STOCK PLANS

On April 23, 2015, the shareholders of the Company approved the 2015 Equity and Incentive Compensation Plan ("Employee Plan"), which replaced the 2006 Equity and Performance Incentive Plan, as amended ("EPI Plan"). The Employee Plan provides for the granting of options, appreciation rights, restricted shares, restricted stock units and performance-based awards up to an additional 5,400,000 of the Company's common shares. In addition, on April 23, 2015, the shareholders of the Company approved the 2015 Stock Plan for Non-Employee Directors ("2015 Director Plan"), which replaced the 2006 Stock Plan for Non-Employee Directors ("2006 Director Plan"). The 2015 Director Plan provides for the granting of options, restricted shares and restricted stock units up to an additional 300,000 of the Company's common shares. At December 31, 2018, there were 3,710,464 common shares available for future grant under all plans.

Stock Options

The following table summarizes stock option activity for the year ended December 31, 2018 under all Plans:



	Number of Options		Weighted Average Exercise Price
Balance at beginning of year	1,362,448		$	58.45
Options granted	171,843		90.70
Options exercised	(101,272	)	46.20
Options canceled	(1,981	)	58.79
Balance at end of year	1,431,038		63.19
Exercisable at end of year	1,070,594		56.70

Options granted under both the Employee Plan and its predecessor plans may be outstanding for a maximum of 10 years from the date of grant. The majority of options granted vest ratably over a period of three years from the grant date. The exercise prices of all options were equal to the quoted market price of the Company's common shares at the date of grant. The Company issued shares of common stock from treasury upon all exercises of stock options in 2018. In 2018, all options issued were under the Employee Plan.

The Company uses the Black-Scholes option pricing model for estimating fair values of options. In estimating the fair value of options granted, the expected option life is based on the Company's historical experience. The expected volatility is based on historical volatility. The weighted average assumptions for each of the three years ended December 31 were as follows:



	2018			2017			2016
Expected volatility	25.36		%	25.77		%	28.86		%
Dividend yield	1.92		%	1.62		%	1.70		%
Risk-free interest rate	2.69		%	1.90		%	1.27		%
Expected option life (years)	4.6			4.5			4.5
Weighted average fair value per option granted during the year	$	18.97		$	17.50		$	12.55

The following table summarizes non-vested stock options for the year ended December 31, 2018:



	Number of Options		Weighted Average Fair Value at Grant Date
Balance at beginning of year	409,559		$	15.47
Granted	171,843		18.97
Vested	(220,958	)	15.75
Balance at end of year	360,444		17.21

The aggregate intrinsic value of options outstanding and exercisable which would have been received by the optionees had all awards been exercised at December 31, 2018 was $22,411 and $23,714, respectively. The total intrinsic value of awards exercised during 2018, 2017 and 2016 was $4,779, $19,328 and $30,967, respectively. The total fair value of options that vested during 2018, 2017 and 2016 was $3,511, $3,040 and $2,865, respectively.

The following table summarizes information about awards outstanding as of December 31, 2018:



	Outstanding				Exercisable
Exercise Price Range	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Life (years)	Number of Stock Options	Weighted Average Exercise Price		Weighted Average Remaining Life (years)
Under $49.99	447,315	$	39.78	3.0	447,315	$	39.79	3.0
$50.00 - $59.99	217,143	58.12		7.1	144,768	58.11		7.1
Over $60.00	766,580	78.28		7.0	478,511	72.09		5.9
	1,431,038			5.8	1,070,594			4.9

Restricted Share Awards ("RSAs")

The following table summarizes restricted share award activity for the year ended December 31, 2018 under all Plans:



	Number of Shares		Weighted Average Grant Date Fair Value
Balance at beginning of year	47,856		$	71.54
Shares granted	1,662		91.02
Shares vested	(32,922	)	82.48
Shares forfeited	(4,158	)	78.65
Balance at end of year	12,438		80.98

RSAs are valued at the quoted market price on the grant date. The majority of RSAs vest over a period of one to three years. The Company issued common shares from treasury upon the granting of RSAs in 2018. Restricted shares issued in 2018 were under the 2015 Director Plan. The remaining weighted average vesting period of all non-vested RSAs is 1 year as of December 31, 2018.

Restricted Stock Units ("RSUs") and Performance Share Units ("PSUs")

The following table summarizes RSU and PSU activity for the year ended December 31, 2018 under all Plans:



	Number of Units		Weighted Average Grant Date Fair Value
Balance at beginning of year	418,966		$	69.98
Units granted	148,833		89.51
Units vested	(49,653	)	69.24
Units forfeited	(12,116	)	74.16
Balance at end of year	506,030		75.69

RSUs are valued at the quoted market price on the grant date. The majority of RSUs vest over a period of three to five years. The Company issues shares of common stock from treasury upon the vesting of RSUs and any earned dividend equivalents. Conversion of 1,980 RSUs to common shares in 2018 were deferred as part of the 2005 Deferred Compensation Plan for Executives (the "2005 Plan"). As of December 31, 2018, 99,801 RSUs, including related dividend equivalents, have been deferred under the 2005 Plan. These units are reflected within dilutive shares in the calculation of earnings per share. In 2018, 117,073 RSUs were issued under the Employee Plan and the 2015 Director Plan. The remaining weighted average vesting period of all non-vested RSUs is 1.4 years as of December 31, 2018.

PSUs are valued at the quoted market price on the grant date. PSUs vest over a three year period and are based on the Company's performance relative to pre-established performance goals. The Company issues common stock from treasury upon the vesting of PSUs and any earned dividend equivalents. In 2018, the Company issued 31,760 PSU's and has 107,045 PSUs outstanding under the Employee Plan at a weighted average fair value of $76.20 per share. The remaining weighted average vesting period of all non-vested PSUs is 1 year as of December 31, 2018.

Stock-Based Compensation Expense

Expense is recognized for all awards of stock-based compensation by allocating the aggregate grant date fair value over the vesting period. No expense is recognized for any stock options, restricted or deferred shares, RSUs or PSUs ultimately forfeited because recipients fail to meet vesting requirements. Total stock-based compensation expense recognized in the Consolidated Statements of Income for 2018, 2017 and 2016 was $18,554, $12,698 and $10,332, respectively. The related tax benefit for 2018, 2017 and 2016 was $4,632, $4,861 and $3,955, respectively. As of December 31, 2018, total unrecognized stock-based compensation expense related to non-vested stock options, RSAs, RSUs and PSUs was $21,223, which is expected to be recognized over a weighted average period of approximately 2 years.

Lincoln Stock Purchase Plan

The 1995 Lincoln Stock Purchase Plan provides employees the ability to purchase open market shares on a commission-free basis up to a limit of ten thousand dollars annually. Under this plan, 800,000 shares have been authorized to be purchased. Shares purchased were 8,324 in 2018, 10,458 in 2017 and 15,827 in 2016.