0000059558-95-000059.txt : 19950905
0000059558-95-000059.hdr.sgml : 19950905
ACCESSION NUMBER: 0000059558-95-000059
CONFORMED SUBMISSION TYPE: S-3
PUBLIC DOCUMENT COUNT: 5
FILED AS OF DATE: 19950901
SROS: NYSE
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: LINCOLN NATIONAL CORP
CENTRAL INDEX KEY: 0000059558
STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311]
IRS NUMBER: 351140070
STATE OF INCORPORATION: IN
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: S-3
SEC ACT: 1933 Act
SEC FILE NUMBER: 033-62315
FILM NUMBER: 95569845
BUSINESS ADDRESS:
STREET 1: 200 EAST BERRY STREET
STREET 2: PO BOX 1110
CITY: FORT WAYNE
STATE: IN
ZIP: 46802
BUSINESS PHONE: 2194552000
S-3
1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LINCOLN NATIONAL CORPORATION
(Exact Name of registrant as Specified in Its Charter)
Indiana
(State or Other Jurisdiction of Incorporation or Organization)
35-1140070
(I.R.S. Employer Identification No.)
200 East Berry Street
Fort Wayne, Indiana 46802
(219) 455-2000
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Lincoln National Corporation
1986 Stock Option Incentive Plan
(Full Title of Plan)
_________________________
Jack D. Hunter
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
(219) 455-3072
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Approximate date of commencement
of proposed sale to the public November 1, 1995
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box [ ].
If any of the securities being registered on this form are
to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or reinvestment plans, check the following box [ X ] .
___________
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering [ ].
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering [ ].
If delivery of a prospectus is expected to be made pursuant to Rule 434,
please check the following box [ ].
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Title of maximum maximum
Securities Amount offering aggregate Amount of
to be to be price per offering registration
registered registered share price fee
Common Stock
No Par Value 5,000,000* $42.00** $210,000,000** $72,450**
*Pursuant to Rule 416, there are being registered such additional shares as
may be issuable pursuant to the antidilution provisions of the Plan. The
shares of common stock to which this Registration Statement relates are to be
issued upon exercise of options to be granted for no consideration to certain
of the Company's employees and non-employee agents of the Company. Pursuant
to Rule 429, in addition to the securities to be registered pursuant to this
Registration Statement, the offering contemplated by the Prospectus forming
a part of this Registration Statement also includes an aggregate of 2,766,291
shares of common stock, no par value, that are covered by Registration
Statement No. 33-13445. A filing fee aggregating $23,875 was previously paid
with the earlier registration statement relating to 5,000,000 shares of
common stock, no par value.
**Pursuant to Rule 457(h), based upon the average of the high and low prices
of a share of Common stock reported by the New York Stock Exchange on August
29, 1995.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
STATEMENT PURSUANT TO RULE 429(b)
The prospectus contained in this Registration Statement is a combined
prospectus which also covers shares of common stock covered by Registration
Statement No. 33-13445.
LINCOLN NATIONAL CORPORATION
1986 STOCK OPTION INCENTIVE PLAN
Cross Reference Sheet
Showing Location in Prospectus of Information
Required by Items of the Form S-3
Pursuant to Rule 404(a)
Item of Form S-3 Location in Prospectus
1. Forepart of registration
Statement and Outside Front
Cover Page of Prospectus. . . . . . Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus; Cross-Reference Sheet
2. Inside Front and Outside Back
Cover Pages of Prospectus . . . . . Inside Front Cover Page of
Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges. . . . . . . . . . General Information
4. Use of Proceeds . . . . . . . . . . Summary of the Plan - The Purpose
5. Determination of Offering
Price . . . . . . . . . . . . . . . Summary of the Plan - Stock Options,
Stock Appreciation Rights,
Restricted Stock Awards
6. Dilution. . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . Not Applicable
8. Plan of Distribution . . . . . . . Summary of the Plan - Stock Options,
Stock Appreciation Rights,
Restricted Stock Awards, Other
Material provisions
9. Description of Securities to
be Registered . . . . . . . . . . . Incorporation of Documents by
Reference
10. Interests of Named Experts and
Counsel . . . . . . . . . . . . . . Experts
11. Material Changes. . . . . . . . . . Not Applicable
12. Incorporation of Certain
Documents by Reference. . . . . . . Incorporation of Documents by
Reference
13. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities . . . Indemnification of Directors and
Officers
PROSPECTUS
5,000,000 Shares
LINCOLN NATIONAL CORPORATION
COMMON STOCK
(No Par Value)
Offered as set forth in this Prospectus pursuant to the
LINCOLN NATIONAL CORPORATION
1986 STOCK OPTION INCENTIVE PLAN
This Prospectus applies to shares of Common Stock of Lincoln National
Corporation to be offered and sold under the 1986 Stock Option Incentive Plan
to eligible executive, managerial, supervisory, or professional employees of
Lincoln National Corporation and its subsidiaries or to eligible persons
holding either agents' or brokers' contracts with a subsidiary of
Lincoln National Corporation.
FOR A DISCUSSION OF THE MATERIAL RISKS RELATED TO INVESTMENT IN THE
SECURITIES OFFERED HEREBY, SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
No person has been authorized to give any information or to make any
representations, other than those contained in this Prospectus, in connection
with the offer contained in this Prospectus, and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any of the securities offered hereby in any
state to or from any person to whom it is unlawful to make or solicit such
offer in such state. Neither the delivery of this Prospectus nor any sales
made hereunder shall under any circumstances create any implication that there
has been no change in the information herein since the date hereof.
The date of this Prospectus is _________, 1995.
TABLE OF CONTENTS
Page
General Information . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . .
Summary of the Plan . . . . . . . . . . . . . . . . . . . . . .
1. Purpose. . . . . . . . . . . . . . . . . . . . . . . .
2. Administration . . . . . . . . . . . . . . . . . . . .
3. Shares Available, Resale . . . . . . . . . . . . . . .
4. Term, Amendment. . . . . . . . . . . . . . . . . . . .
5. Participants . . . . . . . . . . . . . . . . . . . . .
6. Stock Options. . . . . . . . . . . . . . . . . . . . .
7. Stock Appreciation Rights. . . . . . . . . . . . . . .
8. Restricted Stock Awards. . . . . . . . . . . . . . . .
9. Incentive Awards . . . . . . . . . . . . . . . . . . .
10. Performance Awards . . . . . . . . . . . . . . . . . .
11. Dividend Equivalent Rights . . . . . . . . . . . . . .
12. Other Material Provisions. . . . . . . . . . . . . . .
13. Certain Tax Aspects. . . . . . . . . . . . . . . . . .
14. Miscellaneous. . . . . . . . . . . . . . . . . . . . .
Incorporation of Documents by Reference . . . . . . . . . . . .
Annual Report to Shareholders . . . . . . . . . . . . . . . . .
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Company is subject to the informational requirements of the Securi-
ties Exchange Act of 1934 and in accordance therewith files reports, proxy
statements, and other information with the Securities and Exchange Commission.
All reports, proxy statements and other information filed by the Company can
be inspected and copied at the Commission's public reference facilities at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the following
Regional Offices: Federal Building, 75 Park Place, Room 1228, New York,
New York 10007; and Everett McKinley Dirksen Building, 219 South Dearborn
Street, Chicago, Illinois 60604. Copies of these materials may also be
obtained from the Commission at the prescribed rates by mailing a request to:
Public Reference Branch, Securities and Exchange Commission, Washington, D.C.
20549. In addition, the Company will provide, without charge, to each person,
including any beneficial owner, to whom this prospectus is delivered, upon
written or oral request of such person, a copy of any and all of the
information that has been incorporated by reference in this prospectus
(excluding unincorporated exhibits), but not delivered with it. Such
requests should be made to C. Suzanne Womack, Secretary, Lincoln National
Corporation, 200 East Berry Street, Fort Wayne, Indiana 46802, telephone:
(219) 455-3271.
The Company's Common Stock is listed on the following stock exchanges and
reports, proxy statements and other information concerning the Company can be
inspected at the offices of those exchanges: New York Stock Exchange, Chicago
Stock Exchange, Pacific Stock Exchange, London Stock Exchange, and Tokyo Stock
Exchange.
GENERAL INFORMATION
The Lincoln National Corporation 1986 Stock Option Incentive Plan
(the "Plan") was established subject to shareholder approval by the Board of
Directors (the "Board") of Lincoln National Corporation (the "Company") on
January 8, 1986, and amended on March 13, 1986, March 12, 1987, May 7, 1987,
May 5, 1988, January 11, 1989, March 12, 1992, January 13, 1993, and
November 11, 1993. The Plan was approved by the Company's shareholders at
their annual meeting held on May 8, 1986, and the amended and restated Plan was
approved at the May 12, 1994, meeting. The original effective date of the Plan
was January 8, 1986.
The principal executive offices of the Company, an Indiana corporation,
are at 200 East Berry Street, Fort Wayne, Indiana 46802. Its telephone number
is (219) 455-2000. Certain executive, managerial, supervisory, or profes-
sional employees of the Company and its subsidiaries and certain persons
holding either agents' or brokers' contracts with subsidiaries of the
Company may participate in the Plan.
RISK FACTORS
In addition to the risks typically associated with investing in
equity securities (particularly publicly traded equity securities), investing
in shares of LNC common stock entails certain risks that are specific to the
industries in which LNC's subsidiaries operate. These risk factors include,
among other things, the highly competitive nature of those industries, state
and federal regulation, changing economic conditions, ratings received by,
and underwriting losses and claims of, LNC's insurance subsidiaries, and the
investment performance of assets held by LNC's insurance subsidiaries and
entities advised by investment advisory subsidiaries of LNC. These risk
factors are discussed briefly below.
Competition. The insurance, financial services and mutual funds
industries are highly competitive. Currently, there are thousands of insurance
companies actively engaged in business in the United States, some of which
offer insurance and annuity products not currently offered by subsidiaries of
LNC. In addition, LNC's life insurance and annuity subsidiaries encounter
competition from the expanding number of banks, security brokerage firms and
other financial intermediaries which are marketing insurance products and which
offer competing investments such as savings accounts and securities.
Similarly, there are thousands of open- and closed-end mutual funds available
to public investors, and a large number of investment advisers offer their
services to pension funds and other institutional investors. While the
Company believes its subsidiaries can effectively compete in the industries
in which they operate, there can be no assurance that such subsidiaries will
be able to do so.
Regulation. The Company's insurance affiliates are subject to
regulation and supervision by the states, territories and foreign countries in
which they are admitted to do business. These jurisdictions generally maintain
supervisory agencies with broad discretionary powers relative to granting and
revoking licenses to transact business, regulating trade practices, licensing
agents, prescribing and approving policy forms, regulating premium rates for
some lines of business, establishing premium requirements, regulating
competitive matters, prescribing the form and content of financial statements
and reports, determining the reasonableness and adequacy of capital and surplus
and regulating the type and amount of investments permitted. The Company's
insurance subsidiaries conduct business in numerous jurisdictions and,
accordingly, are subject to the laws and regulations of each of those
jurisdictions. Most of the Company's principal insurance subsidiaries,
including The Lincoln National Life Insurance Company and American States
Insurance Company, are domiciled in Indiana and are primarily regulated by
the Indiana Commissioner.
As a holding company of insurance businesses, the Company is also subject
to regulatory requirements of the states where its insurance subsidiaries are
domiciled. For example, certain transactions involving an affiliated insurance
company, such as loans, extraordinary dividends or investments, in some cases
may require the prior approval of such company's primary regulators.
Additionally, these requirements restrict the ability of any person to acquire
control of the Company or any of its subsidiaries engaged in the insurance
business without prior regulatory approval. Control is generally deemed to
exist if an entity beneficially owns 10% or more of the voting securities of a
company. Such requirements may have the effect of preventing an acquisition
of the Company.
The Company's investment management subsidiaries are subject to a number
of federal and state laws and regulations, including without limitation, the
Investment Company Act of 1940, the Investment Advisor's Act of 1940 and the
National Association of Securities Dealers Rules of Fair Practice. These laws
and regulations generally grant supervisory agencies and self-regulatory
organizations broad administrative powers, including the power to limit or
restrict the subsidiaries from carrying on their businesses in the event that
they fail to comply with such laws and regulations.
Ratings. Insurance companies are generally assigned ratings by
various rating agencies, such as the A.M. Best Company and the Duff and Phelps
Rating Agency. A company's sales of insurance products are generally affected
by these ratings. A stronger rating can translate to a marketing advantage and
the ability to price less aggressively to generate sales. Company's debt
rating is AA- by Duff and Phelps. The Lincoln National Life Insurance
Company has financial strength ratings of AAA and A+ by Duff and Phelps and
A.M. Best Company, respectively.
Similarly, while mutual funds are not rated, per se, many industry
periodicals and services provide rankings of mutual fund performance. These
rankings often have an impact on the decisions of public investors regarding
which mutual funds to invest in.
Economic Conditions. The operating results of LNC's insurance
subsidiaries are affected significantly by changes in interest rates and
inflation. Similarly, these economic factors significantly affect the invest-
ment performance of the mutual funds and other entities advised by LNC
subsidiaries. The performance of these entities, in turn, affects their
ability to attract and retain clients and investors.
