any time at a Redemption
Price equal to, for each Subordinated Debenture, the Redemption Amount plus
accrued and unpaid interest thereon, including Compounded Interest (the "Tax
Event Redemption Date"); provided that installments of interest on Subordinated
Debentures which are due and payable on or prior to a redemption date shall be
payable to the holders of such Subordinated Debentures registered as such at the
close of business on the relevant record dates. If, following the occurrence of
a Tax Event, the Company exercises its option to redeem the Subordinated
Debentures, the proceeds of such redemption will be applied to redeem Trust
Securities having a liquidation amount equal to the principal amount of
Subordinated Debentures to be paid in accordance with their terms, at a
Redemption Price per Trust Security equal to the Redemption
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Amount plus accrued and unpaid Distributions to the date of redemption. Such
Redemption Price will be payable in cash to the holders of such Trust
Securities. If such Tax Event Redemption occurs prior to the Purchase Contract
Settlement Date, the Redemption Price payable in liquidation of the Income
PRIDES holders' interest in the Trust will be distributed to the Collateral
Agent, who in turn will apply an amount equal to the Redemption Amount of such
Redemption Price to purchase the Treasury Portfolio on behalf of the holders of
Income PRIDES and remit the remaining portion, if any, of such Redemption Price
to the Purchase Contract Agent for payment to the holders of such Income PRIDES.
Such Treasury Portfolio will be substituted for the Preferred Securities and
will be pledged with the Collateral Agent to secure such Income PRIDES holders'
obligation to purchase the Company's Common Stock under the Purchase Contracts;
provided, that if the Tax Event Redemption occurs after the Purchase Contract
Settlement Date, such Treasury Portfolio will not be purchased.
"Tax Event" means the receipt by the Trust of an opinion of counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein, or as a result of any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or which
pronouncement or decision is announced on or after the date of issuance of the
Subordinated Debentures under the Subordinated Indenture, there is more than an
insubstantial risk that (i) the Trust is, or will be within 90 days of the date
of such opinion, subject to United States Federal income tax with respect to
income received or accrued on the Subordinated Debentures, (ii) interest payable
by the Company on the Subordinated Debentures is not, or within 90 days of the
date of such opinion, will not be, deductible by the Company, in whole or in
part, for United States Federal income tax purposes or (iii) the Trust is, or
will be within 90 days of the date of such opinion, subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
"Treasury Portfolio" means, with respect to the Applicable Principal Amount
of Subordinated Debentures (a) if the Tax Event Redemption Date occurs prior to
the Purchase Contract Settlement Date, a portfolio of zero-coupon U.S. Treasury
Securities consisting of (i) interest or principal strips of U.S. Treasury
Securities which mature on or prior to August 15, 2001 in an aggregate amount
equal to the Applicable Principal Amount and (ii) with respect to each scheduled
interest payment date on the Subordinated Debentures that occurs after the Tax
Event Redemption Date, interest or principal strips of U.S. Treasury Securities
which mature on or prior to such date in an aggregate amount equal to the
aggregate interest payment that would be due on the Applicable Principal Amount
of the Subordinated Debentures on such date, and (b) if the Tax Event Redemption
Date occurs after the Purchase Contract Settlement Date, a portfolio of
zero-coupon U.S. Treasury Securities consisting of (i) principal or interest
strips of U.S. Treasury Securities which mature on or prior to August 15, 2003
in an aggregate amount equal to the Applicable Principal Amount and (ii) with
respect to each scheduled interest payment date on the Subordinated Debentures
that occurs after the Tax Event Redemption Date, interest or principal strips of
such U.S. Treasury Securities which mature on or prior to such date in an
aggregate amount equal to the aggregate interest payment that would be due on
the Applicable Principal Amount of the Subordinated Debentures on such date.
"Applicable Principal Amount" means either (i) if the Tax Event Redemption
Date occurs prior to the Purchase Contract Settlement Date, the aggregate
principal amount of the Subordinated Debentures corresponding to the aggregate
stated liquidation amount of the Preferred Securities which are components of
Income PRIDES on the Tax Event Redemption Date or (ii) if the Tax Event
Redemption occurs on or after the Purchase Contract Settlement Date, the
aggregate principal amount of the Subordinated Debentures corresponding to the
aggregate stated liquidation amount of the Preferred Securities outstanding on
such Tax Event Redemption Date.
"Redemption Amount" means for each Subordinated Debenture, the product of
(i) the principal amount of such Subordinated Debenture and (ii) a fraction
whose numerator is the Treasury Portfolio Purchase Price and whose denominator
is the Applicable Principal Amount. All references herein to the "principal" of
the Subordinated Debentures shall be deemed to include a reference to "and
premium, if any," unless otherwise expressly stated or the context otherwise
requires.
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"Treasury Portfolio Purchase Price" means the lowest aggregate price quoted
by a primary U.S. government securities dealer in New York City (a "Primary
Treasury Dealer") to the Quotation Agent on the third Business Day immediately
preceding the Tax Event Redemption Date for the purchase of the Treasury
Portfolio for settlement on the Tax Event Redemption Date.
"Quotation Agent" means (i) Merrill Lynch Government Securities, Inc. and
its respective successors, provided, however, that if the foregoing shall cease
to be a Primary Treasury Dealer, the Company shall substitute therefor another
Primary Treasury Dealer, or (ii) any other Primary Treasury Dealer selected by
the Company.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each registered holder of Subordinated
Debentures to be redeemed at its registered address. Unless the Company defaults
in payment of the Redemption Price, on and after the redemption date interest
shall cease to accrue on such Subordinated Debentures. In the event any
Subordinated Debentures are called for redemption, neither the Company nor the
Subordinated Indenture Trustee will be required to register the transfer of or
exchange the Subordinated Debentures to be redeemed.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
dissolution of the Trust, the Subordinated Debentures will be issued in the form
of one or more global certificates (each a "Global Security") registered in the
name of the Depositary or its nominee. Except under the limited circumstances
described below, Subordinated Debentures represented by the Global Security will
not be exchangeable for, and will not otherwise be issuable as, Subordinated
Debentures in certificated form. The Global Securities described above may not
be transferred except by the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or to a successor depositary or its nominee.
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in certificated form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Subordinated
Debentures in certificated form and will not be considered the holders (as
defined in the Subordinated Indenture) thereof for any purpose under the
Subordinated Indenture, and no Global Security representing Subordinated
Debentures shall be exchangeable, except for another Global Security of like
denomination and tenor to be registered in the name of the Depositary or its
nominee or a successor Depositary or its nominee. Accordingly, each Beneficial
Owner must rely on the procedures of the Depositary or if such person is not a
Participant, on the procedures of the Participant through which such person owns
its interest to exercise any rights of a holder under the Subordinated
Indenture.
THE DEPOSITARY
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, the
Depositary will act as securities depositary for the Subordinated Debentures.
For a description of the Depositary and the specific terms of the depositary
arrangements, see "Description of the Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company." As of the date of this Prospectus,
the description therein of the Depositary's book-entry system and the
Depositary's practices as they relate to purchases, transfers, notices and
payments with respect to the Preferred Securities apply in all material respects
to any debt obligations represented by one or more Global Securities held by the
Depositary. The Company may appoint a successor to the Depositary or any
successor depositary in the event the Depositary or such successor depositary is
unable or unwilling to continue as a depositary for the Global Securities.
Although the Depositary has agreed to act as Depositary for the
Subordinated Debentures in order to facilitate transfers of interests therein
among Participants, the Depositary is under no obligation to perform or
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continue to perform such procedures, and such procedures may be discontinued at
any time. None of the Company, the Trust, the Subordinated Indenture Trustee,
any paying agent and any other agent of the Company or the Subordinated
Indenture Trustee will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in a Global Security for such Subordinated Debentures or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
In the event that (i) the Depositary notifies the Company that it is
unwilling or unable to continue as a depositary for the Global Securities and no
successor depositary shall have been appointed within 90 days after such
notification, (ii) the Depositary at any time ceases to be a clearing agency
registered under the Exchange Act at which time the Depositary is required to be
so registered to act as such depositary and no successor depositary shall have
been appointed within 90 days after the Trust or the Company becoming aware of
the Depositary's ceasing to be so registered, (iii) the Company, in its sole
discretion, determines that such Global Securities shall be so exchangeable or
(iv) there shall have occurred and be continuing a Junior Subordinated Debt
Security Event of Default, certificates for the Subordinated Debentures will be
printed and delivered in exchange for beneficial interest in the Global
Securities. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Subordinated Debentures registered in such
names as the Depositary shall direct. It is expected that such instructions will
be based upon directions received by the Depositary from its Participants with
respect to ownership of beneficial interests in such Global Security.
GOVERNING LAW
The Subordinated Indenture and the Subordinated Debentures will be governed
by, and construed in accordance with, the laws of the State of New York.
EFFECT OF OBLIGATIONS UNDER THE
SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Trust Agreement, the sole purpose of the Trust is to
issue the Trust Securities evidencing undivided beneficial interests in the
assets of the Trust, and to invest the proceeds from such issuance and sale in
the Subordinated Debentures and engage in only those other activities necessary
or incidental thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because of the following factors: (i)
the aggregate principal amount of Subordinated Debentures will be equal to the
sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and the interest and other payment dates on the Subordinated
Debentures will match the distribution rate and distribution and other payment
dates for the Trust Securities; (iii) the Company shall pay, and the Trust shall
not be obligated to pay, directly or indirectly, all costs, expenses, debts, and
obligations of the Trust (other than with respect to the Trust Securities); and
(iv) the Trust Agreement further provides that the Issuer Trustees shall not
take or cause or permit the Trust to, among other things, engage in any activity
that is not consistent with the purposes of the Trust.
Payments of Distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by the Company as and to the extent set forth under
"Description of the Guarantee." If the Company does not make interest payments
on the Subordinated Debentures purchased by the Trust, the Trust will not have
sufficient funds to pay Distributions on the Preferred Securities. The Guarantee
does not apply to any payment of distributions unless and until the Trust has
sufficient funds for the payment of such distributions.
Notwithstanding anything to the contrary in the Subordinated Indenture, the
Company has the right to set-off any payment it is otherwise required to make
under the Subordinated Debentures with and to the extent the Company has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.
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If the Company fails to make interest or other payments on the Subordinated
Debentures when due (taking account of any Extension Period), the Trust
Agreement provides a mechanism whereby the holders of the Preferred Securities,
using the procedures described in "Certain Terms of the Preferred Securities --
Book-Entry Only Issuance -- The Depository Trust Company" herein and
"Description of Preferred Securities -- Voting Rights; Amendment to Each Trust
Agreement" in the accompanying Prospectus may direct the Property Trustee to
enforce its rights under the Subordinated Indenture. If the Property Trustee
fails to enforce its rights under the Subordinated Indenture in respect of a
Junior Subordinated Debt Security Event of Default, such holder of record of
Preferred Securities may, to the fullest extent permitted by applicable law,
institute a legal proceeding against the Company to enforce the Property
Trustee's rights under the Subordinated Indenture without first instituting any
legal proceeding against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if a Trust Agreement Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest, premium, if any, or principal on the Subordinated
Debentures on the date such interest, premium, if any, or principal is otherwise
payable, then a holder of Preferred Securities may directly institute a
proceeding against the Company for payment. The Company, under the Guarantee,
acknowledges that the Guarantee Trustee shall enforce the Guarantee on behalf of
the holders of the Preferred Securities. If the Company fails to make payments
under the Guarantee, the Guarantee provides a mechanism whereby the holders of
the Preferred Securities may direct the Guarantee Trustee to enforce its rights
thereunder. Notwithstanding the foregoing, if the Company has failed to make a
payment under the Guarantee, any holder of Preferred Securities may institute a
legal proceeding directly against the Company to enforce its rights under the
Guarantee without first instituting a legal proceeding against the Trust, the
Guarantee Trustee, or any other person or entity.
The Guarantee, when taken together with the Company's obligations under the
Subordinated Debentures and the Subordinated Indenture and its obligations under
the Trust Agreement, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities), has
the effect of providing a full and unconditional guarantee of amounts due on the
Preferred Securities. See "Description of the Guarantee."
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the anticipated material United States
federal income tax consequences of the purchase, ownership and disposition of
the FELINE PRIDES, Preferred Securities and Common Stock to investors generally.
Unless otherwise stated, this summary deals only with FELINE PRIDES, Preferred
Securities and Common Stock held as capital assets (generally, assets held for
investment) by U.S. Holders who purchase FELINE PRIDES or Preferred Securities
upon original issuance at their original offering price. The tax treatment of a
U.S. Holder may vary depending on such U.S. Holder's particular situation. This
summary does not address all of the tax consequences that may be relevant to
holders who may be subject to special tax treatment such as, for example, banks,
thrift institutions, regulated investment companies, real estate investment
trusts, insurance companies, broker dealers, traders that elect to mark to
market, tax-exempt organizations, or foreign taxpayers. In addition this summary
does not address any aspects of state, local, or foreign tax laws. For purposes
of this summary, the term "U.S. Holder" means (i) a person who is a citizen or
resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or any state thereof or the
District of Columbia, (iii) an estate the income of which is subject to United
States federal income taxation, regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of such trust and one or more United States persons have the
authority to control all substantial decisions of such trust.
No statutory, administrative or judicial authority directly addresses the
treatment of FELINE PRIDES or instruments similar to FELINE PRIDES for United
States federal income tax purposes. As a result, no assurance can be given that
the IRS will agree with the tax consequences described herein. The statements of
law or legal conclusions set forth in this summary constitute the opinion of
Sonnenschein Nath & Rosenthal, counsel to Lincoln and the Trust. This summary is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, IRS rulings and pronouncements and judicial decisions now in
effect, all of which are subject to change at any time. Such changes may be
applied retroactively in a manner
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that could cause tax consequences to vary substantially from the consequences
set forth below, possibly adversely affecting a beneficial owner of FELINE
PRIDES. The authorities on which this summary is based are subject to various
interpretations, and it is therefore possible that the federal income tax
treatment of the purchase, ownership and disposition of the FELINE PRIDES,
Preferred Securities or Common Stock may differ from the treatment described
below.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS IN
LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES AS TO THE FEDERAL TAX CONSEQUENCES
OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF FELINE PRIDES, AS WELL AS THE
EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
FELINE PRIDES
ALLOCATION OF PURCHASE PRICE. A U.S. Holder's acquisition of FELINE PRIDES
will be treated as an acquisition of a unit consisting of two components -- in
the case of an Income PRIDES, the Preferred Security and the Purchase Contract
constituting such Income PRIDES and, in the case of a Growth PRIDES, the
interest in a Treasury Security and the Purchase Contract constituting such
Growth PRIDES. The purchase price of each FELINE PRIDES will be allocated
between the two components in proportion to their respective fair market values
at the time of purchase. Such allocation will establish the U.S. Holder's
initial tax basis in the Preferred Security or interest in the Treasury
Security, as the case may be, and the Purchase Contract. The Company will report
the fair market value of each Preferred Security and each interest in a Treasury
Security so that the entire purchase price of a FELINE PRIDES will be allocable
to the Preferred Security or interest in the Treasury Security, as the case may
be, and no amount will be allocable to the Purchase Contract. This position will
be binding upon each U.S. Holder (but not on the IRS) unless such U.S. Holder
explicitly discloses a contrary position on a statement attached to such U.S.
Holder's timely filed United States federal income tax return for the taxable
year in which a FELINE PRIDES is acquired. Thus, absent such disclosure, a U.S.
Holder should allocate the purchase price for a FELINE PRIDES in accordance with
the foregoing. The remainder of this discussion assumes that this allocation of
purchase price will be respected for United States federal income tax purposes.
However, no assurance can be given that the Internal Revenue Service will agree
with this allocation and not attempt to allocate a portion of the Purchase Price
to the Purchase Contract as a result, for example, of the Contract Adjustment
Payments or otherwise. A different allocation could affect the timing and
character of income to a U.S. Holder.
OWNERSHIP OF PREFERRED SECURITIES OR TREASURY SECURITIES. A U.S. Holder
will be treated as owning the Preferred Securities or Treasury Securities
constituting a part of the Income PRIDES or Growth PRIDES, respectively. The
Company and, by acquiring FELINE PRIDES, each U.S. Holder agree to treat such
U.S. Holder as the owner, for United States federal, state and local income and
franchise tax purposes, of the Preferred Securities or Treasury Securities
constituting a part of the FELINE PRIDES beneficially owned by such U.S. Holder.
Based upon such agreement, the Company intends to take the position, and the
remainder of this summary assumes, that U.S. Holders of FELINE PRIDES will be
treated as the owners of the Preferred Securities or Treasury Securities
constituting a part of such FELINE PRIDES for United States federal, state and
local income and franchise tax purposes. The United States federal income tax
consequences of owning the Preferred Securities or Treasury Securities are
discussed below (see "-- Preferred Securities," "-- Treasury Securities" and "--
Tax Event Redemption of Preferred Securities.").
SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF FELINE PRIDES. Upon a
sale, exchange or other taxable disposition (collectively, a "disposition") of
FELINE PRIDES, a U.S. Holder will be treated as having sold, exchanged or
disposed of the Purchase Contract and the Preferred Securities, Treasury
Portfolio or, in the case of Growth PRIDES, the Treasury Securities, that
constitute such FELINE PRIDES and will generally have gain or loss equal to the
difference between the portion of the proceeds to such U.S. Holder allocable to
the Purchase Contract and the Preferred Securities, Treasury Portfolio or
Treasury Securities, as the case may be, and such U.S. Holder's respective
adjusted tax bases in the Purchase Contract and the Preferred Securities,
Treasury Portfolio or Treasury Securities. Such gain or loss will generally be
capital gain or loss, except to the extent that such U.S. holder is treated as
receiving an amount with respect to accrued but unpaid interest on the Preferred
Securities or the Treasury Portfolio, which amount will be treated as ordinary
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interest income, or to the extent such U.S. Holder is treated as receiving an
amount with respect to accrued Contract Adjustment Payments or Deferred Contract
Adjustment Payments, which may be treated as ordinary income, in each case to
the extent not previously included in income. Such capital gain or loss will
generally be long-term capital gain or loss if the U.S. Holder held such FELINE
PRIDES for more than one year immediately prior to such disposition. Long-term
capital gains of individuals are eligible for reduced rates of taxation
depending upon the holding period of such capital assets. The deductibility of
capital losses is subject to limitations. If the disposition of FELINE PRIDES
occurs when the Purchase Contract has negative value, the U.S. Holder should be
considered to have received additional consideration for the Preferred
Securities, Treasury Portfolio or Treasury Securities, as the case may be, in an
amount equal to such negative value and to have paid such amount to be released
from the U.S. Holder's obligation under the Purchase Contract. U.S. Holders
should consult their tax advisors regarding a disposition of the FELINE PRIDES
at a time when the Purchase Contract has negative value.
In determining gain or loss, payments to a U.S. Holder of Contract
Adjustment Payments or Deferred Contract Adjustment Payments that have not
previously been included in the income of such U.S. Holder should either reduce
such U.S. Holder's adjusted tax basis in the Purchase Contract or result in an
increase in the amount realized on the disposition of the Purchase Contract. Any
Contract Adjustment Payments or Deferred Contract Adjustment Payments included
in a U.S. Holder's income but not paid should increase such U.S. Holder's
adjusted tax basis in the Purchase Contract. Payments in cash that have been
made by a U.S. Holder to create Growth PRIDES but not offset against payments of
Contract Adjustment Payments or Deferred Contract Adjustment Payments may
increase such U.S. Holder's adjusted tax basis in the Purchase Contract or
result in a decrease in the amount realized on the disposition of the Purchase
Contract (see "Contract Adjustment Payments and Deferred Contract Adjustment
Payments; Delivery of Cash" below).
PREFERRED SECURITIES
CLASSIFICATION OF THE TRUST. In connection with the issuance of the FELINE
PRIDES, Sonnenschein Nath & Rosenthal ("Tax Counsel"), will deliver an opinion
that, under current law and assuming compliance with the terms of the Trust
Agreement, and based on certain facts and assumptions contained in such opinion,
the Trust will be classified as a grantor trust and not as an association
taxable as a corporation for United States federal income tax purposes. As a
result, each U.S. Holder of Preferred Securities will be treated as owning an
undivided beneficial ownership interest in the Subordinated Debentures and, as
further discussed below, each U.S. Holder of Preferred Securities will be
required to include in its gross income its pro rata share of the interest
income or OID that is paid or accrued on the Subordinated Debentures. See
"-- Interest Income and Original Issue Discount."
CLASSIFICATION OF THE SUBORDINATED DEBENTURES. In connection with the
issuance of the Subordinated Debentures, Tax Counsel will deliver an opinion
that, under current law, and based on certain representations, facts and
assumptions set forth in such opinion, the Subordinated Debentures will be
classified as indebtedness for United States federal income tax purposes. The
Company, the Trust and, by acquiring Income PRIDES or Preferred Securities, each
U.S. Holder agree to treat the Subordinated Debentures as indebtedness of the
Company for all United States tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. Under applicable Treasury
regulations (the "Regulations"), remote contingencies that stated interest will
not be timely paid are ignored in determining whether a debt instrument is
issued with OID. If the Subordinated Debentures are treated as issued with OID,
such OID must be included in income by all holders as it accrues economically on
a daily basis, without regard to when it is paid in cash or whether a particular
holder generally uses the cash method of accounting. The Company has concluded
that the likelihood of its exercising its option to defer payments of interest
is remote. This conclusion is based on the Company's analysis, as of the date of
issue of the Subordinated Debentures, of various facts and circumstances deemed
relevant to exercising such deferral option, including, among other things, the
inability of the Company to declare or pay a dividend, or engage in certain
other capital transactions, with respect to its capital stock, or to make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt of the Company that ranks pari passu with or junior to the
Subordinated Debentures if the deferral option is exercised. Based upon this
conclusion and in the absence of
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any specific definition of "remote" in the Regulations, the Company intends to
take the position that the Subordinated Debentures should not be subject to the
OID rules unless the Company exercises its option to extend the interest payment
period. As a consequence, holders of the Preferred Securities should report
interest under their own methods of accounting (e.g., cash or accrual) instead
of under the daily economic accrual rules for OID instruments.
Under the Regulations, if the Company exercises its option to defer
payments of interest, the Subordinated Debentures would be treated as redeemed
and reissued for OID purposes and the sum of the remaining interest payments on
the Subordinated Debentures would thereafter by treated as OID, which would
accrue, and be includible in a U.S. Holder's taxable income, on an economic
accrual basis (regardless of the U.S. Holder's method of accounting for income
tax purposes) over the remaining term of the Subordinated Debentures (including
any period of interest deferral), without regard to the timing of payments under
the Subordinated Debentures.
The IRS could take the position that the likelihood the Company would
exercise its right to defer payments of interest is not a "remote" contingency
for purposes of the OID rules, in which case, the Subordinated Debentures would
be treated as initially issued with OID in an amount equal to the aggregate
stated interest over the term of the Subordinated Debentures. That OID would
generally be includible is a U.S. Holder's taxable income, over the term of the
Subordinated Debentures, on an economic accrual basis.
DISTRIBUTION OF SUBORDINATED DEBENTURES TO U.S. HOLDERS OF PREFERRED
SECURITIES. A distribution by the Trust of the Subordinated Debentures as
described under the caption "Certain Terms of the Preferred
Securities -- Liquidation Distribution Upon Dissolution" would be non-taxable to
U.S. Holders. In such event, a U.S. Holder would have an aggregate adjusted tax
basis in the Subordinated Debentures received in the liquidation equal to the
aggregate adjusted tax basis such U.S. Holder had in its Preferred Securities
surrendered therefor, and the holding period of such Subordinated Debentures
would include the period during which such U.S. Holder had held such Preferred
Securities. In addition, a U.S. Holder would continue to include interest (or
OID) in respect of Subordinated Debentures received from the Trust in the manner
described under "-- Interest Income and Original Issue Discount."
SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF PREFERRED
SECURITIES. Gain or loss will be recognized by a U.S. Holder on a disposition of
a Preferred Security (including a redemption for cash or the remarketing
thereof) in an amount equal to the difference between the amount realized by the
U.S. Holder on the disposition of the Preferred Security (except to the extent
that such amount realized is characterized as a payment in respect of accrued
but unpaid interest on such U.S. Holder's allocable share of the Subordinated
Debentures that such U.S. Holder has not previously included in gross income,
which amount will be subject to tax as ordinary interest income) and the U.S.
Holder's adjusted tax basis in such Preferred Security. Selling expenses
incurred by a U.S. Holder, including the remarketing fee, will reduce the amount
of gain or increase the amount of loss recognized by such U.S. Holder upon a
disposition of a Preferred Security. Gain or loss realized by a U.S. Holder on a
disposition of a Preferred Security will generally be capital gain or loss and
will generally be long-term capital gain or loss if the U.S. Holder held such
Preferred Security for more than one year immediately prior to such disposition.
Long-term capital gains of individuals are eligible for reduced rates of
taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations.
TREASURY SECURITIES
ORIGINAL ISSUE DISCOUNT. A U.S. Holder of Growth PRIDES will be required to
treat its ownership interest in the Treasury Securities comprising a Growth
PRIDES as an interest in a bond that was originally issued on the date such
Growth PRIDES is purchased and that has OID equal to the excess of the Stated
Amount of the Growth PRIDES over the purchase price of the Growth PRIDES. A U.S.
Holder will be required to include such OID in income on a daily economic
accrual basis over the period between the issue date of the Growth PRIDES and
the day immediately preceding the Purchase Contract Settlement Date, regardless
of such U.S. Holder's method of tax accounting and in advance of the receipt of
cash attributable to
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such OID. Amounts of OID included in a U.S. Holder's gross income will increase
such U.S. Holder's adjusted tax basis in its interest in the Treasury
Securities.
SALES, EXCHANGES OR OTHER TAXABLE DISPOSITIONS OF TREASURY SECURITIES. In
the event that a U.S. Holder obtains the release of Treasury Securities by
delivering Preferred Securities to the Collateral Agent, gain or loss will be
recognized by the U.S. Holder on a subsequent disposition of the Treasury
Securities in an amount equal to the difference between the amount realized by
the U.S. Holder on such disposition and the U.S. Holder's adjusted tax basis in
the Treasury Securities. Such gain or loss will generally be capital gain or
loss and will generally be long-term capital gain or loss if the U.S. Holder
held such Treasury Securities for more than one year immediately prior to such
disposition. Long-term capital gains of individuals are eligible for reduced
rates of taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations.
PURCHASE CONTRACTS
CONTRACT ADJUSTMENT PAYMENTS AND DEFERRED CONTRACT ADJUSTMENT PAYMENTS;
DELIVERY OF CASH. There is no direct authority addressing the treatment, under
current law, of the Contract Adjustment Payments and Deferred Contract
Adjustment Payments, or the delivery of cash in respect of excess accrued
Contract Adjustment Payments by a U.S. Holder of Income PRIDES upon the creation
of Growth PRIDES and such treatment is, therefore, unclear. Contract Adjustment
Payments and Deferred Contract Adjustment Payments may constitute taxable income
to a U.S. Holder of FELINE PRIDES when received or accrued, in accordance with
the U.S. Holder's regular method of tax accounting. To the extent the Company is
required to file information returns with respect to Contract Adjustment
Payments or Deferred Contract Adjustment Payments, it intends to report such
payments as taxable income to each U.S. Holder. U.S. Holders should consult
their tax advisors concerning the treatment of Contract Adjustment Payments and
Deferred Contract Adjustment Payments and the delivery of cash upon creation of
Growth PRIDES, including the possibility that any Contract Adjustment Payment or
Deferred Contract Adjustment Payment may be treated as a loan, swap payment,
purchase price adjustment, rebate or payment analogous to an option premium,
rather than being includible in income on a current basis, and that the delivery
of cash upon creation of Growth PRIDES may be treated as an offset to Contract
Adjustment Payments or Deferred Contract Adjustment Payments or as a purchase
price adjustment. The treatment of Contract Adjustment Payments Deferred
Contract Adjustment Payments and the delivery of cash upon creation of Growth
PRIDES could affect a U.S. Holder's adjusted tax basis in a Purchase Contract or
Common Stock received under a Purchase Contract or the amount realized by a U.S.
Holder upon the sale or disposition of a FELINE PRIDES or the termination of a
Purchase Contract. See "-- Acquisition of Common Stock under a Purchase
Contract," "-- FELINE PRIDES -- Sales, Exchanges or Other Taxable Dispositions
of FELINE PRIDES" and "-- Termination of Purchase Contract."