The investment income and market value of the investment portfolios
of LNC's insurance subsidiaries and of the fixed-income-oriented mutual funds
and private investment portfolios advised by LNC's investment advisory
subsidiaries are primarily related to yields on their investments in the fixed-
income markets. An increase in interest rates will decrease the market value of
the relevant investment portfolio, but will increase investment income as
investments mature and proceeds are reinvested at higher rates. Additionally,
changes in interest rates and inflation have implications for the volume and
profitability the business of LNC's insurance subsidiaries. As interest rates
rise, competitors may respond by changing crediting rates and the policyholders
will evaluate the products of LNC's subsidiaries by comparison; there can be no
guarantee that the subsidiaries' products will be competitive vis-a-vis products
offered by other insurance companies.
Underwriting Losses and Claims. In addition to return on investment
income, the profitability of an insurance company is dependent upon its loss
experience in connection with its outstanding insurance contracts. Successful
underwriting experience is, in turn, dependent upon the quality, diversity,
and size of the insurer's pool of insureds. While LNC believes that the
outstanding insurance contracts of its subsidiaries were issued in accordance
with adequate underwriting guidelines, and that the pools of insureds of
its insurance company subsidiaries are of sufficient size and diversity,
above average loss experience could result in underwriting losses. No
assurance can be given that the current and future reserves of LNC's
insurance subsidiaries will be sufficient to provide for payment of all
claims, or that the insurance operations of such subsidiaries will be
profitable.
SUMMARY OF THE PLAN
1. Purpose. The Plan was adopted because, in the judgment of the Board,
the Company and its shareholders would benefit from an incentive compensation
program which is attractive to executives and other key employees, agents and
brokers of the Company and its subsidiaries and encourages them to increase
their ownership of its Common Stock. The purpose of the Plan is to promote the
long-term financial performance of the Company by (1) attracting and retaining
executives and other key employees, agents and brokers who possess outstanding
abilities by offering competitive incentive compensation opportunities,
(2) motivating such persons to further the long-range goals of the Company,
and (3) furthering the similarity of interests of shareholders and partici-
pants. The Company has no current specific plan for the use of any proceeds
generated from the sale of its Common Stock pursuant to this Plan.
2. Administration. The Plan is administered by a committee (the
"Committee") of no fewer than three directors who are members of the
Compensation Committee of the Board and who are not eligible and who have not
been eligible during the preceding year to participate in this Plan or any
other plan of the Company or any of its subsidiaries under which stock,
stock options or stock appreciation rights may be granted other than the
LNC 1993 Stock Plan for Non-employee Directors. In the event that fewer
than three members of the Compensation Committee of the Board are eligible
to serve on the Committee, the Board may appoint one of its other members
to serve on the Committee until such time as three members of the
Compensation Committee are eligible to serve. Present members of the
Committee are Thomas D. Bell, Jr., Earl L. Neal, John M. Pietruski,
Jill S. Ruckelshaus, and Gordon A. Walker.
They may be contacted in care of the Secretary of the Company at 200 East
Berry Street, Fort Wayne, Indiana 46802.
Subject to the provisions of the Plan, the Committee is authorized, in its
discretion, to (a) interpret the provisions of the Plan; (b) adopt, amend and
rescind rules and regulations for the administration of the Plan; and (c) make
all other determinations deemed by it to be necessary or advisable for the
administration of the Plan. The Committee shall determine the type and amount
of the award to be granted to any participant, and the timing of any such
award; however, the Committee may delegate to the chief operating officer or
chief executive officer of the Company the right to select individuals who
are not Reporting Persons to participate in the Plan. More than one type of
award may be made to any participant. To provide a flexible and competitive
program, the Plan gives the Committee full discretion to select awards from
among the various forms available under the Plan: incentive stock options,
non-qualified stock options, stock appreciation rights, restricted
stock awards, incentive awards, performance awards, and dividend equivalent
rights.
3. Shares Available; Resale. The aggregate number of shares of Company
Common Stock for which incentive stock options and non-qualified stock options
may be granted, or which may be granted under a restricted stock award,
an stock appreciation rights, incentive award, a performance award, or
pursuant to the reinvestment of amounts earned under an award of dividend
equivalent rights, may not exceed 10,000,000. Shares with respect to
which an incentive stock option or a non-qualified stock option is
awarded under this Plan shall be authorized but unissued for so long as the
incentive stock option or the non-qualified stock option remains unexercised.
If all or a portion of an incentive stock option or a non-qualified stock
option expires or is terminated without being exercised in full and without
having been surrendered to exercise any related stock appreciation rights,
or a restricted stock award, an incentive award or a performance award is
forfeited, the shares which were forfeited or not purchased will again
become available for distribution under the Plan. The Plan permits
adjustments in the number of shares issuable under the Plan in the event
of mergers, stock dividends, stock splits and similar changes in the
corporate structure or capitalization of the Company affecting the Common
Stock. This prospectus reflects such an adjustment for the stock dividend
declared by the Company's Board of Directors on May 13, 1993.
Except as described under "Restricted Stock Awards" below, the Plan does
not impose any restriction on the resale of shares of the Company's Common
Stock acquired pursuant to a grant under the Plan. However, any "affiliate"
of the Company (defined in Rule 405 under the Securities Act of 1933 to
include persons who directly or indirectly, through one or more intermediaries,
control, or are controlled by, or are under common control with, the Company)
may not use this Prospectus to offer and sell shares of Common Stock they
acquire under the Plan. They may, however, sell such shares:
(1) pursuant to an effective registration statement under the Securities
Act of 1933;
(2) in compliance with Rule 144 under the Act; or
(3) in a transaction otherwise exempt from the registration requirements
of that Act.
Each participant who is the beneficial owner of at least 10% of the
outstanding shares of the Company's Common Stock (the "Common Stock") and each
participant who is director or policy making officer of the Company is subject
to Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), which requires such persons to disgorge to the Company any "profits"
resulting from a sale and purchase (or purchase and sale) of the shares of
the Common Stock within a six month period. For such participants, sales of
certain shares of Common Stock occurring within six months of the grant of
an option or the grant of a restricted stock award may result in such
Section 16(b) liability, as described below in more detail.
New rules regarding Section 16(b) became effective May 1, 1991. The
Company has elected to comply with these new rules effective May 12, 1994.
Under these new rules, the exercise of an option will not, under any
circumstances, be deemed to be a purchase of Common Stock for purposes of
Section 16(b). Under Rule 16b-3, because the Plan is administered by at least
two disinterested directors, the grant of an option, a stock appreciation
right, a restricted stock award, an incentive award, a performance award or
a dividend equivalent right to a participant subject to Section 16(b) will
be deemed, for purposes of Section 16(b), to be a purchase of the shares that
underlie the option, award or right unless at least six months have elapsed
from the date the option, award or right was granted to the date of the
disposition of shares of Common Stock that underlie the option, award or right.
Failure to comply with this holding period requirement will result in a grant
of options, awards or rights under the Plan being deemed a "purchase" of the
underlying Common Stock for Section 16(b) purposes, which can be matched with
any sale of Common Stock (including, but not limited to, a sale of the Common
Stock obtained by exercising the option or pursuant to the award or right)
within the preceding or succeeding six-month period for purposes of
determining whether a participant is liable to the Company for any profits
derived from the purchase and sale of Common Stock.
Therefore, if at least six months have elapsed between the award of an
option, a stock appreciation right, a restricted stock award, an incentive
award, or a performance award, or a dividend equivalent right and the
disposition of the underlying Common Stock, no purchase of Common Stock would
be deemed to have occurred under Section 16(b) for purposes of determining
whether a participant is liable to the Company for any profits derived from
the purchase and sale of Common Stock. The Plan contains provisions that
effectively prohibit the disposition of stock acquired pursuant to a stock
option, a stock appreciation right or a restricted stock award for at least
six months from the date of grant, thereby making it impossible for a
participant to be subject to suit under Section 16(b) in connection with
the grant of a stock option, a stock appreciate right or a restricted stock
award. There is no Plan provision, however, that ensures satisfaction of the
holding period requirement with respect to an incentive award or a performance
award.
Participants who are an "officer" of the Company within the meaning of
Section 16 of the 1934 Act, as amended, directors or 10% beneficial
owners may sell shares of Common Stock acquired under the plan free from
Section 16(b) restrictions. The general prohibition of federal and state
securities laws on trading securities while in possession of material
non-public information concerning the issuer continue to apply.
4. Term; Amendment. Awards may be granted under the Plan until the
earliest of May 12, 2004, the distribution of the maximum number of shares as
described above, and the termination of the Plan by the Board. The Board may
amend or terminate the Plan at any time. However, shareholder approval would
be required to extend the term of the Plan, increase the maximum number of
shares which may be issued (other than for adjustments for stock splits,
stock dividends and certain other events described in paragraph 3), reduce
the minimum stock option price, increase the maximum exercise period of stock
options and stock appreciation rights, or amend the standards for
participation. Without the consent of the participant, amendment or
termination of the Plan will not adversely affect the rights of any
participant with respect to awards previously granted.
5. Participants. The Committee may select any key executive, managerial,
supervisory or professional employee of the Company or its subsidiaries or any
person holding either an agent's or broker's contract with a subsidiary of the
Company to participate in the Plan. It is anticipated that approximately 745
individuals will be eligible to participate during the current year of operation
of the Plan.
Certain United Kingdom directors and officers who are employed by any body
corporate, including Lincoln National (UK) PLC, which is under the control
of the Company, may also be selected by the Committee to participate in the
Plan. Stock options granted to and Company Common Stock issued to United
Kingdom officers and directors shall be granted or issued subject to applicable
United Kingdom laws and regulations. The terms and conditions of stock options
or Company Common Stock so granted or issued, and the tax consequences of such
grant or issuance, may vary from those relating to United States persons
described below. PARTICIPATING UNITED KINGDOM OFFICERS AND DIRECTORS ARE
ESPECIALLY URGED TO CONSULT THEIR OWN LEGAL AND TAX ADVISORS.
6. Stock Options. The Committee may award two types of stock options to
purchase the Company's Common Stock, incentive stock options and non-qualified
stock options, and may determine the terms and conditions of the stock options
within the limits described below. For purposes of the Plan, an "incentive
stock option" is an option which meets the requirements of Section 422(b) of
the Internal Revenue Code of 1986, as amended (the "Code"), and which has
been designated by the Committee as an incentive stock option. A "non-
qualified stock option" is an option which is not an "incentive stock option"
and which is designated by the Committee as a non-qualified stock option.
In addition, an option that is intended to be an incentive stock option but
that fails to satisfy the requirements of Section 422(b) of the Code shall
be treated as a non-qualified stock option. The award of either type of
stock option shall be evidenced by an agreement between the Company and the
participant, the provisions of which shall be determined by the Committee in
accordance with the Plan. Under either type of stock option, the option price
per share may not be less than the fair market value of a share of Common Stock
on the date of the grant. For purposes of the Plan, the fair market value of
a share of Common Stock means the average of the highest and lowest prices of a
share of stock, as quoted on the composite transactions table on the New York
Stock Exchange, on the last trading day prior to the date on which the
determination of fair market value is being made.
No stock options may be exercised before six months after the date of
grant and, except in the event of the death, disability or retirement of the
participant or in the discretion of the Committee, options may not be exercised
before the first anniversary of the date of grant. Further, and unless
the terms of the grant provide for an earlier termination date, the right to
exercise a stock option shall terminate by the earliest of (a) the tenth
anniversary of grant, (b) the first anniversary of the participant's
termination of employment by reason of death or disability, (c) the fifth
anniversary of the participant's retirement (although a participant who
wishes to obtain non-recognition tax treatment for the exercise of an
incentive stock option must exercise such option within three months of
retirement), (d) the sixth anniversary of the participant's termination
of employment after a change of control of the Company, or (e) three
months after the date the participant terminates employment for any other
reason. During any period that a stock option is exercisable, it may be
exercised by delivering a written notice which specifies the number of
shares purchased and the full purchase price to the Secretary of the
Company during regular business hours. Upon exercise of a stock option,
the participant may pay the option price in cash, in shares of the
Company's Common Stock which have been owned by the participant for at
least six months with an aggregate fair market value equal to the option
price, or in a combination of cash and shares. Stock options are
not transferable except at the participant's death by will or the laws of
descent and distribution.
The aggregate fair market value (determined at the time an incentive stock
option is granted) of the stock with respect to which incentive stock options
are exercisable for the first time by a participant during any calendar year
cannot exceed $100,000. For purposes of this $100,000 limitation, all of the
plans of the Company and its subsidiaries will be taken into account. The
maximum number of Options awarded to one individual cannot exceed 100,000
options per year. Information regarding outstanding options may be provided
in the Company's annual reports to shareholders, proxy statements, or
appendices to this prospectus.
7. Stock Appreciation Rights. The Committee may, in the event it
determines it to be necessary or desirable to create a reasonable opportunity
for a participant to acquire an increased ownership interest in the Company,
award a stock appreciation right in conjunction with either an incentive stock
option or a non-qualified stock option. Under a stock appreciation right, the
participant may surrender all or a part of a stock option and receive in
exchange payment of no more than 100% of the increase in the fair market value
of shares of Common Stock since the date of grant. The award of a stock
appreciation right shall be evidenced by an agreement between the Company and
the participant, the provisions of which shall be determined by the Committee
in accordance with the provisions of the Plan.
A stock appreciation right may be exercisable at any date with respect to
no more than the number of shares for which the related stock option is
exercisable at that date. A stock appreciation right issued in connection with
an incentive stock option may be exercisable only when there has been an
increase in the fair market value of the related shares over the relevant
period.
Each stock appreciation right shall terminate no later than the
termination date of the related stock option, and is transferable only with
and to the extent that the related stock option is transferable.
During any period in which a stock appreciation right is exercisable, it
may be exercised by delivering to the Secretary of the Company a written notice
which specifies the extent to which the stock appreciation right is being
exercised.
The Committee may limit the payment on exercise of a stock appreciation
right to less than 100% of the increase in value, as aforesaid, or it may set a
maximum amount of payment. Payment may be made in cash, in shares of Common
Stock, or in a combination of cash and shares. Upon exercise of a stock
appreciation right, the right to exercise the related stock option shall
automatically terminate to the same extent the stock appreciation right was
exercised.
8. Restricted Stock Awards. The Committee may also grant restricted
stock awards which entitle participants to receive shares of Common Stock.
The aggregate number of shares of LNC Common Stock that may be awarded
during any calendar year as restricted stock shall not exceed three-tenths of
one percent (0.3%) of the number of shares of Common Stock outstanding as of
December 31 of the prior year. If the number of shares of Common Stock
awarded as restricted stock awards in any year is less than the number of
shares that could have been so granted in accordance with this limitation,
the balance of such unused shares may be added to the maximum number of
shares of restricted stock that may be awarded in following years. To the
extent that an award lapses, the rights of the participant to whom the award
is made terminate, or the award is paid in cash, any shares of Common Stock
subject to such award shall again be available for the grant of an award
and shall not be included in calculating shares available in accordance
with this limitation. Each restricted stock award shall be evidenced by an
agreement between the Company and the participant, the provisions of which,
including any restrictions upon the Common Stock, shall be determined by the
Committee in accordance with the provisions of the Plan.
In its sole discretion, the Committee may also designate that a
participant who is entitled to receive a cash award under the Company's
Management Incentive Plan II or the Company's Executive Value Sharing Plan
shall receive all or a portion of such award in the form of a restricted
stock award subject to the terms of the Plan. The Committee may also convert
outstanding restricted stock awards to stock units under the Company's
deferred compensation plan in its sole discretion.
Shares granted to a participant pursuant to a restricted stock award will
be subject to such restrictions as the Committee may determine. In all events,
these restrictions will generally remain in effect throughout the six-month
period beginning on the date of award. Thereafter, the restrictions will
remain in effect until the participant's death, disability, retirement,
completion of a specified period of continued employment or the occurrence
of some other event specified by the Committee. If the participant
terminates employment prior to the time that the restrictions lapse,
the participant will forfeit any shares subject to the restrictions.
Shares of Common Stock subject to restriction are generally not
transferable other than by will or the laws of descent and distribution;
other restrictions may apply as well.
A restricted stock award may also provide for the current payment or
crediting to a participant of any dividends that are paid on the shares
subject to the restrictions. Any dividends that remain unpaid or
undistributed at a time when the participant forfeits shares subject to
restrictions will also be forfeited.
9. Incentive Awards. The Committee may also grant incentive awards which
entitle participants to receive shares of Common Stock. Shares may be granted
pursuant to an incentive award for no cash consideration, for such minimum cash
consideration as may be required under applicable law, or for such other
consideration as may be specified by the Committee. Shares granted pursuant to
an incentive award may be paid to the participant in a single installment or in
installments, may be paid at the time of the grant or at a later date or
dates, and may be forfeited if the participant is not employed by the Company
on the scheduled payment date, all as determined by the Committee. Each
incentive award shall be evidenced by an agreement between the Company and
the participant, which shall set forth all the relevant terms and conditions
of the award.
10. Performance Awards. The Committee may also grant performance awards
which entitle the participant to receive stock units. Each stock unit awarded
to a participant represents a credit to a bookkeeping reserve account
equivalent in value to one share of Common Stock. Stock units will be
converted to cash, shares of Common Stock or a combination of cash and Common
Stock upon the participant's satisfaction of performance criteria and/or
vesting periods established by the Committee. Stock units may be granted
pursuant to a performance award for no cash consideration, for such minimum
cash consideration as may be required under applicable law, or for such other
consideration as may be specified by the Committee. Stock units granted
pursuant to a performance award may be paid to the participant in a single
installment or in installments, may be paid at the time of the grant or at a
later date or dates, and may be forfeited if the participant is not employed
by the Company on the scheduled payment date, all as determined by the
Committee. Each performance award shall be evidenced by an agreement between
the Company and the participant, which shall set forth all the relevant terms
and conditions of the award.
In its sole discretion, the Committee may designate that a participant
who is eligible to receive a cash award under the Company's Executive Value
Sharing Plan shall receive such award in stock as a performance award. The
Committee may also convert outstanding restricted stock awards to stock units
under the Company's deferred compensation plan in its sole discretion.
11. Dividend Equivalent Rights. The Committee may also grant to a
participant, independently or in conjunction with another award under the
Plan, dividend equivalent rights. Dividend equivalent rights entitle the
participant to receive amounts equivalent to the dividends paid on the
number of shares of the Company's Common Stock for which the participant has
dividend equivalent rights. Dividend equivalent rights may be paid in cash
currently or may be reinvested in additional shares of Common Stock (which
may thereafter accrue dividend equivalents). Dividend equivalent rights may
be settled in cash, shares of Common Stock, or a combination of cash and
shares. Each award of dividend equivalent rights shall be evidenced by an
agreement between the Company and the participant, which shall set forth all
relevant terms and conditions of the award.
12. Other Material Provisions. The Company shall not be obligated to
distribute shares under the Plan in violation of any law, and any postpone-
ment of the distribution shall not extend the term of any incentive stock
option, non-qualified stock option, or stock appreciation right. Neither the
Company nor its officers or directors shall have any obligation or liability
to any participant, or successor in interest to a participant, because of the
loss of rights due to a postponement permitted under the Plan.
The Company and its subsidiaries have the right to deduct from any cash
payment made pursuant to the Plan the amount of any tax required by law to
be withheld from that payment. The Company and its subsidiaries also have
the right to require payment to them from any participant entitled to receive
Company Common Stock pursuant to the Plan of the amount of any tax required by
law to be withheld with respect to that Common Stock prior to its delivery.
A participant may, however, elect with respect to any non-qualified stock
option, any stock appreciation right which is paid in whole or in part in
Company Common Stock, any performance award and any restricted stock award,
to surrender shares of Company Common Stock, the fair market value of which
on the date of the surrender satisfies all or part of the withholding
requirements. Any such election must be made by filing a written, irrevocable
stock surrender withholding election prior to the date that the amount of
tax to be withheld is determined. Any stock surrender withholding election
made by a participant who is an "officer" of the Company within the meaning
of Section 16 of the Securities Exchange Act of 1934, as amended, must be
made (1) more than six (6) months after the date of grant of the award with
respect to which such election is made (except where such election is made
by a disabled participant or the estate or personal representative of a
deceased participant), and (2) either at least six (6) months prior to the
date that the amount of tax to be withheld is determined or during the ten
(10) day window period beginning on the third business day following the
release for publication of the Company's summary statement of earnings for
a quarter or fiscal year. The Committee shall have the right with respect
to any or all outstanding awards to terminate or suspend for any period the
right of a participant to make a stock surrender withholding election at any
time prior to the making of such election.
13. Certain Tax Aspects. THE FOREGOING TAX DISCUSSION AND THE TAX
DISCUSSION SET FORTH BELOW ARE INCLUDED HEREIN FOR GENERAL INFORMATION ONLY.
IN VIEW OF THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH PARTICIPANT SHOULD
CONSULT HIS OR HER TAX ADVISOR FOR MORE SPECIFIC INFORMATION, INCLUDING THE
EFFECT OF APPLICABLE FEDERAL, STATE AND OTHER TAX LAWS.
Under present law the federal income tax consequences of grants and
awards under the Plan are generally as follows:
Incentive Stock Options. Incentive stock options may be awarded only
to those participants who are "employees" (as that term is defined in
Section 3401(c) of the Code and the regulations promulgated thereunder) of
the Company or one of its subsidiaries at the time of the granting of the
option. In addition, an option that qualifies as an incentive stock
option at the time of grant generally will not be treated as an incentive
stock option for income tax purposes if the optionee is not an "employee"
at the time of exercise (except when the optionee was an employee within
three months of his death or at the time of his disability or termination
of employment and the option is exercised within a specified period of time
after his death, disability or termination of employment). Those persons
who are eligible to participate in the Plan because they hold either agents'
or brokers' licenses with a subsidiary of the Company may or may not, depending
on their particular facts and circumstances, be "employees" for this purpose.
For the tax treatment of options granted to or exercised by non-employees,
see Non-qualified Stock Options, below.
The granting of an incentive stock option will not result in taxable
income to the participant at the time of grant. The exercise of the incentive
stock option will also ordinarily have no federal income tax consequences to
the participant, although an incentive stock option exercised more than three
months after retirement (or one year after retirement, when retirement was as a
result of the participant's disability) will be treated as a non-qualified
stock option and taxed as described in Non-qualified Stock Options, below,
unless the option is exercised by the heirs or the estate of the deceased
participant who was employed on the date of his death and throughout the three-
month period ending on the date of death. If, however, a participant tenders
payment upon the exercise of an incentive stock option by surrendering shares
obtained upon a prior exercise of an incentive stock option which shares
were not held for the "required holding period" (as defined below), that
participant may recognize income upon the surrendering of the previously
acquired shares under those rules described below pertaining to the disposition
of shares acquired pursuant to an incentive stock option.
If the shares acquired pursuant to a timely exercise of an incentive
stock option are held for at least one year after they were acquired by
exercise of the incentive stock option and two years after the date on which
the incentive stock option was granted to the participant (the "required
period"), then any gain on disposition of the shares will generally be taxable
as long-term capital gain and no corresponding deduction will be allowed to the
Company. For a discussion of the federal income tax consequences of a long-
term capital gain, see Capital Gains Treatment, below.
If the shares acquired pursuant to a timely exercise of an incentive
stock option are disposed of before the expiration of the required period,
then the difference between the participant's "basis" (as defined below) and
the fair market value of the shares at the date of exercise, will generally
be taxable as ordinary income and a contemporaneous deduction in the amount
of such income will be allowed to the Company. Any additional gain (or loss)
realized on a disposition of such shares will generally be taxable to the
participant as long or short-term capital gain (or loss) depending on the
period for which the shares were deemed to have been held. For a discussion
of holding periods and the federal income tax treatment of long-term capital
gains, see Capital Gains Treatment, below.
For purposes of determining whether shares acquired pursuant to the
exercise of an incentive stock option have been disposed of before the
expiration of the required period, the term "disposition" will include
a sale, exchange, gift or transfer of legal title of the shares, but does not
include a transfer from a decedent to an estate, a transfer by bequest or
inheritance, a pledge or hypothecation, or transfers pursuant to certain non-
recognition transactions such as like-kind exchanges (except as noted above
with respect to the exchange of shares acquired pursuant to an incentive stock
option that have not been held for the required period and are surrendered to
exercise an incentive stock option) or exchanges pursuant to reorganizations.
A participant's "basis" in shares of common stock acquired pursuant
to the exercise of an incentive stock option will equal the amount of any cash
paid for such shares plus the basis of any shares surrendered, as determined
immediately before the surrender, plus any income recognized on the disposition
of the surrendered shares. If a participant uses shares of the Company's
Common Stock to exercise his incentive stock option and such shares either
were not acquired by the prior exercise of an incentive stock option, or were
so acquired but were held by him for the required period, it is expected that
the basis and holding period (for the purpose of determining whether amounts
realized or lost upon the subsequent disposition of the shares constitute
short-term or long-term capital gains or losses) of the shares that the
participant surrenders carries over to the same number of shares received upon
the exercise of the option.
If a participant uses shares of the Company's Common Stock to
exercise his incentive stock option, and such shares were acquired upon a
prior exercise of incentive stock option and were not held for the
required period, the participant's basis in the shares acquired upon
exercise of his incentive stock option will equal the sum of the basis of
shares surrendered, as determined immediately before the surrender, and any
income recognized on the disposition of the surrendered shares. In addition,
the holding period of the newly acquired stock should begin on the date of
the most recent exercise of the incentive stock option.
The amount by which the fair market value, determined at the time of
exercise, of a share of Company Common Stock acquired pursuant to the exercise
of an incentive stock option exceeds the option price shall, along with other
specified items, constitute an adjustment for the purposes of calculating
the alternative minimum taxable income of the participant for the taxable
year in which the option was exercised. Such adjustment items are
potentially subject to a 26% - 28% alternative minimum tax as determined by
a complex formula involving special deductions, additions and exemptions. As a
result, the exercise of an incentive stock option may subject a participant to
an alternative minimum tax depending on that participant's particular
circumstances.
For purposes of computing alternative minimum taxable income
realized on a subsequent disposition of shares acquired pursuant to the
exercise of an incentive stock option, the participant's basis in the stock
so acquired shall be increased by the amount that alternative minimum
taxable income realized was increased due to the earlier exercise of the stock
option.
Non-Qualified Stock Options. The granting of a non-qualified stock
option will not result in taxable income to the participant at the time of
grant. On exercise of a non-qualified stock option, the participant will
normally realize taxable ordinary income equal to any excess of the fair market
value of the shares at the time of exercise over the option price of the shares.
At the time this ordinary income is recognized by the participant, the
Company will be entitled to a corresponding deduction.