ACQUISITION OF COMMON STOCK UNDER A PURCHASE CONTRACT. A U.S. Holder of
FELINE PRIDES generally will not recognize gain or loss on the purchase of
Common Stock under a Purchase Contract, except with respect to any cash paid in
lieu of a fractional share of Common Stock. Subject to the following discussion,
a U.S. Holder's aggregate initial tax basis in the Common Stock received under a
Purchase Contract should generally equal the purchase price paid for such Common
Stock plus such U.S. Holder's adjusted tax basis in the Purchase Contract (if
any), less the portion of such purchase price and adjusted tax basis allocable
to the fractional share. Payments of Contract Adjustment Payments or Deferred
Contract Adjustment Payments that have been received in cash by a U.S. Holder
but not included in income by such U.S. Holder should reduce such U.S. Holder's
adjusted tax basis in the Purchase Contract or the Common Stock to be received
thereunder; payments in cash that have been made by a U.S. Holder to create
Growth PRIDES but not offset against payments of Contract Adjustment Payments or
Deferred Contract Adjustment Payments may increase such U.S. Holder's adjusted
tax basis in the Purchase Contract or the Common Stock to be received thereunder
(see "Contract Adjustment Payments and Deferred Contract Adjustment Payments"
above). The consequences to a U.S. Holder of a purchase of Common Stock under
the Purchase Contract may vary to some extent from those described above
depending upon the U.S. Holder's treatment of the Contract Adjustment Payments
in consultation with its tax advisors. The holding period for Common
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Stock received under a Purchase Contract will commence on the day following the
acquisition of such Common Stock.
OWNERSHIP OF COMMON STOCK ACQUIRED UNDER THE PURCHASE CONTRACT. Any
distribution on Common Stock paid by the Company out of its current or
accumulated earnings and profits (as determined for United States federal income
tax purposes) will constitute a dividend and will be includible in income by a
U.S. Holder when received. Any such dividend will be eligible for the dividends
received deduction if received by an otherwise qualifying corporate U.S. Holder
that meets the holding period and other requirements for the dividends received
deduction.
Upon a disposition of Common Stock, a U.S. Holder will generally recognize
capital gain or loss equal to the difference between the amount realized and
such U.S. Holder's adjusted tax basis in the Common Stock. Such capital gain or
loss will generally be long-term capital gain or loss if the U.S. Holder held
such Common Stock for more than one year immediately prior to such disposition.
Long-term capital gains of individuals are eligible for reduced rates of
taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations.
EARLY SETTLEMENT OF PURCHASE CONTRACT. A U.S. Holder of FELINE PRIDES will
not recognize gain or loss on the receipt of such U.S. Holder's proportionate
share of Preferred Securities, Treasury Securities or the Treasury Portfolio
upon Early Settlement of a Purchase Contract and will have the same adjusted tax
basis in such Preferred Securities, Treasury Securities or the Treasury
Portfolio as before such Early Settlement. Any Contract Adjustment Payments or
Deferred Contract Adjustment Payments that have been included in a U.S. Holder's
income but forfeited and not paid upon Early Settlement of a Purchase Contract
should increase such U.S. Holder's adjusted tax basis in the Common Stock
received under a Purchase Contract.
TERMINATION OF PURCHASE CONTRACT. If a Purchase Contract terminates, a U.S.
Holder of FELINE PRIDES will recognize gain or loss equal to the difference
between the amount realized (if any) upon such termination and such U.S.
Holder's adjusted tax basis (if any) in the Purchase Contract at the time of
such termination. Payments of Contract Adjustment Payments or Deferred Contract
Adjustment Payments received by a U.S. Holder but not included in income by such
U.S. Holder should either reduce such U.S. Holder's adjusted tax adjusted basis
in the Purchase Contract or increase the amount realized on the termination of
the Purchase Contract. Any Contract Adjustment Payments or Deferred Contract
Adjustment Payments included in a U.S. Holder's income but not paid should
increase such U.S. Holder's adjusted tax basis in the Purchase Contract;
payments in cash that have been made by a U.S. Holder to create Growth PRIDES
but not offset against payments of Contract Adjustment Payments or Deferred
Contract Adjustment Payments may increase such U.S. Holder's adjusted tax basis
in the Purchase Contract or result in a deduction on the termination of the
Purchase Contract (see "Contract Adjustment Payments and Deferred Contract
Adjustment Payments" above). Such gain or loss generally will be capital gain or
loss and generally will be long-term capital gain or loss if the U.S. Holder
held such Purchase Contract for more than one year immediately prior to such
termination. Long-term capital gains of individuals are eligible for reduced
rates of taxation depending upon the holding period of such capital assets. The
deductibility of capital losses is subject to limitations. A U.S. Holder will
not recognize gain or loss on the receipt of such U.S. Holder's proportionate
share of the Preferred Securities, Treasury Securities or Treasury Portfolio
upon termination of the Purchase Contract and will have the same adjusted tax
basis in such Preferred Securities, Treasury Securities or Treasury Portfolio as
before such distribution.
ADJUSTMENT TO SETTLEMENT DATE. U.S. Holders of FELINE PRIDES might be
treated as receiving a constructive dividend distribution from the Company if
(i) the Settlement Rate is adjusted and as a result of such adjustment the
proportionate interest of U.S. Holders of FELINE PRIDES in the assets or
earnings and profits of the Company is increased and (ii) the adjustment is not
made pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in
the Settlement Rate would not be considered made pursuant to such a formula if
the adjustment were made to compensate a U.S. Holder for certain taxable
distributions with respect to the Common Stock.
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SUBSTITUTION OF TREASURY SECURITIES TO CREATE OR RECREATE GROWTH PRIDES
A U.S. Holder of an Income PRIDES that delivers Treasury Securities to the
Collateral Agent in substitution for Preferred Securities will generally not
recognize gain or loss upon the delivery of such Treasury Securities or the
release of the Preferred Securities to such U.S. Holder. Such U.S. Holder will
continue to take into account items of income or deduction otherwise includible
or deductible, respectively, by such U.S. Holder with respect to such Treasury
Securities and Preferred Securities, and such U.S. Holder's adjusted tax bases
in the Treasury Securities, the Preferred Securities and the Purchase Contract
will not be affected by such delivery and release.
SUBSTITUTION OF PREFERRED SECURITIES TO CREATE OR RECREATE INCOME PRIDES
A U.S. Holder of a Growth PRIDES that delivers Preferred Securities to the
Collateral Agent in substitution for Treasury Securities will generally not
recognize gain or loss upon the delivery of such Preferred Securities or the
release of the Treasury Securities to the U.S. Holder. Such U.S. Holder will
continue to take into account items of income or deduction otherwise includible
or deductible, respectively, by such U.S. Holder with respect to such Treasury
Securities and Preferred Securities, and such U.S. Holder's adjusted tax bases
in the Treasury Securities, the Preferred Securities and the Purchase Contract
will not be affected by such delivery and release.
TAX EVENT REDEMPTION OF PREFERRED SECURITIES
A Tax Event Redemption will be a taxable event for U.S. Holders of
Preferred Securities which will be subject to tax in the manner described under
"Preferred Securities -- Sales, Exchanges or Other Taxable Dispositions of
Preferred Securities."
OWNERSHIP OF TREASURY PORTFOLIO. The Company, the Trust and, by acquiring
Income PRIDES, each U.S. Holder agree to treat such U.S. Holder as the owner,
for United States federal, state and local income and franchise tax purposes, of
the Applicable Ownership Interest of the Treasury Portfolio constituting a part
of the Income PRIDES beneficially owned by such U.S. Holder in the event of a
Tax Event Redemption prior to the Purchase Contract Settlement Date. Based on
such agreement, each U.S. Holder will include in income any amount earned on
such pro rata portion of the Treasury Portfolio for all United States federal,
state and local income and franchise tax purposes. The remainder of this summary
assumes that U.S. Holders of Income PRIDES will be treated as the owners of the
Applicable Ownership Interest of the Treasury Portfolio constituting a part of
such Income PRIDES for United States federal, state and local income and
franchise tax purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT. The Treasury Portfolio will
consist of stripped U.S. Treasury Securities. Following a Tax Event Redemption
prior to the Purchase Contract Settlement Date, a U.S. Holder of Income PRIDES
will be required to treat its pro rata portion of each U.S. Treasury Security in
the Treasury Portfolio as a bond that was originally issued on the date the
Collateral Agent acquired the relevant U.S. Treasury Securities and that has OID
equal to the U.S. Holder's pro rata portion of the excess of the amounts payable
on such U.S. Treasury Securities over the value of the U.S. Treasury Securities
at the time the Collateral Agent acquires them on behalf of holders of Income
PRIDES.
A U.S. Holder will be required to include such OID in income on a daily
economic basis over the life of the U.S. Treasury Securities. The amount of such
excess will constitute only a portion of the total amounts payable in respect of
the Treasury Portfolio. Consequently, a portion of each scheduled interest
payment to U.S. Holders will be treated as a return of such U.S. Holders'
investment in the Treasury Portfolio and will not be considered current income
for United States federal income tax purposes. A U.S. Holder, whether on the
cash or accrual method of tax accounting, will be required to include OID (other
than OID on short-term U.S. Treasury Securities as defined below) in income for
United States federal income tax purposes as it accrues on a constant yield to
maturity basis. See "-- Preferred Securities -- Interest Income and Original
Issue Discount" above. In the case of any U.S. Treasury Security with a maturity
of one year or less from the date of its issue (a "short-term U.S. Treasury
Security"), in general only accrual basis taxpayers will be required to include
OID in income as it accrues. Unless such an accrual basis U.S. Holder elects to
accrue the
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OID on a short-term U.S. Treasury Security according to the
constant-yield-to-maturity method, such OID will be accrued on a straight-line
basis.
TAX BASIS OF THE TREASURY PORTFOLIO. A U.S. Holder's initial tax basis in
such U.S. Holder's Applicable Ownership Interest of the Treasury Portfolio will
equal such U.S. Holder's pro rata portion of the amount paid by the Collateral
Agent for the Treasury Portfolio. A U.S. Holder's adjusted tax basis in the
Treasury Portfolio will be increased by the amount of OID included in income
with respect thereto and decreased by the amount of cash received in respect of
the Treasury Portfolio.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to ERISA, plans and
individual retirement accounts that are subject to Section 4975 of the Code and
entities whose assets are considered assets of such plans ("Plans") may purchase
the Securities subject to the investing fiduciary's determination that the
investment in the Securities satisfies ERISA's fiduciary standards and other
requirements applicable to investments by Plans. Accordingly, among other
factors, the investing fiduciary should consider whether the investment would
satisfy the prudence and diversification requirements of ERISA and would be
consistent with the documents and instruments governing the Plans.
Under regulations issued by the U.S. Department of Labor (the "DOL"), a
Plan that owns the Securities may be deemed to own a portion of the assets held
in the Trust, including a portion of the Subordinated Debentures held in the
Trust. In addition, the Company and its affiliates may be "parties in interest"
(within the meaning of ERISA) or "disqualified persons" (within the meaning of
Section 4975 of the Code) with respect to certain Plans (generally, Plans
maintained or sponsored by, or contributed to by, any such persons or Plans with
respect to which any such persons are fiduciaries or service providers). The
acquisition and ownership of the Securities and a deemed acquisition and
ownership of an interest in the Subordinated Debentures by a Plan with respect
to which the Company or any of its affiliates is considered a party in interest
or a disqualified person may constitute or result in a prohibited transaction
under ERISA or Section 4975 of the Code, unless such Securities are acquired and
are held pursuant to and in accordance with an applicable exemption. In this
regard, the DOL has issued prohibited transaction class exemptions ("PTCEs")
that may apply to the acquisition and holding of the Securities. These class
exemptions are PTCE 84-14 (respecting transactions determined by independent
qualified professional asset managers), PTCE 90-1 (respecting insurance company
separate accounts), PTCE 91-38 (respecting bank collective trust funds), PTCE
95-60 (respecting insurance company general accounts) and PTCE 96-23 (respecting
transactions determined by in-house asset managers).
Any fiduciary proposing to acquire the Securities on behalf of a Plan
should consult with ERISA counsel for the Plan and should not acquire the
Securities unless it is determined that such acquisition and holding does not
and will not constitute a prohibited transaction and will satisfy the applicable
fiduciary requirements imposed under ERISA. Any such acquisition by a Plan shall
be deemed a representation by the Plan and the fiduciary effecting the
investment on behalf of the Plan that such acquisition and holding satisfies the
applicable fiduciary requirements of ERISA, and is either (i) not a prohibited
transaction under ERISA and the Code and is otherwise permissible under
applicable law or (ii) qualified for to exemptive relief from the prohibited
transaction provisions of ERISA and the Code in accordance with one or more of
the foregoing PTCEs or another available prohibited transaction exemption.
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UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Trust, Merrill Lynch,
Pierce, Fenner & Smith Incorporated, BT Alex. Brown Incorporated and CIBC
Oppenheimer Corp. (the "Underwriters"), the Company and the Trust have agreed to
sell to each of the Underwriters, and each of the Underwriters has severally
agreed to purchase from the Company and the Trust, the number of Income PRIDES,
Growth PRIDES and Preferred Securities set forth below opposite its name. In the
Underwriting Agreement, the Underwriters have agreed, subject to the terms and
conditions set forth therein, to purchase all of the Income PRIDES, Growth
PRIDES and Preferred Securities offered hereby if any of the Income PRIDES,
Growth PRIDES or Preferred Securities are purchased.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
INCOME GROWTH PREFERRED
UNDERWRITERS PRIDES PRIDES SECURITIES
------------ --------- --------- ----------
<S> <C> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................... 4,200,000 600,000 600,000
BT Alex. Brown Incorporated................. 1,400,000 200,000 200,000
CIBC Oppenheimer Corp....................... 1,400,000 200,000 200,000
--------- --------- ---------
Total......................... 7,000,000 1,000,000 1,000,000
========= ========= =========
</TABLE>
The Underwriters have advised the Company and the Trust that they propose
initially to offer the Income PRIDES, Growth PRIDES and Preferred Securities to
the public at the public offering prices set forth on the cover page of this
Prospectus Supplement and to certain dealers at such price less a concession not
in excess of $.45 per Income PRIDES, $.3375 per Growth PRIDES and $.125 per
Preferred Security. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $.10 per Income PRIDES, $.10 per Growth PRIDES and
$.0625 per Preferred Security on sales to certain other dealers. After the
initial public offering, the public offering prices, concessions and discounts
may be changed.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the Underwriters and any selling group
members to bid for and purchase the Securities or shares of Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Securities or the Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Securities or the Common Stock.
If the Underwriters create a short position in the Securities in connection
with the offering, i.e., if they sell more Securities than are set forth on the
cover page of this Prospectus, the Underwriters may reduce that short position
by purchasing Securities in the open market. The Underwriters may also elect to
reduce any short position by exercising all or part of the over-allotment
options described below.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase Securities
in the open market to reduce the Underwriters' short position or to stabilize
the price of the Securities, they may reclaim the amount of the selling
concession from any Underwriters or selling group members who sold those
Securities as part of the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company, the Trust nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities or the
Common Stock. In addition, neither the Company, the Trust nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transaction or that such transactions, once commenced, will not be discontinued
without notice.
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The Company and the Trust have granted to the Underwriters an option,
exercisable for 30 days following the date of this Prospectus, to purchase up to
an additional 1,200,000 Income PRIDES at the Price to Public set forth on the
cover page of this Prospectus less the underwriting discount. The Underwriters
may exercise this option only to cover over-allotments, if any, made on the sale
of the Income PRIDES offered hereby. If the Underwriters exercise the
over-allotment option, each of the Underwriters has severally agreed, subject to
certain conditions, to purchase approximately the same percentage of such Income
PRIDES that the respective number of Income PRIDES set forth opposite its name
in the foregoing table bears to the number of Income PRIDES offered hereby.
The Company and the Trust have agreed that they will not, for a period of
90 days after the date of this Prospectus, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, directly or indirectly,
sell, offer to sell, grant any option for the sale of, or otherwise dispose of,
or enter into any agreement to sell, any Income PRIDES, Growth PRIDES, Purchase
Contracts, Preferred Securities or Common Stock or any securities of the Company
or any affiliate of the Company similar to the Income PRIDES, Growth PRIDES,
Purchase Contracts, Preferred Securities or Common Stock or any security
convertible into or exchangeable or exercisable for Income PRIDES, Growth
PRIDES, Purchase Contracts, Preferred Securities or Common Stock or any such
similar securities, other than (i) to the Underwriters pursuant to the
Underwriting Agreement, (ii) the Subordinated Debentures to be sold to the Trust
and the Common Securities to be sold to the Company; (iii) shares of Common
Stock or options for shares of Common Stock issued pursuant to or sold in
connection with any employee benefit, dividend reinvestment, stock option or
stock purchase plan of the Company and its subsidiaries, (iv) any securities
issued pursuant to a merger or acquisition and (v) the Growth PRIDES or Income
PRIDES to be created or recreated upon substitution of Pledged Securities, or
shares of Common Stock issuable upon early settlement of the Income PRIDES or
Growth PRIDES.
Prior to this offering, there has been no public market for the Income
PRIDES, Growth PRIDES and the Preferred Securities. The Income PRIDES and Growth
PRIDES have been approved for listing on the NYSE, subject to official notice of
issuance. If Preferred Securities are separately traded to a sufficient extent
that the applicable exchange listing requirements are met, the Company will
endeavor to cause such securities to be listed on such exchange on which the
Income PRIDES and the Growth PRIDES are then listed. There can be no assurance
that an active trading market will develop for the Income PRIDES, the Growth
PRIDES or the Preferred Securities or that the Income PRIDES, Growth PRIDES or
Preferred Securities will trade in the public market subsequent to the offering
at or above the initial public offering price.
The Company and the Trust have agreed to indemnify the Underwriters
against, or to contribute to payments that the Underwriters may be required to
make in respect of, certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
This Prospectus, as amended or stickered, may be used in connection with
Early Settlement or cash settlement of the Purchase Contracts, or by the
Remarketing Agent for remarketing the Preferred Securities at such time as is
necessary.
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have performed, and may in the future perform, investment and
commercial banking services for the Company and its affiliates for which they
have received, and will receive, customary compensation.
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LEGAL OPINIONS
The validity of the Purchase Contracts, the Common Stock issuable upon
settlement thereof, the Preferred Securities, the Subordinated Debentures and
the Guarantee will be passed upon for the Company and the Trust by Sonnenschein
Nath & Rosenthal, Chicago, Illinois. Certain matters regarding the Company will
be passed upon by Jack D. Hunter, Esq., Executive Vice President and General
Counsel of the Company. Certain United Stated federal income tax considerations
will be passed upon for the Company and the Trust by Sonnenschein Nath &
Rosenthal. LeBoeuf, Lamb, Greene & MacRae, L.L.P., New York, New York, will act
as counsel for the Underwriters. LeBoeuf, Lamb, Greene & MacRae, L.L.P., from
time to time, performs legal services for the Company.
S-81
<PAGE> 82
INDEX OF CERTAIN TERMS FOR PROSPECTUS SUPPLEMENT
Set forth below is a list of certain defined terms appearing in this
Prospectus Supplement and the page numbers on which such terms are defined.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Act......................................................... S-31
Additional Sums............................................. S-67
Administrative Trustees..................................... S-34
Applicable Market Value..................................... S-14
Applicable Ownership Interest............................... S-40
Applicable Principal Amount................................. S-68
Bankruptcy Code............................................. S-15
Beneficial Owner............................................ S-61
Business Day................................................ S-3
Change in 1940 Act Law...................................... S-59
Collateral Agent............................................ S-9
Common Securities........................................... S-2
Common Stock................................................ S-6
Company..................................................... S-1
Compounded Interest......................................... S-66
Contract Adjustment Payments................................ S-2
Corresponding Junior Subordinated Debt Securities........... S-6
Custodial Agent............................................. S-16
Deferred Contract Adjustment Payments....................... S-3
Delaware Trustee............................................ S-6
Depositary.................................................. S-51
Direct Action............................................... S-30
disposition................................................. S-72
Distributions............................................... S-2
Early Settlement............................................ S-14
Exchange Act................................................ S-6
Exchange Agent.............................................. S-4
Expense Agreement........................................... S-65
Extension Period............................................ S-11
Failed Remarketing.......................................... S-4
FELINE PRIDES............................................... S-1
FELINE PRIDES Certificate................................... S-44
Global Security............................................. S-69
Global Security Certificates................................ S-51
Growth PRIDES............................................... S-2
Guarantee................................................... S-3
Guarantee Payments.......................................... S-63
Guarantee Trustee........................................... S-34
Income PRIDES............................................... S-2
Interest Payment Date....................................... S-65
Issuer Trustees............................................. S-6
Investment Company Act...................................... S-59
Investment Company Event.................................... S-59
IRS......................................................... S-27
Junior Subordinated Debt Securities......................... S-6
Junior Subordinated Debt Security Event of Default.......... S-3
NYSE........................................................ S-1
OID......................................................... S-3
Original Issue Date......................................... S-41
Payment Date................................................ S-12
Plans....................................................... S-78
</TABLE>
S-82
<PAGE> 83
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pledge Agreement............................................ S-9
Pledged Securities.......................................... S-26
Preferred Securities........................................ S-2
Primary Treasury Dealer..................................... S-69
Property Account............................................ S-34
Property Trustee............................................ S-6
Purchase Contract........................................... S-2
Purchase Contract Agent..................................... S-9
Purchase Contract Agreement................................. S-9
Purchase Contract Settlement Date........................... S-2
Quotation Agent............................................. S-69
Redemption Amount........................................... S-68
Redemption Price............................................ S-5
Reference Price............................................. S-2
Regulations................................................. S-73
Remarketing Agent........................................... S-12
Remarketing Agreement....................................... S-12
Remarketing Fee............................................. S-4
Remarketing Underwriting Agreement.......................... S-12
Reorganization Event........................................ S-49
Reset Announcement Date..................................... S-57
Reset Rate.................................................. S-3
Reset Spread................................................ S-3
Rights Agent................................................ S-6
Securities.................................................. S-2
Senior Debt................................................. S-3
Settlement Rate............................................. S-2
short-term U.S. Treasury Security........................... S-77
Stated Amount............................................... S-2
Subordinated Debentures..................................... S-2
Subordinated Indenture...................................... S-6
Subordinated Indenture Trustee.............................. S-6
Tax Counsel................................................. S-73
Tax Event................................................... S-68
Tax Event Redemption........................................ S-5
Tax Event Redemption Date................................... S-67
Threshold Appreciation Price................................ S-2
Treasury Portfolio.......................................... S-68
Treasury Portfolio Purchase Price........................... S-69
Treasury Securities......................................... S-2
Trust....................................................... S-2
Trust Act................................................... S-35
Trust Agreement............................................. S-6
Trust Agreement Event of Default............................ S-60
Trust Indenture Act......................................... S-7
Trust Securities............................................ S-2
Two-Year Benchmark Treasury................................. S-57
Underwriters................................................ S-79
Underwriting Agreement...................................... S-79
U.S. Holder................................................. S-71
</TABLE>
S-83
<PAGE> 84
PROSPECTUS
$1,300,000,000
LINCOLN NATIONAL CORPORATION
DEBT SECURITIES
PREFERRED STOCK
COMMON STOCK
WARRANTS
STOCK PURCHASE CONTRACTS
STOCK PURCHASE UNITS
---------------------
LINCOLN NATIONAL CAPITAL III
LINCOLN NATIONAL CAPITAL IV
LINCOLN NATIONAL CAPITAL V
LINCOLN NATIONAL CAPITAL VI
PREFERRED SECURITIES FULLY AND UNCONDITIONALLY
GUARANTEED, AS DESCRIBED HEREIN, BY
LINCOLN NATIONAL CORPORATION
Lincoln National Corporation (the "Company") may offer and sell from time
to time (i) its unsecured senior debt securities ("Senior Debt Securities") and
its unsecured junior subordinated debt securities (the "Junior Subordinated Debt
Securities"), consisting of debentures, notes and/or other evidences of
indebtedness (the "Debt Securities"), (ii) shares of its preferred stock, no par
value per share (the "Preferred Stock"), which may be represented by depositary
shares as described herein, (iii) shares of its common stock, no par value per
share (the "Common Stock"), (iv) warrants to purchase any of the foregoing Debt
Securities, Preferred Stock and Common Stock (the "Warrants"), (v) stock
purchase contracts ("Stock Purchase Contracts") to purchase shares of Common
Stock or (vi) stock purchase units ("Stock Purchase Units"), each representing
ownership of a Stock Purchase Contract and any of (x) Debt Securities, (y) debt
obligations of third parties, including U.S. Treasury Securities, or (z)
Preferred Securities (as defined below) of a Lincoln Trust (as defined below),
securing the holder's obligation to purchase Common Stock under the Stock
Purchase Contract. Such securities may be offered in one or more separate
classes or series, in amounts, at prices and on terms to be determined by market
conditions at the time of sale and to be set forth in a supplement or
supplements to this Prospectus (a "Prospectus Supplement"). Such securities may
be sold for U.S. dollars, foreign denominated currency or currency units;
amounts payable with respect to any such securities may likewise be payable in
U.S. dollars, foreign denominated currency or currency units, in each case as
the Company specifically designates.
Lincoln National Capital III, Lincoln National Capital IV, Lincoln National
Capital V and Lincoln National Capital VI, each a statutory business trust
formed under the laws of the State of Delaware (each, a "Lincoln Trust," and
collectively, the "Lincoln Trusts"), may severally offer, from time to time,
preferred securities (the "Preferred Securities") representing preferred
undivided beneficial interests in such Lincoln Trust. The Company will be the
owner of the common securities (the "Common Securities" and, together with the
Preferred Securities, the "Trust Securities") of each Lincoln Trust. The payment
of periodic cash distributions ("Distributions") with respect to Preferred
Securities of each of the Lincoln Trusts out of monies held by the Property
Trustee (as defined herein) of each of the Lincoln Trusts and payments on
liquidation of each Lincoln Trust and on redemption of Preferred Securities of
such Lincoln Trust, will be guaranteed by the Company as and to the extent
described herein (each, a "Guarantee"). See "Description of Guarantees." The
Company's obligation under each Guarantee is an unsecured obligation of the
Company and will rank subordinate and junior in right of payment to all Senior
Debt (as defined herein) of the Company. Except as otherwise provided in the
applicable Prospectus Supplement, (i) concurrently with the issuance by a
Lincoln Trust of its Preferred Securities, such Lincoln Trust will invest the
proceeds thereof and any contributions made in respect of the Common Securities
in a corresponding series of the Company's Junior Subordinated Debt Securities
(the "Corresponding Junior Subordinated Debt Securities") with terms directly
corresponding to the terms of that Lincoln Trust's Preferred Securities (the
"Related Preferred Securities"), (ii) the Corresponding Junior Subordinated Debt
Securities will be the sole assets of each Lincoln Trust, and (iii) payments
under the Corresponding Junior Subordinated Debt Securities and the related
Expense Agreement (as defined herein) will be the only revenue of each Lincoln
Trust. The Company may redeem the Corresponding Junior Subordinated Debt
Securities (and cause the redemption of the Trust Securities) or may terminate
each Lincoln Trust and cause the Corresponding Junior Subordinated Debt
Securities to be distributed to the holders of Preferred Securities in
liquidation of their interests in such Issuer in certain circumstances. See
"Description of Preferred Securities -- Liquidation Distribution Upon
Termination."
(Continued on following page)
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
This Prospectus may not be used to consummate sales of Offered Securities (as
defined herein)
unless accompanied by a Prospectus Supplement.
The date of this Prospectus is April 27, 1998.