If a participant exercises his non-qualified stock option with a cash
payment, the basis of the shares he acquires will generally equal the option
price plus the amount included in his income upon exercise. If the participant
uses shares of the Company's Common Stock to exercise his non-qualified stock
option, the basis and holding period of the shares he surrenders carries over to
the same number of the shares received upon the exercise of the option. The
basis of the remaining shares received is the fair market value of the shares
on the date of exercise.
To the extent that the shares constitute a capital asset in the hands
of a participant, on the disposition of the shares acquired upon exercise of a
non-qualified stock option, the difference between the amount received for the
shares and the basis, i.e. fair market value of the shares on exercise of the
option, will be treated as long-term or short-term capital gain or loss,
depending on the holding period. For a discussion of holding periods and
the federal income tax treatment of a long-term capital gain, see Capital
Gains Treatment, below.
Stock Appreciation Rights. The granting of a stock appreciation
right should not result in taxable income to the participant at the time of
grant. On exercise of a stock appreciation right, the participant will
realize taxable ordinary income equal to the cash and fair market value of any
shares received. At the time the participant recognizes ordinary income on
the exercise of a stock appreciation right, the Company will be entitled to a
corresponding deduction.
To the extent that any such shares constitute a capital asset in the
hands of a participant, on the disposition of any shares acquired under a stock
appreciation right, the difference between the amount received for the shares
and the fair market value of the shares as of the exercise of the stock
appreciation right will be treated as long-term or short-term capital gain or
loss, depending on the holding period. For a discussion of holding periods and
the federal income tax treatment of a long-term capital gain, see Capital Gains
Treatment, below.
Restricted Stock Awards. The granting of a restricted stock award
or issuance of restricted shares generally will not result in taxable income
to the participant at the time of grant or issuance. Instead, the participant
will normally realize taxable ordinary income when the restrictions on the
shares lapse in an amount equal to the fair market value of the shares on the
date of lapse. Notwithstanding the foregoing, a participant may elect
(pursuant to Section 83(b) of the Code), within 30 days of the date of a
restricted stock award, to be taxed on the value of the shares as of the date
of grant. If the participant subsequently forfeits the shares, the participant
will not be entitled to a deduction. At the time the participant recognizes
ordinary income with respect to shares issued pursuant to a restricted stock
award, the Company will be entitled to a corresponding deduction.
To the extent that the shares constitute a capital asset in the hands
of a participant, on disposition of the shares after restrictions lapse, the
difference between the amount received and the fair market value of the shares
on the date of lapse (or on the date of issuance if the participant made the
election described above) will be treated as long-term or short-term capital
gain or loss, depending on the holding period. For a discussion of holding
periods and the federal income tax treatment of capital gains, see Capital Gains
Treatment, below. A participant's holding period in the shares will begin when
the restrictions to which they are subject lapse unless he makes the election
provided for under Code Section 83(b) (as noted above), in which case the
holding period in his shares will begin on the day after the Company Common
Stock is transferred to him.
Amounts equivalent to dividends received by the participant under the
restricted stock award and dividends paid on restricted stock received by the
participant prior to the lapse of restrictions will be taxable as ordinary
income to the participant and a corresponding and contemporaneous deduction
will be allowed to the participant's employer unless the participant made the
Section 83(b) election described above. If the election was made, dividends
actually paid on restricted stock will be taxable as dividends and no
corresponding deduction will be allowed to the employer. In addition, if
the election was made and the participant later forfeits the restricted
stock, the participant will be allowed no loss deduction.
Incentive Awards. Generally, a participant will be subject to tax, and
the Company will receive a corresponding deduction, with respect to an incentive
award (whether granted under the Plan or as a result of a conversion to an
incentive award of an award under the Company's Management Incentive Plan II
or Executive Value Sharing Plan) on the date that the award is granted.
However, if the award is paid in shares of Common Stock which are subject to
restrictions or to forfeiture, the participant will be subject to tax,
and the Company will be entitled to a deduction, when the shares cease
to be subject to the restrictions or the risk of forfeiture. The amount of
taxable income a participant will be required to recognize, and the amount of
the deduction to which the Company will be entitled, will equal the amount of
cash, and the fair market value of the shares, received on the date as of which
the participant is required to recognize income.
Performance Awards. Generally, a participant will be subject to tax, and
the Company will receive a corresponding deduction, with respect to a
performance award (whether granted under the Plan or as a result of a
conversion to an incentive award of an award under the Company's Executive
Value Sharing Plan) on the date that the award is granted. However, if the
award is paid in shares of Common Stock which are subject to restrictions or
to forfeiture, the participant will be subject to tax, and the Company will
be entitled to a deduction, when the shares cease to be subject to the
restrictions or the risk of forfeiture. The amount of taxable income a
participant will be required to recognize, and the amount of the deduction to
which the Company will be entitled, will equal the amount of cash, and the
fair market value of the shares, received on the date as of which the
participant is required to recognize income.
Dividend Equivalent Rights. Generally, a participant will be subject to
tax, and the Company will be entitled to a corresponding deduction, with
respect to a grant of dividend equivalent rights as of the date or dates on
which the dividend equivalents are paid to the participant. If dividend
equivalents are automatically reinvested in additional shares of Common Stock,
the participant does not recognize tax, and the Company does not get to claim
a corresponding deduction, until the dividend equivalent rights are settled.
At that time, the participant will be liable for tax, and the Company will be
entitled to a deduction, equal to the amount of cash and the fair market value
of the shares the participant receives in settlement of the dividend equivalent
rights.
Capital Gains Treatment. Gain or loss from the sale or exchange of
property will be treated as long-term capital gain or loss if it was deemed to
have been held for more than one year. Any gain or loss other than long-term
capital gain or loss will be treated as short-term capital gain.
Except in those situations expressly described above (relating to the
"tacking" of holding periods where Company Common Stock is used to exercise a
stock option and to optionees subject to Section 16(b) of the Securities
Exchange Act of 1934), it is expected that the holding period of shares
acquired pursuant to the exercise of an incentive stock option, non-qualified
stock option or stock appreciation right will generally begin on the date
following the date of acquisition through such exercise. Similarly, the
holding period of awarded shares acquired pursuant to a restricted stock
award is expected to begin on the date following the date on which the
restrictions lapse, subject to the exception relating to elections under
Code Section 83(b).
For net capital gains recognized by individuals, the Code imposes
a preferential maximum tax rate of 28% (as compared with a 39.6% maximum tax
rate on ordinary income).
Participants Subject to Section 16(b). Notwithstanding the general
tax treatment of the various types of awards as discussed above, a participant
who is subject to the application of Section 16(b) of the 1934 Act, will not
be subject to tax with respect to an award until such time as the stock
acquired pursuant to the exercise of an option or the grant of another type
of award may no longer be considered a purchase of the shares underlying the
option or award. Thus, if stock acquired pursuant to an award under the Plan
can be disposed of by the participant before the expiration of six months
from the date of award, the participant will not be subject to tax, and the
Company will not be entitled to a corresponding deduction, until the expiration
of such a period. The participant may, however, accelerate taxation by making
the election permitted under Code Section 83(b), as described above. For
capital gains tax purposes, the participant's holding period begins to run on
the date, on which he is subject to taxation on the award of stock.
Payment of Withholding Obligations Through Surrender of Shares. The
federal income tax treatment of the surrender of shares of Company Common Stock
to satisfy a participant's federal income tax withholding obligation under the
Plan is complex and uncertain. To the extent that a participant surrenders
shares of Company Common Stock for this purpose, the participant will be treated
as having sold such shares to the Company for their fair market value and may
recognize income as a result thereof. The nature and extent of this income will
depend upon the manner in which the surrendered shares were acquired, the basis
of the surrendered shares, the holding period of the surrendered shares and
other factors as described above. Depending upon the effect of the surrender
upon the participant's proportionate share ownership interest in the Company,
the participant may be treated as having received a dividend equal to the fair
market value of the shares surrendered. A participant who satisfies a with-
holding obligation by surrendering shares acquired pursuant to an earlier
exercise of an incentive stock option may also be treated as having made a
disqualifying disposition of such shares if the applicable holding period
requirements have not been satisfied. For a discussion of disqualifying
dispositions of shares acquired pursuant to the exercise of an incentive stock
option and the tax treatment thereof, see Incentive Stock Options, above. For
a discussion of the times when elections to surrender shares to satisfy with-
holding obligations must be made, including specific requirements applicable
to elections by "officers" under Section 16 of the Securities Exchange Act of
1934, see Other Material Provisions, above. PARTICIPANTS ELECTING TO SATISFY A
WITHHOLDING OBLIGATION BY SURRENDERING SHARES OF COMPANY COMMON STOCK ARE
STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS.
14. Miscellaneous. The Plan is not qualified under Section 401(a) of the
Internal Revenue Code and is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference into its Prospectus the
following documents filed with the Securities and Exchange Commission (the
"Commission"):
(a) The Company's Annual Report on Form 10-K filed pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the "1934
Act") for the fiscal year ended December 31, 1994;
(b) All other reports of the Company filed pursuant to Section 13(a) or
15(d) of the 1934 Act since December 31, 1994; and
(c) The section entitled "Description of Capital Stock" contained on
pages 31 through 35 of the Company's Prospectus dated December 22,
1992, relating to 4,000,000 shares of the Company's Common Stock.
All reports and documents subsequently filed with the Commission by the
Company subsequent to the date of this registration statement pursuant to
Section 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934,
as amended, prior to the filing of a post-effective amendment which indicates
that all securities offered have been sold or which deregisters all securities
then remaining unsold, shall be deemed to be incorporated by reference into
this Registration Statement and to be part thereof from the date of filing of
those documents. Additional updating information with respect to the securities
and Plan covered herein may be provided in the future to participants by means
of appendices to the Prospectus.
ANNUAL REPORT TO SHAREHOLDERS
The Company will deliver with this Prospectus to each employee or agent to
whom it is sent or given a copy of the Company's Annual Report to Shareholders
for its last fiscal year, unless the employee or agent otherwise has received a
copy, in which case the Company will promptly furnish, without charge, an
additional copy on written request by the employee or agent. Except as
indicated herein, the Annual Report to Shareholders is not incorporated by
reference into the Prospectus.
EXPERTS
The consolidated financial statements and schedules of Lincoln National
Corporation and subsidiaries appearing in the Lincoln National Corporation's
Annual Report (Form 10-K) for the year ended December 31, 1994, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such
consolidated financial statements and schedules are incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
The legality of the securities to be issued pursuant to the Plan will be
passed upon for the Company by Dennis L. Schoff. Mr. Schoff is employed by
the Company as an Assistant General Counsel and owns options to purchase common
stock and owns, through the Company's Savings and Profit-Sharing Plan, shares
of the Company's Common Stock.
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
Set forth below are estimates of all expenses incurred or to be incurred
by the Company in connection with the issuance and distribution of the Company
to be registered, other than underwriting discounts and commissions.
Registration fees $ 72,450
Photocopying and Printing 3,000*
Legal fees 50,000*
Accounting fees 3,000*
State blue sky fees and expenses 250*
----------
TOTAL $ 128,700
* Estimated
Item 15. Indemnification of Directors and Officers
The following discussion of the indemnification provisions of the
Indiana Business Corporation Law (Indiana Code Section 23-1-37) (the "Law"),
which applies to the Company, is a summary, is not meant to be complete,
and is qualified in its entirety by reference to the Law.
The Law provides that the Company may indemnify present and past
directors, officers, employees and agents of the Company and of other entities,
including partnerships, trusts and employee benefit plans, who serve in such
capacities at the request of the Company, against obligations to pay as the
result of threatened, pending or completed actions, suits or proceedings,
whether criminal, civil, administrative or investigations to which they are
parties, if it is determined by a majority of disinterested directors, a
committee of the board of directors or special counsel selected by the board of
directors that they acted in good faith and they reasonably believed their
conduct in their official capacity was in the Company's best interests or if
such conduct was not in their official capacity, that the same was at least not
opposed to the Company's best interests, and that in criminal proceedings they
had reasonable cause to believe their conduct was lawful or no reasonable cause
to believe that it was unlawful. Unless a corporation's articles of
incorporation provide otherwise (which the Company's does not), the Law provides
for mandatory indemnification for directors and officers against reasonable
expenses incurred if they were wholly successful in the defense of such
proceeding. Termination of a proceeding by judgment, settlement or like
disposition is not determinative that the director, officer, employee or agent
did not meet the standard of conduct set forth in the Law. The indemnity
provided by the Law may be enforced in court and provision is made for
advancement of expenses. The Law also permits the Company to insure its
liability on behalf of the directors, officers, employees and agents so
indemnified and the Law does not exclude any other rights in indemnification
and advancement of expenses provided in the Company's Articles of
Incorporation, Bylaws, or resolutions of its board of directors or its
shareholders.
The Bylaws of the Company provide for the indemnification of its
officers, directors and employees against reasonable expenses, including
settlements, that may be incurred by them in connection with the defense of any
action, suit or proceeding to which they are made or threatened to be made
parties so long as (i) the individual's conduct was in good faith, (ii) he
reasonably believed that the conduct was in the Company's best interests (or for
non-corporate acts, not against the best interests of the Company), and (iii) in
the case of criminal proceedings, the individual either had reason to believe
the conduct was lawful, or no reasonable cause to believe it was unlawful.
In the case of directors, a determination as to whether indemnification or
reimbursement is proper shall be made by a majority of disinterested directors,
a committee of the board of directors or special counsel selected by the board
of directors. In the case of individuals who are not directors, such
determination shall be made by the chief executive officer of the Company or, if
the chief executive officer so directs, in the manner it would be made if
the individual were a director of the Company.
Such indemnification may apply to claims arising under the Securities
Act of 1933, as amended. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted for directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in that
Act and therefore unenforceable.
The Company maintains directors' and officers' liability insurance with
an annual aggregate limit of $100,000,000 for the current policy period, subject
to a $1,000,000 deductible at the corporate level, for each wrongful act where
corporate reimbursement is available to any director or officer.
Item 16. Exhibits.
The following exhibits of this Registration Statement are included in Item
16. (Note: The numbers preceding the exhibits correspond to the specific
numbers within Item 601 of Regulation S-K.)
Exhibit No. Description
4(a) The 1986 Stock Option Incentive Plan, as amended
4(b) Articles of Incorporation and By-Laws of Lincoln National
Corporation -- The Articles of Incorporation of the Company
as last amended May 12, 1994 are incorporated herein by
reference to Company's Form S-3/A filed with the
Commission on September 15, 1994. The By-Laws of the Company
as last amended January 1, 1992 are incorporated herein by
reference to Exhibit 3(b) of Company's Form 10-K for the year
ended December 31, 1992 filed with the Commission on
March 27, 1992.
5 Opinion of Dennis L. Schoff, Esq., as to the legality of
the securities being registered.
8 Opinion of Sutherland, Asbill & Brennan as to the tax
consequences of the Plan.
23(a) Consent of Ernst & Young LLP, Independent Auditors
23(b) Consent to use of Opinion of Dennis L. Schoff, Esq., is
contained in Exhibit 5.
23(c) Consent to use of Opinion of Sutherland, Asbill & Brennan
is contained in Exhibit 8.
Item 17. Undertakings.
(a) Rule 415 Offering. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
or furnished to the Commission by the registrant pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(e) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is
sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to
be presented by Article 3 of Regulation S-X is not set forth in the
prospectus, to deliver, or cause to be delivered to each person to whom
the prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the prospectus to provide such
interim financial information.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
(a) THE REGISTRANT. Pursuant to the requirements of the Securities Act
of 1933, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3, and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Wayne, State of
Indiana, on the 10th day of August, 1995.
LINCOLN NATIONAL CORPORATION
By:/S/ROBERT A. ANKER
Robert A. Anker,
President and Chief Operating Officer
LET IT BE KNOWN that each officer or director of Lincoln National
Corporation whose signature appears in paragraph (b) under "SIGNATURES" below
appoints John L. Steinkamp, Dennis L. Schoff, Jacquelyn M. Abbott, and
C. Suzanne Womack, jointly and severally, his/her attorneys-in-fact, with
power of substitution, for him/her in all capacities, to sign amendments and
post-effective amendments to the Registration Statement of the Lincoln
National Corporation 1986 Stock Option Incentive Plan, and to file such
amendments with exhibits with the Securities and Exchange Commission, hereby
ratifying all that each attorney-in-fact may do or cause to be done by virtue
of this power.
(b) Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/S/IAN M. ROLLAND Chairman of the Board and 8/10/95
(Ian M. Rolland) Chief Executive Officer
(Principal Executive Officer)
/S/ROBERT A. ANKER President and Chief 8/10/95
(Robert A. Anker) Operating Officer, Director
/S/DONALD L. VANWYNGARDEN Second Vice President & 8/10/95
(Donald L. VanWyngarden) Controller (Principal
Accounting Officer)
/S/RICHARD C. VAUGHAN Senior Vice President 8/10/95
(Richard C. Vaughan) and Chief Financial Officer
(Principal Financial Officer)
/S/J. Patrick Barrett Director 8/10/95
(J. Patrick Barrett)
Director
(Thomas D. Bell. Jr.)
/S/DANIEL R.EFROYMSON Director 8/10/95
(Daniel R. Efroymson)
/S/HARRY L. KAVETAS Director 8/10/95
(Harry L. Kavetas)
/S/M. LEANNE LACHMAN Director 8/10/95
(M. Leanne Lachman)
Director
(Leo J. McKernan)
/S/EARL L. NEAL Director 8/10/95
(Earl L. Neal)
/S/JOHN M. PIETRUSKI Director 8/10/95
(John M. Pietruski)
Director
(Jill S. Ruckelshaus)
/S/GORDON A. WALKER Director 8/10/95
(Gordon A. Walker)
/S/GILBERT R. WHITAKER, JR. Director 8/10/95
(Gilbert R. Whitaker, Jr.)
STATE OF INDIANA
SS:
COUNTY OF ALLEN
Before me the undersigned, a Notary Public, personally appeared each
of the above-named persons whose signature appears above and acknowledged the
execution of this instrument this 10th day of August, 1995.
/S/ KAREN S. MILLER
Notary Public
(seal)
Resident of Allen County
My Commission Expires March 5, 1996
INDEX TO EXHIBITS
Exhibit No. Description
4(a) The 1986 Stock Option Incentive Plan.
5 Opinion regarding legality.
8 Opinion regarding tax consequences.
23(a) Consent of Ernst & Young LLP, Independent Auditors.
EX-4
2
LINCOLN NATIONAL CORPORATION
1986 STOCK OPTION INCENTIVE PLAN
(As Amended and Restated Effective as of May 12, 1994)
SECTION 1
GENERAL
1.1. Purpose. The purpose of the LINCOLN NATIONAL CORPORATION 1986 STOCK
OPTION INCENTIVE PLAN (the "Plan") is to promote the long-term financial
performance of Lincoln National Corporation ("LNC") by (a) attracting and
retaining key employees, agents and brokers by providing incentive
compensation opportunities which are competitive with those of other major
corporations; (b) motivating such persons to further the long-range goals of
LNC; and (c) furthering the identity of interests of participating employees,
agents and brokers and LNC shareholders through opportunities for increased
ownership of LNC Common Stock, thereby strengthening their concern for the
welfare of LNC by enhancing its profitable growth.
1.2. Definitions. The following definitions shall be applicable throughout
the Plan:
(a) "Award" means, individually or collectively, any Option, Restricted Stock
Award, Performance Award, Stock Appreciation Right, Incentive Award or
Dividend Equivalent Right.
(b) "Board" means the Board of Directors of Lincoln National Corporation.
(c) "Change of Control" has the same meaning as in the LNC Executives'
Severance Benefit Plan on the date immediately preceding the Change of
Control.
(d) "Code" means the Internal Revenue Code of 1986. Reference in the Plan
to any section of the Code shall be deemed to include any amendments or
successor provisions to such section and any regulations under such
section.
(e) "Committee" means not less than three members of the Board who are
selected by the Board as provided in subsection 1.4.
(f) "Common Stock" means the common stock of Lincoln National Corporation.
(g) "Company" means, collectively, Lincoln National Corporation and its
subsidiaries.
(h) "Dividend Equivalent Right" or "DER" means the right of the holder
thereof to receive, pursuant to the terms of the DER, credits based on
cash dividends that would be paid in shares specified by the DER if
such shares were held by the Holder, as more particularly described
in Section 8.
(i) "Fair Market Value" means, as of any specified date, the average of the
highest and lowest quoted selling prices of the Common Stock as reported
on the Composite Tape for issues listed on the New York Stock Exchange on
the first business day that the Common Stock was traded on that Exchange
which next precedes the date as of the Award, or, if no sales were
reported on the Composite Tape on such specified date, the average of
the highest and lowest quoted selling prices of the Common Stock on the
nearest dates before and after such specified date on which sales of the
Common Stock were so reported.
(j) "Holder" means an employee, agent or broker of the Company who has been
granted an Option, a Restricted Stock Award, a Performance Award,
Dividend Equivalent Right, Stock Appreciation Right or an Incentive
Award.
(k) "Incentive Award" means an Award granted under Section 6 of the Plan.
(l) "Incentive Stock Option" means an Option within the meaning of section
422(b) of the Code.
(m) "Option" means an Award under Section 3 of the Plan and includes both
Nonqualified Stock Options and Incentive Stock Options to purchase Common
Stock.
(n) "Performance Award" means an Award granted under Section 7 of the Plan.
(o) "Personal Representative" means the person who upon the death, disability
or incompetency of a Holder shall have acquired, by will or by the laws
of descent and distribution or by other legal proceedings, the right to
exercise an Option or the right to any Restricted Stock Award,
Performance Award, Dividend Equivalent Right or Incentive Award therefore
granted or made to such Holder.
(p) "Plan" means the Lincoln National Corporation 1986 Stock Option Incentive
Plan (As Amended and Restated Effective as of May 12, 1994).
(q) "Restricted Stock Award" means an Award granted under Section 5 of the
Plan.
(r) "Stock Appreciation Right" or "SAR" means an Award granted under Section
4 of the Plan.
(s) "Subsidiary" means any corporation at any date that LNC owns directly, or
indirectly through an unbroken chain of subsidiary corporations, stock
possessing a majority of the total combined voting power of all classes of
stock of that corporation.
1.3. Effective Date and Duration of Plan. The amended and restated Plan shall
become effective following adoption by the Board and approval of shareholders
of Lincoln National Corporation at its 1994 Annual Meeting of Shareholders.
No further Awards may be granted under the Plan after ten years from the date
the amended and restated Plan becomes effective. The Plan shall remain in
effect until all Options granted under the Plan have been exercised or
expired by reason of lapse of time, all restrictions on Restricted Stock
Awards have been eliminated, and all DER's and SAR's satisfied.
1.4. Plan Administration. The Plan shall be administered by the Committee.
In addition to those rights, duties, and powers vested in the Committee by
other provisions of the Plan, the Committee shall have sole authority, in
its discretion, to:
(a) determine which employees, agents and brokers of the Company, shall
receive an Award;
(b) construe the Plan and respective agreements executed thereunder;
(c) adopt, amend and rescind rules and regulations for the administration of
the Plan;
(d) ensure that awards continue to qualify under Rule 16b-3 of the Securities
Exchange Act of 1934, as the same may be hereafter amended; and
(e) make all other determinations deemed by it to be necessary or advisable
for the administration of the Plan;
provided that the Committee shall exercise its authority in accordance with
the provisions of the Plan. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in the Plan or in any agreement
relating to an Award in the manner and to the extent it shall deem expedient
to carry it into effect. The determinations of the Committee on the matters
referred to in this subsection 1.4 shall be conclusive.
The Committee may not exercise its authority at any time that it has fewer
than three members. The Committee shall exercise its authority only by a
majority vote of its members at a meeting or by a writing without meeting.
At any date, the members of the Committee shall be those members of the
Compensation Committee of the Board who are not eligible and who have not been
eligible within one year preceding that date to participate in the Plan or any
other plan of LNC or a Subsidiary under which stock, stock options or stock
appreciation rights of LNC or a Subsidiary may be granted. In the event that
fewer than three members of the Compensation Committee of the Board are
eligible to serve on the Committee, the Board may appoint one of its other
members who is otherwise eligible to serve on the Committee until such time
as three members of the Compensation Committee are eligible to serve.
1.5. Shares Available. The aggregate number of shares of LNC Common Stock
that may be issued under the Plan shall not exceed the sum of (a) 5,000,000
shares originally authorized by shareholders in 1986 (formerly 2,500,000 prior
to the two for one stock split effected through a stock dividend declared by
the Board on May 13, 1993), less the aggregate number of shares issued under
the Plan prior to the effective date of its amendment and restatement and (b)
an additional 5,000,000 shares. In addition to the foregoing limit on the
aggregate number of shares that may be issued under all Awards, the aggregate
number of Restricted Stock Awards that may be granted during any calendar year
(or portion thereof) after the effective date of the amendment and restatement
of this Plan, shall not exceed three-tenths of one percent (0.3%) of the
number of shares of Common Stock outstanding as of December 31 of the prior
year. If the number of shares of Common Stock awarded as Restricted Stock
Awards in any year is less than the number of shares that could have been so
granted pursuant to this subsection, the balance of such unused shares may be
added to the maximum number of shares of Restricted Stock that may be
effectively awarded in following years. To the extent that an Award lapses or
the rights of its Holder terminate or the Award is paid in cash, any shares of
Common Stock subject to such Award shall again be available for the grant of
an Award and not be included in calculating shares available under this
subsection.
1.6. Individual Dollar Limitations. The aggregate Fair Market Value of shares
of Common Stock with respect to which Awards (excluding the underlying shares
for Dividend Equivalent Rights) may be made to any individual in any one
calendar year cannot exceed $5,000,000.
1.7. Stock Offered. The shares of Common Stock to be offered, pursuant to the
grant of an Award shall be authorized but unissued shares.
1.8 Change in Corporate Structure. In the event of a merger, consolidation,
reorganization, combination, exchange, recapitalization, stock dividend, stock
split or other similar change in the corporate structure or capitalization of
LNC which affects the Common Stock, outstanding Awards shall be subject to
adjustment by the Committee at its discretion as to the number and price of
shares of Common Stock or other consideration subject to such Awards. In the
event of such changes in the corporate structure or capitalization of LNC, the
aggregate number of shares available under the Plan may be appropriately
adjusted by the Committee, whose determination shall be conclusive.
1.9. Amendment and Termination of Plan. The Board may amend or terminate the
Plan at any time except that, without the approval of the holders of a
majority of LNC stock entitled to vote at a duly held meeting of such
shareholders, the Board may not:
(a) increase the number of shares of Common Stock which may be issued under
the Plan, except as provided in subsection 1.8;
(b) reduce the minimum option price under any Option, except as provided in
subsection 1.8;
(c) increase the maximum period during which Options and related Stock
Appreciation Rights or related Dividend Equivalent Rights may be
exercised;
(d) extend the maximum period during which Awards may be granted under the
Plan;
(e) amend the standards for eligibility described in Section 2; and
(f) materially increase the benefits accruing to employees under the Plan.