<PAGE> 85
(Continued from previous page)
Specific terms of the particular Debt Securities, Preferred Stock, Common
Stock, Warrants, Stock Purchase Contracts, Stock Purchase Units, Preferred
Securities and the related Guarantee, in respect of which this Prospectus is
being delivered (the "Offered Securities") will be set forth in an accompanying
Prospectus Supplement or Supplements, together with the terms of the offering of
the Offered Securities, the initial price thereof and the net proceeds from the
sale thereof. The Prospectus Supplement will set forth with regard to the
particular Offered Securities, certain terms thereof, including, where
applicable, (i) in the case of Debt Securities, the ranking as senior or junior
subordinated Debt Securities, the specific designation, aggregate principal
amount, purchase price, maturity, interest rate (which may be fixed or
variable), if any, the time and method of calculating interest payments, if any,
the right of the Company, if any, to defer payments of interest on the Junior
Subordinated Debt Securities and the maximum length of such deferred period,
time of payment of interest, if any, listing, if any, on a securities exchange,
authorized denomination, any exchangeability, conversion, redemption, prepayment
or sinking fund provisions, the currency or currencies or currency unit or units
in which principal, premium, if any, or interest, if any, is payable, public
offering price and any other specific terms of the Debt Securities; (ii) in the
case of Preferred Stock, the specific designation, number of shares, purchase
price and the rights, preferences and privileges thereof and any qualifications
or restrictions thereon (including dividends, liquidation value, voting rights,
terms for the redemption, conversion or exchange thereof and any other specific
terms of the Preferred Stock), listing, if any, on a securities exchange and
whether the Company has elected to offer the Preferred Stock in the form of
depositary shares; (iii) in the case of Common Stock, the number of shares
offered, the initial offering price, market price and dividend information; (iv)
in the case of Warrants, the specific designation, the number, purchase price
and terms thereof, any listing of the Warrants or the underlying securities on a
securities exchange or any other terms in connection with the offering, sale and
exercise of the Warrants, as well as the terms on which and the securities for
which such Warrants may be exercised; (v) in the case of Stock Purchase
Contracts, the designation and number of shares of Common Stock issuable
thereunder, the purchase price of the Common Stock, the date or dates on which
the Common Stock is required to be purchased by the holders of the Stock
Purchase Contracts, any periodic payments required to be made by the Company to
the holders of the Stock Purchase Contracts or vice versa, and the terms of the
offering and sale thereof; (vi) in the case of Stock Purchase Units, the
specific terms of the Stock Purchase Contracts and any Debt Securities or debt
obligations of third parties or Preferred Securities of a Lincoln Trust securing
the holders' obligation to purchase the Common Stock under the Stock Purchase
Contracts, the ability of a holder of such Stock Purchase Units to settle early
the underlying Stock Purchase Contract by delivering cash in exchange for the
underlying collateral and, if applicable, whether the Company will issue to such
holder a Prepaid Stock Purchase Contract as a result of such early settlement
and the specific terms of the Prepaid Stock Purchase Contract and the terms of
the offering and sale of such Stock Purchase Units; and (vii) in the case of
Preferred Securities of a Lincoln Trust, the specific designation, number of
securities, liquidation amount per security, initial public offering price, and
any listing on a securities exchange, distribution rate (or method of
calculation thereof), dates on which distributions shall be payable and dates
from which distributions shall accrue, voting rights, if any, terms for any
conversion or exchange into other securities, any redemption or sinking fund
provisions, any other rights, preferences, privileges, limitations or
restrictions relating to the Preferred Securities and the terms upon which the
proceeds of the sale of the Preferred Securities shall be used to purchase a
specific series of Junior Subordinated Debt Securities of the Company.
The Offered Securities may be offered in amounts, at prices and on terms to
be determined at the time of offering; provided, however, that the aggregate
offering price to the public of the Offered Securities will be limited to
$1,300,000,000. Any Prospectus Supplement relating to any Offered Securities
will contain information concerning certain United States federal income tax
considerations, if applicable, to the Offered Securities.
The Company and/or each Lincoln Trust may sell the Offered Securities
directly, through agents designated from time to time or through underwriters or
dealers. See "Plan of Distribution." If any agents of the Company and/or any
Lincoln Trust or any underwriters or dealers are involved in the sale of the
Offered Securities, the names of such agents, underwriters or dealers and any
applicable commissions and discounts will be set forth in the related Prospectus
Supplement. The managing underwriter or underwriters with respect to each series
sold to or through underwriters will be named in the accompanying Prospectus
Supplement. See "Plan of Distribution" for possible indemnification arrangements
for dealers, underwriters and agents.
2
<PAGE> 86
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, AND, WITH RESPECT TO PARTICULAR OFFERED SECURITIES, THE PROSPECTUS
SUPPLEMENT RELATING THERETO, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. NEITHER THIS
PROSPECTUS NOR SUCH PROSPECTUS SUPPLEMENT CONSTITUTES AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER FOR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS OR SUCH PROSPECTUS SUPPLEMENT
NOR ANY SALE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR ANY LINCOLN TRUST
SINCE THE DATE HEREOF OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
FOR NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA, NOR
HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF
THIS DOCUMENT.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, Suite 1300, New York,
New York 10048 and Suite 1400, Citicorp Center, 14th Floor, 500 West Madison
Street, Chicago, Illinois 60661. Copies of such material can also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. In addition,
such reports, proxy statements and other information concerning the Company can
be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005, at the offices of the Chicago Stock Exchange,
Inc. at 440 South LaSalle Street, Chicago, Illinois 60603 and at the offices of
the Pacific Stock Exchange, Inc. at 301 Pine Street, San Francisco, California
94104. The Commission maintains a Web site (located at http://www.sec.gov) which
includes reports, proxy statements and other information, including the
Registration Statement of which this Prospectus is a part, filed electronically
by registrants with the Commission.
The Company and the Lincoln Trusts have filed with the Commission a
Registration Statement on Form S-3 (together with all amendments and exhibits
thereto, the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the securities offered hereby, reference is made to
the Registration Statement and the exhibits and the financial statements, notes
and schedules filed as a part thereof or incorporated by reference therein,
which may be inspected at the public reference facilities of the Commission, at
the addresses set forth above. Statements made in this Prospectus concerning the
contents of any documents referred to herein are not necessarily complete, and
in each instance are qualified in all respects by reference to the copy of such
document filed as an exhibit to the Registration Statement.
No separate financial statements of the Lincoln Trusts have been included
herein. The Company and the Lincoln Trusts do not consider that such financial
statements would be material to holders of the Preferred Securities because (i)
all of the voting securities of the Lincoln Trusts will be owned, directly or
indirectly, by the Company, a reporting company under the Exchange Act, (ii)
each Lincoln Trust is a newly formed special purpose entity, has no operating
history or independent operations and is not engaged in and does not propose to
engage in any activity other than holding as trust assets the Corresponding
Junior Subordinated Debt Securities of the Company and issuing the Trust
Securities, and (iii) the Company's obligations described
3
<PAGE> 87
herein and in any accompanying Prospectus Supplement, through the applicable
Guarantee, the applicable Trust Agreement, the Junior Subordinated Debt
Securities, the Junior Subordinated Indenture and any supplemental indentures
thereto, and the Expense Agreement, taken together, constitute a full,
irrevocable and unconditional guarantee by the Company of payments due on the
Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Lincoln Trust's obligations under the Preferred Securities. See "The Lincoln
Trusts," "Description of Preferred Securities," "Description of Junior
Subordinated Debt Securities" and "Description of Guarantees."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated into this Prospectus by reference and made a part hereof: (a) the
Company's Annual Report on Form 10-K for the year ended December 31, 1997; and
(b) the Company's Current Report on Form 8-K filed on March 24, 1998. Each
document or report filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date hereof and prior to the termination of
any offering of securities made by this Prospectus shall be deemed to be
incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing of such document. Any statement contained
herein, or in a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of the Registration Statement and this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference herein (other
than exhibits not specifically incorporated by reference into the texts of such
documents). Requests for such documents should be directed to: C. Suzanne
Womack, Secretary, Lincoln National Corporation, 200 East Berry Street, Fort
Wayne, Indiana, 46802-2706, telephone number (219) 455-3271.
---------------------
Unless otherwise indicated, currency amounts in this Prospectus and any
Prospectus Supplement are stated in United States dollars ("$," "dollars" or
"U.S.$").
4
<PAGE> 88
LINCOLN NATIONAL CORPORATION
The Company is a holding company with consolidated assets at December 31,
1997 of approximately $77.2 billion and shareholders' equity of approximately
$5.0 billion. The Company, through its subsidiaries, provides life insurance and
annuities, life-health reinsurance, property-casualty insurance, and investment
management services to its customers.
Lincoln National Corporation is an Indiana corporation with its principal
office at 200 East Berry Street, Fort Wayne, Indiana 46802-2706. Its telephone
number is (219) 455-2000.
THE LINCOLN TRUSTS
Each Lincoln Trust is a statutory business trust formed under Delaware law
pursuant to (i) a trust agreement executed by the Company, as sponsor of the
Lincoln Trust, and the Delaware Trustee (as defined herein) of such Lincoln
Trust and (ii) the filing of a certificate of trust with the Delaware Secretary
of State. Each trust agreement will be amended and restated in its entirety
(each, as so amended and restated, a "Trust Agreement") substantially in the
form filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. Each Trust Agreement will be qualified as an indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). Each
Lincoln Trust exists for the exclusive purposes of (i) issuing and selling its
Trust Securities, (ii) using the proceeds from the sale of such Trust Securities
to acquire a series of Corresponding Junior Subordinated Debt Securities issued
by the Company, and (iii) engaging in only those other activities necessary,
convenient or incidental thereto.
All of the Common Securities of each Lincoln Trust will be owned by the
Company. The Common Securities of a Lincoln Trust will rank pari passu, and
payments will be made thereon pro rata, with the Preferred Securities of such
Lincoln Trust, except that upon the occurrence and continuance of an event of
default under a Trust Agreement resulting from a Junior Subordinated Debt
Security Event of Default (as defined herein), the rights of the Company as
holder of the Common Securities to payment in respect of Distributions and
payments upon liquidation, redemption or otherwise will be subordinated to the
rights of the holders of the Preferred Securities of such Lincoln Trust. See
"Description of Preferred Securities -- Subordination of Common Securities." The
Company will acquire Common Securities in an aggregate liquidation amount equal
to not less than 3% of the total capital of each Lincoln Trust.
Unless otherwise specified in the applicable Prospectus Supplement, each
Lincoln Trust has a term of approximately 55 years, but may terminate earlier as
provided in the applicable Trust Agreement. Each Lincoln Trust's business and
affairs are conducted by its trustees, each appointed by the Company as holder
of the Common Securities. Unless otherwise specified in the applicable
Prospectus Supplement, the trustees for each Lincoln Trust will be The First
National Bank of Chicago, as the Property Trustee (the "Property Trustee"),
First Chicago Delaware, Inc., as the Delaware Trustee (the "Delaware Trustee"),
and two individual trustees (the "Administrative Trustees") who are employees or
officers of or affiliated with the Company (collectively, the "Issuer
Trustees"). The First National Bank of Chicago, as Property Trustee, will act as
sole indenture trustee under each Trust Agreement for purposes of compliance
with the Trust Indenture Act. The First National Bank of Chicago will also act
as trustee under the Guarantees and the Junior Subordinated Indenture (as
defined herein). See "Description of Guarantees" and "Description of Junior
Subordinated Debt Securities." The holder of the Common Securities of a Lincoln
Trust, or the holders of a majority in liquidation preference of the related
Preferred Securities if a Junior Subordinated Debt Security Event of Default
under the Trust Agreement for such Lincoln Trust has occurred and is continuing,
will be entitled to appoint, remove or replace the Property Trustee and/or the
Delaware Trustee for such Lincoln Trust. In no event will the holders of the
Preferred Securities have the right to vote to appoint, remove or replace the
Administrative Trustees; such voting rights are vested exclusively in the holder
of the Common Securities. The duties and obligations of each Issuer Trustee are
governed by the applicable Trust Agreement. The Company will pay all fees and
expenses related to each Lincoln Trust and the offering of the Preferred
Securities and will pay, directly or indirectly, all ongoing costs, expenses and
liabilities of each Lincoln Trust.
5
<PAGE> 89
The principal executive office of each Lincoln Trust is 200 East Berry
Street, Fort Wayne, Indiana 46802-2706 and its telephone number is (219)
455-2000.
USE OF PROCEEDS
Except as otherwise set forth in the applicable Prospectus Supplement with
respect to the proceeds from the sale of the particular Offered Securities to
which such Prospectus Supplement relates, the net proceeds from the sale of the
Offered Securities are expected to be used by the Company for general corporate
purposes, including repayment or redemption of outstanding debt or preferred
stock, the possible acquisition of financial services businesses or assets
thereof, investments in portfolio assets and working capital needs. The Company
routinely reviews opportunities to acquire financial services businesses or
assets thereof. Each Lincoln Trust will use all proceeds received from the sale
of its Trust Securities to purchase Junior Subordinated Debt Securities of the
Company.
CONSOLIDATED RATIOS OF EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Set forth below are the Company's historical ratios of earnings to fixed
charges for each of the years in the five-year period ended December 31, 1997.
In addition, set forth below are pro forma ratios giving effect to the sale of
$100,000,000 aggregate principal amount of 6 1/2% Notes due March 15, 2008 (the
"2008 Notes") and $200,000,000 aggregate principal amount of 7% Notes due March
15, 2018 (together with the 2008 Notes, the "Notes") in March 1998 and the
application of the proceeds thereof (without giving effect to the reduction of
offering proceeds due to discounted price to public, underwriting discount and
expenses).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1997 1996 1995 1994 1993
----- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges:
Excluding Interest on Annuities and Financial
Products(1)
Historical................................... 13.58 7.37 7.51 6.43 10.35
Pro Forma(2)................................. 13.23
Including Interest on Annuities and Financial
Products(3)
Historical................................... 1.90 1.45 1.41 1.25 1.43
Pro Forma(2)................................. 1.89
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends(4)
Historical................................... 1.90 1.45 1.40 1.23 1.40
Pro Forma(2)................................. 1.89
</TABLE>
- ---------------
(1) For purposes of determining this ratio, earnings consist of income before
federal income taxes, cumulative effect of accounting change and minority
interests adjusted for the difference between income or losses from
unconsolidated equity investments and cash distributions from such
investments, plus fixed charges. Fixed charges consist of: (i) interest and
debt expense on short and long-term debt and distributions to minority
interest-preferred securities of subsidiary companies and (ii) the portion
of operating leases that are representative of the interest factor.
(2) Pro forma ratios after giving effect to the net increase in interest expense
due to the issuance of the Notes at a blended rate of 6.833% per annum less
the repayment of $200 million of short-term debt and earnings on $100
million of short-term investments at a weighted average interest rate of
5.83% per annum.
(3) Same as the ratio of earnings to fixed charges, excluding interest on
annuities and financial products, except fixed charges and earnings include
interest on annuities and financial products.
6
<PAGE> 90
(4) Same as the ratio of earnings to fixed charges, including interest on
annuities and financial products, except that fixed charges include the
pre-tax earnings required to cover preferred stock dividend requirements.
(5) Coverage ratios in 1997 are higher than other historical periods due to the
inclusion of a gain on sale of discontinued operations of $777 million.
DESCRIPTION OF THE SENIOR DEBT SECURITIES
The Senior Debt Securities (for purposes of this Section only, the "Debt
Securities") may be issued in one or more series under an Indenture dated as of
September 15, 1994, as supplemented from time to time (as so supplemented, the
"Indenture"), between the Company and The Bank of New York, as trustee (the
"Trustee"). This summary of certain terms and provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Indenture, the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and to the Trust
Indenture Act. The Indenture is qualified under the Trust Indenture Act.
Parenthetical references in this Section are to provisions of the Indenture.
Certain terms defined in the Indenture are capitalized in this Prospectus.
Whenever particular defined terms of the Indenture are referred to herein or in
a Prospectus Supplement, such defined terms are incorporated herein or therein
by reference.
GENERAL
The Debt Securities will be unsecured and will rank on the parity with all
other unsecured and unsubordinated indebtedness of the Company.
The Indenture does not limit the amount of Debt Securities which may be
issued thereunder and provides that Debt Securities may be issued up to the
aggregate principal amount which may be authorized from time to time by the
Company. Reference is made to the Prospectus Supplement for the following terms
of Debt Securities being offered thereby: (i) the title, aggregate principal
amount and authorized denominations of Debt Securities; (ii) the percentage of
their principal amount at which such Debt Securities will be issued; (iii) the
date or dates on which Debt Securities will mature; (iv) the rate or rates per
annum (which may be fixed or variable), if any, at which Debt Securities will
bear interest (or the method of determination or calculation thereof); (v) the
times at which any such interest will be payable; (vi) the currency or units
based on or relating to currencies in which the Debt Securities are denominated
and in which principal, premium, if any, any interest and Additional Amounts (as
defined below) will or may be payable; (vii) the dates, if any, on which and the
price or prices at which the Debt Securities will, pursuant to any mandatory
sinking fund provisions, or may, pursuant to any optional sinking fund
provisions, be redeemed by the Company, and other terms and provisions of such
sinking fund; (viii) any redemption terms or any terms for repayment of
principal amount at the option of the holder; (ix) whether and under what
circumstances the Company will pay additional amounts ("Additional Amounts") in
respect of certain taxes imposed on certain holders or as otherwise provided;
(x) the terms and conditions upon which such Debt Securities may be convertible
into shares of Common Stock or other securities of the Company, including the
conversion price, conversion period and other conversion provisions; (xi) the
defeasance provisions, if any, that are applicable to such Debt Securities
(other than those described herein); (xii) whether the Debt Securities are to be
issuable in global form and, if so, the terms and conditions, if any, upon which
interests in such Debt Securities in global form may be exchanged, in whole or
in part, for the individual Debt Securities represented thereby and the initial
Depository with respect to such global Debt Security; (xiii) the person to whom
any interest on a Registered Security is payable, if other than the registered
holder thereof, or the manner in which any interest is payable on a Bearer
Security if other than upon presentation of the coupons pertaining thereto, as
the case may be; or (xiv) any other specific terms of such Debt Securities.
Principal, interest and premium and Additional Amounts, if any, will be
payable in the manner, at the places and subject to the restrictions set forth
in the Indenture, the Debt Securities and the Prospectus Supplement relating
thereto.
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Unless otherwise indicated in the Prospectus Supplement relating thereto,
the Debt Securities will be issued in fully registered form without coupons.
Where Debt Securities of any series are issued in bearer form, the special
restrictions and considerations, including special offering restrictions and
special Federal income tax considerations, applicable to any such Debt
Securities and to payment on and transfer and exchange of such Debt Securities
will be described in the applicable Prospectus Supplement.
Some of the Debt Securities may be issued as discounted Debt Securities
(bearing no interest or at a rate which at the time of issuance is below market
rates) to be sold at the substantial discount below their stated principal
amount. Federal income tax consequences and other special considerations
applicable to any such discounted Debt Securities will be described in the
Prospectus Supplement relating thereto.
If the purchase price of any Debt Securities is payable in one or more
foreign currencies or currency units or if any Debt Securities are denominated
in one or more foreign currencies or currency units or if the principal of,
premium, if any, or interest, if any, on any Debt Securities is payable in one
or more foreign currencies or currency units, the restrictions, elections,
certain Federal income tax considerations, specific terms and other information
with respect to such issue of Debt Securities and such foreign currency or
currency units will be set forth in the applicable Prospectus Supplement.
Debt Securities may be presented for exchange, and registered Debt
Securities may be presented for transfer, in the manner, at the places and
subject to the restrictions set forth in the Indenture, the Debt Securities and
the Prospectus Supplement relating thereto. Debt Securities in bearer form and
the coupons, if any, appertaining thereto will be transferable by delivery. No
service charge will be made for any transfer or exchange of Debt Securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Section 2.06)
Unless otherwise indicated in the applicable Prospectus Supplement, the
covenants contained in the Indenture and the Debt Securities would not
necessarily afford Holders of the Debt Securities protection in the event of a
highly leveraged or other transaction involving the Company that may adversely
affect Holders.
If the Debt Securities are convertible into shares of Common Stock, the
conversion price payable and the number of shares purchasable upon conversion
may be subject to adjustment in certain events as set forth in the applicable
Prospectus Supplement.
FORM, REGISTRATION, TRANSFER AND EXCHANGE
The Debt Securities of a series may be issued solely as Registered
Securities, solely as Bearer Securities (with or without coupons attached) or as
both Registered Securities and Bearer Securities. Debt Securities of a series
may be issuable in whole or part in the form of one or more global Debt
Securities ("Global Securities"), as described below under "Book-Entry Debt
Securities."
Registered Securities of any series will be exchangeable for other
Registered Securities of the same series of any authorized denominations and of
a like aggregate principal amount and tenor. In addition, if Debt Securities of
any series are issuable as both Registered Securities and as Bearer Securities,
at the option of the holder, subject to the terms of the Indenture, Bearer
Securities (accompanied by all unmatured coupons, except as provided below, and
all matured coupons in default) of such series will be exchangeable for
Registered Securities of the same series of any authorized denominations and of
a like aggregate principal amount and tenor. Unless otherwise indicated in the
applicable Prospectus Supplement, any Bearer Security surrendered in exchange
for a Registered Security between a record date or a special record date for
defaulted interest and the relevant date for payment of interest will be
surrendered without the coupon relating to such date for payment of interest and
interest will not be payable in respect of the Registered Security issued in
exchange for such Bearer Security, but will be payable only to the holder of
such coupon when due in accordance with the terms of the Indenture. Bearer
Securities will not be issued in exchange for Registered Securities. (Sections
2.06, 2.12 and 4.01)
Debt Securities may be presented for exchange as provided above, and unless
otherwise indicated in the applicable Prospectus Supplement, Registered
Securities may be presented for registration of transfer (duly endorsed, or
accompanied by a duly executed written instrument of transfer), at the office of
any transfer
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agent designated by the Company for such purpose with respect to any series of
Debt Securities and referred to in the applicable Prospectus Supplement, without
service charge and upon payment of any taxes and other governmental charges as
described in the Indenture. Such transfer or exchange will be effected upon such
transfer agent being satisfied with the documents of title and identity of the
person making the request. The Company may at any time rescind the designation
of any transfer agent, provided, however, that no such designation or rescission
shall in any manner relieve the Company of its obligation to maintain an office
or agency in each Place of Payment for Debt Securities of such series. The
Company may at any time designate additional transfer agents with respect to any
series of Debt Securities. (Sections 2.06 and 4.02)
In the event of any redemption of Debt Securities of any series, the
Company will not be required to (i) register the transfer of or exchange Debt
Securities of that series during a period of 15 days next preceding the
selection of securities of such series to be redeemed; (ii) register the
transfer of or exchange any Registered Security, or portion thereof, called for
redemption, except the unredeemed portion of any Registered Security being
redeemed in part; or (iii) exchange any Bearer Security called for redemption
except, to the extent provided with respect to any series of Debt Securities and
referred to in the applicable Prospectus Supplement, to exchange such Bearer
Security for a Registered Security of that series and of like tenor and
principal amount that is immediately surrendered for redemption. (Section 2.06)
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal, premium, if any, interest and Additional Amounts, if any, on
Registered Securities will be made at the office of such paying agent or paying
agents as the Company may designate from time to time, except that at the option
of the Company payment of any interest and any Additional Amounts may be made by
check or draft mailed to the address of the Person entitled thereto as such
address shall appear in the Debt Security Register. Unless indicated in an
applicable Prospectus Supplement, payment of any installment of interest on
Registered Securities will be made to the Person in whose name such Registered
Security is registered at the close of business on the record date for such
interest. (Section 4.01)
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal, premium, if any, interest and Additional Amounts, if any, on
Bearer Securities will be payable, subject to any applicable laws and
regulations, at the offices of such paying agents outside the United States as
the Company may designate from time to time, or by check or by transfer to an
account maintained by the payee outside the United States. Unless otherwise
indicated in the applicable Prospectus Supplement, any payment of interest on
any Bearer Securities will be made only against surrender of the coupon relating
to such interest installment. (Sections 2.06 and 4.02)
Any paying agents in or outside the United States initially designated by
the Company for the Debt Securities will be named in the applicable Prospectus
Supplement. If the Debt Securities of a series are listed on a stock exchange
located outside the United States, and such stock exchange shall so require, the
Company will maintain a paying agent with respect to such series in London,
Luxembourg or any other city so required located outside the United States so
long as the Debt Securities of such series are listed on such exchange. The
Company may at any time designate additional paying agents or rescind the
designation of any paying agent, provided, however, that no such designation or
rescission shall in any manner relieve the Company of its obligation to maintain
an office or agency in each Place of Payment. (Section 4.02)
All monies paid by the Company to a paying agent for the payment of
principal of or interest or Additional Amounts, if any, on any Debt Security
which remain unclaimed at the end of one year after such principal, interest or
Additional Amounts shall have become due and payable will be repaid to the
Company and the holder of such Debt Security or any coupon will thereafter look
only to the Company for payment thereof. (Section 4.03)
BOOK-ENTRY DEBT SECURITIES
The Debt Securities of a series may be issued in the form of one or more
Global Securities that will be deposited with a Depository or its nominee
identified in the applicable Prospectus Supplement. In such a case,
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one or more Global Securities will be issued in a denomination or aggregate
denominations equal to the portion of the aggregate principal amount of
outstanding Debt Securities of the series to be represented by such Global
Security or Global Securities. Unless and until it is exchanged in whole or in
part for Debt Securities in registered form, a Global Security may not, subject
to certain exceptions, be registered for transfer or exchange except to the
Depository for such Global Security or a nominee of such Depository. (Section
2.06)
The specific terms of the depository arrangement with respect to any
portion of a series of Debt Securities to be represented by a Global Security
will be described in the applicable Prospectus Supplement. The Company expects
that the provisions described below will be applicable to depository
arrangements.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities which are to be represented by a Global Security to be deposited with
or on behalf of a Depository will be represented by a Global Security registered
in the name of such Depository or its nominee. Upon the issuance of such Global
Security and the deposit of such Global Security with or on behalf of the
Depository for such Global Security, the Depository will credit on its
book-entry registration and transfer system the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
institutions that have accounts with such Depository or its nominee
("participants"). The accounts to be credited will be designated by the
underwriters or agents of such Debt Securities or by the Company if such Debt
Securities are offered and sold directly by the Company. Ownership of beneficial
interests in such Global Security will be limited to participants or persons
that may hold interests through participants. Ownership of beneficial interest
by participants in such Global Security will be shown on, and the transfer of
that ownership interest will be effected only through, records maintained by the
Depository for such Global Security. Ownership of beneficial interests in such
Global Security by persons that hold through participants will be shown on, and
the transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The foregoing limitations and
such laws may impair the ability to transfer beneficial interests in such Global
Securities.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Unless otherwise specified in the applicable Prospectus Supplement,
owners of beneficial interests in such Global Security will not be entitled to
have Debt Securities of the series represented by such Global Security
registered in their names, will not receive or be entitled to receive physical
delivery of Debt Securities of such series in certificated form and will not be
considered the holders thereof for any purposes under the Indenture. (Sections
2.06 and 11.03) Accordingly, each person owning a beneficial interest in such
Global Security must rely on the procedures of the Depository and, if such
person is not a participant, on the procedures of the participant through which
such person owns its interest to exercise any rights of a holder under the
Indenture. The Company understands that, under existing industry practices, if
the Company requests any action of holders or an owner of a beneficial interest
in such Global Security desires to give any notice or take any action a holder
is entitled to give or take under the Indenture, the Depository would authorize
the participants to give such notice or take such action, and participants would
authorize beneficial owners owning through such participants to give such notice
or take such action or would otherwise act upon the instructions of beneficial
owners owning through them.
Principal of and any premium, interest and Additional Amounts on a Global
Security will be payable in the manner described in the applicable Prospectus
Supplement.
LIMITATION ON LIENS ON STOCK OF RESTRICTED SUBSIDIARIES
The Company will not, nor will it permit any Restricted Subsidiary to,
issue, assume or guarantee any indebtedness for borrowed money (hereinafter
referred to as "Debt") secured by a mortgage, security interest, pledge, lien or
other encumbrance upon any shares of stock of any Restricted Subsidiary without
effectively providing that the Debt Securities (together with, if the Company
shall so determine, any other indebtedness
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of or guarantee by the Company ranking equally with the Debt Securities and then
existing or thereafter created) shall be secured equally and ratably with such
Debt. (Section 4.06).
For purposes of the Indenture, "Restricted Subsidiary" means The Lincoln
National Life Insurance Company so long as it remains a subsidiary, as well as
any successor to all or a principal part of the business of any such subsidiary
and any other subsidiary which the Board of Directors designates as a Restricted
Subsidiary. (Section 1.01) The Restricted Subsidiary accounted for approximately
78% of the consolidated revenues of the Company during the year ended December
31, 1997 and 86% of the consolidated assets of the Company at December 31, 1997.
Prior to June 1997, the Company's ownership in American States Insurance Company
also was considered a Restricted Subsidiary. Upon the announcement of the sale
of the Company's interest in American States Insurance Company in June 1997,
American States Insurance Company became a discontinued operation of the Company
and therefor ceased to be considered a Restricted Subsidiary for purposes of the
Indenture.
LIMITATION ON ISSUANCE OR DISPOSITION OF STOCK OF RESTRICTED SUBSIDIARIES
The Company will not, nor will it permit any Restricted Subsidiary to,
issue, sell, assign, transfer or otherwise dispose of, directly or indirectly,
any Capital Stock (other than nonvoting preferred stock) of any Restricted
Subsidiary, except for (i) the purpose of qualifying directors; (ii) sales or
other dispositions to the Company or one or more Restricted Subsidiaries; (iii)
the disposition of all or any part of the Capital Stock of any Restricted
Subsidiary for consideration which is at least equal to the fair value of such
Capital Stock as determined by the Company's Board of Directors (acting in good
faith); or (iv) an issuance, sale, assignment, transfer or other disposition
required to comply with an order of a court or regulatory authority of competent
jurisdiction, other than an order issued at the request of the Company or any
Restricted Subsidiary. (Section 4.07)
For the purposes of the Indenture, "Capital Stock" means any and all
shares, interests, rights to purchase, warrants, options, participations or
other equivalents of or interests in (however designated) corporate stock.