Amendment or termination of the Plan shall not affect the validity or terms of
any Award previously made to a Holder in any way which is adverse to the
Holder without the consent of the Holder.
1.10. Amendment to Awards. Any Award which was granted under the 1982 Stock
Option Incentive Plan, or which was granted under this Plan prior to the
effective date of the amendment and restatement, may, subject to any
requirements of applicable law or regulation, be amended by action of the
Committee so as to incorporate in that award any terms that might have been
incorporated in an award under this Plan as amended and restated.
SECTION 2
ELIGIBILITY; EFFECT OF THE PLAN
2.1. Participation Designations. The Committee may, at any time, make Awards
to any key executive, managerial, supervisory or professional employee of the
Company or any person holding either an agent's or broker's contract with a
Subsidiary. Awards may not be granted to (i) any director who is not an
employee of the Company or (ii) any person who immediately after such grant
is the owner, directly or indirectly of more than 10% of the total combined
voting power of all classes of stock of LNC.
The right to select eligible employees, agents, and brokers who are subject to
Rule 16(a) of the Securities Exchange Act of 1934 ("Reporting Persons") and
all decisions regarding Awards to such Reporting Persons are reserved
exclusively to the Committee. The right to select individuals who are not
Reporting Persons for participation in the Plan is reserved to the Committee,
but such reserved right may be delegated in whole or in part by the Committee
to the chief executive officer or chief operating officer of LNC.
2.2. Participation Not Contract of Employment. The Plan does not constitute
a contract of employment. Participation in the Plan does not give any
employee the right to be retained in the employ of LNC or a Subsidiary nor
does it limit in any way the right of LNC or a Subsidiary to change the
duties or responsibilities of any employee, agent or broker.
2.3. Multiple Awards. An Award may be made on more than one occasion to the
same person, and such Award may include an Incentive Stock Option,
Nonqualified Stock Option, Restricted Stock Award, Stock Appreciation Right,
Dividend Equivalent Right, Performance Award, Incentive Award, or any
combination thereof.
2.4. Withholding Taxes on Plan Benefits. The Company shall have the right to
deduct from any cash payment made pursuant to the Plan the amount of any tax
required by law to be withheld from that payment. The Company shall have the
right to require payment from any person entitled to receive Common Stock
pursuant to the Plan of the amount of any tax required by law to be withheld
with respect to that stock prior to its delivery. A Holder may elect with
respect to any Option, any Stock Appreciation or Dividend Equivalent Right
which is paid in whole or in part in Common Stock and any Restricted Stock,
Incentive or Performance Award to surrender shares of Common Stock the Fair
Market Value of which on the date of surrender satisfies all or part of the
withholding requirements. Such election must be made by filing a Stock
Surrender Withholding Election with the Secretary of LNC which meets the
following requirements and conditions:
(a) Any Stock Surrender Withholding Election shall be in writing and be
irrevocable;
(b) The Committee shall have the right with respect to any or all outstanding
awards to terminate or suspend for any period the right of a Holder to
make a Stock Surrender Withholding Election at any time prior to the
making of such election;
(c) Any Stock Surrender Withholding Election must be made prior to the date
that the amount of tax to be withheld is determined (the "Tax Date"); and
(d) If a Holder is a Reporting Person, the Stock Surrender Withholding
Election must be made:
(i) more than six months after the date of grant of the Award with respect
to which such election is made (except whenever such election is made
by a disabled Holder or the estate or personal representative of a
deceased Holder); and
(ii) either at least six months prior to the Tax Date or during the ten
day "window period" beginning on the third day following the release
for publication of LNC's summary statement of earnings for a quarter
or fiscal year.
2.5. Awards to Employees Who Are Foreign Nationals. Without amending the Plan,
the Committee may, subject to the limitations in subsections 1.5 and 1.9,
grant, amend, administer, annul or terminate awards to employees who are
foreign nationals on such terms and conditions different from those specified
in the Plan as may in the judgment of the Committee be necessary or desirable
to foster and promote achievement of the purposes of the Plan.
SECTION 3
STOCK OPTIONS
3.1. Grantees. The Committee may, at any time, award an Incentive Stock
Option or Nonqualified Stock Option to an eligible employee, agent, or broker
whether or not such individual has previously received a grant under the Plan.
3.2. Stock Option Agreement. Each Option granted under the Plan shall be
evidenced by an agreement between the Holder and LNC. The Provisions of each
agreement shall be determined by the Committee in accordance with the
provisions of the Plan. LNC shall notify a Holder of any grant of an Option,
and a written option agreement or agreements shall be duly executed and
delivered by LNC to the Holder.
3.3. Shareholder Rights and Privileges. A Holder shall be entitled to all
rights and privileges of a shareholder only with respect to such shares of
Common Stock as have been purchased on exercise of the Option and for which
certificates of stock have been registered in the Holder's name.
3.4. Individual Limitations. In the case of Incentive Stock Options, the
aggregate Fair Market Value (determined as of the time the Option is granted
according to Section 422(d)(1) of the Code) of shares of Common Stock with
respect to which are exercisable for the first time in any one calendar year
by any one individual cannot exceed $100,000 (or such other individual limits
as may be in effect under the Code on the date of grant). In the case of
Options, the maximum number of Options awarded to one individual cannot
exceed 100,000 Options.
3.5. Exercise of Options and Payment. The price at which a share of Common
Stock may be purchased upon exercise of an Option shall not be less than 100%
of the Fair Market Value of a share of Common Stock when the Option is
granted. During any period that an Option is exercisable, it may be exercised
by delivering an irrevocable notice of exercise which specifies the number of
shares purchased and full payment of the purchase price to the Secretary of
LNC. Payment may be made in cash, in shares of Common Stock with an aggregate
Fair Market Value equal to the purchase price, or in any combination of cash
and such shares, provided, however, payment of the exercise price may only be
made in shares of Common Stock which have been owned by the Holder for at
least six months.
3.6. Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times, commencing not earlier than
six months from the date of grant, as determined by the Committee. Generally,
Options granted to a Holder shall not be exercisable prior to the first
anniversary of the grant date except, in the discretion of the Committee and
subject to the limitations of subsection 3.4, if the Holder`s employment
with LNC and all Subsidiaries terminates by reason of death, disability, or
retirement (as described in subsection 3.7(d)).
3.7. Option Period. Each Option shall terminate and not be exercisable as
specified by the Committee which date shall not be later than the earliest of
(a) the tenth anniversary of the grant date; (b) the last day of the three-
month period beginning on the date the Holder's service with LNC and all
Subsidiaries terminates for reasons other than described in (c), (d) or (e)
following; (c) the first anniversary of the date of Holder's termination of
service with LNC and all Subsidiaries on account of death or Disability;
(d) the fifth anniversary of the Holder's retirement at or after age 65 or,
with the approval of the Holder's employer, early retirement at either age 55
with 5 years of service or under the terms of a retirement plan of LNC or a
Subsidiary, or (e) the sixth anniversary of the Holder's termination of
service after a Change of Control of LNC.
3.8. Transferability. An Option shall not be transferable except by will or
the laws of descent and distribution, and may be exercisable during the
Holder's lifetime only by the Holder; provided, however, to the extent
permitted under Rule 16b-3 under the Securities Exchange Act of 1934, the
Committee may develop rules to permit the transfer of Nonqualified Options to
an immediate family member of the Holder or to a family trust.
3.9. Surrender of Options. The Committee (concurrently with the grant of an
Option or subsequent to such grant) may in its sole discretion, grant to any
Option Holder the right upon written request to surrender any exercisable
Option or portion thereof in exchange for cash, whole shares of Common Stock
or a combination thereof, as determined by the Committee, with a value equal
to the Fair Market Value, as of the date of such request, of one share of
Common Stock over the Option price for such share multiplied by the number
of Shares covered by the Option or portion thereof to be surrendered. In
the case of any such surrender right which is granted with an Incentive
Stock Option, such right shall be exercisable only when the Fair Market Value
of the Common Stock exceeds the price specified therefor in the Option or
portion thereof to be surrendered. In the event of the exercise of any
surrender right granted hereunder; the number of shares reserved under the
Plan shall be reduced only to the extent that shares of Common Stock are
actually issued in connection with the exercise of such surrender right.
Additional terms and conditions governing any such surrender rights may from
time to time be prescribed by the Committee in its sole discretion.
SECTION 4
STOCK APPRECIATION RIGHTS
4.1. Holders. The Committee may, at the time an Award is made, designate
that a Holder be granted, in conjunction with that Award, a Stock Appreciation
Right ("SAR"). No SAR may be granted in conjunction with a previously granted
Incentive Stock Option without the written consent of the affected Holder. No
more than 100,000 SARs may be awarded to one participant in one calendar year.
For purposes of the Plan, the term "Stock Appreciation Right" means a right to
surrender all or a portion of an Option and receive, in exchange, payment of a
cash amount no greater than the excess of the Fair Market Value of one or more
shares of LNC Common Stock over the Fair Market Value of such Option share on
the date the related Option was granted. Each Stock Appreciation Right
granted under the Plan shall be evidenced by an agreement between the Holder
and LNC. The provisions of each agreement shall be determined by the
Committee in accordance with the provisions of the Plan.
4.2. Terms of SARs. The Committee shall determine the number of shares of
Common Stock and the percentage (not more than 100 percent) or maximum amount
of the increase in the Fair Market Value of those shares over the relevant
period upon which payment of each SAR at exercise shall be based. Each SAR may
be exercisable at any date with respect to no more than the number of shares
for which the related Option is exercisable on that date. Each SAR issued in
conjunction with an Incentive Stock Option may be exercisable only when there
has been an increase in Fair Market Value of the shares over the relevant
period. If a Holder to whom an SAR has been granted is subject to Section 16
of the Securities Exchange Act of 1934, as amended, the Committee may, at any
time, impose such conditions and limitations to such SAR as the Committee
deems necessary or desirable for the Holder to comply with or obtain an
exemption from such Section 16 and applicable rules and regulations. The
terms of an SAR may include such other conditions and limitations on exercise
as the Committee deems desirable.
4.3. Exercise of SARs and Payment. During any period that a SAR is
exercisable, it may be exercised by delivering an irrevocable written
notice to the Secretary of LNC which specifies the extent to which the SAR
is being exercised. Payment to the Holder shall be made as soon as
practicable after exercise of the SAR and may be made in cash, in shares of
Common Stock with an aggregate Fair Market Value on the date of exercise
equal to the amount to be paid, or in any combination of cash and such
shares as determined by the Committee. Upon exercise of an SAR, the right to
exercise the related Option shall automatically be terminated to the same
extent that the SAR was exercised. Upon exercise of an SAR attached to a
Restricted Stock Award, the restrictions on the Restricted Stock Award shall
lapse.
4.4. Termination of SARs. Each SAR shall terminate and not be exercisable
after the same date that the related Award terminates.
4.5. Transferability. Each SAR granted to a Holder shall not be transferable
except by will or the laws of descent and distribution; provided, however, to
the extent permitted under Rule 16b-3 under the Securities Exchange Act of
1934, the Committee may develop rules to permit the transfer of the SAR
together with the related Option and only to the extent that the related
Option may be transferred.
SECTION 5
RESTRICTED STOCK AWARDS
5.1. Holders. The Committee may, at any time, designate a Holder to receive
a Restricted Stock Award whether or not the Holder has previously received a
grant under the Plan. For purposes of the Plan, the term "Restricted Stock
Award" means the right to receive, at specified times and subject to
specified conditions, shares of Common Stock which may bear such restrictive
endorsements as the Committee determines. Each Restricted Stock Award ("RSA")
shall be evidenced by an agreement between the Holder and LNC. The
provisions of each agreement shall be determined by the Committee in
accordance with the provisions of the Plan.
5.2. Grants of Restricted Stock Awards. The Committee shall, subject to sub-
section 1.5 and this Section 5, determine the number of shares of Common Stock
which may be awarded, the time or times the shares may be awarded, and the
conditions which must be met for award and delivery of the shares to the
Holder under each RSA granted under the Plan. An RSA may provide, in the
discretion of the Committee, for the crediting to the Holder, on each dividend
payment date, of an amount equal to the product of the dividend paid on a
share of Common Stock multiplied by the number of shares which may be awarded
under that RSA, and for the payment in cash to the Holder of the amounts so
credited at such time as the committee may determine. An RSA may provide, in
the discretion of the Committee, for the issuance of the shares which may be
awarded under the RSA in the name of the Holder subject to the following
restrictions:
(a) the shares may not be issued earlier than six months after the grant of
the RSA;
(b) the shares may not be sold, transferred, pledged or otherwise assigned
or encumbered;
(c) each stock certificate shall be registered in the name of the Holder and
deposited with the Secretary of LNC;
(d) if dividends are paid on the shares, they shall be paid to the Holder
at such times as the Committee shall determine; and
(e) the shares and any dividends accumulated shall be subject to forfeiture
in accordance with subsection 5.4.
Subject to the foregoing restrictions, the Holder shall have all of the rights
of a holder of Common Stock with respect to the shares issued to him or her
under this subsection 5.2.