(Section 1.01)
DEFAULTS AND REMEDIES
An Event of Default with respect to Debt Securities of any series is
defined in the Indenture as being: (a) default for 30 days in payment of any
interest or Additional Amounts on the Debt Securities of such series; (b)
default in payment of principal or premium, if any, on the Debt Securities of
such series when due either at maturity, upon redemption, by declaration or
otherwise (except a failure to make payment resulting from mistake, oversight or
transfer difficulties not continuing for more than 3 Business Days beyond the
date on which such payment is due); (c) default in payment of any sinking fund
installment when due and payable (except a failure to make payment resulting
from mistake, oversight or transfer difficulties not continuing for more than
three Business Days beyond the date on which such payment is due); (d) default
by the Company in the performance or breach of any other covenant or warranty of
the Company in respect of the Debt Securities of such series for a period of 60
days after notice thereof to the Company or Trustee; (e) certain events
involving the bankruptcy or insolvency of the Company; or (f) other Events of
Default as specified in the Supplemental Indenture or Board Resolution under
which such series of Debt Securities was issued. (Section 6.01)
The Indenture provides that (1) if an Event of Default described in clauses
(a), (b), (c) or, in the event of a default with respect to less than all
Outstanding series under the Indenture, (d) above shall have occurred and be
continuing with respect to one or more series, either the Trustee or the holders
of 25 percent in principal amount of the Debt Securities of such series then
Outstanding (each such series voting as a separate class) may declare the
principal (or, in the case of original issue discount Debt Securities, the
portion thereof specified in the terms thereof) of all Outstanding Debt
Securities of such series and the interest accrued thereon and Additional
Amounts payable in respect thereof, if any, to be due and payable immediately
and (2) if an Event of Default described in clause (d) (in the event of a
default with respect to all Outstanding series) or (e) above shall have occurred
and be continuing, either the Trustee or the holders of 25 percent in
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principal amount of all Debt Securities then Outstanding (voting as one class)
may declare the principal (or, in the case of original issue discount Debt
Securities, the portion of the principal amount thereof specified in the terms
thereof) of all Debt Securities then Outstanding and the interest accrued
thereon and Additional Amounts payable in respect thereof, if any, to be due and
payable immediately, but upon certain conditions such declarations may be
annulled and past defaults (except for defaults in the payment of principal of,
or premium, interest or Additional Amounts, if any, on such Debt Securities) may
be waived by the holders of a majority in principal amount of the Debt
Securities of such series (or of all series, as the case may be) then
Outstanding. (Sections 6.01 and 6.10)
Holders may not enforce the Indenture or the Debt Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Debt Securities unless it receives indemnity satisfactory to it. Subject to
certain limitations, holders of a majority in principal amount of the Debt
Securities of any series may direct the Trustee in its exercise of any trust or
power. The Company is required to deliver annually to the Trustee an officer's
statement indicating whether the signer knows of any default by the Company in
performing any of its obligations under the Indenture. The Trustee may withhold
from Holders notice of any continuing default (except a default in payment of
principal, premium, if any, interest or Additional Amounts, if any, or any
sinking or purchase fund installment) if it determines that withholding notice
is in their interest. (Sections 4.05, 6.06, 6.09, 6.11, 7.01 and 7.05).
DEFEASANCE
Unless otherwise described in a Prospectus Supplement with respect to any
series of Debt Securities, the Company, at its option, (a) will be discharged
from any and all obligations in respect of such Debt Securities (except in each
case for certain obligations to register the transfer or exchange of such Debt
Securities, replace stolen, lost or mutilated Debt Securities, maintain paying
agencies and hold moneys for payment in trust) on the ninety-first day after
satisfaction of all conditions thereto or (b) effective upon the satisfaction of
all conditions thereto, need not comply with certain restrictive covenants
(including any covenants or agreements applicable with respect to a particular
series of Debt Securities) under the Indenture and will not be limited by any
restrictions with respect to merger, consolidation or sales of assets, in each
case if the Company deposits with the Trustee, in trust, (x) money or (y)
Government Obligations or a combination of (x) and (y) which, through the
payment of interest thereon and principal thereof in accordance with their
terms, will in the written opinion of independent public accountants selected by
the Company, provide money in an amount sufficient to pay all the principal
(including any mandatory sinking fund payments) of, and interest and Additional
Amounts, if any, and premium, if any, on, such Debt Securities on the dates such
payments are due in accordance with the terms of such series. (Section 8.02) In
order to avail itself of either of the foregoing options, no Event of Default
shall have occurred and be continuing under the Indenture and the Company must
provide to the Trustee (i) an opinion of counsel to the effect that holders of
the Debt Securities of such series will not recognize income, gain or loss for
Federal income tax purposes as a result of the Company's exercise of its option
and will be subject to Federal income tax on the same amount and in the same
manner, and at the same time as would have been the case if such option had not
been exercised and, in the case of Debt Securities being discharged, such
opinion shall be accompanied by a private letter ruling to that effect received
from the United States Internal Revenue Service (the "Service") or a revenue
ruling pertaining to a comparable form of transaction to that effect published
by the Service, (ii) an officers' certificate to the effect that no Event of
Default or event which with the giving of notice or lapse of time, or both,
would become an Event of Default, with respect to such Debt Securities shall
have occurred and be continuing on the date of the deposit, and (iii) if the
Debt Securities are listed on the New York Stock Exchange, an opinion of counsel
to the effect that the exercise of such option will not cause the Debt
Securities to be delisted. (Section 8.02) "Government Obligations" means
generally direct noncallable obligations of the government which issued the
currency in which the Debt Securities of the applicable series are denominated,
noncallable obligations the payment of the principal of and interest on which is
fully guaranteed by such government, and noncallable obligations on which the
full faith and credit of such government is pledged to the payment of the
principal thereof and interest thereon. (Section 1.01). In addition, the Company
may obtain a discharge under the Indenture with respect to all the Debt
Securities of a series by depositing with the Trustee, in trust, moneys or
Government Obligations sufficient to pay at maturity
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or upon redemption principal of, premium, if any, and any interest and
Additional Amounts on, all of the Debt Securities of such series, provided that
all of the Debt Securities of such series are by their terms to become due and
payable within one year or are to be called for redemption within one year. No
opinion of counsel or ruling relating to the tax consequences to holders is
required with respect to a discharge pursuant to the provisions described in the
immediately preceding sentence. (Section 8.01) In the event of any discharge of
Debt Securities pursuant to the terms of the Indenture described above, the
holders of such Debt Securities will thereafter be able to look solely to such
trust fund, and not to the Company, for payments of principal, premium, if any,
and interest and Additional Amounts, if any. (Sections 8.01 and 8.02)
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge into, or sell, lease or
convey all or substantially all of its assets to, another corporation unless (i)
the successor or transferee corporation, which shall be a corporation organized
and existing under the laws of the United States or a State thereof, assumes by
supplemental indenture all the obligations of the Company under the Debt
Securities and the Indenture and (ii) the Company or successor corporation, as
the case may be, will not, immediately after such consolidation or merger or
sale, lease or conveyance, be in default in the performance of any covenant or
condition with respect to the Debt Securities or the Indenture. The Company will
deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger or transfer and such supplemental
indenture comply with the terms of the Indenture. Upon any consolidation or
merger, or any sale, lease or conveyance of all or substantially all of the
assets of the Company, the successor corporation formed by such consolidation or
into which the Company is merged or to which such transfer is made shall succeed
to, and be substituted for, and may exercise every right and power of, the
Company under the Indenture. (Sections 5.01 and 5.02). Thereafter all
obligations of the predecessor corporation shall terminate. (Section 5.01)
MODIFICATION OF THE INDENTURE
The Indenture permits the Company and the Trustee to amend or supplement
the Indenture or the Debt Securities without notice to or consent of any holder
of a Debt Security for certain purposes, including without limitation, to cure
any ambiguity, defect or inconsistency, to comply with Section 5.01 (relating to
when the Company may consolidate, merge or sell all or substantially all of its
assets), to provide for uncertificated Debt Securities, to establish the form or
terms of Debt Securities of any series or to make any change that does not
adversely affect the rights of any holder of a Debt Security. (Section 9.01)
Certain modifications and amendments of the Indenture may be made by the Company
and the Trustee only with the consent of the holders of at least a majority in
aggregate principal amount of the Outstanding Debt Securities of each series
issued under the Indenture which is affected by the modification or amendment
(voting as one class). However, no such modification or amendment may, without
the consent of the holder of each Debt Security affected thereby, (i) reduce the
aforesaid percentage of Debt Securities whose holders must consent to an
amendment, supplement or waiver; (ii) reduce the rate or rates or extend the
time for payment of interest or Additional Amounts, if any, on any Debt
Security; (iii) reduce the principal of or premium, if any, on or extend the
fixed maturity of any Debt Security; (iv) modify or effect in any manner adverse
to the holders of Debt Securities the terms and conditions of the obligations of
the Company in respect of its obligations under the Indenture; (v) waive a
default in the payment of principal of or premium or interest or Additional
Amounts, if any, on any Debt Security; (vi) impair the right to institute a suit
for the enforcement of any payment on or with respect to any series of Debt
Securities; (vii) change a Place of Payment; or (viii) make any Debt Security
payable in currency other than that stated in the Debt Security. (Section 9.02)
REGARDING THE TRUSTEE
The Trustee is a participant in the Company's revolving credit agreement,
and the Company has maintained other banking relationships with the Trustee in
the normal course of business. The Trustee also acts as trustee and paying agent
for the Company's 7 1/8% Notes due July 15, 1999, 7 5/8% Notes due July 15,
2002, 7 1/4% Debentures due May 15, 2005, 6 1/2% Notes due March 15, 2008, 7%
Notes due March 15, 2018 and 9 1/8% Debentures due October 1, 2024.
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DESCRIPTION OF JUNIOR SUBORDINATED DEBT SECURITIES
The Junior Subordinated Debt Securities may be issued in one or more series
under a Junior Subordinated Indenture, as supplemented from time to time (as so
supplemented, the "Junior Subordinated Indenture"), between the Company and The
First National Bank of Chicago, as trustee (the "Junior Subordinated Indenture
Trustee"). This summary of certain terms and provisions of the Junior
Subordinated Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Junior Subordinated Indenture,
the form of which is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part, and to the Trust Indenture Act. The Junior
Subordinated Indenture is qualified under the Trust Indenture Act. Parenthetical
references in this Section are to provisions of the Junior Subordinated
Indenture. Certain terms defined in the Junior Subordinated Indenture are
capitalized in this Prospectus. Whenever particular defined terms of the Junior
Subordinated Indenture are referred to herein or in a Prospectus Supplement,
such defined terms are incorporated herein or therein by reference.
GENERAL
Each series of Junior Subordinated Debt Securities will rank pari passu
with all other series of Junior Subordinated Debt Securities and will be
unsecured and subordinate and junior in right of payment to the extent and in
the manner set forth in the Junior Subordinated Indenture to all Senior Debt (as
defined below) of the Company. See "-- Subordination." The Company is a
non-operating holding company and almost all of the operating assets of the
Company and its consolidated subsidiaries are owned by such subsidiaries. The
Company relies primarily on dividends from such subsidiaries to meet its
obligations. The payment of dividends by the Company's insurance company
subsidiaries is limited under the insurance company holding company laws of the
states in which such subsidiaries are domiciled. Accordingly, the Junior
Subordinated Debt Securities will be effectively subordinated to all existing
and future liabilities of the Company's subsidiaries, and holders of Junior
Subordinated Debt Securities should look only to the assets of the Company for
payments on the Junior Subordinated Debt Securities. The payment of dividends by
the Company's insurance company subsidiaries is limited under the insurance
holding company laws of the states in which such subsidiaries are domiciled.
Except as otherwise provided in the applicable Prospectus Supplement, the Junior
Subordinated Indenture does not limit the incurrence or issuance of other
secured or unsecured debt of the Company, whether under the Junior Subordinated
Indenture, any other indenture that the Company may enter into in the future or
otherwise. See "-- Subordination" and the Prospectus Supplement relating to any
offering of Offered Securities.
The Junior Subordinated Debt Securities will be issuable in one or more
series pursuant to an indenture supplemental to the Junior Subordinated
Indenture or a resolution of the Company's Board of Directors or a committee
thereof.
The applicable Prospectus Supplement or Prospectus Supplements will
describe the following terms of the Junior Subordinated Debt Securities: (1) the
title of the Junior Subordinated Debt Securities; (2) any limit upon the
aggregate principal amount of the Junior Subordinated Debt Securities; (3) the
date or dates on which the principal of the Junior Subordinated Debt Securities
is payable (the "Stated Maturity") or the method of determination thereof; (4)
the rate or rates, if any, at which the Junior Subordinated Debt Securities
shall bear interest, the Interest Payment Dates on which any such interest shall
be payable, the right, if any, of the Company to defer or extend an Interest
Payment Date, and the Regular Record Date for any interest payable on any
Interest Payment Date or the method by which any of the foregoing shall be
determined; (5) the place or places where, subject to the terms of the Junior
Subordinated Indenture as described below under "Payment and Paying Agents", the
principal of and premium, if any, and interest on the Junior Subordinated Debt
Securities will be payable and where, subject to the terms of the Junior
Subordinated Indenture as described below under "-- Denominations, Registration
and Transfer," the Junior Subordinated Debt Securities may be presented for
registration of transfer or exchange and the place or places where notices and
demands to or upon the Company in respect of the Junior Subordinated Debt
Securities and the Junior Subordinated Indentures may be made ("Place of
Payment"); (6) any period or periods within or date or dates on which, the price
or prices at which and the terms and conditions upon which Junior Subordinated
Debt Securities may be redeemed, in whole or in part, at the option of the
Company or a holder thereof; (7) the obligation or the right, if any, of the
Company or a holder thereof to redeem, purchase or
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repay the Junior Subordinated Debt Securities and the period or periods within
which, the price or prices at which, the currency or currencies (including
currency unit or units) in which and the other terms and conditions upon which
the Junior Subordinated Debt Securities shall be redeemed, repaid or purchased,
in whole or in part, pursuant to such obligation; (8) the denominations in which
any Junior Subordinated Debt Securities shall be issuable if other than
denominations of $25 and any integral multiple thereof; (9) if other than in
U.S. Dollars, the currency or currencies (including currency unit or units) in
which the principal of (and premium, if any) and interest, if any, on the Junior
Subordinated Debt Securities shall be payable, or in which the Junior
Subordinated Debt Securities shall be denominated; (10) any additions,
modifications or deletions in the Events of Default or covenants of the Company
specified in the Junior Subordinated Indenture with respect to the Junior
Subordinated Debt Securities; (11) if other than the principal amount thereof,
the portion of the principal amount of Junior Subordinated Debt Securities that
shall be payable upon declaration of acceleration of the maturity thereof; (12)
any additions or changes to the Junior Subordinated Indenture with respect to a
series of Junior Subordinated Debt Securities as shall be necessary to permit or
facilitate the issuance of such series in bearer form, registrable or not
registrable as to principal, and with or without interest coupons; (13) any
index or indices used to determine the amount of payments of principal of and
premium, if any, on the Junior Subordinated Debt Securities and the manner in
which such amounts will be determined; (14) the terms and conditions relating to
the issuance of a temporary Global Security representing all of the Junior
Subordinated Debt Securities of such series and the exchange of such temporary
Global Security for definitive Junior Subordinated Debt Securities of such
series; (5) subject to the terms described under "-- Global Junior Subordinated
Debt Securities", whether the Junior Subordinated Debt Securities of the series
shall be issued in whole or in part in the form of one or more Global Securities
and, in such case, the Depositary for such Global Securities, which Depositary
shall be a clearing agency registered under the Exchange Act; (16) the
appointment of any Paying Agent or Agents; (17) the terms and conditions of any
obligation or right of the Company or a holder to convert or exchange the Junior
Subordinated Debt Securities into Preferred Securities; (18) the form of Trust
Agreement and Guarantee Agreement, if applicable; (19) the relative degree, if
any, to which such Junior Subordinated Debt Securities of the series shall be
senior to or be subordinated to other series of such Junior Subordinated Debt
Securities or other indebtedness of the Company in right of payment, whether
such other series of Junior Subordinated Debt Securities or other indebtedness
are outstanding or not; and (20) any other terms of the Junior Subordinated Debt
Securities not inconsistent with the provisions of the Junior Subordinated
Indenture.
Junior Subordinated Debt Securities may be sold at a substantial discount
below their stated principal amount, bearing no interest or interest at a rate
which at the time of issuance is below market rates. Certain United States
Federal income tax consequences and special considerations applicable to any
such Junior Subordinated Debt Securities will be described in the applicable
Prospectus Supplement.
If the purchase price of any of the Junior Subordinated Debt Securities is
payable in one or more foreign currencies or currency units or if any Junior
Subordinated Debt Securities are denominated in one or more foreign currencies
or currency units or if the principal of, premium, if any, or interest, if any,
on any Junior Subordinated Debt Securities is payable in one or more foreign
currencies or currency units, the restrictions, elections, certain United States
Federal income tax consequences, specific terms and other information with
respect to such issue of Junior Subordinated Debt Securities and such foreign
currency or currency units will be set forth in the applicable Prospectus
Supplement.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest on any series of Junior Subordinated Debt
Securities, special United States Federal income tax, accounting and other
considerations applicable thereto will be described in the applicable Prospectus
Supplement.
DENOMINATIONS, REGISTRATION AND TRANSFER
Unless otherwise specified in the applicable Prospectus Supplement, the
Junior Subordinated Debt Securities will be issuable only in registered form
without coupons in denominations of $25 and any integral multiple thereof.
Junior Subordinated Debt Securities of any series will be exchangeable for other
Junior Subordinated Debt Securities of the same issue and series, of any
authorized denominations, of a like aggregate principal amount, of the same
Original Issue Date and Stated Maturity and bearing the same interest rate.
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Junior Subordinated Debt Securities may be presented for exchange as
provided above, and may be presented for registration of transfer (with the form
of transfer endorsed thereon, or a satisfactory written instrument of transfer,
duly executed), at the office of the appropriate Securities Registrar or at the
office of any transfer agent designated by the Company for such purpose with
respect to any series of Junior Subordinated Debt Securities and referred to in
the applicable Prospectus Supplement, without service charge and upon payment of
any taxes and other governmental charges as described in the Junior Subordinated
Indenture. The Company will appoint the Trustee as Securities Registrar under
the Junior Subordinated Indenture. If the applicable Prospectus Supplement
refers to any transfer agents (in addition to the Securities Registrar)
initially designated by the Company with respect to any series of Junior
Subordinated Debt Securities, the Company may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, provided that the Company maintains
a transfer agent in each Place of Payment for such series. The Company may at
any time designate additional transfer agents with respect to any series of
Junior Subordinated Debt Securities.
In the event of any redemption, neither the Company nor the Junior
Subordinated Indenture Trustee shall be required to (i) issue, register the
transfer of or exchange Junior Subordinated Debt Securities of any series during
a period beginning at the opening of business 15 days before the day of
selection for redemption of Junior Subordinated Debt Securities of that series
and ending at the close of business on the day of mailing of the relevant notice
of redemption or (ii) transfer or exchange any Junior Subordinated Debt
Securities so selected for redemption, except, in the case of any Junior
Subordinated Debt Securities being redeemed in part, any portion thereof not to
be redeemed.
GLOBAL JUNIOR SUBORDINATED DEBT SECURITIES
The Junior Subordinated Debt Securities of a series may be issued in whole
or in part in the form of one or more Global Junior Subordinated Debt Securities
that will be deposited with, or on behalf of, a depositary (the "Depositary")
identified in the Prospectus Supplement relating to such series. Global Junior
Subordinated Debt Securities may be issued only in fully registered form and in
either temporary or permanent form. Unless and until it is exchanged in whole or
in part for the individual Junior Subordinated Debt Securities represented
thereby, a Global Junior Subordinated Debt Security may not be transferred
except as a whole by the Depositary for such Global Junior Subordinated Debt
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by the Depositary or
any nominee to a successor Depositary or any nominee of such successor.
The specific terms of the depositary arrangement with respect to a series
of Junior Subordinated Debt Securities will be described in the Prospectus
Supplement relating to such series. The Company anticipates that the following
provisions will generally apply to depositary arrangements.
Upon the issuance of a Global Junior Subordinated Debt Security, and the
deposit of such Global Junior Subordinated Debt Security with or on behalf of
the Depositary, the Depositary for such Global Junior Subordinated Debt Security
or its nominee will credit, on its book-entry registration and transfer system,
the respective principal amounts of the individual Junior Subordinated Debt
Securities represented by such Global Junior Subordinated Debt Security to the
accounts of persons that have accounts with such Depositary ("Participants").
Such accounts shall be designated by the dealers, underwriters or agents with
respect to such Junior Subordinated Debt Securities or by the Company if such
Junior Subordinated Debt Securities are offered and sold directly by the
Company. Ownership of beneficial interests in a Global Junior Subordinated Debt
Security will be limited to Participants or persons that may hold interests
through Participants. Ownership of beneficial interests in such Global Junior
Subordinated Debt Security will be shown on, and the transfer of that ownership
will be effected only through, records maintained by the applicable Depositary
or its nominee (with respect to interests of Participants) and the records of
Participants (with respect to interests of persons who hold through
Participants). The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and such laws may impair the ability to transfer beneficial interests in
a Global Junior Subordinated Debt Security.
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So long as the Depositary for a Global Junior Subordinated Debt Security,
or its nominee, is the registered owner of such Global Junior Subordinated Debt
Security, such Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Junior Subordinated Debt Securities
represented by such Global Junior Subordinated Debt Security for all purposes
under the Junior Subordinated Indenture governing such Junior Subordinated Debt
Securities. Except as provided below, owners of beneficial interests in a Global
Junior Subordinated Debt Security will not be entitled to have any of the
individual Junior Subordinated Debt Securities of the series represented by such
Global Junior Subordinated Debt Security registered in their names, will not
receive or be entitled to receive physical delivery of any such Junior
Subordinated Debt Securities of such series in definitive form and will not be
considered the owners or holders thereof under the Junior Subordinated
Indenture.
Payments of principal of (and premium, if any) and interest on individual
Junior Subordinated Debt Securities represented by a Global Junior Subordinated
Debt Security registered in the name of a Depositary or its nominee will be made
to the Depositary or its nominee, as the case may be, as the registered owner of
the Global Junior Subordinated Debt Security representing such Junior
Subordinated Debt Securities. None of the Company, the Junior Subordinated
Indenture Trustee, any Paying Agent, or the Securities Registrar for such Junior
Subordinated Debt Securities will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests of the Global Junior Subordinated Debt Security representing
such Junior Subordinated Debt Securities or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
The Company expects that the Depositary for a series of Junior Subordinated
Debt Securities or its nominee, upon receipt of any payment of principal,
premium or interest in respect of a permanent Global Junior Subordinated Debt
Security representing any of such Junior Subordinated Debt Securities,
immediately will credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interest in the principal amount of
such Global Junior Subordinated Debt Security for such Junior Subordinated Debt
Securities as shown on the records of such Depositary or its nominee. The
Company also expects that payments by Participants to owners of beneficial
interests in such Global Junior Subordinated Debt Security held through such
Participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers in bearer
form or registered in "street name." Such payments will be the responsibility of
such Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for a series of Junior Subordinated Debt Securities is at any time
unwilling, unable or ineligible to continue as depositary and a successor
depositary is not appointed by the Company within 90 days, the Company will
issue individual Junior Subordinated Debt Securities of such series in exchange
for the Global Junior Subordinated Debt Security representing such series of
Junior Subordinated Debt Securities. In addition, the Company may at any time
and in its sole discretion, subject to any limitations described in the
Prospectus Supplement relating to such Junior Subordinated Debt Securities,
determine not to have any Junior Subordinated Debt Securities of such series
represented by one or more Global Junior Subordinated Debt Securities and, in
such event, will issue individual Junior Subordinated Debt Securities of such
series in exchange for the Global Junior Subordinated Debt Security or
Securities representing such series of Junior Subordinated Debt Securities.
Further, if the Company so specifies with respect to the Junior Subordinated
Debt Securities of a series, an owner of a beneficial interest in a Global
Junior Subordinated Debt Security representing Junior Subordinated Debt
Securities of such series may, on terms acceptable to the Company, the Junior
Subordinated Indenture Trustee and the Depositary for such Global Junior
Subordinated Debt Security, receive individual Junior Subordinated Debt
Securities of such series in exchange for such beneficial interests, subject to
any limitations described in the Prospectus Supplement relating to such Junior
Subordinated Debt Securities. In any such instance, an owner of a beneficial
interest in a Global Junior Subordinated Debt Security will be entitled to
physical delivery of individual Junior Subordinated Debt Securities of the
series represented by such Global Junior Subordinated Debt Security equal in
principal amount to such beneficial interest and to have such Junior
Subordinated Debt Securities registered in its name. Individual Junior
Subordinated Debt Securities of such series so issued will be issued in
denominations, unless otherwise specified by the Company, of $25 and integral
multiples thereof.
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PAYMENT AND PAYING AGENTS
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of (and premium, if any) and any interest on Junior Subordinated
Debt Securities will be made at the office of the Junior Subordinated Indenture
Trustee in the City of New York or at the office of such Paying Agent or Paying
Agents as the Company may designate from time to time in the applicable
Prospectus Supplement, except that at the option of the Company payment of any
interest may be made (i), except in the case of Global Junior Subordinated Debt
Securities, by check mailed to the address of the Person entitled thereto as
such address shall appear in the Securities Register or (ii) by transfer to an
account maintained by the Person entitled thereto as specified in the Securities
Register, provided that proper transfer instructions have been received by the
Regular Record Date. Unless otherwise indicated in the applicable Prospectus
Supplement, payment of any interest on Junior Subordinated Debt Securities will
be made to the Person in whose name such Junior Subordinated Debt Security is
registered at the close of business on the Regular Record Date for such
interest, except in the case of Defaulted Interest. The Company may at any time
designate additional Paying Agents or rescind the designation of any Paying
Agent; however the Company will at all times be required to maintain a Paying
Agent in each Place of Payment for each series of Junior Subordinated Debt
Securities.
Any moneys deposited with the Junior Subordinated Indenture Trustee or any
Paying Agent, or then held by the Company in trust, for the payment of the
principal of (and premium, if any) or interest on any Junior Subordinated Debt
Security and remaining unclaimed for two years after such principal (and
premium, if any) or interest has become due and payable shall, at the request of
the Company, be repaid to the Company and the holder of such Junior Subordinated
Debt Security shall thereafter look, as a general unsecured creditor, only to
the Company for payment thereof.
OPTION TO EXTEND INTEREST PAYMENT DATE
If provided in the applicable Prospectus Supplement, the Company shall have
the right at any time and from time to time during the term of any series of
Junior Subordinated Debt Securities to defer payment of interest for such number
of consecutive interest payment periods as may be specified in the applicable
Prospectus Supplement (each, an "Extension Period"), subject to the terms,
conditions and covenants, if any, specified in such Prospectus Supplement,
provided that such Extension Period may not extend beyond the Stated Maturity of
such series of Junior Subordinated Debt Securities. Certain United States
Federal income tax consequences and special considerations applicable to any
such Junior Subordinated Debt Securities will be described in the applicable
Prospectus Supplement.
REDEMPTION
Unless otherwise indicated in the applicable Prospectus Supplement, Junior
Subordinated Debt Securities will not be subject to any sinking fund.
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company may, at its option, redeem the Junior Subordinated Debt Securities of
any series in whole at any time or in part from time to time. Junior
Subordinated Debt Securities in denominations larger than $25 may be redeemed in
part but only in integral multiples of $25. Except as otherwise specified in the
applicable Prospectus Supplement, the redemption price for any Junior
Subordinated Debt Security so redeemed shall equal any accrued and unpaid
interest thereon to the redemption date, plus the principal amount thereof.
Except as otherwise specified in the applicable Prospectus Supplement, if a
Junior Subordinated Debt Security Tax Event (as defined below) in respect of a
series of Junior Subordinated Debt Securities shall occur and be continuing, the
Company may, at its option, redeem such series of Junior Subordinated Debt
Securities in whole (but not in part) at any time within 90 days of the
occurrence of such Junior Subordinated Debt Security Tax Event, at a redemption
price equal to 100% of the principal amount of such Junior Subordinated Debt
Securities then outstanding plus accrued and unpaid interest to the date fixed
for redemption.
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"Junior Subordinated Debt Security Tax Event" means the receipt by the
Company of an opinion of counsel experienced in such matters to the effect that,
as a result of any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or as a result of
any official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the applicable series of Junior Subordinated Debt Securities under the Junior
Subordinated Indenture, there is more than an insubstantial risk that interest
payable by the Company on such series of Junior Subordinated Debt Securities is
not, or within 90 days of the date of such opinion will not be, deductible by
the Company, in whole or in part, for United States Federal income tax purposes.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each Holder of Junior Subordinated Debt
Securities to be redeemed at its registered address. Unless the Company defaults
in payment of the redemption price, on and after the redemption date interest
ceases to accrue on such Junior Subordinated Debt Securities or portions thereof
called for redemption.
RESTRICTIONS ON CERTAIN PAYMENTS
The Company will also covenant, as to each series of Junior Subordinated
Debt Securities, that it will not, and will not permit any subsidiary of the
Company to, (i) declare or pay any dividends or distributions on, or redeem,
purchase, acquire, or make a liquidation payment with respect to, any of the
Company's capital stock or (ii) make any payment of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities of the
Company (including other Junior Subordinated Debt Securities) that rank pari
passu with or junior in interest to the Junior Subordinated Debt Securities or
make any guarantee payments with respect to any guarantee by the Company of the
debt securities of any subsidiary of the Company if such guarantee ranks pari
passu or junior in interest to the Junior Subordinated Debt Securities (other
than (a) dividends or distributions in common stock of the Company, (b)
redemptions or purchases of any rights pursuant to the Company's Rights Plan, or
any successor to such Rights Plan, and the declaration of a dividend of such
rights or the issuance of stock under such plans in the future, (c) payments
under any Guarantee and (d) purchases of common stock related to the issuance of
common stock under any of the Company's benefit plans for its directors,
officers or employees) if at such time (i) there shall have occurred any event
of which the Company has actual knowledge that (a) with the giving of notice or
the lapse of time, or both, would constitute an "Event of Default" under the
Junior Subordinated Indenture with respect to the Junior Subordinated Debt
Securities of such series and (b) in respect of which the Company shall not have
taken reasonable steps to cure, (ii) if such Junior Subordinated Debt Securities
are held by a Lincoln Trust of a series of Related Preferred Securities, the
Company shall be in default with respect to its payment of any obligations under
the Guarantee relating to such Related Preferred Securities or (iii) the Company
shall have given notice of its selection of an Extension Period as provided in
the Junior Subordinated Indenture with respect to the Junior Subordinated Debt
Securities of such series and shall not have rescinded such notice, or such
Extension Period, or any extension thereof, shall be continuing.
MODIFICATION OF JUNIOR SUBORDINATED INDENTURE
From time to time the Company and the Junior Subordinated Indenture Trustee
may, without the consent of the holders of any series of Junior Subordinated
Debt Securities, amend, waive or supplement the Junior Subordinated Indenture
for specified purposes, including, among other things, curing ambiguities,
defects or inconsistencies (provided that any such action does not materially
adversely affect the interest of the holders of any series of Junior
Subordinated Debt Securities or, in the case of Corresponding Junior
Subordinated Debt Securities, the holders of the Related Preferred Securities so
long as they remain outstanding) and qualifying, or maintaining the
qualification of, the Junior Subordinated Indenture under the Trust Indenture
Act. The Junior Subordinated Indenture contains provisions permitting the
Company and the Junior Subordinated Indenture Trustee, with the consent of the
holders of not less than a majority in principal amount of each outstanding
series of Junior Subordinated Debt Securities affected, to modify the Junior
Subordinated Indenture in a manner affecting the rights of the holders of such
series of the Junior
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Subordinated Debt Securities; provided, that no such modification may, without
the consent of the holder of each outstanding Junior Subordinated Debt Security
so affected, (i) change the Stated Maturity of any series of Junior Subordinated
Debt Securities, or reduce the principal amount thereof, or reduce the rate or
extend the time of payment of interest thereon (except such extension as is
contemplated hereby) or (ii) reduce the percentage of principal amount of Junior
Subordinated Debt Securities of any series, the holders of which are required to
consent to any such modification of the Junior Subordinated Indenture, provided
that, in the case of Corresponding Junior Subordinated Debt Securities, so long
as any of the Related Preferred Securities remain outstanding, no such
modification may be made that adversely affects the holders of such Preferred
Securities in any material respect, and no termination of the Junior
Subordinated Indenture may occur, and no waiver of any Junior Subordinated Debt
Security Event of Default or compliance with any covenant under the Junior
Subordinated Indenture may be effective, without the prior consent of the
holders of at least a majority of the aggregate liquidation preference of such
Related Preferred Securities unless and until the principal of the Corresponding
Junior Subordinated Debt Securities and all accrued and unpaid interest thereon
have been paid in full and certain other conditions are satisfied.
In addition, the Company and the Junior Subordinated Indenture Trustee may
execute, without the consent of any holder of Junior Subordinated Debt
Securities, any supplemental Junior Subordinated Indenture for the purpose of
creating any new series of Junior Subordinated Debt Securities.
JUNIOR SUBORDINATED DEBT SECURITY EVENTS OF DEFAULT
The Junior Subordinated Indenture provides that any one or more of the
following described events with respect to a series of Junior Subordinated Debt
Securities that has occurred and is continuing constitutes a "Junior
Subordinated Debt Security Event of Default" with respect to such series of
Junior Subordinated Debt Securities:
(i) failure for 30 days to pay any interest on such series of the
Junior Subordinated Debt Securities, when due (subject to the deferral of
any due date in the case of an Extension Period); or
(ii) failure to pay any principal or premium, if any, on such series
of Junior Subordinated Debt Securities when due whether at maturity, upon
redemption by declaration or otherwise; or
(iii) failure to observe or perform in any material respect certain
other covenants contained in the Junior Subordinated Indenture for 90 days
after written notice to the Company from the Junior Subordinated Indenture
Trustee or the holders of at least 25% in aggregate outstanding principal
amount of such series of outstanding Junior Subordinated Debt Securities;
or
(iv) certain events in bankruptcy, insolvency or reorganization of the
Company.
The holders of a majority in aggregate outstanding principal amount of such
series of Junior Subordinated Debt Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Junior Subordinated Indenture Trustee. The Junior Subordinated Indenture Trustee
or the holders of not less than 25% in aggregate outstanding principal amount of
such series of Junior Subordinated Debt Securities may declare the principal due
and payable immediately upon a Junior Subordinated Debt Security Event of
Default, and, in the case of Corresponding Junior Subordinated Debt Securities,
should the Junior Subordinated Indenture Trustee or such holders of such
Corresponding Junior Subordinated Debt Securities fail to make such declaration,
the holders of at least 25% in aggregate liquidation preference of the Related
Preferred Securities shall have such right. The holders of a majority in
aggregate outstanding principal amount of such series of Junior Subordinated
Debt Securities may annul such declaration and waive the default if the default
(other than the non-payment of the principal of such series of Junior
Subordinated Debt Securities which has become due solely by such acceleration)
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Junior Subordinated Indenture Trustee. In the case of Corresponding Junior
Subordinated Debt Securities, should the holders of such Corresponding Junior
Subordinated Debt Securities fail to annul such declaration and waive such
default, the holders of a majority in aggregate liquidation preference of the
Related Preferred Securities shall have such right.
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The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debt Securities affected thereby may, on behalf of the
holders of all the Junior Subordinated Debt Securities, waive any past default,
except a default in the payment of principal or interest (unless such default
has been cured and a sum sufficient to pay all matured installments of interest
and principal due otherwise than by acceleration has been deposited with the
Junior Subordinated Indenture Trustee) or a default in respect of a covenant or
provision which under the Junior Subordinated Indenture cannot be modified or
amended without the consent of the holder of each outstanding Junior
Subordinated Debt Security. In the case of Corresponding Junior Subordinated
Debt Securities, should the holders of such Corresponding Junior Subordinated
Debt Securities fail to annul such declaration and waive such default, the
holders of a majority in aggregate liquidation preference of the Related
Preferred Securities shall have such right. The Company is required to file
annually with the Junior Subordinated Indenture Trustee a certificate as to
whether or not the Company is in compliance with all the conditions and
covenants applicable to it under the Junior Subordinated Indenture.
In case a Junior Subordinated Debt Security Event of Default shall occur
and be continuing as to a series of Corresponding Junior Subordinated Debt
Securities, the Property Trustee will have the right to declare the principal of
and the interest on such Corresponding Junior Subordinated Debt Securities, and
any other amounts payable under the Junior Subordinated Indenture, to be
forthwith due and payable and to enforce its other rights as a creditor with
respect to such Corresponding Junior Subordinated Debt Securities.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Junior Subordinated Debt Security Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the related Junior Subordinated Debt Securities on the
date such interest or principal is otherwise payable, a holder of Preferred
Securities may institute a legal proceeding directly against the Company for
enforcement of payment to such holder of the principal of or interest on such
related Junior Subordinated Debt Securities having a principal amount equal to
the aggregate Liquidation Amount of the related Preferred Securities of such
holder (a "Direct Action"). The Company may not amend the Junior Subordinated
Indenture to remove the foregoing right to bring a Direct Action without the
prior written consent of the holders of all of the Preferred Securities. If the
right to bring a Direct Action is removed, the applicable Issue may become
subject to the reporting obligations under the Securities Exchange Act of 1934,
as amended. The Company shall have the right under the Junior Subordinated
Indenture to set-off any payment made to such holder of Preferred Securities by
the Company in connection with a Direct Action. The holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the related Junior Subordinated Debt Securities.
The holders of the Preferred Securities would not be able to exercise
directly any remedies other than those set forth in the preceding paragraph
available to the holders of the Junior Subordinated Debt Securities unless there
shall have been an Event of Default under the Trust Agreement. See "Description
of Preferred Securities -- Events of Default; Notice."
CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS
The Junior Subordinated Indenture provides that the Company shall not
consolidate with or merge into any other Person or convey, transfer or lease its
properties and assets substantially as an entirety to any Person, and no Person
shall consolidate with or merge into the Company or convey, transfer or lease
its properties and assets substantially as an entirety to the Company, unless
(i) in case the Company consolidates with or merges into another Person or
conveys or transfers its properties and assets substantially as an entirety to
any Person, the successor Person is organized under the laws of the United
States or any state or the District of Columbia, and such successor Person
expressly assumes the Company's obligations on the Junior Subordinated Debt
Securities issued under the Junior Subordinated Indenture; (ii) immediately
after giving effect thereto, no Junior Subordinated Debt Security Event of
Default, and no event which, after notice or lapse of time or both, would become
a Junior Subordinated Debt Security Event of Default, shall have happened and be
continuing; (iii) in the case of Corresponding Junior Subordinated Debt
Securities, such transaction is permitted under the related Trust Agreement or
Guarantee and does not give rise to any breach or violation of the related Trust
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Agreement and Guarantee, and (iv) certain other conditions as prescribed in the
Junior Subordinated Indenture are met.
The general provisions of the Junior Subordinated Indenture do not afford
holders of the Junior Subordinated Debt Securities protection in the event of a
highly leveraged or other transaction involving the Company that may adversely
affect holders of the Junior Subordinated Debt Securities.
SATISFACTION AND DISCHARGE
The Junior Subordinated Indenture provides that when, among other things,
all Junior Subordinated Debt Securities not previously delivered to the Junior
Subordinated Indenture Trustee for cancellation (i) have become due and payable
or (ii) will become due and payable at their Stated Maturity within one year,
and the Company deposits or causes to be deposited with the Junior Subordinated
Indenture Trustee trust funds, in trust, for the purpose and in an amount in the
currency or currencies in which the Junior Subordinated Debt Securities are
payable sufficient to pay and discharge the entire indebtedness on the Junior
Subordinated Debt Securities not previously delivered to the Junior Subordinated
Indenture Trustee for cancellation, for the principal (and premium, if any) and
interest to the date of the deposit or to the Stated Maturity, as the case may
be, then the Junior Subordinated Indenture will cease to be of further effect
(except as to the Company's obligations to pay all other sums due pursuant to
the Junior Subordinated Indenture and to provide the officers' certificates and
opinions of counsel described therein), and the Company will be deemed to have
satisfied and discharged the Junior Subordinated Indenture.
CONVERSION OR EXCHANGE
If and to the extent indicated in the applicable Prospectus Supplement, the
Junior Subordinated Debt Securities of any series may be convertible or
exchangeable into Preferred Securities or other securities. The specific terms
on which Junior Subordinated Debt Securities of any series may be so converted
or exchanged will be set forth in the applicable Prospectus Supplement. Such
terms may include provisions for conversion or exchange, either mandatory, at
the option of the holder, or at the option of the Company, in which case the
number of shares of Preferred Securities or other securities to be received by
the Holders of Junior Subordinated Debt Securities would be calculated as of a
time and in the manner stated in the applicable Prospectus Supplement.
SUBORDINATION
In the Junior Subordinated Indenture, the Company has covenanted and agreed
that any Junior Subordinated Debt Securities issued thereunder will be
subordinate and junior in right of payment to all Senior Debt to the extent
provided in the Junior Subordinated Indenture. Upon any payment or distribution
of assets to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors, marshaling of assets or
any bankruptcy, insolvency, debt restructuring or similar proceedings in
connection with any insolvency or bankruptcy proceeding of the Company, the
holders of Senior Debt will first be entitled to receive payment in full of
principal of (and premium, if any) and interest, if any, on such Senior Debt
before the holders of Junior Subordinated Debt Securities or, in the case of
Corresponding Junior Subordinated Debt Securities, the Property Trustee on
behalf of the holders, will be entitled to receive or retain any payment in
respect of the principal of (and premium, if any) or interest, if any, on the
Junior Subordinated Debt Securities.
In the event of the acceleration of the maturity of any Junior Subordinated
Debt Securities, the holders of all Senior Debt outstanding at the time of such
acceleration will first be entitled to receive payment in full of all amounts
due thereon (including any amounts due upon acceleration) before the holders of
Junior Subordinated Debt Securities will be entitled to receive or retain any
payment in respect of the principal of (or premium, if any) or interest, if any,
on the Junior Subordinated Debt Securities.
No payments on account of principal (or premium, if any) or interest, if
any, in respect of the Junior Subordinated Debt Securities may be made if there
shall have occurred and be continuing a default in any payment with respect to
Senior Debt, or an event of default with respect to any Senior Debt resulting in
the
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acceleration of the maturity thereof, or if any judicial proceeding shall be
pending with respect to any such default.
"Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (i) every
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (v) every capital lease obligation of such Person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.
"Senior Debt" means the principal of (and premium, if any) and interest, if
any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on Debt,
whether incurred on or prior to the date of the Junior Subordinated Indenture or
thereafter incurred, unless, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is provided that such
obligations are not superior in right of payment to the Junior Subordinated Debt
Securities or to other Debt which is pari passu with, or subordinated to, the
Junior Subordinated Debt Securities; provided, however, that Senior Debt shall
not be deemed to include (i) any Debt of the Company which when incurred and
without respect to any election under Section 1111(b) of the Bankruptcy Code,
was without recourse to the Company, (ii) any Debt of the Company to any of its
subsidiaries, (iii) Debt to any employee of the Company, (iv) any liability for
taxes, (v) indebtedness or monetary obligations to trade creditors or assumed by
the Company or any of its subsidiaries in the ordinary course of business in
connection with the obtaining of materials or services, and (vi) any other debt
securities issued pursuant to the Junior Subordinated Indenture.
The Company is a non-operating holding company and almost all of the
operating assets of the Company are owned by such subsidiaries. The Company
relies primarily on dividends from such subsidiaries to meet its obligations for
payment of principal and interest on its outstanding debt obligations and
corporate expenses. Accordingly, the Junior Subordinated Debt Securities will be
effectively subordinated to all existing and future liabilities of the Company's
subsidiaries, including liabilities under contracts of insurance and annuities
written by the Company's insurance subsidiaries. Holders of Junior Subordinated
Debt Securities should look only to the assets of the Company for payments of
interest and principal and premium, if any.
The Junior Subordinated Indenture places no limitation on the amount of
additional Senior Debt that may be incurred by the Company. The Company expects
from time to time to incur additional indebtedness constituting Senior Debt.
The Junior Subordinated Indenture provides that the foregoing subordination
provisions, insofar as they relate to any particular issue of Junior
Subordinated Debt Securities, may be changed prior to such issuance. Any such
change would be described in the applicable Prospectus Supplement.
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debt
Securities will be governed by and construed in accordance with the laws of the
State of New York.
INFORMATION CONCERNING THE JUNIOR SUBORDINATED INDENTURE TRUSTEE
The Junior Subordinated Indenture Trustee shall have and be subject to all
the duties and responsibilities specified with respect to an indenture trustee
under the Trust Indenture Act. Subject to such provisions, the Junior
Subordinated Indenture Trustee is under no obligation to exercise any of the
powers vested in it by the Junior Subordinated Indenture at the request of any
holder of Junior Subordinated Debt Securities, unless
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offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Junior Subordinated Indenture
Trustee is not required to expend or risk its own funds or otherwise incur
personal financial liability in the performance of its duties if the Junior
Subordinated Indenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it.
CORRESPONDING JUNIOR SUBORDINATED DEBT SECURITIES
The Corresponding Junior Subordinated Debt Securities may be issued in one
or more series of Junior Subordinated Debt Securities under the Junior
Subordinated Indenture with terms corresponding to the terms of a series of
Related Preferred Securities. In that event, concurrently with the issuance of
each Lincoln Trust's Preferred Securities, such Lincoln Trust will invest the
proceeds thereof and the consideration paid by the Company for the Common
Securities in a series of Corresponding Junior Subordinated Debt Securities
issued by the Company to such Lincoln Trust. Each series of Corresponding Junior
Subordinated Debt Securities will be in the principal amount equal to the
aggregate stated Liquidation Amount of the Related Preferred Securities and the
Common Securities of such Lincoln Trust and will rank pari passu with all other
series of Junior Subordinated Debt Securities. Holders of the Related Preferred
Securities for a series of Corresponding Junior Subordinated Debt Securities
will have the rights in connection with modifications to the Junior Subordinated
Indenture or upon occurrence of Junior Subordinated Debt Security Events of
Default described under "-- Modification of Junior Subordinated Indenture" and
"-- Junior Subordinated Debt Security Events of Default", unless provided
otherwise in the Prospectus Supplement for such Related Preferred Securities.
If a Special Event in respect of a Lincoln Trust of Related Preferred
Securities shall occur and be continuing, the Company may, at its option, redeem
the Corresponding Junior Subordinated Debt Securities at any time within 90 days
of the occurrence of such Special Event, in whole but not in part, subject to
the provisions of the Junior Subordinated Indenture. The redemption price for
any Corresponding Junior Subordinated Debt Securities shall be equal to 100% of
the principal amount of such Corresponding Junior Subordinated Debt Securities
then outstanding plus accrued and unpaid interest to the date fixed for
redemption. For so long as the applicable Lincoln Trust is the holder of all the
outstanding series of Corresponding Junior Subordinated Debt Securities, the
proceeds of any such redemption will be used by the Lincoln Trust to redeem the
corresponding Trust Securities in accordance with their terms. The Company may
not redeem a series of Corresponding Junior Subordinated Debt Securities in part
unless all accrued and unpaid interest has been paid in full on all outstanding
Corresponding Junior Subordinated Debt Securities of such series for all
interest periods terminating on or prior to the Redemption Date.
The Company will covenant in the Junior Subordinated Indenture as to each
series of Corresponding Junior Subordinated Debt Securities, that if and so long
as (i) the Lincoln Trust of the related series of Trust Securities is the holder
of all such Corresponding Junior Subordinated Debt Securities, (ii) a Tax Event
in respect of such Lincoln Trust has occurred and is continuing and (iii) the
Company has elected, and has not revoked such election, to pay Additional Sums
(as defined under "Description of Preferred Securities -- Redemption or
Exchange") in respect of such Trust Securities, the Company will pay to such
Lincoln Trust such Additional Sums. The Company will also covenant, as to each
series of Corresponding Junior Subordinated Debt Securities, (i) to maintain
directly or indirectly 100% ownership of the Common Securities of the Lincoln
Trust to which Corresponding Junior Subordinated Debt Securities have been
issued, provided that certain successors which are permitted pursuant to the
Junior Subordinated Indenture may succeed to the Company's ownership of the
Common Securities, (ii) not to voluntarily terminate, wind-up or liquidate any
Lincoln Trust, except (a) in connection with a distribution of Corresponding
Junior Subordinated Debt Securities to the holders of the Preferred Securities
in liquidation of such Lincoln Trust, or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the related Trust Agreement and
(iii) to use its reasonable efforts, consistent with the terms and provisions of
the related Trust Agreement, to cause such Lincoln Trust to remain classified as
a grantor trust and not as an association taxable as a corporation for United
States Federal income tax purposes.
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DESCRIPTION OF PREFERRED STOCK AND COMMON STOCK
GENERAL
The Company may issue, separately or together with other Offered
Securities, shares of Common Stock or Preferred Stock, all as set forth in the
Prospectus Supplement relating to the Common Stock or Preferred Stock for which
this Prospectus is being delivered. In addition, if the Prospectus Supplement so
provides, the Debt Securities or Preferred Stock may be convertible into or
exchangeable for Common Stock.
The Company's Articles of Incorporation currently authorize the issuance of
800,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock
("Preferred Stock"). The Company's Preferred Stock may be issued from time to
time in one or more series by resolution of the Board of Directors. The Company
has outstanding one series of Preferred Stock, consisting of the Company's $3.00
Cumulative Convertible Preferred Stock, Series A (without par value) (the
"Series A Preferred Stock"). At December 31, 1997, the Company had issued and
outstanding 100,859,478 shares of Common Stock and 35,091 shares of Series A
Preferred Stock.
As described under "Description of Depositary Shares", the Company may, at
its option, elect to offer depositary shares ("Depositary Shares") evidenced by
depositary receipts ("Depositary Receipts"), each representing an interest (to
be specified in the Prospectus Supplement relating to the particular series of
the Preferred Stock) in a share of the particular series of the Preferred Stock
issued and deposited with a Preferred Stock Depositary (as defined herein).
The following descriptions of the classes of the Company's capital stock
are summaries, do not purport to be complete, and are subject, in all respects,
to the applicable provisions of the Indiana Business Corporation Law and the
Company's Articles of Incorporation (including the Certificate of Resolution by
the Board of Directors of the Company Designating the Rights and Preferences of
the Series A Preferred Stock), and the Rights Agreement, referred to below, with
The First National Bank of Boston, which, in each case, are included as exhibits
to the Registration Statement of which this Prospectus forms a part.
COMMON STOCK
Holders of the Company's Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors after all dividends accrued
on all preferred or special classes of shares entitled to preferential dividends
have been paid or declared and set apart for payment out of funds legally
available therefor. Upon liquidation, dissolution or winding up of the affairs
of the Company, whether voluntary or involuntary, holders of Common Stock are
entitled to receive pro rata any net assets of the Company remaining after the
claims of creditors and preferences of the Series A Preferred Stock, and any
other series of Preferred Stock at the time outstanding, have been paid in full.
The Company's Articles of Incorporation provide that holders of Common Stock and
holders of any series of Preferred Stock from time to time outstanding shall
each have the right at every meeting of shareholders to one vote for each share
of Common Stock and/or Preferred Stock so held, and holders of Common Stock and
holders of Preferred Stock shall so vote as one class. Under certain
circumstances as provided by law, the Company's Articles of Incorporation or the
terms of the Preferred Stock, certain series of Preferred Stock may vote as a
separate class or classes. The Company's Bylaws presently provide for three
classes of directors, with directors in each class serving staggered three-year
terms. The holders of Common Stock do not have any preemptive rights to
subscribe for additional shares, and the Common Stock does not have cumulative
voting rights.
The Company's Common Stock is listed on the New York, Chicago, Pacific and
London Stock Exchanges. The outstanding shares of Common Stock are, and the
Common Stock offered hereby when issued will be, validly issued, fully paid and
non-assessable. The Company will take appropriate action to list the Common
Stock offered hereby as described in the Prospectus Supplement relating to any
issuance of Common Stock.
Common Stock Purchase Rights. On November 14, 1996, the Board of Directors
of the Company authorized the amendment and restatement of the Rights Agreement
dated November 7, 1986 between the
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Company and The First National Bank of Boston as rights agent (the "Rights
Agent"), relating to certain Common Share purchase rights (the "Common Rights")
issued on each outstanding share of Common Stock of the Company ("Common
Share"). After separation from the Common Stock, each Common Right will entitle
the holder thereof until the earlier of November 14, 2006 or the redemption of
the Common Rights to buy one Common Share at an exercise price of $200.00,
subject to adjustment. The Common Rights will continue to be represented by the
certificates for Common Shares and will not be exercisable, or transferable
apart from the Common Shares, until the earlier of the tenth calendar day after
the announcement that a person or group has acquired beneficial ownership of 15%
or more of the Common Shares (an "Acquiring Person") or the tenth business day
after a person commences, or announces an intention to commence, an offer the
consummation of which would result in a person beneficially owning 15% or more
of the Common Shares. Separate certificates for the Common Rights will be mailed
to holders of the Common Shares as of such date. The Common Rights will then
begin trading separately from the Common Shares. As long as the Common Rights
are attached to the Common Shares, the Company will issue one Common Right with
each Common Share that shall become outstanding so that all Common Shares will
have attached Common Rights.
In the event that (1) the Company is acquired in a merger or other business
combination transaction, or (2) any person consolidates or merges with the
Company and all or part of the Common Shares are exchanged for securities, cash
or property of any other person, or (3) 50% or more of the Company's
consolidated assets or earning power are sold, each Common Right will entitle
its holder to purchase, at the exercise price of the Common Right, that number
of shares of common stock of the surviving company which at the time of such
transaction would have a market value of two times the exercise price of the
Common Right. Alternatively, if a person acquires 15% or more of the outstanding
Common Shares, each Common Right not owned by the Acquiring Person would become
exercisable for the number of Common Shares which would then have a market value
of two times the exercise price of the Common Right. In addition, at any time
after a person becomes an Acquiring Person, and before its acquisition of 50% or
more of the Common Shares, the Board of Directors of the Company may exchange
Common Rights, other than Common Rights owned by the Acquiring Person, in whole
or in part, at an exchange ratio of one Common Share per Common Right (subject
to adjustment).
The Common Rights are redeemable in whole, but not in part, at $.01 per
Common Right at any time prior to the expiration of 10 calendar days from the
date of the public announcement that a person or group has become an Acquiring
Person. The Common Rights will expire on November 14, 2006 (unless sooner
redeemed). Until a Common Right is exercised, the holder thereof, as such, will
have no rights as a shareholder of the Company, including, without limitation,
the right to vote or to receive dividends.
The purchase price payable, and the number of Common Shares or other
securities or property issuable, upon exercise of the Common Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Shares, (ii) as a result of the grant to holders of the Common Shares of certain
rights or warrants to subscribe for Common Shares or convertible securities at
less than the current market price of the Common Shares or (iii) as a result of
the distribution to holders of the Common Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends or dividends payable in the
Common Shares) or of subscription rights or warrants (other than those referred
to above). With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
such purchase price.
The Common Rights have certain anti-takeover effects. The Common Rights may
cause substantial dilution to a person or group that attempts to acquire the
Company on terms not approved by the Board of Directors of the Company, except
pursuant to an offer conditioned on a substantial number of Common Rights being
acquired. The Common Rights should not interfere with any merger or other
business combination approved by the Board of Directors since the Common Rights
may be redeemed in whole, but not in part, by the company at $.01 per Common
Right prior to the expiration of ten calendar days from the date of the public
announcement that a person or group has become an Acquiring Person.
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Certain Provisions of the Company's Articles of Incorporation. The
Company's Articles of Incorporation provide that the affirmative vote of the
holders of three-fourths of the Company's voting stock is required to amend
Article VII, which deals with the number, classification, qualifications and
removal of directors. Article VII provides that the number of directors may be
fixed in the Bylaws, that qualifications for directors may be set in the Bylaws,
and that the Bylaws may provide for classification of the Board. The Bylaws can
be amended only by action of the Board. Article VII also provides that directors
can be removed, with or without cause, at a meeting of shareholders called
expressly for that purpose upon the affirmative vote of the holders of at least
three-fourths of the Company's voting stock.
The provisions of Article VII requiring the affirmative vote of
three-fourths of the Company's voting stock to amend Article VII could make it
difficult for the shareholders to change the existing provision of that Article,
which, in turn, could discourage proxy contests and tender offers and make it
more likely that incumbent directors will maintain their positions.
The Articles of Incorporation also contain a "fair price" provision which
requires, subject to certain exceptions, certain kinds of business combinations
involving the Company and any shareholder holding 10% or more of the Company's
voting stock (or certain affiliates of such shareholder) to be approved by the
holders of at least three-fourths of the Company's voting stock, unless (i) the
transaction is approved by a majority of the members of the Board of Directors
of the Company who are not affiliated with the 10% shareholder making the
proposal, or (ii) the transaction meets certain minimum price and procedural
requirements (in either of which cases, only the normal shareholder and director
approval requirements of the Indiana Business Corporation Law would govern the
transaction). The "fair price" provision may be amended or repealed only upon
the affirmative vote of the holders of at least three-fourths of the Company's
voting stock. The "fair price" provision is intended to increase the likelihood
that all shareholders of the Company will be treated similarly if certain kinds
of business combinations are effected. The "fair price" provision may have the
effect of making a takeover of the Company more expensive and may therefore
discourage tender offers for less than three-fourths of the Company's stock and
acquisitions of substantial blocks of the Company's stock with a view to
acquiring control of the Company.