5.3. Distribution of Shares. Subject to the provisions of subsection 5.4, each
RSA shall provide for the distribution of the awarded shares of Common Stock
free of all restrictions to the Holder or, in the event of the Holder`s death,
the person or persons to whom the RSA was transferred by will or the laws of
descent and distribution. Distribution shall be provided for at such time or
times during the period beginning on the first anniversary of the date of
grant of the RSA and ending on a date as the Committee shall determine; except
that, in the discretion of the Committee, distribution may be provided for
prior to such first anniversary if the Holder's service with LNC and all
Subsidiaries terminates on account of death, Disability, or retirement (as
described in subsection 3.7(d)).
5.4. Forfeiture. Each RSA shall provide that a Holder shall forfeit all
rights under the RSA, all shares of Common Stock issued pursuant to the RSA
which had not been distributed to the Holder free of all restrictions, and all
undistributed amounts credited to the Holder with respect to dividends paid on
Common Stock pursuant to the RSA if:
(a) the Holder`s service with LNC and all Subsidiaries terminates for any
reason other than death, Disability, retirement (as described in
subsection 3.7(d)), or other reasons determined by the Committee which
should not cause forfeiture; or
(b) the conditions, if any, specified in the RSA are not fully satisfied
within the prescribed time.
5.5. Transferability. Each RSA granted to a Holder may not be transferred
by the Holder except by will or the laws of descent and distribution.
SECTION 6
INCENTIVE AWARDS
6.1 General. An Incentive Award may be granted hereunder in the form of
shares. Incentive shares may be granted to an eligible employee for no cash
consideration, for such minimum as may be required by applicable law, or for
such other consideration as may be specified by the grant. The terms and
conditions of incentive shares shall be specified by the grant.
6.2 Terms of Incentive Awards. Incentive shares may be paid to the grantee
in a single installment or in installments and may be paid at the time of
grant or deferred to a later date or dates. Each grant shall specify the
time and method of payment as determined by the Committee, provided that no
such determination shall authorize delivery of shares to be made later than
the tenth anniversary of the Holder's date of termination. The Committee, by
amendment of the grant prior to delivery, can modify the method of payment
for any incentive shares, provided that the delivery of any incentive shares
shall be completed not later than the tenth anniversary of the Holder's date
of termination.
6.3 Distribution of Incentive Awards. If any incentive shares are payable
after the Holder dies, such shares shall be payable (a) to the Holder's
designated beneficiary or, if there is no designated beneficiary, to the
Holder's personal representative, and (b) either in the form specified
by the Award or otherwise, as may be determined in the individual case by the
Committee under this Plan.
6.4 Forfeiture. Any grant of incentive shares is provisional, as any share,
until delivery of the certificate representing such share. If, while the grant
is provisional,
(a) the grantee terminates, but does not terminate normally, or
(b) the grantee is determined to have engaged in detrimental activity,
the grant shall be annulled as of the date of termination or, the date
of such determination, as the case may be.
6.5. Management Incentive Plan II. The Committee may, in its discretion,
designate that a Holder who is eligible for a cash award under the terms of
the LNC Management Incentive Plan II (the "MIP II Plan") receive such award as
a grant of restricted stock in lieu of all or a portion of the MIP II Plan cash
award, such RSA shall be made subject to subsection 1.5 and Section 5. The
amount, if any, of the MIP II award which is not paid as an RSA shall be paid
in cash. This cash payment shall be determined by subtracting from the MIP II
Plan award the total Fair Market Value, on the date of the RSA, of the shares
of Common Stock represented by the RSA without discount for any restrictions.
6.6. Executive Value Sharing Plan. The Committee may, in its discretion,
designate that a Holder who is eligible for a cash award under the terms of
the LNC Executive Value Sharing Plan (the "EVS Plan") receive such award as a
grant of restricted stock in lieu of all or a portion of the EVS Plan cash
award. If the Committee decides to make an RSA in lieu of all or a portion
of the EVS Plan cash award, such RSA shall be made subject to subsection 1.5
and Section 5. The amount, if any, of the EVS Plan award which is not paid
as an RSA shall be paid in cash.
6.7. Career Stock. The Committee may, in its discretion, designate
Restricted Stock Awards, subject to subsection 1.5 and Section 5, to employees
of LNC and its subsidiaries who make an irrevocable election to waive
participation in and any benefits under designated retirement programs
maintained by the Company. The Committee may also, in its sole discretion,
award shares of Restricted Stock to individuals who become officers after the
effective date of the Plan in lieu of participation in certain retirement
programs maintained by the Company.
SECTION 7
PERFORMANCE AWARDS
7.1 General. Performance awards may be granted hereunder to an eligible
employee, for no cash consideration, for such minimum as may be required by
applicable law, or for such other consideration as may be specified by the
grant. The terms and conditions of performance awards, which may include
provisions establishing performance periods, performance criteria to be
achieved during a performance period, and vesting dates shall be specified
by the award.
7.2 Terms of Performance Awards. Performance awards shall be credited as of
the date of the award to a bookkeeping reserve account maintained by LNC
("Account") in units which are equivalent in value to Shares of Common Stock
("Stock Units"). Performance awards may be paid in cash, shares, or other
consideration, or any combination thereof. The extent to which any applicable
performance criteria have been achieved shall be conclusively determined by
the Committee. Performance awards may be payable in a single payment or in
installments and may be payable at a specified date or dates or upon attaining
performance criteria.
7.3 Forfeiture. Except as otherwise specified by the award, if the Holder
terminates, but does not terminate on account of death, Disability, or
retirement, as defined in subsection 1.7(d), any performance award or
installment thereof not vested prior to the Holder's termination shall be
annulled as of the date of termination.
7.4 Executive Value Sharing Plan. The Committee may, in its discretion,
designate that a person who is eligible to receive a cash award under the EVS
Plan receive such award in Stock Units as a Performance Award. The Committee
may also in its sole discretion convert outstanding RSAs to Stock Units as
Performance Awards.
7.5 Transferability. Each Performance Award shall not be transferable
except by will or the laws of descent and distribution.
SECTION 8
DIVIDEND EQUIVALENT RIGHTS; INTEREST EQUIVALENTS
8.1 Dividend Equivalent Right. A Dividend Equivalent Right or DER may be
granted hereunder to an eligible employee, as a component of another award or
as a separate award. The terms and conditions of DERs shall be specified
by the grant. Dividend equivalents credited to the holder of a DER may be
paid currently or may be deemed to be reinvested in additional shares (which
may thereafter accrue additional dividend equivalents). Any such reinvestment
shall be at Fair Market Value at the time thereof. DERs may be settled in
cash or shares or combination thereof, in a single installment or
installments. A DER granted as a component of another award may provide that
such DER shall be settled upon exercise, settlement, or payment of, or lapse
of restrictions on, such other award, and that such DER shall expire or be
forfeited or annulled under the same conditions as such other awards. A DER
granted as a component of another award may also contain terms and conditions
different from such other award.
8.2 Interest Crediting. Any award under this Plan that is settled in whole
or in part in cash on a deferred basis may provide, as determined in the sole
discretion of the Committee, for interest equivalents to be credited with
respect to such cash payment. Interest equivalents may be compounded and
shall be paid upon such terms and conditions as may be specified by the grant.
SECTION 9
POSTPONEMENT OF EXERCISE
The Committee may postpone any exercise of an Option or SAR or distribution
pursuant to an RSA for such time as the Committee in its discretion may deem
necessary in order to permit LNC (a) to effect or maintain registration of
the Plan or Common Stock issuable pursuant to the Plan under the Securities
Act of 1933, as amended, or the securities laws of any applicable
jurisdiction; (b) to take any action necessary to comply with restrictions
or regulations incident to the maintenance of a public market for
Common Stock; or (c) to determine that no action referred to in (a) or
(b) above needs to be taken. LNC shall not be obligated to issue shares upon
exercise of any Option or SAR or to issue shares pursuant to an RSA in
violation of any law. Any such postponement shall not extend the term of an
Award. Neither LNC nor its directors or officers shall have any obligation or
liability to any Holder (or successor in interest) because of the loss or
rights under any Award under the Plan due to postponements pursuant to this
Section 10.
EX-5
3
(219) 455-1263
August 31, 1995
Securities and Exchange Commission
Division of Corporation Finance
Judiciary Plaza
450 Fifth Street, N.W.
Washington, DC 20549
Re: Lincoln National Corporation 1986 Stock Option Incentive Plan ("Plan")
Ladies and Gentlemen:
I have acted as counsel for Lincoln National Corporation, an Indiana
corporation ("Issuer"), in connection with the registration of 5,000,000
shares of the Issuer's Common Stock to be issued upon exercise of options
granted for no consideration to certain of the Company's employees and
non-employee agents of the Company.
At the request of the Management of Lincoln National Corporation, I have made
such examination of law and have examined such records and documents as I have
deemed necessary to render the opinion expressed below.
Based upon my examination of such documents and corporate proceedings as I
have deemed relevant, I am of the opinion that:
1. The Company is a duly organized and existing corporation under the laws
of the state of Indiana;
2. The issued shares of Common Stock of the Company have been duly
authorized and are validly issued, fully paid and nonassessable; and
3. The shares of Common Stock covered by the registration statement on Form
S-3 have been duly authorized and, when issued as provided in the Plan,
such shares will be validly issued, fully paid and nonassessable.
I hereby consent to the conclusion of this opinion as an exhibit to this
Registration Statement on Form S-3.
Sincerely,
/S/ DENNIS L. SCHOFF
Dennis L. Schoff
Assistant General Counsel
EX-8
4
August 30, 1995
Lincoln National Corporation
200 East Berry Street
Fort Wayne, Indiana 46802
Gentlemen:
In connection with the registration of certain shares of Common
Stock of Lincoln National Corporation (the "Company") pursuant to the Lincoln
National Corporation 1986 Stock Option Incentive Plan (the "Plan"), as
described in a Registration Statement on Form S-3 to be filed by the Company
on or about August 31, 1995 (the "Registration Statement"), we have been asked
to render our opinion to you with respect to certain income tax consequences,
under the Internal Revenue Code of 1986, as amended (the "Code"), of various
transactions contemplated by the Plan.
We have examined the provisions of the Plan and made such other
investigations and inquiries as we deem necessary in order to enable us to
render this opinion. Assuming that the transactions contemplated by the Plan
are carried out in conformity with the terms of the Plan, it is our opinion
that the tax consequences of each transaction will be as described in the
relevant section below.
THE PLAN
The Plan was most recently amended by the Company's Board of
Directors and approved by the Company's shareholders in 1994. The Plan is
administered by a committee (the "Committee") of no fewer than three directors
who are generally members of the Compensation Committee of the Board and who
are "disinterested persons" within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934 (the "Act"). The Committee, in its sole discretion,
determines the timing of any award and the type and amount of the award to be
granted to any participant from among the various forms available under the
Plan: incentive stock options, nonqualified stock options, stock appreciation
rights, restricted stock awards, incentive awards, performance awards, and
dividend equivalent rights. The Plan further specifies the maximum aggregate
number of shares of Company Common Stock for which stock options or awards may
be granted, the earliest permissible exercise date, the maximum exercise
period of stock options and stock appreciation rights, and other terms and
conditions regarding the exercise of options or enjoyment of rights under the
Plan.
TAX TREATMENT OF AWARDS UNDER THE PLAN
Incentive Stock Options
Under Code Section 421, special tax treatment is available for
incentive stock options, within the meaning of Code Section 422(b), provided
certain holding and exercise timing requirements are met . Consistent
with Code Section 422(b), only those options that are designated by the
Committee as incentive stock options and that meet certain requirements will
be treated as such. Specifically, an option will be treated as an incentive
stock option only if, consistent with Code Section 422(b), it:
(1) is granted pursuant to a plan that specifies the aggregate
number of shares that may be issued pursuant to options and
the employees (or class(es) of employees) who are eligible
to receive options, and that is approved by shareholders of
the corporation granting the options within 12 months of the
date on which the plan is adopted;
(2) is granted within ten years of the earlier of the date on
which the plan was adopted or the date on which the plan was
approved by shareholders;
(3) is not, by its terms, exercisable after the expiration of
ten years from the date of grant;
(4) is exercisable for a price not less than the fair market of
the underlying stock on the date of grant;
(5) is not transferable by the grantee other than by will or by
the laws of descent and distribution, and is exercisable
during the grantee's lifetime only by the grantee; and
(6) is granted to an individual who, at the time of grant, does
not own stock possessing more than ten percent of the total
combined voting power of all classes of stock of the
employer corporation or of its parent or subsidiary
corporation.
The Plan includes provisions designed to comply with the above
requirements of Code Section 422(b). Consequently, the options granted to
employees as incentive stock options in accordance with the terms of the Plan
satisfy the requirements of Code Section 422(b), and the employees who receive
these options will be taxed in accordance with the rules of Code Section 421.
Thus, under Code Section 421, the granting of an incentive stock option will
not result in taxable income to the participant at the time of grant. Code
Section 83(e); see, Commissioner v. LoBue, 351 U.S. 243 (1956). The exercise
of the incentive stock option also will ordinarily have no federal income tax
consequences to the participant, provided that the incentive stock option is
exercised during a particular time period. Specifically, the incentive stock
option must be exercised: (1) while the participant is employed by the Company
or a subsidiary; (2) within three months after the participant ceases to be an
employee of the Company or a subsidiary; (3) after the participant's death,
where the participant was an employee of the Company within three months
before his death; or (4) within one year after the participant ceases to be an
employee of the Company or a subsidiary, if the participant's employment is
terminated because of permanent and total disability (within the meaning of
Code Section 22(e)(3)). Code Sections 421(a)(1), 422(a)(2), 422(b)(5),
422(c)(6); Treas. Reg. Section 1.421-8(c)(1). If an incentive stock option is
not exercised during one of these periods, it will be treated for tax purposes
as a nonqualified stock option (the tax treatment of which is described
below).