Certain State Law Provisions. Chapter 43 of the Indiana Business
Corporation Law also restricts business combinations with interested
shareholders. It prohibits certain business combinations, including mergers,
sales of assets, recapitalizations, and reverse stock splits, between certain
corporations having 100 or more shareholders that also have a class of voting
shares registered with the Securities and Exchange Commission under Section 12
of the Exchange Act (which includes the Company) and an interested shareholder,
defined as the beneficial owner of 10% or more of the voting power of the
outstanding voting shares of that corporation, for five years following the date
the shareholder acquired such 10% beneficial ownership, unless the acquisition
or the business combination was approved by the board of directors in advance of
such date. Moreover, the acquisition or business combination must meet all
requirements of the corporation's articles of incorporation, as well as the
requirements specifically set out in the Indiana Business Corporation Law. After
the five-year period expires, a business combination with an interested
shareholder that did not receive board approval prior to the interested
shareholder's acquisition date may take place only if such combination is
approved by a majority vote of shares not held by the interested shareholder or
its affiliates or if the proposed combination meets certain minimum price
requirements based upon the highest price paid by the interested shareholder.
The aggregate amount of cash and the market value of non-cash consideration to
be received by holders of all outstanding stock other than common stock is to be
determined under criteria similar to those for common stock, except that the
minimum price to be received by such shareholders cannot be less than the
highest preferential amount per share to which holders of such class of stock
are entitled in the event of voluntary dissolution, plus dividends declared or
due. The consideration to be received by holders of a particular class must be
distributed promptly and paid in cash or in the same form as the interested
shareholder used to acquire the largest number of shares it owns in that class.
Finally, the interested shareholder must not have become the beneficial owner of
any more voting shares of stock since it became an interested shareholder, with
certain exceptions.
Chapter 42 of the Indiana Business Corporation Law includes provisions
designed to protect minority shareholders in the event that a person acquires,
pursuant to a tender offer or otherwise, shares giving it more
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than 20%, more than 33 1/3%, or more than 50% of the outstanding voting power
("Control Shares") of corporations having 100 or more shareholders. Unless the
corporation's articles of incorporation or bylaws provide that Chapter 42 does
not apply to control share acquisitions of shares of the corporation before the
control share acquisition, an acquirer who purchases Control Shares without
seeking and obtaining the prior approval of the board of directors cannot vote
the Control Shares until each class or series of shares entitled to vote
separately on the proposal, by a majority of all votes entitled to be cast by
that group (excluding the Control Shares and any shares held by officers of the
corporation and employees of the corporation who are directors thereof), approve
in a special or annual meeting the rights of the acquirer to vote the Control
Shares. An Indiana corporation otherwise subject to Chapter 42 may elect not to
be covered by the statute by so providing in its articles of incorporation or
bylaws. The Company is currently subject to the statute.
Indiana insurance laws and regulations provide that no person may acquire
voting securities of the Company if after such acquisition such person would
directly or indirectly be in control of the Company, unless such person has
provided certain required information to the Company and to the Indiana
Insurance Commissioner (the "Indiana Commissioner") and the Indiana Commissioner
has approved the acquisition. Control of the Company is presumed to exist if any
person beneficially owns 10% or more of the voting securities of the Company.
Furthermore, the Indiana Commissioner may determine, after notice and hearing,
that control exists notwithstanding the absence of a presumption to that effect.
Consequently, no person may acquire, directly or indirectly, 10% or more of the
voting securities of the Company to be outstanding after the Offerings, or
otherwise acquire control of the Company, unless such person has provided such
required information to the Indiana Commissioner and the Indiana Commissioner
has approved such acquisition.
Transfer Agent and Registrar. The First National Bank of Boston serves as
Transfer Agent and Registrar for shares of the Company's Common Stock.
PREFERRED STOCK
The Company's Preferred Stock has, upon issuance, preference over the
Common Stock with respect to the payment of dividends and the distribution of
assets in the event of liquidation, dissolution or winding up of the Company.
Other relative rights, preferences and limitations of each series of Preferred
Stock, including dividend, redemption, liquidation, sinking fund, conversion and
other provisions, are determined by the Board of Directors in the resolutions
establishing and designating such series and as described in the Prospectus
Supplement relating to the series of Preferred Stock. The Series A Preferred
Stock constitutes the only series of Preferred Stock currently authorized for
issuance by the Board of Directors.
The Company's Articles of Incorporation provide that each holder of
Preferred Stock of any series from time to time outstanding shall be entitled to
one vote per share upon all matters submitted to vote at every meeting of
shareholders of the Company. Further, in the event that six or more quarterly
dividends, whether or not consecutive, on any series of Preferred Stock shall be
in default, the holders of any outstanding series of Preferred Stock as to which
such default exists shall be entitled, at the next annual meeting of
shareholders, to vote as a class to elect two directors of the Company. Such
right shall continue with respect to shares of cumulative Preferred Stock,
including the Series A Preferred Stock, until all accumulated and unpaid
dividends on all such shares, the holders of which were entitled to vote at the
previous annual meeting of shareholders, have been paid or declared and set
aside for payment and, with respect to shares of non-cumulative Preferred Stock,
if any, until any non-cumulative dividends have been paid or declared and set
apart for payment for four consecutive quarterly dividend periods on all such
shares, the holders of which were entitled to vote at the previous annual
meeting of shareholders.
The approval of the holders of record of at least two-thirds of the
outstanding shares of all series of Preferred Stock of the Company, voting as a
class, will be required to (a) amend the Company's Articles of Incorporation to
create or authorize any stock ranking prior to or on a parity with such
Preferred Stock with respect to the payment of dividends or distributions upon
dissolution, liquidation or winding up, or to create or authorize any security
convertible into shares of any such stock; (b) amend, alter, change or repeal
any of the express terms of the Preferred Stock, or any series thereof, in any
prejudicial manner (provided only holders of two-thirds of the outstanding
shares of the series prejudiced by such change or repeal need consent to such
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action); (c) merge or consolidate with another corporation whereby the Company
is not the surviving entity, if thereby the rights, preferences or powers of the
Preferred Stock would be adversely affected or Offered Securities would
thereupon be authorized or outstanding which could not otherwise have been
created without the approval of such Preferred Stockholders; or (d) authorize,
or revoke a previously authorized, voluntary dissolution of the Company, approve
any limitation of the term of the existence of the Company or authorize the
sale, lease, exchange or other disposition of all or substantially all of the
property of the Company.
In the event of voluntary or involuntary dissolution, liquidation or
winding-up of the Company, the holders of each series of the Preferred Stock
will be entitled to receive out of the assets of the Company available for
distribution to its shareholders, before distribution of assets is made to
holders of Common Stock or any other class of stock ranking junior to such
series of Preferred Stock upon liquidation, a liquidating distribution in an
amount per share as set forth in the Prospectus Supplement relating to such
series of Preferred Stock, plus accrued and unpaid dividends.
The Preferred Stock, when issued, will be fully paid and non-assessable.
Unless otherwise specified in the Prospectus Supplement relating to the
particular series of a Preferred Stock, each series of Preferred Stock will be
on a parity in all respects with other series of Preferred Stock.
SERIES A PREFERRED STOCK
At December 31, 1997, the Company had issued and outstanding 35,091 shares
of Series A Preferred Stock. Cumulative dividends are payable quarterly, as
declared by the Board of Directors, on shares of Series A Preferred Stock at the
per annum rate of $3.00 per share. Upon the liquidation, dissolution or winding
up of the Company, the Series A Preferred Stock is entitled to a liquidation
preference of $80.00 per share, or $2,807,280 in the aggregate at December 31,
1997, plus accrued dividends, before any assets may be distributed to holders of
Common Stock or any other stock ranking junior to the Series A Preferred Stock.
The Series A Preferred Stock may be redeemed at any time at the option of the
Company, in whole or in part, at a redemption price of $80.00 per share plus
accrued dividends, and the Series A Preferred Stock is convertible into Common
Stock at the option of the holder at a rate of eight shares of Common Stock
(subject to adjustment) for each share of Series A Preferred Stock.
DESCRIPTION OF DEPOSITARY SHARES
The description set forth below and in any Prospectus Supplement of certain
provisions of the Deposit Agreement (as defined below) and of the Depositary
Shares and Depositary Receipts summarizes the material terms of the Deposit
Agreement and of the Depositary Shares and Depositary Receipts, and is qualified
in its entirety by reference to, the form of Deposit Agreement and form of
Depositary Receipts relating to each series of the Preferred Stock.
GENERAL
The Company may, at its option, elect to have shares of Preferred Stock be
represented by Depositary Shares. The shares of any series of the Preferred
Stock underlying the Depositary Shares will be deposited under a separate
deposit agreement (the "Deposit Agreement") between the Company and a bank or
trust company selected by the Company (the "Preferred Stock Depositary"). The
Prospectus Supplement relating to a series of Depositary Shares will set forth
the name and address of the Preferred Stock Depositary. Subject to the terms of
the Deposit Agreement, each owner of a Depositary Share will be entitled,
proportionately, to all the rights, preferences and privileges of the Preferred
Stock represented thereby (including dividend, voting, redemption, conversion,
exchange and liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the Deposit Agreement, each of which will represent the applicable
interest in a number of shares of a particular series of the Preferred Stock
described in the applicable Prospectus Supplement.
A holder of Depositary Shares will be entitled to receive the shares of
Preferred Stock (but only in whole shares of Preferred Stock) underlying such
Depositary Shares. If the Depositary Receipts delivered by the
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holder evidence a number of Depositary Shares in excess of the whole number of
shares of Preferred Stock to be withdrawn, the Depositary will deliver to such
holder at the same time a new Depositary Receipt evidencing such excess number
of Depositary Shares.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Stock Depositary will distribute all cash dividends or other
cash distributions in respect to the Preferred Stock to the record holders of
Depositary Receipts in proportion, insofar as possible, to the number of
Depositary Shares owned by such holders.
In the event of a distribution other than in cash in respect to the
Preferred Stock, the Preferred Stock Depositary will distribute property
received by it to the record holders of Depositary Receipts in proportion,
insofar as possible, to the number of Depositary Shares owned by such holders,
unless the Preferred Stock Depositary determines that it is not feasible to make
such distribution, in which case the Preferred Stock Depositary may, with the
approval of the Company, adopt such method as it deems equitable and practicable
for the purpose of effecting such distribution, including sale (at public or
private sale) of such property and distribution of the net proceeds from such
sale to such holders.
The amount so distributed in any of the foregoing cases will be reduced by
any amount required to be withheld by the Company or the Preferred Stock
Depositary on account of taxes.
CONVERSION AND EXCHANGE
If any Preferred Stock underlying the Depositary Shares is subject to
provisions relating to its conversion or exchange as set forth in the Prospectus
Supplement relating thereto, each record holder of Depositary Shares will have
the right or obligation to convert or exchange such Depositary Shares pursuant
to the terms thereof.
REDEMPTION OF DEPOSITARY SHARES
If Preferred Stock underlying the Depositary Shares is subject to
redemption, the Depositary Shares will be redeemed from the proceeds received by
the Preferred Stock Depositary resulting from the redemption, in whole or in
part, of the Preferred Stock held by the Preferred Stock Depositary. The
redemption price per Depositary Share will be equal to the aggregate redemption
price payable with respect to the number of shares of Preferred Stock underlying
the Depositary Shares. Whenever the Company redeems Preferred Stock from the
Preferred Stock Depositary, the Preferred Stock Depositary will redeem as of the
same redemption date a proportionate number of Depositary Shares representing
the shares of Preferred Stock that were redeemed. If less than all the
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed will
be selected by lot or pro rata as may be determined by the Company.
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Shares will cease, except the right to receive the
redemption price upon such redemption. Any funds deposited by the Company with
the Preferred Stock Depositary for any Depositary Shares which the holders
thereof fail to redeem shall be returned to the Company after a period of two
years from the date such funds are so deposited.
VOTING
Upon receipt of notice of any meeting at which the holders of any shares of
Preferred Stock underlying the Depositary Shares are entitled to vote, the
Preferred Stock Depositary will mail the information contained in such notice to
the record holders of the Depositary Receipts. Each record holder of such
Depositary Receipts on the record date (which will be the same date as the
record date for the Preferred Stock) will be entitled to instruct the Preferred
Stock Depositary as to the exercise of the voting rights pertaining to the
number of shares of Preferred Stock underlying such holder's Depositary Shares.
The Preferred Stock Depositary will endeavor, insofar as practicable, to vote
the number of shares of Preferred Stock underlying such Depositary Shares in
accordance with such instructions, and the Company will agree to take all
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reasonable action which may be deemed necessary by the Preferred Stock
Depositary in order to enable the Preferred Stock Depositary to do so. The
Preferred Stock Depositary will abstain from voting the Preferred Stock to the
extent it does not receive specific written instructions from holders of
Depositary Receipts representing such Preferred Stock.
RECORD DATE
Whenever (i) any cash dividend or other cash distribution shall become
payable, any distribution other than cash shall be made, or any rights,
preferences or privileges shall be offered with respect to the Preferred Stock,
or (ii) the Preferred Stock Depositary shall receive notice of any meeting at
which holders of Preferred Stock are entitled to vote or of which holders of
Preferred Stock are entitled to notice, or of the mandatory conversion of or any
election on the part of the Company to call for the redemption of any Preferred
Stock, the Preferred Stock Depositary shall in each such instance fix a record
date (which shall be the same as the record date for the Preferred Stock) for
the determination of the holders of Depositary Receipts (x) who shall be
entitled to receive such dividend, distribution, rights, preferences or
privileges or the net proceeds of the sale thereof or (y) who shall be entitled
to give instructions for the exercise of voting rights at any such meeting or to
receive notice of such meeting or of such redemption or conversion, subject to
the provisions of the Deposit Agreement.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The form of Depositary Receipt and any provision of the Deposit Agreement
may at any time be amended by agreement between the Company and the Preferred
Stock Depositary. However, any amendment which imposes or increases any fees,
taxes or other charges payable by the holders of Depositary Receipts (other than
taxes and other governmental charges, fees and other expenses payable by such
holders as stated under "Charges of Preferred Stock Depositary"), or which
otherwise prejudices any substantial existing right of holders of Depositary
Receipts, will not take effect as to outstanding Depositary Receipts until the
expiration of 90 days after notice of such amendment has been mailed to the
record holders of outstanding Depositary Receipts.
Whenever so directed by the Company, the Preferred Stock Depositary will
terminate the Deposit Agreement by mailing notice of such termination to the
record holders of all Depositary Receipts then outstanding at least 30 days
prior to the date fixed in such notice for such termination. The Preferred Stock
Depositary may likewise terminate the Deposit Agreement if at any time 45 days
shall have expired after the Preferred Stock Depositary shall have delivered to
the Company a written notice of its election to resign and a successor
depositary shall not have been appointed and accepted its appointment. If any
Depositary Receipts remain outstanding after the date of termination, the
Preferred Stock Depositary thereafter will discontinue the transfer of
Depositary Receipts, will suspend the distribution of dividends to the holders
thereof, and will not give any further notices (other than notice of such
termination) or perform any further acts under the Deposit Agreement except as
provided below and except that the Preferred Stock Depositary will continue (i)
to collect dividends on the Preferred Stock and any other distributions with
respect thereto and (ii) to deliver the Preferred Stock together with such
dividends and distributions and the net proceeds of any sales of rights,
preferences, privileges or other property, without liability for interest
thereon, in exchange for Depositary Receipts surrendered. At any time after the
expiration of two years from the date of termination, the Preferred Stock
Depositary may sell the Preferred Stock then held by it at public or private
sales, at such place or places and upon such terms as it deems proper and may
thereafter hold the net proceeds of any such sale, together with any money and
other property then held by it, without liability for interest thereon, for the
pro rata benefit of the holders of Depositary Receipts which have not been
surrendered.
CHARGES OF PREFERRED STOCK DEPOSITARY
The Company will pay all charges of the Preferred Stock Depositary
including charges in connection with the initial deposit of the Preferred Stock,
the initial issuance of the Depositary Receipts, the distribution of information
to the holders of Depositary Receipts with respect to matters on which Preferred
Stock is entitled to vote, withdrawals of the Preferred Stock by the holders of
Depositary Receipts or redemption or conversion
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of the Preferred Stock, except for taxes (including transfer taxes, if any) and
other governmental charges and such other charges as are expressly provided in
the Deposit Agreement to be at the expense of holders of Depositary Receipts or
persons depositing Preferred Stock.
MISCELLANEOUS
The Preferred Stock Depositary will make available for inspection by
holders of Depositary Receipts at its corporate office and its New York office,
all reports and communications from the Company which are delivered to the
Preferred Stock Depositary as the holder of Preferred Stock.
Neither the Preferred Stock Depositary nor the Company will be liable if it
is prevented or delayed by law or any circumstance beyond its control in
performing its obligations under the Deposit Agreement. The obligations of the
Preferred Stock Depositary under the Deposit Agreement are limited to performing
its duties thereunder without negligence or bad faith. The obligations of the
Company under the Deposit Agreement are limited to performing its duties
thereunder in good faith. Neither the Company nor the Preferred Stock Depositary
is obligated to prosecute or defend any legal proceeding in respect of any
Depositary Shares or Preferred Stock unless satisfactory indemnity is furnished.
The Company and the Preferred Stock Depositary are entitled to rely upon advice
of or information from counsel, accountants or other persons believed to be
competent and on documents believed to be genuine.
The Preferred Stock Depositary may resign at any time or be removed by the
Company, effective upon the acceptance by its successor of its appointment;
provided, that if a successor Preferred Stock Depositary has not been appointed
or accepted such appointment within 45 days after the Preferred Stock Depositary
has delivered a notice of election to resign to the Company, the Preferred Stock
Depositary may terminate the Deposit Agreement. See "Amendment and Termination
of Deposit Agreement" above.
DESCRIPTION OF WARRANTS
GENERAL
The Company may issue Warrants to purchase Debt Securities, Preferred Stock
(or Depositary Shares representing Preferred Stock) or Common Stock
(collectively, the "Underlying Warrant Securities"), and such Warrants may be
issued independently or together with any such Underlying Warrant Securities and
may be attached to or separate from such Underlying Warrant Securities. Each
series of Warrants will be issued under a separate warrant agreement (each a
"Warrant Agreement") to be entered into between the Company and a warrant agent
("Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Warrants of such series and will not assume any
obligation or relationship of agency for or with holders or beneficial owners of
Warrants. The following sets forth certain general terms and provisions of the
Warrants offered hereby. Further terms of the Warrants and the applicable
Warrant Agreement are set forth in the applicable Prospectus Supplement.
The applicable Prospectus Supplement will describe the terms of any
Warrants in respect of which this Prospectus is being delivered, including the
following: (i) the title of such Warrants; (ii) the aggregate number of such
Warrants; (iii) the price or prices at which such Warrants will be issued; (iv)
the currency or currencies, including composite currencies, in which the price
of such Warrants may be payable; (v) the designation and terms of the Underlying
Warrant Securities purchasable upon exercise of such Warrants; (vi) the price at
which and the currency or currencies, including composite currencies, in which
the Underlying Warrant Securities purchasable upon exercise of such Warrants may
be purchased; (vii) the date on which the right to exercise such Warrants shall
commence and the date on which such right shall expire; (viii) whether such
Warrants will be issued in registered form or bearer form; (ix) if applicable,
the minimum or maximum amount of such Warrants which may be exercised at any one
time; (x) if applicable, the designation and terms of the Underlying Warrant
Securities with which such Warrants are issued and the number of such Warrants
issued with each such Underlying Warrant Security; (xi) if applicable, the date
on and after which such Warrants and the related Underlying Warrant Securities
will be separately transferable; (xii) information with respect to book-entry
procedures, if any; (xiii) if applicable, a discussion of certain
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United States federal income tax considerations; and (xiv) any other terms of
such Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Warrants.
DESCRIPTION OF PREFERRED SECURITIES
Pursuant to the terms of the Trust Agreement for each Lincoln Trust, the
Issuer Trustees on behalf of such Lincoln Trust will issue the Preferred
Securities and the Common Securities. The Preferred Securities of a particular
issue will represent preferred beneficial interests in the Lincoln Trust and the
holders thereof will be entitled to a preference in certain circumstances with
respect to Distributions and amounts payable on redemption or liquidation over
the Common Securities of such Lincoln Trust, as well as other benefits as
described in the corresponding Trust Agreement. This summary of certain
provisions of the Preferred Securities and each Trust Agreement does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, all the provisions of each Trust Agreement, including the definitions
therein of certain terms, and the Trust Indenture Act. Wherever particular
defined terms of a Trust Agreement (as amended or supplemented from time to
time) are referred to herein or in a Prospectus Supplement, such defined terms
are incorporated herein or therein by reference. The form of the Trust Agreement
has been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Each of the Lincoln Trusts is a legally separate entity
and the assets of one are not available to satisfy the obligations of any of the
others.
GENERAL
The Preferred Securities of a Lincoln Trust will rank pari passu, and
payments will be made thereon pro rata, with the Common Securities of that
Lincoln Trust except as described under "-- Subordination of Common Securities."
Legal title to the Corresponding Junior Subordinated Debt Securities will be
held by the Property Trustee in trust for the benefit of the holders of the
related Preferred Securities and Common Securities. Each Guarantee Agreement
executed by the Company for the benefit of the holders of a Lincoln Trust's
Preferred Securities (the "Guarantee" for such Preferred Securities) will be a
guarantee on a subordinated basis with respect to the related Preferred
Securities but will not guarantee payment of Distributions or amounts payable on
redemption or liquidation of such Preferred Securities when the related Lincoln
Trust does not have funds on hand available to make such payments. See
"Description of Guarantees."
DISTRIBUTIONS
Distributions on the Preferred Securities will be cumulative, will
accumulate from the date of original issuance and will be payable on such dates
as specified in the applicable Prospectus Supplement. In the event that any date
on which Distributions are payable on the Preferred Securities is not a Business
Day (as defined below), payment of the Distribution payable on such date will be
made on the next succeeding day that is a Business Day (and without any interest
or other payment in respect to any such delay) except that, if such Business Day
is in the next succeeding calendar year, payment of such Distribution shall be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on such date (each date on which Distributions are payable
in accordance with the foregoing, a "Distribution Date"). A "Business Day" shall
mean any day other than a Saturday or a Sunday, or a day on which banking
institutions in The City of New York are authorized or required by law or
executive order to remain closed or a day on which the corporate trust office of
the Property Trustee or the Junior Subordinated Indenture Trustee (as defined
herein) is closed for business.
Each Lincoln Trust's Preferred Securities represent preferred beneficial
interests in the applicable Lincoln Trust, and the Distributions on each
Preferred Security will be payable at a rate specified in the Prospectus
Supplement for such Preferred Securities. The amount of Distributions payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months unless otherwise specified in the applicable Prospectus Supplement.
Distributions to which holders of Preferred Securities are entitled will
accumulate additional Distributions at the rate per annum if and as specified in
the applicable Prospectus
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Supplement. The term "Distributions" as used herein includes any such additional
Distributions unless otherwise stated.
If provided in the applicable Prospectus Supplement, the Company has the
right under the Junior Subordinated Indenture, pursuant to which it will issue
the Corresponding Junior Subordinated Debt Securities, to defer the payment of
interest at any time or from time to time on any series of the Corresponding
Junior Subordinated Debt Securities for a period which will be specified in such
Prospectus Supplement relating to such series (each, an "Extension Period"),
provided that no Extension Period may extend beyond the Stated Maturity of the
Corresponding Junior Subordinated Debt Securities. As a consequence of any such
extension, Distributions on the corresponding Preferred Securities would be
deferred (but would continue to accumulate additional Distributions thereon at
the rate per annum set forth in the Prospectus Supplement for such Preferred
Securities) by the Lincoln Trust which issued such Preferred Securities during
any such Extension Period. During such Extension Period the Company may not, and
may not permit any subsidiary of the Company to, (i) declare or pay any
dividends or distributions on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock or (ii)
make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities of the Company that rank pari passu
with or junior in interest to the Corresponding Junior Subordinated Debt
Securities or make any guarantee payments with respect to any guarantee by the
Company of debt securities of any subsidiary of the Company if such guarantee
ranks pari passu or junior in interest to the Corresponding Junior Subordinated
Debt Securities (other than (a) dividends or distributions in common stock of
the Company, (b) redemptions or purchases of any rights pursuant to the
Company's Rights Plan, or any successor to such Rights Plan, and the declaration
of a dividend of such rights or the issuance of stock under stock plans in the
future, (c) payments under any Guarantee and (d) purchases of common stock
related to the issuance of common stock under any of the Company's benefit plans
for its directors, officers or employees).
The revenue of each Lincoln Trust available for distribution to holders of
its Preferred Securities will be limited to payments under the Corresponding
Junior Subordinated Debt Securities in which the Lincoln Trust will invest the
proceeds from the issuance and sale of its Trust Securities. See "Description of
Junior Subordinated Debt Securities -- Corresponding Junior Subordinated Debt
Securities." If the Company does not make interest payments on such
Corresponding Junior Subordinated Debt Securities, the Property Trustee will not
have funds available to pay Distributions on the Related Preferred Securities.
The payment of Distributions (if and to the extent the Lincoln Trust has funds
legally available for the payment of such Distributions and cash sufficient to
make such payments) is guaranteed by the Company on a limited basis as set forth
herein under "Description of Guarantees."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the register of such Lincoln Trust on the relevant
record dates, which, as long as the Preferred Securities remain in book-entry
form, will be one Business Day prior to the relevant Distribution Date. Subject
to any applicable laws and regulations and the provisions of the applicable
Trust Agreement, each such payment will be made as described under "Book-Entry
Issuance." In the event any Preferred Securities are not in book-entry form, the
relevant record date for such Preferred Securities shall be the date at least 15
days prior to the relevant Distribution Date, as specified in the applicable
Prospectus Supplement.
REDEMPTION OR EXCHANGE
Mandatory Redemption. Upon the repayment or redemption, in whole or in
part, of any Corresponding Junior Subordinated Debt Securities, whether at
maturity or upon earlier redemption as provided in the Junior Subordinated
Indenture, the proceeds from such repayment or redemption shall be applied by
the Property Trustee to redeem a Like Amount (as defined below) of the Trust
Securities, upon not less than 30 nor more than 60 days notice, at a redemption
price (the "Redemption Price") equal to the aggregate Liquidation Amount of such
Trust Securities plus accumulated but unpaid Distributions thereon to the date
of redemption (the "Redemption Date") and the related amount of the premium, if
any, paid by the Company upon the concurrent redemption of such Corresponding
Junior Subordinated Debt Securities. See "Description of Junior Subordinated
Debt Securities -- Redemption." If less than all of any series of Corresponding
Junior Subordinated Debt Securities are to be repaid or redeemed on a Redemption
Date, then the proceeds from
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such repayment or redemption shall be allocated to the redemption pro rata of
the related Preferred Securities and the Common Securities. The amount of
premium, if any, paid by the Company upon the redemption of all or any part of
any series of any Corresponding Junior Subordinated Debt Securities to be repaid
or redeemed on a Redemption Date shall be allocated to the redemption pro rata
of the related Preferred Securities and the Common Securities.
The Company will have the right to redeem any series of Corresponding
Junior Subordinated Debt Securities (i) in whole at any time or in part from
time to time, subject to the conditions described under "Description of Junior
Subordinated Debt Securities -- Redemption", (ii) at any time, in whole (but not
in part), upon the occurrence of a Tax Event or an Investment Company Event
(each as defined below, a "Special Event") and subject to the further conditions
described under "Description of Junior Subordinated Debt
Securities -- Redemption", or (iii) as may be otherwise specified in the
applicable Prospectus Supplement.
Special Event Redemption or Distribution of Corresponding Junior
Subordinated Debt Securities. If a Special Event in respect of a series of
Preferred Securities and Common Securities shall occur and be continuing, the
Company has the right to redeem the Corresponding Junior Subordinated Debt
Securities in whole (but not in part) and thereby cause a mandatory redemption
of such Preferred Securities and Common Securities in whole (but not in part) at
the Redemption Price within 90 days following the occurrence of such Special
Event. At any time, the Company has the right to terminate the related Lincoln
Trust and, after satisfaction of the liabilities of creditors of such Lincoln
Trust as provided by applicable law, cause such Corresponding Junior
Subordinated Debt Securities to be distributed to the holders of such Preferred
Securities and Common Securities in liquidation of the Lincoln Trust. If the
Company does not elect either option described above, the applicable series of
Preferred Securities will remain outstanding and, in the event a Tax Event has
occurred and is continuing, Additional Sums (as defined below) may be payable on
the Corresponding Junior Subordinated Debt Securities.
Extension of Maturity of Corresponding Junior Subordinated Debt
Securities. If provided in the applicable Prospectus Supplement, the Company
shall have the right to extend or shorten the maturity of any series of
Corresponding Junior Subordinated Debt Securities at the time that the Company
exercises its right to elect to terminate the related Lincoln Trust and cause
such Corresponding Junior Subordinated Debt Securities to be distributed to the
holders of such Preferred Securities and Common Securities in liquidation of the
Lincoln Trust, provided that it can extend the maturity only if certain
conditions specified in the applicable Prospectus Supplement are met at the time
such election is made and at the time of such extension.
"Additional Sums" means the additional amounts as may be necessary in order
that the amount of Distributions then due and payable by a Lincoln Trust on the
outstanding Preferred Securities and Common Securities of the Lincoln Trust
shall not be reduced as a result of any additional taxes, duties and other
governmental charges to which such Lincoln Trust has become subject as a result
of a Tax Event.
"Investment Company Event" means the receipt by the applicable Lincoln
Trust of an opinion of counsel experienced in such matters to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
the applicable Lincoln Trust is or will be considered an "investment company"
that is required to be registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), which Change in 1940 Act Law becomes
effective on or after the date of original issuance of the series of Preferred
Securities issued by the Lincoln Trust.
"Like Amount" means (i) with respect to a redemption of any series of Trust
Securities, Trust Securities of such series having a Liquidation Amount (as
defined below) equal to that portion of the principal amount of Corresponding
Junior Subordinated Debt Securities to be contemporaneously redeemed in
accordance with the Junior Subordinated Indenture, allocated to the Common
Securities and to the Preferred Securities based upon the relative Liquidation
Amounts of such classes and the proceeds of which will be used to pay the
Redemption Price of such Trust Securities, and (ii) with respect to a
distribution of Corresponding Junior Subordinated Debt Securities to holders of
any series of Trust Securities in connection with a dissolution or liquidation
of the related Lincoln Trust, Corresponding Junior Subordinated Debt Securities
having a
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principal amount equal to the Liquidation Amount of the Trust Securities of the
holder to whom such Corresponding Junior Subordinated Debt Securities are
distributed. "Liquidation Amount" means the stated amount of $25 per Trust
Security.
"Tax Event" means the receipt by the applicable Lincoln Trust of an opinion
of counsel experienced in such matters to the effect that, as a result of any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (i) the Lincoln Trust is, or will be within 90 days of
the date of such opinion, subject to United States Federal income tax with
respect to income received or accrued on the corresponding series of
Corresponding Junior Subordinated Debt Securities, (ii) interest payable by the
Company on such series of Corresponding Junior Subordinated Debt Securities is
not, or within 90 days of the date of such opinion, will not be, deductible by
the Company, in whole or in part, for United States Federal income tax purposes,
or (iii) the applicable Lincoln Trust is, or will be within 90 days of the date
of such opinion, subject to more than a de minimis amount of other taxes, duties
or other governmental charges.
After the liquidation date fixed for any distribution of Corresponding
Junior Subordinated Debt Securities for any series of Preferred Securities (i)
such series of Preferred Securities will no longer be deemed to be outstanding,
(ii) The Depository Trust Company ("DTC") or its nominee, as the record holder
of such series of Preferred Securities, will receive a registered global
certificate or certificates representing the Corresponding Junior Subordinated
Debt Securities to be delivered upon such distribution and (iii) any
certificates representing such series of Preferred Securities not held by DTC or
its nominee will be deemed to represent the Corresponding Junior Subordinated
Debt Securities having a principal amount equal to the stated liquidation
preference of such series of Preferred Securities, and bearing accrued and
unpaid interest in an amount equal to the accrued and unpaid Distributions on
such series of Preferred Securities until such certificates are presented to the
Administrative Trustees or their agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Corresponding Junior Subordinated Debt Securities that may be
distributed in exchange for Preferred Securities if a dissolution and
liquidation of a Lincoln Trust were to occur. Accordingly, the Preferred
Securities that an investor may purchase, or the Corresponding Junior
Subordinated Debt Securities that the investor may receive on dissolution and
liquidation of a Lincoln Trust, may trade at a discount to the price that the
investor paid to purchase the Preferred Securities offered hereby.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each Redemption Date shall be redeemed at
the Redemption Price with the applicable proceeds from the contemporaneous
redemption of the Corresponding Junior Subordinated Debt Securities. Redemptions
of the Preferred Securities shall be made and the Redemption Price shall be
payable on each Redemption Date only to the extent that the related Lincoln
Trust has funds on hand available for the payment of such Redemption Price. See
also "-- Subordination of Common Securities."
If a Lincoln Trust gives a notice of redemption in respect of its Preferred
Securities, then, by 12:00 noon, New York City time, on the Redemption Date, to
the extent funds are available, the Property Trustee will deposit irrevocably
with DTC funds sufficient to pay the applicable Redemption Price and will give
DTC irrevocable instructions and authority to pay the Redemption Price to the
holders of such Preferred Securities. See "Book-Entry Issuance." If such
Preferred Securities are no longer in book-entry form, the Property Trustee, to
the extent funds are available, will irrevocably deposit with the paying agent
for such Preferred Securities funds sufficient to pay the applicable Redemption
Price and will give such paying agent irrevocable instructions and authority to
pay the Redemption Price to the holders thereof upon surrender of their
certificates evidencing such Preferred Securities. Notwithstanding the
foregoing, Distributions payable on or prior to the Redemption Date for any
Preferred Securities called for redemption shall be payable to the
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holders of such Preferred Securities on the relevant record dates for the
related Distribution Dates. If notice of redemption shall have been given and
funds deposited as required, then upon the date of such deposit, all rights of
the holders of such Preferred Securities so called for redemption will cease,
except the right of the holders of such Preferred Securities to receive the
Redemption Price, but without interest on such Redemption Price, and such
Preferred Securities will cease to be outstanding. In the event that any date
fixed for redemption of Preferred Securities is not a Business Day, then payment
of the Redemption Price payable on such date will be made on the next succeeding
day which is a Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately preceding Business
Day. In the event that payment of the Redemption Price in respect of Preferred
Securities called for redemption is improperly withheld or refused and not paid
either by the Lincoln Trust or by the Company pursuant to the Guarantee as
described under "Description of Guarantees", Distributions on such Preferred
Securities will continue to accrue at the then applicable rate, from the
Redemption Date originally established by the Lincoln Trust for such Preferred
Securities to the date such Redemption Price is actually paid, in which case the
actual payment date will be the date fixed for redemption for purposes of
calculating the Redemption Price.
Subject to applicable law (including, without limitation, United States
Federal securities law), the Company or its subsidiaries may at any time and
from time to time purchase outstanding Preferred Securities by tender, in the
open market or by private agreement.
Payment of the Redemption Price on the Preferred Securities and any
distribution of Corresponding Junior Subordinated Debt Securities to holders of
Preferred Securities shall be made to the applicable recordholders thereof as
they appear on the register for such Preferred Securities on the relevant record
date, which shall be one Business Day prior to the relevant Redemption Date or
liquidation date, as applicable; provided, however, that in the event that any
Preferred Securities are not in book-entry form, the relevant record date for
such Preferred Securities shall be a date at least 15 days prior to the
Redemption Date or liquidation date, as applicable, as specified in the
applicable Prospectus Supplement.
If less than all of the Preferred Securities and Common Securities issued
by an issuer are to be redeemed on a Redemption Date, then the aggregate
Liquidation Amount of such Preferred Securities and Common Securities to be
redeemed shall be allocated pro rata to the Preferred Securities and the Common
Securities based upon the relative Liquidation Amounts of such classes. The
particular Preferred Securities to be redeemed shall be selected on a pro rata
basis not more than 60 days prior to the Redemption Date by the Property Trustee
from the outstanding Preferred Securities not previously called for redemption,
by such method as the Property Trustee shall deem fair and appropriate and which
may provide for the selection for redemption of portions (equal to $25 or an
integral multiple of $25 in excess thereof) of the Liquidation Amount of
Preferred Securities of a denomination larger than $25. The Property Trustee
shall promptly notify the trust registrar in writing of the Preferred Securities
selected for redemption and, in the case of any Preferred Securities selected
for partial redemption, the Liquidation Amount thereof to be redeemed. For all
purposes of each Trust Agreement, unless the context otherwise requires, all
provisions relating to the redemption of Preferred Securities shall relate, in
the case of any Preferred Securities redeemed or to be redeemed only in part, to
the portion of the aggregate Liquidation Amount of Preferred Securities which
has been or is to be redeemed.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Trust Securities to be
redeemed at its registered address. Unless the Company defaults in payment of
the Redemption Price on the Corresponding Junior Subordinated Debt Securities,
on and after the Redemption Date interest ceases to accrue on such Junior
Subordinated Debt Securities or portions thereof (and distributions cease to
accrue on the Related Preferred Securities or portions thereof) called for
redemption.
SUBORDINATION OF COMMON SECURITIES
Payment of Distributions on, and the Redemption Price of, each Lincoln
Trust's Preferred Securities and Common Securities, as applicable, shall be made
pro rata based on the Liquidation Amount of such Preferred
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Securities and Common Securities; provided, however, that if on any Distribution
Date or Redemption Date a Junior Subordinated Debt Security Event of Default
shall have occurred and be continuing, no payment of any Distribution on, or
Redemption Price of, any of the Lincoln Trust's Common Securities, and no other
payment on account of the redemption, liquidation or other acquisition of such
Common Securities, shall be made unless payment in full in cash of all
accumulated and unpaid Distributions on all of the Lincoln Trust's outstanding
Preferred Securities for all Distribution periods terminating on or prior
thereto, or in the case of payment of the Redemption Price the full amount of
such Redemption Price on all of the Lincoln Trust's outstanding Preferred
Securities then called for redemption, shall have been made or provided for, and
all funds available to the Property Trustee shall first be applied to the
payment in full in cash of all Distributions on, or Redemption Price of, the
Lincoln Trust's Preferred Securities then due and payable.
In the case of any Event of Default resulting from a Junior Subordinated
Debt Security Event of Default, the Company as holder of such Lincoln Trust's
Common Securities will be deemed to have waived any right to act with respect to
any such Event of Default under the applicable Trust Agreement until the effect
of all such Events of Default with respect to such Preferred Securities have
been cured, waived or otherwise eliminated. Until any such Events of Default
under the applicable Trust Agreement with respect to the Preferred Securities
have been so cured, waived or otherwise eliminated, the Property Trustee shall
act solely on behalf of the holders of such Preferred Securities and not on
behalf of the Company as holder of the Lincoln Trust's Common Securities, and
only the holders of such Preferred Securities will have the right to direct the
Property Trustee to act on their behalf.
LIQUIDATION DISTRIBUTION UPON TERMINATION
Pursuant to each Trust Agreement, each Lincoln Trust shall automatically
terminate upon expiration of its term and shall terminate on the first to occur
of: (i) certain events of bankruptcy, dissolution or liquidation of the Company;
(ii) the distribution of a Like Amount of the Corresponding Junior Subordinated
Debt Securities to the holders of its Trust Securities, if the Company, as
Depositor, has given written direction to the Property Trustee to terminate such
Lincoln Trust (which direction is optional and wholly within the discretion of
the Company, as Depositor); (iii) the redemption of all of the Lincoln Trust's
Trust Securities following a Special Event; (iv) redemption of all of the
Lincoln Trust's Preferred Securities as described under "Description of
Preferred Securities -- Redemption or Exchange -- Mandatory Redemption"; and (v)
the entry of an order for the dissolution of the Lincoln Trust by a court of
competent jurisdiction.
If an early termination occurs as described in clause (i), (ii) or (v)
above, the Lincoln Trust shall be liquidated by the Issuer Trustees as
expeditiously as the Issuer Trustees determine to be possible by distributing,
after satisfaction of liabilities to creditors of such Lincoln Trust as provided
by applicable law, to the holders of such Trust Securities a Like Amount of the
Corresponding Junior Subordinated Debt Securities, unless such distribution is
determined by the Property Trustee not to be practical, in which event such
holders will be entitled to receive out of the assets of the Lincoln Trust
available for distribution to holders, after satisfaction of liabilities to
creditors of such Lincoln Trust as provided by applicable law, an amount equal
to, in the case of holders of Preferred Securities, the aggregate of the
Liquidation Amount plus accrued and unpaid Distributions thereon to the date of
payment (such amount being the "Liquidation Distribution"). If such Liquidation
Distribution can be paid only in part because such Lincoln Trust has
insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by such Lincoln Trust on its
Preferred Securities shall be paid on a pro rata basis. The holder(s) of such
Lincoln Trust's Common Securities will be entitled to receive distributions upon
any such liquidation pro rata with the holders of its Preferred Securities,
except that if a Junior Subordinated Debt Security Event of Default has occurred
and is continuing, the Preferred Securities shall have a priority over the
Common Securities. A supplemental Indenture may provide that if an early
termination occurs as described in clause (v) above, the Corresponding Junior
Subordinated Debt Securities may be subject to optional redemption in whole (but
not in part).
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EVENTS OF DEFAULT; NOTICE
Any one of the following events constitutes an "Event of Default" under
each Trust Agreement (an "Event of Default") with respect to the Preferred
Securities issued thereunder (whatever the reason for such Event of Default and
whether it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):
(i) the occurrence of a Junior Subordinated Debt Security Event of
Default under the Junior Subordinated Indenture (see "Description of Junior
Subordinated Debt Securities -- Junior Subordinated Debt Security Events of
Default"); or
(ii) default by the Property Trustee in the payment of any
Distribution when it becomes due and payable, and continuation of such
default for a period of 30 days; or
(iii) default by the Property Trustee in the payment of any Redemption
Price of any Trust Security when it becomes due and payable; or
(iv) default in the performance, or breach, in any material respect,
of any covenant or warranty of the Issuer Trustees in such Trust Agreement
(other than a covenant or warranty a default in the performance of which or
the breach of which is dealt with in clause (ii) or (iii) above), and
continuation of such default or breach for a period of 60 days after there
has been given, by registered or certified mail, to the defaulting Issuer
Trustee or Trustees by the holders of at least 25% in aggregate liquidation
preference of the outstanding Preferred Securities of the applicable
Lincoln Trust, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice of
Default" under such Trust Agreement; or
(v) the occurrence of certain events of bankruptcy or insolvency with
respect to the Property Trustee and the failure by the Company to appoint a
successor Property Trustee within 60 days thereof.
Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of such Lincoln Trust's Preferred
Securities, the Administrative Trustees and the Company, as Depositor, unless
such Event of Default shall have been cured or waived. The Company, as
Depositor, and the Administrative Trustees are required to file annually with
the Property Trustee a certificate as to whether or not they are in compliance
with all the conditions and covenants applicable to them under each Trust
Agreement.
If a Junior Subordinated Debt Security Event of Default has occurred and is
continuing, the Preferred Securities shall have a preference over the Common
Securities upon termination of each Lincoln Trust as described above. See
"-- Liquidation Distribution Upon Termination." The existence of an Event of
Default does not entitle the holders of Preferred Securities to accelerate the
maturity thereof.
REMOVAL OF ISSUER TRUSTEES
Unless a Junior Subordinated Debt Security Event of Default shall have
occurred and be continuing, any Issuer Trustee may be removed at any time by the
holder of the Common Securities. If a Junior Subordinated Debt Security Event of
Default has occurred and is continuing, the Property Trustee and the Delaware
Trustee may be removed at such time by the holders of a majority in Liquidation
Amount of the outstanding Preferred Securities. In no event will the holders of
the Preferred Securities have the right to vote to appoint, remove or replace
the Administrative Trustees, which voting rights are vested exclusively in the
Company as the holder of the Common Securities. No resignation or removal of an
Issuer Trustee and no appointment of a successor trustee shall be effective
until the acceptance of appointment by the successor trustee in accordance with
the provisions of the applicable Trust Agreement.
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CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default shall have occurred and be continuing, at any
time or times, for the purpose of meeting the legal requirements of the Trust
Indenture Act or of any jurisdiction in which any part of the Trust Property may
at the time be located, the Company, as the holder of the Common Securities, and
the Administrative Trustees shall have power to appoint one or more persons
either to act as a co-trustee, jointly with the Property Trustee, of all or any
part of such Trust Property, or to act as separate trustee of any such property,
in either case with such powers as may be provided in the instrument of
appointment, and to vest in such person or persons in such capacity any
property, title, right or power deemed necessary or desirable, subject to the
provisions of the applicable Trust Agreement. In case a Junior Subordinated Debt
Security Event of Default has occurred and is continuing, the Property Trustee
alone shall have power to make such appointment.
MERGER OR CONSOLIDATION OF ISSUER TRUSTEES
Any corporation into which the Property Trustee, the Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of such Trustee, shall be the successor of such Trustee under
each Trust Agreement, provided such corporation shall be otherwise qualified and
eligible.
MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE LINCOLN TRUSTS
A Lincoln Trust may not merge with or into, consolidate, amalgamate, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other Person, except as
described below. A Lincoln Trust may, at the request of the Company, with the
consent of the Administrative Trustees and without the consent of the holders of
the Preferred Securities, merge with or into, consolidate, amalgamate, or be
replaced by or convey, transfer or lease its properties and assets substantially
as an entirety to a trust organized as such under the laws of any State;
provided, that (i) such successor entity either (a) expressly assumes all of the
obligations of such Lincoln Trust with respect to the Preferred Securities or
(b) substitutes for the Preferred Securities other securities having
substantially the same terms as the Preferred Securities (the "Successor
Securities") so long as the Successor Securities rank the same as the Preferred
Securities rank in priority with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) the Company expressly appoints a
trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Corresponding Junior Subordinated Debt
Securities, (iii) the Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or other organization on which the Preferred Securities are
then listed, if any, (iv) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not cause the Preferred Securities (including
any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely affect the rights,
preferences and privileges of the holders of the Preferred Securities (including
any Successor Securities) in any material respect, (vi) such successor entity
has a purpose identical to that of the Lincoln Trust, (vii) prior to such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease,
the Company has received an opinion from independent counsel to the Lincoln
Trust experienced in such matters to the effect that (a) such merger,
consolidation, amalgamation, replacement, conveyance, transfer or lease does not
adversely affect the rights, preferences and privileges of the holders of the
Preferred Securities (including any Successor Securities) in any material
respect, and (b) following such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease, neither the Lincoln Trust nor such
successor entity will be required to register as an investment company under the
Investment Company Act and (viii) the Company or any permitted successor or
assignee owns all of the Common Securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Guarantee. Notwithstanding the
foregoing, a Lincoln Trust shall not, except with the consent of holders of
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100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate,
merge with or into, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to any other entity or permit
any other entity to consolidate, amalgamate, merge with or into, or replace it
if such consolidation, amalgamation, merger, replacement, conveyance, transfer
or lease would cause the Lincoln Trust or the successor entity to be classified
as other than a grantor trust for United States Federal income tax purposes.
VOTING RIGHTS; AMENDMENT OF EACH TRUST AGREEMENT
Except as provided below and under "Description of Guarantees -- Amendments
and Assignment" and as otherwise required by law and the applicable Trust
Agreement, the holders of the Preferred Securities will have no voting rights.
Each Trust Agreement may be amended from time to time by the Company, the
Property Trustee and the Administrative Trustees, without the consent of the
holders of the Preferred Securities (i) to cure any ambiguity, correct or
supplement any provisions in such Trust Agreement that may be inconsistent with
any other provision, or to make any other provisions with respect to matters or
questions arising under such Trust Agreement, which shall not be inconsistent
with the other provisions of such Trust Agreement, or (ii) to modify, eliminate
or add to any provisions of such Trust Agreement to such extent as shall be
necessary to ensure that the Lincoln Trust will be classified for United States
Federal income tax purposes as a grantor trust at all times that any Trust
Securities are outstanding or to ensure that the Lincoln Trust will not be
required to register as an "investment company" under the Investment Company
Act; provided, however, that in the case of clause (i), such action shall not
adversely affect in any material respect the interests of any holder of Trust
Securities, and any amendments of such Trust Agreement shall become effective
when notice thereof is given to the holders of Trust Securities. Each Trust
Agreement may be amended by the Issuer Trustees and the Company with (i) the
consent of holders representing not less than a majority (based upon Liquidation
Amounts) of the outstanding Trust Securities, and (ii) receipt by the Issuer
Trustees of an opinion of counsel to the effect that such amendment or the
exercise of any power granted to the Issuer Trustees in accordance with such
amendment will not affect the Lincoln Trust's status as a grantor trust for
United States Federal income tax purposes or the Lincoln Trust's exemption from
status as an "investment company" under the Investment Company Act, provided
that without the consent of each holder of Trust Securities, such Trust
Agreement may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely affect the amount of
any Distribution required to be made in respect of the Trust Securities as of a
specified date or (ii) restrict the right of a holder of Trust Securities to
institute suit for the enforcement of any such payment on or after such date.
So long as any Corresponding Junior Subordinated Debt Securities are held
by the Property Trustee, the Issuer Trustees shall not (i) direct the time,
method and place of conducting any proceeding for any remedy available to the
Junior Subordinated Indenture Trustee, or executing any trust or power conferred
on the Property Trustee with respect to such Corresponding Junior Subordinated
Debt Securities, (ii) waive any past default that is waivable under Section 513
of the Junior Subordinated Indenture, (iii) exercise any right to rescind or
annul a declaration that the principal of all the Junior Subordinated Debt
Securities shall be due and payable or (iv) consent to any amendment,
modification or termination of the Junior Subordinated Indenture or such
Corresponding Junior Subordinated Debt Securities, where such consent shall be
required, without, in each case, obtaining the prior approval of the holders of
a majority in aggregate Liquidation Amount of all outstanding Preferred
Securities; provided, however, that where a consent under the Junior
Subordinated Indenture would require the consent of each holder of Corresponding
Junior Subordinated Debt Securities affected thereby, no such consent shall be
given by the Property Trustee without the prior consent of each holder of the
corresponding Preferred Securities. The Issuer Trustees shall not revoke any
action previously authorized or approved by a vote of the holders of the
Preferred Securities except by subsequent vote of the holders of the Preferred
Securities. The Property Trustee shall notify each holder of Preferred
Securities of any notice of default with respect to the Corresponding Junior
Subordinated Debt Securities. In addition to obtaining the foregoing approvals
of the holders of the Preferred Securities, prior to taking any of the foregoing
actions, the Issuer Trustees shall obtain an opinion of counsel experienced in
such matters to the
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effect that the Lincoln Trust will not be classified as a corporation for United
States Federal income tax purposes on account of such action.
Any required approval of holders of Preferred Securities may be given at a
meeting of holders of Preferred Securities convened for such purpose or pursuant
to written consent. The Property Trustee will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be given
to each holder of record of Preferred Securities in the manner set forth in each
Trust Agreement.
No vote or consent of the holders of Preferred Securities will be required
for a Lincoln Trust to redeem and cancel its Preferred Securities in accordance
with the applicable Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned by the Company, the Issuer Trustees or any affiliate
of the Company or any Issuer Trustees, shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
GLOBAL PREFERRED SECURITIES
The Preferred Securities of a series may be issued in whole or in part in
the form of one or more Global Preferred Securities that will be deposited with,
or on behalf of, the Depositary identified in the Prospectus Supplement relating
to such series. Unless otherwise indicated in the applicable Prospectus
Supplement for such series, the Depositary will be DTC. Global Preferred
Securities may be issued only in fully registered form and in either temporary
or permanent form. Unless and until it is exchanged in whole or in part for the
individual Preferred Securities represented thereby, a Global Preferred Security
may not be transferred except as a whole by the Depositary for such Global
Preferred Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by the
Depositary or any nominee to a successor Depositary or any nominee of such
successor.
The specific terms of the depositary arrangement with respect to a series
of Preferred Securities will be described in the Prospectus Supplement relating
to such series. The Company anticipates that the following provisions will
generally apply to depositary arrangements.
Upon the issuance of a Global Preferred Security, and the deposit of such
Global Preferred Security with or on behalf of the Depositary, the Depositary
for such Global Preferred Security or its nominee will credit, on its book-entry
registration and transfer system, the respective aggregate Liquidation Amounts
of the individual Preferred Securities represented by such Global Preferred
Securities to the accounts of Participants. Such accounts shall be designated by
the dealers, underwriters or agents with respect to such Preferred Securities or
by the Company if such Preferred Securities are offered and sold directly by the
Company. Ownership of beneficial interests in a Global Preferred Security will
be limited to Participants or persons that may hold interests through
Participants. Ownership of beneficial interests in such Global Preferred
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the applicable Depositary or its nominee
(with respect to interests of Participants) and the records of Participants
(with respect to interests of persons who hold through Participants). The laws
of some states require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to transfer beneficial interests in a Global Preferred
Security.
So long as the Depositary for a Global Preferred Security, or its nominee,
is the registered owner of such Global Preferred Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Preferred Securities represented by such Global Preferred Security for all
purposes under the Indenture governing such Preferred Securities. Except as
provided below, owners of beneficial interests in a Global Preferred Security
will not be entitled to have any of the individual Preferred Securities of the
series represented by such Global Preferred Security registered in their names,
will not receive or be entitled to receive physical delivery of any such
Preferred Securities of such series in definitive form and will not be
considered the owners or holders thereof under the Indenture.
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Payments of principal of (and premium, if any) and interest on individual
Preferred Securities represented by a Global Preferred Security registered in
the name of a Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Preferred
Security representing such Preferred Securities. None of the Company, the
Property Trustee, any Paying Agent, or the Securities Registrar for such
Preferred Securities will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests of the Global Preferred Security representing such Preferred
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company expects that the Depositary for a series of Preferred
Securities or its nominee, upon receipt of any payment of Liquidation Amount,
premium or Distributions in respect of a permanent Global Preferred Security
representing any of such Preferred Securities, immediately will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interest in the aggregate Liquidation Amount of such
Global Preferred Security for such Preferred Securities as shown on the records
of such Depositary or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in such Global Preferred Security
held through such Participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name." Such payments will be
the responsibility of such Participants.
Unless otherwise specified in the applicable Prospectus Supplement, if a
Depositary for a series of Preferred Securities is at any time unwilling, unable
or ineligible to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, the Company will issue individual
Preferred Securities of such series in exchange for the Global Preferred
Security representing such series of Preferred Securities. In addition, the
Company may at any time and in its sole discretion, subject to any limitations
described in the Prospectus Supplement relating to such Preferred Securities,
determine not to have any Preferred Securities of such series represented by one
or more Global Preferred Securities and, in such event, will issue individual
Preferred Securities of such series in exchange for the Global Preferred
Security or Securities representing such series of Preferred Securities.
Further, if the Company so specifies with respect to the Preferred Securities of
a series, an owner of a beneficial interest in a Global Preferred Security
representing Preferred Securities of such series may, on terms acceptable to the
Company, the Property Trustee and the Depositary for such Global Preferred
Security, receive individual Preferred Securities of such series in exchange for
such beneficial interests, subject to any limitations described in the
Prospectus Supplement relating to such Preferred Securities. In any such
instance, an owner of a beneficial interest in a Global Preferred Security will
be entitled to physical delivery of individual Preferred Securities of the
series represented by such Global Preferred Security equal in principal amount
to such beneficial interest and to have such Preferred Securities registered in
its name. Individual Preferred Securities of such series so issued will be
issued in denominations, unless otherwise specified by the Company, of $25 and
integral multiples thereof.
PAYMENT AND PAYING AGENCY
Payments in respect of the Preferred Securities shall be made to the
Depositary, which shall credit the relevant accounts at the Depositary on the
applicable Distribution Dates or, if any Lincoln Trust's Preferred Securities
are not held by the Depositary, such payments shall be made by check mailed to
the address of the holder entitled thereto as such address shall appear on the
Register. Unless otherwise specified in the applicable Prospectus Supplement,
the paying agent (the "Paying Agent") shall initially be the Property Trustee
and any co-paying agent chosen by the Property Trustee and acceptable to the
Administrative Trustees and the Company. The Paying Agent shall be permitted to
resign as Paying Agent upon 30 days' written notice to the Property Trustee and
the Company. In the event that the Property Trustee shall no longer be the
Paying Agent, the Administrative Trustees shall appoint a successor (which shall
be a bank or trust company acceptable to the Administrative Trustees and the
Company) to act as Paying Agent.
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REGISTRAR AND TRANSFER AGENT
Unless otherwise specified in the applicable Prospectus Supplement, the
Property Trustee will act as registrar and transfer agent for the Preferred
Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of each Lincoln Trust, but upon payment of any tax or
other governmental charges that may be imposed in connection with any transfer
or exchange. The Lincoln Trusts will not be required to register or cause to be
registered the transfer of their Preferred Securities after such Preferred
Securities have been called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of
an Event of Default, undertakes to perform only such duties as are specifically
set forth in each Trust Agreement and, after such Event of Default, must
exercise the same degree of care and skill as a prudent person would exercise or
use in the conduct of his or her own affairs. Subject to this provision, the
Property Trustee is under no obligation to exercise any of the powers vested in
it by the applicable Trust Agreement at the request of any holder of Preferred
Securities unless it is offered reasonable indemnity against the costs, expenses
and liabilities that might be incurred thereby. If no Event of Default has
occurred and is continuing and the Property Trustee is required to decide
between alternative causes of action, construe ambiguous provisions in the
applicable Trust Agreement or is unsure of the application of any provision of
the applicable Trust Agreement, and the matter is not one on which holders of
Preferred Securities are entitled under such Trust Agreement to vote, then the
Property Trustee shall take such action as is directed by the Company and if not
so directed, shall take such action as it deems advisable and in the best
interests of the holders of the Trust Securities and will have no liability
except for its own bad faith, negligence or willful misconduct.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to conduct the
affairs of and to operate the Lincoln Trusts in such a way that no Lincoln Trust
will be deemed to be an "investment company" required to be registered under the
Investment Company Act or classified as an association taxable as a corporation
for United States Federal income tax purposes and so that the Corresponding
Junior Subordinated Debt Securities will be treated as indebtedness of the
Company for United States Federal income tax purposes. In this connection, the
Company and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of each Lincoln Trust
or each Trust Agreement, that the Company and the Administrative Trustees
determine in their discretion to be necessary or desirable for such purposes, as
long as such action does not materially adversely affect the interests of the
holders of the related Preferred Securities.
Holders of the Preferred Securities have no preemptive or similar rights.
No Lincoln Trust may borrow money or issue debt or mortgage or pledge any
of its assets.
DESCRIPTION OF GUARANTEES
A Guarantee will be executed and delivered by the Company concurrently with
the issuance by each Lincoln Trust of its Preferred Securities for the benefit
of the holders from time to time of such Preferred Securities. The First
National Bank of Chicago will act as indenture trustee ("Guarantee Trustee")
under each Guarantee for the purposes of compliance with the Trust Indenture Act
and each Guarantee will be qualified as an indenture under the Trust Indenture
Act. This summary of certain provisions of the Guarantees does not purport to be
complete and is subject to, and qualified in its entirety by reference to, all
of the provisions of each Guarantee Agreement, including the definitions therein
of certain terms, and the Trust Indenture Act. The form of the Guarantee has
been filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. Reference in this summary to Preferred Securities means that
Lincoln Trust's Preferred Securities to which a Guarantee relates. The Guarantee
Trustee will hold each Guarantee for the benefit of the holders of the related
Lincoln Trust's Preferred Securities.
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GENERAL
The Company will irrevocably agree to pay in full on a subordinated basis,
to the extent set forth herein, the Guarantee Payments (as defined below) to the
holders of the Preferred Securities, as and when due, regardless of any defense,
right of set-off or counterclaim that such Lincoln Trust may have or assert
other than the defense of payment. The following payments with respect to the
Preferred Securities, to the extent not paid by or on behalf of the related
Lincoln Trust (the "Guarantee Payments"), will be subject to the Guarantee: (i)
any accumulated and unpaid Distributions required to be paid on such Preferred
Securities, to the extent that such Lincoln Trust has funds on hand available
therefor at such time, (ii) the Redemption Price with respect to any Preferred
Securities called for redemption to the extent that such Lincoln Trust has funds
on hand available therefor at such time, or (iii) upon a voluntary or
involuntary dissolution, winding up or liquidation of such Lincoln Trust (unless
the Corresponding Junior Subordinated Debt Securities are distributed to holders
of such Preferred Securities), the lesser of (a) the Liquidation Distribution
and (b) the amount of assets of such Lincoln Trust remaining available for
distribution to holders of Preferred Securities. The Company's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of the applicable Preferred Securities or
by causing the Lincoln Trust to pay such amounts to such holders.
Each Guarantee will be an irrevocable guarantee on a subordinated basis of
the related Lincoln Trust's obligations under the Preferred Securities, but will
apply only to the extent that such related Lincoln Trust has funds sufficient to
make such payments, and is not a guarantee of collection.
If the Company does not make interest payments on the Corresponding Junior
Subordinated Debt Securities held by the Lincoln Trust, the Lincoln Trust will
not be able to pay Distributions on the Preferred Securities and will not have
funds legally available therefor. Each Guarantee will rank subordinate and
junior in right of payment to all Senior Debt of the Company. See "-- Status of
the Guarantees." The Company is a non-operating holding company and almost all
of the operating assets of the Company and its consolidated subsidiaries are
owned by such subsidiaries. The Company relies primarily on dividends from such
subsidiaries to meet its obligations for payment of principal and interest on
its outstanding debt obligations and corporate expenses. Accordingly, the
Company's obligations under the Guarantees will be effectively subordinated to
all existing and future liabilities of the Company's subsidiaries, and claimants
should look only to the assets of the Company for payments thereunder. The
payment of dividends by the Company's insurance company subsidiaries is limited
under the insurance holding company laws in which such subsidiaries are
domiciled. See "Lincoln National Corporation." Except as otherwise provided in
the applicable Prospectus Supplement, the Guarantees do not limit the incurrence
or issuance of other secured or unsecured debt of the Company, whether under the
Indenture, any other indenture that the Company may enter into in the future or
otherwise. See the Prospectus Supplement relating to any offering of Preferred
Securities.
The Company's obligations described herein and in any accompanying
Prospectus Supplement, through the applicable Guarantee, the applicable Trust
Agreement, the Junior Subordinated Debt Securities, the Junior Subordinated
Indenture and any supplemental indentures thereto, and the Expense Agreement,
taken together, constitute a full, irrevocable and unconditional guarantee by
the Company of payments due on the Preferred Securities. No single document
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and unconditional
guarantee of the Lincoln Trust's obligations under the Preferred Securities. See
"The Lincoln Trusts," "Description of Preferred Securities," and "Description of
Junior Subordinated Debt Securities."
STATUS OF THE GUARANTEES
Each Guarantee will constitute an unsecured obligation of the Company and
will rank subordinate and junior in right of payment to all Senior Debt.
Each Guarantee will rank pari passu with all other Guarantees issued by the
Company. Each Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding directly
against the Guarantor to enforce its rights under the Guarantee without first
instituting a
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legal proceeding against any other person or entity). Each Guarantee will be
held for the benefit of the holders of the related Preferred Securities. Each
Guarantee will not be discharged except by payment of the Guarantee Payments in
full to the extent not paid by the Lincoln Trust or upon distribution to the
holders of the Preferred Securities of the Corresponding Junior Subordinated
Debt Securities. None of the Guarantees places a limitation on the amount of
additional Senior Debt that may be incurred by the Company. The Company expects
from time to time to incur additional indebtedness constituting Senior Debt.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not materially adversely affect
the rights of holders of the related Preferred Securities (in which case no vote
will be required), no Guarantee may be amended without the prior approval of the
holders of not less than a majority of the aggregate Liquidation Amount of such
outstanding Preferred Securities. The manner of obtaining any such approval will
be as set forth under "Description of the Preferred Securities -- Voting Rights;
Amendment of Each Trust Agreement." All guarantees and agreements contained in
each Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Company and shall inure to the benefit of the holders of
the related Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under each Guarantee will occur upon the failure of the
Company to perform any of its payment or other obligations thereunder. The
holders of not less than a majority in aggregate Liquidation Amount of the
related Preferred Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Guarantee Trustee
in respect of such Guarantee or to direct the exercise of any trust or power
conferred upon the Guarantee Trustee under such Guarantee.
Any holder of the Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under such Guarantee without
first instituting a legal proceeding against the Lincoln Trust, the Guarantee
Trustee or any other person or entity.
The Company, as guarantor, is required to file annually with the Guarantee
Trustee a certificate as to whether or not the Company is in compliance with all
the conditions and covenants applicable to it under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of
a default by the Company in performance of any Guarantee, undertakes to perform
only such duties as are specifically set forth in each Guarantee and, after
default with respect to any Guarantee, must exercise the same degree of care and
skill as a prudent person would exercise or use in the conduct of his or her own
affairs. Subject to this provision, the Guarantee Trustee is under no obligation
to exercise any of the powers vested in it by any Guarantee at the request of
any holder of any Preferred Securities unless it is offered reasonable indemnity
against the costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE GUARANTEES
Each Guarantee will terminate and be of no further force and effect upon
full payment of the Redemption Price of the related Preferred Securities, upon
full payment of the amounts payable upon liquidation of the related Lincoln
Trust or upon distribution of Corresponding Junior Subordinated Debt Securities
to the holders of the related Preferred Securities. Each Guarantee will continue
to be effective or will be reinstated, as the case may be, if at any time any
holder of the related Preferred Securities must restore payment of any sums paid
under such Preferred Securities or such Guarantee.
GOVERNING LAW
Each Guarantee will be governed by and construed in accordance with the
laws of the State of New York.
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THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by the Company under each
Trust Agreement (the "Expense Agreement"), the Company will irrevocably and
unconditionally guarantee to each person or entity to whom the Lincoln Trust
becomes indebted or liable, the full payment of any costs, expenses or
liabilities of the Lincoln Trust, other than obligations of the Lincoln Trust to
pay to the holders of any Preferred Securities or other similar interests in the
Lincoln Trust of the amounts due such holders pursuant to the terms of the
Preferred Securities or such other similar interests, as the case may be.
DESCRIPTION OF STOCK PURCHASE CONTRACTS
AND STOCK PURCHASE UNITS
The Company may issue Stock Purchase Contracts, representing contracts
obligating holders to purchase from the Company, and the Company to sell to the
holders, a specified number of shares of Common Stock at a future date or dates.
The price per share of Common Stock may be fixed at the time the Stock Purchase
Contracts are issued or may be determined by reference to a specific formula set
forth in the Stock Purchase Contracts. The Stock Purchase Contracts may be
issued separately or as a part of units ("Stock Purchase Units") consisting of a
Stock Purchase Contract and either (x) Senior Debt Securities, Subordinated Debt
Securities or Junior Subordinated Debt Securities, (y) debt obligations of third
parties, including U.S. Treasury securities, or (z) Preferred Securities of a
Lincoln Trust, securing the holder's obligations to purchase the Common Stock
under the Stock Purchase Contracts. The Stock Purchase Contracts may require the
Company to make periodic payments to the holders of the Stock Purchase Units or
vice versa, and such payments may be unsecured or prefunded on some basis. The
Stock Purchase Contracts may require holders to secure their obligations
thereunder in a specified manner and in certain circumstances the Company may
deliver newly issued prepaid stock purchase contracts ("Prepaid Securities")
upon release to a holder of any collateral securing such holder's obligations
under the original Stock Purchase Contract.
The applicable Prospectus Supplement will describe the terms of any Stock
Purchase Contracts or Stock Purchase Units and, if applicable, Prepaid
Securities. The description in the Prospectus Supplement will not purport to be
complete and will be qualified in its entirety by reference to the Stock
Purchase Contracts, the collateral arrangements and depositary arrangements, if
applicable, relating to such Stock Purchase Contracts or Stock Purchase Units
and, if applicable, the Prepaid Securities and the document pursuant to which
such Prepaid Securities will be issued.
BOOK-ENTRY ISSUANCE
DTC will act as securities depositary for all of the Preferred Securities
and the Junior Subordinated Debt Securities, unless otherwise referred to in the
Prospectus Supplement relating to an offering of Preferred Securities or Junior
Subordinated Debt Securities. The Preferred Securities and the Junior
Subordinated Debt Securities will be issued only as fully-registered securities
registered in the name of Cede & Co. (DTC's nominee). One or more
fully-registered global certificates will be issued for the Preferred Securities
of each Lincoln Trust and the Junior Subordinated Debt Securities, representing
in the aggregate the total number of such Lincoln Trust's Preferred Securities
or aggregate principal balance of Junior Subordinated Debt Securities,
respectively, and will be deposited with DTC.
DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its Participants deposit with DTC. DTC also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for physical
movement of securities certificates. Direct Participants include securities
brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations ("Direct Participants"). DTC is owned by a number of its
Direct Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the
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National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain custodial relationships with Direct
Participants, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of Preferred Securities or Junior Subordinated Debt Securities
within the DTC system must be made by or through Direct Participants, which will
receive a credit for the Preferred Securities or Junior Subordinated Debt
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security and each Junior Subordinated Debt Security ("Beneficial
Owner") is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from DTC of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transactions, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owners purchased Preferred Securities or Junior
Subordinated Debt Securities. Transfers of ownership interests in the Preferred
Securities or Junior Subordinated Debt Securities are to be accomplished by
entries made on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners will not receive certificates representing their ownership
interests in Preferred Securities or Junior Subordinated Debt Securities, except
in the event that use of the book-entry system for the Preferred Securities of
such Lincoln Trust or Junior Subordinated Debt Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities or Junior Subordinated Debt Securities; DTC's records reflect only
the identity of the Direct Participants to whose accounts such Preferred
Securities or Junior Subordinated Debt Securities are credited, which may or may
not be the Beneficial Owners. The Participants will remain responsible for
keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications buy DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners and the voting
rights of Direct Participants, Indirect Participants and Beneficial Owners will
be governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. as the registered holder of
the Preferred Securities or Junior Subordinated Debt Securities. If less than
all of a Lincoln Trust's Preferred Securities or the Junior Subordinated Debt
Securities are being redeemed, DTC's current practice is to determine by lot the
amount of the interest of each Direct Participant to be redeemed.
Although voting with respect to the Preferred Securities or the Junior
Subordinated Debt Securities is limited to the holders of record of the
Preferred Securities or Junior Subordinated Debt Securities, in those instances
in which a vote is required, neither DTC nor Cede & Co. will itself consent or
vote with respect to Preferred Securities or Junior Subordinated Debt
Securities. Under its usual procedures, DTC would mail an omnibus proxy (the
"Omnibus Proxy") to the relevant Trustee as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts such Preferred Securities or Junior
Subordinated Debt Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities or the Junior
Subordinated Debt Securities will be made by the relevant Trustee to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of such
Participant and not of DTC, the relevant Trustee, the Lincoln Trust thereof or
the Company, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of Distributions to DTC is the responsibility
of the relevant Trustee, disbursement of such payments to Direct Participants is
the responsibility of DTC, and disbursements of such payments to the Beneficial
Owners is the responsibility of Direct and Indirect Participants.
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DTC may discontinue providing its services as securities depositary with
respect to any of the Preferred Securities or the Junior Subordinated Debt
Securities at any time by giving reasonable notice to the relevant Trustee and
the Company. In the event that a successor securities depositary is not
obtained, definitive Preferred Security or Junior Subordinated Debt Security
certificates representing such Preferred Securities or Junior Subordinated Debt
Securities are required to be printed and delivered. The Company, at its option,
may decide to discontinue use of the system of book-entry transfers through DTC
(or a successor depositary). After a Junior Subordinated Debt Security Event of
Default, the holders of a majority in liquidation preference of Preferred
Securities or aggregate principal amount of Junior Subordinated Debt Securities
may determine to discontinue the system of book-entry transfers through DTC. In
any such event, definitive certificates for such Preferred Securities or Junior
Subordinated Debt Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Lincoln Trusts and the Company believe
to be accurate, but the Lincoln Trusts and the Company assume no responsibility
for the accuracy thereof. Neither the Lincoln Trusts nor the Company has any
responsibility for the performance by DTC or its Participants of their
respective obligations as described herein or under the rules and procedures
governing their respective operations.
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE CORRESPONDING JUNIOR SUBORDINATED DEBT SECURITIES
AND THE GUARANTEES
FULL AND UNCONDITIONAL GUARANTEE
Payments of Distributions and other amounts due on the Preferred Securities
(to the extent the Lincoln Trust has funds available for the payment of such
Distributions) are irrevocably guaranteed by the Company as and to the extent
set forth under "Description of Guarantees." Taken together, the Company's
obligations under each series of Junior Subordinated Debt Securities, the Junior
Subordinated Indenture, the related Trust Agreement, the related Expense
Agreement, and the related Guarantee provide, in the aggregate, a full,
irrevocable and unconditional guarantee of payments of distributions and other
amounts due on the related series of Preferred Securities. No single document
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined operation of these
documents that has the effect of providing a full, irrevocable and unconditional
guarantee of the Lincoln Trust's obligations under the Preferred Securities. If
and to the extent that the Company does not make payments on any series of
Corresponding Junior Subordinated Debt Securities, such Lincoln Trust will not
pay Distributions or other amounts due on its Preferred Securities. The
Guarantees do not cover payment of Distributions when the related Lincoln Trust
does not have sufficient funds to pay such Distributions. In such event, the
remedy of a holder of a series of Preferred Securities is to institute a legal
proceeding directly against the Company for enforcement of payment of such
Distributions to such holder. The obligations of the Company under each
Guarantee are subordinate and junior in right of payment to all Senior Debt of
the Company.
SUFFICIENCY OF PAYMENTS
As long as payments of interest and other payments are made when due on
each series of Corresponding Junior Subordinated Debt Securities, such payments
will be sufficient to cover Distributions and other payments due on the related
Preferred Securities, primarily because (i) the aggregate principal amount of
each series of Corresponding Junior Subordinated Debt Securities will be equal
to the sum of the aggregate stated Liquidation Amount of the Related Preferred
Securities and related Common Securities; (ii) the interest rate and interest
and other payment dates on each series of Corresponding Junior Subordinated Debt
Securities will match the Distribution rate and Distribution and other payment
dates for the related Preferred Securities; (iii) the Company shall pay for all
and any costs, expenses and liabilities of such Lincoln Trust except the Lincoln
Trust's obligations to holders of its Preferred Securities under such Preferred
Securities; and (iv) each Trust Agreement further provides that the Lincoln
Trust will not engage in any activity that is not consistent with the limited
purposes of such Lincoln Trust.
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Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, the Company has the right to set-off any payment it is otherwise
required to make thereunder with and to the extent the Company has theretofore
made, or is concurrently on the date of such payment making, a payment under the
related Guarantee.
ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES
A holder of any related Preferred Security may institute a legal proceeding
directly against the Company to enforce its rights under the related Guarantee
without first instituting a legal proceeding against the Guarantee Trustee, the
related Lincoln Trust or any other person or entity.
A default or event of default under any Senior Debt of the Company would
not constitute a default or Event of Default. However, in the event of payment
defaults under, or acceleration of, Senior Debt of the Company, the
subordination provisions of the Junior Subordinated Indenture provide that no
payments may be made in respect of the Corresponding Junior Subordinated Debt
Securities until such Senior Debt has been paid in full or any payment default
thereunder has been cured or waived. Failure to make required payments on any
series of Corresponding Junior Subordinated Debt Securities would constitute an
Event of Default.
LIMITED PURPOSE OF LINCOLN TRUSTS
Each Lincoln Trust's Preferred Securities evidence a beneficial interest in
such Lincoln Trust, and each Lincoln Trust exists for the sole purpose of
issuing its Preferred Securities and Common Securities and investing the
proceeds thereof in Corresponding Junior Subordinated Debt Securities. A
principal difference between the rights of a holder of a Preferred Security and
a holder of a Corresponding Junior Subordinated Debt Security is that a holder
of a Corresponding Junior Subordinated Debt Security is entitled to receive from
the Company the principal amount of and interest accrued on Corresponding Junior
Subordinated Debt Securities held, while a holder of Preferred Securities is
entitled to receive Distributions from such Lincoln Trust (or from the Company
under the applicable Guarantee) if and to the extent such Lincoln Trust has
funds available for the payment of such Distributions.
RIGHTS UPON TERMINATION
Upon any voluntary or involuntary termination, winding-up or liquidation of
any Lincoln Trust involving the liquidation of the Corresponding Junior
Subordinated Debt Securities, the holders of the related Preferred Securities
will be entitled to receive, out of assets held by such Lincoln Trust, the
Liquidation Distribution in cash. See "Description of Preferred
Securities -- Liquidation Distribution Upon Termination." Upon any voluntary or
involuntary liquidation or bankruptcy of the Company, the Property Trustee, as
holder of the Corresponding Junior Subordinated Debt Securities, would be a
subordinated creditor of the Company, subordinated in right of payment to all
Senior Debt, but entitled to receive payment in full of principal and interest,
before any stockholders of the Company receive payments or distributions. Since
the Company is the guarantor under each Guarantee and has agreed to pay for all
costs, expenses and liabilities of each Lincoln Trust (other than the Lincoln
Trust's obligations to the holders of its Preferred Securities), the positions
of a holder of such Preferred Securities and a holder of such Corresponding
Junior Subordinated Debt Securities relative to other creditors and to
stockholders of the Company in the event of liquidation or bankruptcy of the
Company are expected to be substantially the same.
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PLAN OF DISTRIBUTION
The Company and/or any Lincoln Trust may sell any of the Offered Securities
in any one or more of the following ways from time to time: (i) through agents;
(ii) to or through underwriters; (iii) through dealers; or (iv) directly to
purchasers.
The Prospectus Supplement with respect to the Offered Securities will set
forth the terms of the offering of the Offered Securities, including the name or
names of any underwriters, dealers or agents; the purchase price of the Offered
Securities and the proceeds to the Company and/or a Lincoln Trust from such
sale; any underwriting discounts and commissions or agency fees and other items
constituting underwriters' or agents' compensation; any initial public offering
price and any discounts or concessions allowed or reallowed or paid to dealers
and any securities exchange on which such Offered Securities may be listed. Any
initial public offering price, discounts or concessions allowed or reallowed or
paid to dealers may be changed from time to time.
The distribution of the Offered Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices or at negotiated prices.
Offers to purchase Offered Securities may be solicited by agents designated
by the Company from time to time. Any such agent involved in the offer or sale
of the Offered Securities in respect of which this Prospectus is delivered will
be named, and any commissions payable by the Company and/or the applicable
Lincoln Trust to such agent will be set forth, in the applicable Prospectus
Supplement. Unless otherwise indicated in such Prospectus Supplement, any such
agent will be acting on a reasonable best efforts basis for the period of its
appointment. Any such agent may be deemed to be an underwriter, as that term is
defined in the Securities Act, of the Offered Securities so offered and sold.
If Offered Securities are sold by means of an underwritten offering, the
Company and/or the applicable Lincoln Trust will execute an underwriting
agreement with an underwriter or underwriters at the time an agreement for such
sale is reached, and the names of the specific managing underwriter or
underwriters, as well as any other underwriters, and the terms of the
transaction, including commissions, discounts and any other compensation of the
underwriters and dealers, if any, will be set forth in the Prospectus Supplement
which will be used by the underwriters to make resales of the Offered Securities
in respect of which this Prospectus is delivered to the public. If underwriters
are utilized in the sale of the Offered Securities in respect of which this
Prospectus is delivered, the Offered Securities will be acquired by the
underwriters for their own account and may be resold from time to time in one or
more transactions, including negotiated transactions, at fixed public offering
prices or at varying prices determined by the underwriter at the time of sale.
Offered Securities may be offered to the public either through underwriting
syndicates represented by managing underwriters or directly by the managing
underwriters. If any underwriter or underwriters are utilized in the sale of the
Offered Securities, unless otherwise indicated in the Prospectus Supplement, the
underwriting agreement will provide that the obligations of the underwriters are
subject to certain conditions precedent and that the underwriters with respect
to a sale of Offered Securities will be obligated to purchase all such Offered
Securities of a series if any are purchased.
If a dealer is utilized in the sales of the Offered Securities in respect
of which this Prospectus is delivered, the Company and/or the applicable Lincoln
Trust will sell such Offered Securities to the dealer as principal. The dealer
may then resell such Offered Securities to the public at varying prices to be
determined by such dealer at the time of resale. Any such dealer may be deemed
to be an underwriter, as such term is defined in the Securities Act, of the
Offered Securities so offered and sold. The name of the dealer and the terms of
the transaction will be set forth in the Prospectus Supplement relating thereto.
Offers to purchase Offered Securities may be solicited directly by the
Company and/or the applicable Lincoln Trust and the sale thereof may be made by
the Company and/or the applicable Lincoln Trust directly to institutional
investors or others, who may be deemed to be underwriters within the meaning of
the Securities Act with respect to any resale thereof. The terms of any such
sales will be described in the Prospectus Supplement relating thereto.
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Agents, underwriters and dealers may be entitled under relevant agreements
to indemnification or contribution by the Company and/or the applicable Lincoln
Trust against certain liabilities, including liabilities under the Securities
Act.
Agents, underwriters and dealers may be customers of, engage in
transactions with, or perform services for, the Company and its subsidiaries in
the ordinary course of business.
Offered Securities may also be offered and sold, if so indicated in the
applicable Prospectus Supplement, in connection with a remarketing upon their
purchase, in accordance with a redemption or repayment pursuant to their terms,
or otherwise, by one or more firms ("remarketing firms"), acting as principals
for their own accounts or as agents for the Company and/or the applicable
Lincoln Trust. Any remarketing firm will be identified and the terms of its
agreement, if any, with its compensation will be described in the applicable
Prospectus Supplement. Remarketing firms may be deemed to be underwriters, as
such term is defined in the Securities Act, in connection with the Offered
Securities remarketed thereby. Remarketing firms may be entitled under
agreements which may be entered into with the Company and/or the applicable
Lincoln Trust to indemnification or contribution by the Company and/or the
applicable Lincoln Trust against certain civil liabilities, including
liabilities under the Securities Act, and may be customers of, engage in
transactions with or perform services for the Company and its subsidiaries in
the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company and/or
the applicable Lincoln Trust may authorize agents, underwriters or dealers to
solicit offers by certain types of institutions to purchase Offered Securities
from the Company and/or the applicable Lincoln Trust at the public offering
prices set forth in the applicable Prospectus Supplement pursuant to delayed
delivery contracts providing for payment and delivery on a specified date or
dates in the future. A commission indicated in the applicable Prospectus
Supplement will be paid to underwriters, dealers and agents soliciting purchases
of Offered Securities pursuant to any such delayed delivery contracts accepted
by the Company and/or the applicable Lincoln Trust.
VALIDITY OF SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, certain
legal matters will be passed upon for the Company and the Lincoln Trusts by
Sonnenschein Nath & Rosenthal, Chicago, Illinois, counsel to the Company, and
for the Lincoln Trusts by Richards, Layton & Finger, special Delaware counsel to
the Lincoln Trusts. Sonnenschein Nath & Rosenthal will rely on (i) the opinion
of Richards, Layton & Finger as to matters of Delaware law and (ii) the opinion
of Jack D. Hunter, Esq., Executive Vice President and General Counsel of the
Company, as to matters of Indiana law. As of February 27, 1998, Mr. Hunter
beneficially owned 103,476 shares of Common Stock of the Company, including
49,125 shares of Common Stock which Mr. Hunter has the right to acquire pursuant
to options exercisable within 60 days of such date.
EXPERTS
The consolidated financial statements and schedules of Lincoln National
Corporation and subsidiaries appearing in the Company's Annual Report on Form
10-K for the year ended December 31, 1997 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.
52
<PAGE> 136
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NO DEALER, SALESMAN OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE
TRUST SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO
NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Incorporation of Certain Documents by
Reference................................. S-6
Prospectus Supplement Summary............... S-7
Explanatory Diagrams...................... S-20
Risk Factors................................ S-24
Forward-Looking Statements.................. S-31
The Company................................. S-32
The Trust................................... S-34
Use of Proceeds............................. S-35
Price Range of Common Stock and Dividends... S-36
Capitalization.............................. S-37
Selected Consolidated Financial Data........ S-38
Accounting Treatment........................ S-39
Description of the FELINE PRIDES............ S-40
Description of the Purchase Contracts....... S-43
Certain Provisions of the Purchase Contract
Agreement and the Pledge Agreement........ S-52
Certain Terms of the Preferred Securities... S-55
Description of the Guarantee................ S-63
Certain Terms of the Subordinated
Debentures................................ S-65
Effect of Obligations under the Subordinated
Debentures and the Guarantee.............. S-70
Federal Income Tax Consequences............. S-71
ERISA Considerations........................ S-78
Underwriting................................ S-79
Legal Opinions.............................. S-81
Index of Certain Terms for Prospectus
Supplement................................ S-82
PROSPECTUS
Available Information....................... 3
Incorporation of Certain Documents by
Reference................................. 4
Lincoln National Corporation................ 5
The Lincoln Trusts.......................... 5
Use of Proceeds............................. 6
Consolidated Ratios of Earnings to Fixed
Charges and Earnings to Combined Fixed
Charges and Preferred Stock Dividends..... 6
Description of the Senior Debt Securities... 7
Description of Junior Subordinated Debt
Securities................................ 14
Description of Preferred Stock and Common
Stock..................................... 25
Description of Depositary Shares............ 29
Description of Warrants..................... 32
Description of Preferred Securities......... 33
Description of Guarantees................... 44
Description of Stock Purchase Contracts and
Stock Purchase Units...................... 47
Book-Entry Issuance......................... 47
Relationship Among the Preferred Securities,
the Corresponding Junior Subordinated Debt
Securities and the Guarantees............. 49
Plan of Distribution........................ 51
Validity of Securities...................... 52
Experts..................................... 52
</TABLE>
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Lincoln National Corporation Logo
LINCOLN NATIONAL
CAPITAL IV
8,000,000
FELINE PRIDES(SM)
1,000,000
PREFERRED SECURITIES
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PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
BT ALEX. BROWN
CIBC OPPENHEIMER
AUGUST 10, 1998
(SM) Service Mark of Merrill Lynch & Co., Inc.
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