If the shares acquired pursuant to the timely exercise of an
incentive stock option are held for at least one year after they are acquired
and two years after the date on which the incentive stock option was granted
to the participant (the "required period"), and if the shares constitute a
capital asset in the hands of the participant, then any gain on disposition of
the shares will be taxable as long-term capital gain and no corresponding
deduction will be allowed to the Company. See, Code Sections 421(a), 1001,
1221, 1222.
If the shares acquired pursuant to a timely exercise of an
incentive stock option are disposed of before the expiration of the required
period (in what is referred to as a "disqualifying disposition"), then the
nonrecognition treatment of Code Section 421(a) does not apply. Code
Section 421(a)(1). Instead, pursuant to the provisions of Code
Section 83, any gain realized on the disposition, up to the difference between
the participant's basis (as defined below) in the shares and the fair market
value of the shares at the date of exercise will be taxable as ordinary
income. In addition, the Company will be allowed a contemporaneous deduction
in the amount of such income. The Company will only be allowed such a
deduction, however, if (1) the Company reports the income to the participant
on Form W-2 or W-2c (as applicable) and files it with the Internal Revenue
Service on or before the date on which the employer files its tax return
claiming the deduction relating to the disqualifying disposition, or (2) the
Company can demonstrate that the employee actually included the amount in
income. Treas. Reg. Section 1.83-6.
To the extent that the shares acquired in connection with the
disqualifying disposition constitute a capital asset in the hands of a
participant, any additional gain realized will generally be taxable to the
participant as long or short-term capital gain depending on the period for
which the shares were deemed to have been held. Code Sections 1001, 1221,
1222. If the shares are disposed of at a loss, the loss generally will be
long or short-term capital loss depending on the holding period. Code
Sections 1001, 1221, 1222. A discussion of holding periods and the federal
income tax treatment of a long-term capital gain is addressed under "Capital
Gains Treatment," infra.
A participant's basis in shares of Common Stock acquired pursuant
to the exercise of an incentive stock option will equal the sum of any cash
paid for such shares plus the basis of any shares surrendered, as determined
immediately before the surrender, plus any income recognized on the
disposition of the surrendered shares. If a participant uses shares of the
Company's Common Stock to exercise his incentive stock option and such shares
either were not acquired by the prior exercise of an incentive stock option or
were so acquired, but were held by him for the required period, we believe,
although we cannot opine, that, under Code Sections 1031(d) and 1036, the
participant will recognize no gain in connection with the transaction and that
the basis of the shares that the participant surrenders carries over to the
same number of shares received upon the exercise of the option; the
participant's basis in any remaining shares so acquired will be equal to the
exercise price of the option We also believe, although we cannot opine,
that, under Code Sections 1031(d), 1036 and 1223, the participant's holding
period in such same number of shares will include the participant's holding
period in the shares surrendered. Cf., Weir v. Commissioner, 10 T.C. 996
(1948), aff'd per curiam, 173 F.2d 222, (3d Cir. 1949).
If (1) a participant uses shares of the Company's Common Stock to
exercise his incentive stock option, (2) such shares were acquired upon a
prior exercise of an incentive stock option or another type of statutory
option, and (3) such shares were not held for the required period, the
participant is not able to avoid recognition of gain on the transaction
because Code Section 424(c)(3) provides that Code Section 1036 does not apply
in these circumstances. Accordingly, the participant's basis in the shares
acquired upon exercise of his incentive stock option will equal the sum of the
basis of shares surrendered, as determined immediately before the surrender,
plus any income recognized on the disposition of the surrendered shares by
reason of Code Section 421(b).
The amount by which the fair market value, determined at the time
of exercise, of a share of Company Common Stock acquired pursuant to the
exercise of an incentive stock option exceeds the option price shall, along
with other specified items, constitute an adjustment for the purpose of
determining the participant's alternative minimum taxable income. Code
Section 56(b)(3). Such adjustments are potentially subject to alternative
minimum tax, at a rate of 26 percent or 28 percent, as determined by a formula
involving special deductions, additions and exemptions. See, e.g., Code
Section 55. As a result, the exercise of an incentive stock option may
subject a participant to an alternative minimum tax depending on that
participant's particular circumstances. For purposes of computing alternative
minimum taxable income realized on a subsequent disposition of shares acquired
pursuant to the exercise of an incentive stock option, the participant's basis
in the stock so acquired shall be increased by the amount that alternative
minimum taxable income was increased due to the earlier exercise of the stock
option. Code Section 56(b)(3).
Nonqualified Stock Options
The grant of a nonqualified stock option under the Plan is a
transfer of property within the meaning of Code Section 83. Nevertheless, the
grant of a nonqualified stock option will not result in taxable income to the
participant at the time of grant, because a nonqualified stock option granted
under the Plan is of a type not actively traded on an established market, is
not transferable by the participant, and has no readily ascertainable fair
market value. Code Section 83(e); Treas. Reg. Section 1.83-7. Upon exercise
of a nonqualified stock option, however, the participant will be subject to
tax. Treas. Reg. Section 1.83-7. Specifically, at the time of exercise, the
participant will recognize ordinary income equal to the excess, if any, of the
fair market value of the shares on the date of exercise over the option price
of the shares. Code Section 83(a).
When the participant recognizes taxable income as a result of the
exercise of a nonqualified stock option, the Company will generally be
entitled to claim a deduction in the amount of the participant's income
inclusion. Code Section 83(h). The Company will be able to claim such a
deduction, however, only if the participant includes the related income in his
or her taxable income. Id. The participant will be deemed to have included
the amount in income if the Company properly completes Form W-2 or 1099 (as
applicable) and timely files the form with both the participant and the
Internal Revenue Service. If the applicable form is not timely filed, the
Company will be entitled to a deduction only if it can demonstrate that the
participant actually included the amount in income. Treas. Reg.
Section 1.83-6.
If a participant exercises his nonqualified stock option using
cash, the basis of the shares he acquires will equal the option price
plus the amount included in his income upon exercise. Treas. Reg.
Sections 1.61-2(d)(2)(i), 1.61-2(d)(6)(i). If the participant uses shares of
the Company's Common Stock to exercise his nonqualified stock option, the
basis of the shares he surrenders carries over to the same number of shares
received upon the exercise of the option. Code Sections 1031(d), 1036; Rev.
Rul. 80-244, 1980-2 C.B. 234. We believe, although we cannot opine, that,
under Code Sections 1031(d), 1036 and 1223, the participant's holding period
in the same number of shares will include the participant's holding period in
the shares surrendered. Cf., Weir. The basis of any additional shares
received is the same as the amount included in his gross income plus any cash
the participant pays in connection with the exercise of the option. Treas.
Reg. Sections 1.61-2(d)(2)(i), 1.61-2(d)(6)(1); Rev. Rul. 80-244. To the
extent that the shares constitute a capital asset in the hands of a
participant, on subsequent disposition of the shares acquired under a
nonqualified stock option, the difference between the amount received for the
shares and the basis of the shares will be treated as long-term or short-term
capital gain or loss, depending on the holding period. Code Sections 1001,
1221, 1222. A discussion of holding periods and the federal income tax
treatment of a long-term capital gain is addressed under "Capital Gains
Treatment," infra.
Stock Appreciation Rights
A stock appreciation right is not property within the meaning of
Code Section 83 because, unlike an option, it represents nothing more than the
Company's promise to pay the participant cash and/or shares of Company Common
Stock when the participant elects to exercise the stock appreciation right.
See, Treas. Reg. Section 1.83-3(e); e.g., Priv. Ltr. Rul. 8230147, (April 30,
1982). Thus, the granting of a stock appreciation right will not result in
taxable income to the participant at the time of grant. When and to the
extent that a stock appreciation right is paid in cash, the participant will
recognize ordinary income equal to the amount of cash received. See, Code
Section 61; Rev. Rul. 80-300, 1980-2 C.B. 165. When and to the extent that a
stock appreciation right is paid in shares of the Company's Common Stock, the
participant will recognize taxable income equal to the fair market value of
any shares received. Code Section 83(a); see also, Rev. Rul. 80-300.
When the participant recognizes taxable income as a result of the
exercise of a stock appreciation right, the Company will generally be entitled
to claim a deduction in the amount of the participant's income inclusion.
Code Sections 404(a)(5), 83(h); e.g., Priv. Ltr. Rul. 8230147, (April 30,
1982). To the extent, however, that the participant's income inclusion is
attributable to payment of the stock appreciation right in the form of shares
of Company Common Stock, the Company will be able to claim such a deduction
only if the participant includes or is deemed to have included the related
income in his or her taxable income, as described above. Treas. Reg.
Section 1.83-6.
To the extent that any shares acquired upon exercise of a stock
appreciation right constitute a capital asset in the hands of a participant,
on the disposition of any such shares, the difference between the amount
received for the shares and the fair market value of the shares as of the
exercise of the stock appreciation right will be treated as long-term or
short-term capital gain or loss, depending on the holding period. Code
Sections 1001, 1221, 1222. A discussion of holding period and the federal
income tax treatment of a long-term capital gain is included under "Capital
Gains Treatment," infra.
Restricted Stock Awards
Shares of Company Common Stock granted to a participant pursuant
to a restricted stock award will be property subject to taxation under Code
Section 83. The Plan provides that: (1) such shares will be subject to such
restrictions as the Committee may determine; (2) these restrictions will
generally remain in effect until the participant's death, disability,
retirement, completion of a specified period of continued employment, or the
occurrence of some other event specified by the Committee; (3) if the
participant terminates employment prior to the time that the restrictions
lapse, the participant will forfeit any shares subject to the restrictions;
and (4) shares subject to restriction are generally not transferable other
than by will or the laws of descent and distribution. Consequently, if the
restricted stock awards are made pursuant to agreements that are consistent
with the terms of the Plan, the shares transferred pursuant to such an award
should be considered to be subject to a "substantial risk of forfeiture"
within the meaning of Code Section 83. Code Section 83(c)(1); Treas. Reg.
Section 1.83-3(c). Thus, the granting of a restricted stock award or issuance
of restricted shares will not result in taxable income to the participant at
the time of grant or issuance. Code Section 83(a); Treas. Reg.
Section 1.83-3(c)(4) (Example (1)).
Instead, the participant will normally recognize ordinary income
on the lapse of the restrictions in an amount equal to the fair market value
of the shares on the date of lapse. Code Section 83(a). Nevertheless, the
participant may elect, within 30 days after issuance of the restricted stock,
to treat the fair market value of the restricted stock at issuance as ordinary
income, in which case any subsequent appreciation in the value of the shares
will not be taxed to the participant on the date of lapse. Code
Section 83(b). On the other hand, the participant will also not be entitled
to a deduction at the date of lapse for any portion of the amount included in
income as a result of the Section 83(b) election if there is a subsequent
decline in the value of the shares or if the participant forfeits the shares.
Id. If, however, the stock is a capital asset in the hands of the
participant, the participant will be allowed to treat any decline in value or
any forfeiture as giving rise to a capital loss. Treas. Reg.
Section 1.83-2(a).
At the time a participant recognizes income pursuant to a
restricted stock award, the Company will be entitled to a corresponding and
contemporaneous deduction only if the participant includes or is deemed to
have included the related income in his or her taxable income, as described
above. Treas. Reg. Section 1.83-6.
To the extent that the restricted shares are a capital asset in
the hands of the participant, on disposition of the shares after restrictions
lapse, the difference between the amount received and the fair market value of
the shares on the date of lapse (or on the date of issuance if the participant
made the election described above) will be treated as long-term or short-term
capital gain or loss, depending on the holding period. Code Sections 1001,
1221, 1222. A participant's holding period in the shares will begin just
after the restrictions to which they are subject lapse unless he makes an
election as noted above, in which case the holding period in his shares will
begin just after the date the Company Common Stock is transferred to him.
Code Section 83(f); Treas. Reg. Section 1.83-4(a).
Amounts equivalent to dividends received by the participant under
the restricted stock award and dividends paid on restricted stock received by
the participant prior to the lapse of restrictions will be taxable as ordinary
income to the participant and a corresponding and contemporaneous deduction
should be allowed to the Company unless the participant made the election
permitted under Code Section 83(b), as described above. See, Treas. Reg.
Section 1.83-1(a)(1); see, e.g, Priv. Ltr. Rul. 8139032 (June 30, 1981). If
such an election was made, dividends paid on restricted stock will be taxable
as dividends and no corresponding deduction will be allowed. Rev. Rul. 83-22,
1983-1 C.B. 17; see also, Treas. Reg. Section 1.83-2(a).
The foregoing analysis applies equally to any restricted stock
awards and any shares acquired pursuant to such an award, regardless of
whether the awards were made under the Plan or as a result of a conversion to
restricted stock awards of cash awards made under the Company's Management
Incentive Plan II or the Company's Executive Value Sharing Plan.
Incentive Awards, Performance Awards and Dividend Equivalent Rights
Like a stock appreciation right, incentive awards, performance
awards and dividend equivalent rights granted under the Plan represent nothing
more than the Company's promise to pay the participant cash and/or shares of
Company Common Stock at some point in the future; therefore, at the time of
grant, these awards and rights are not property subject to taxation under Code
Section 83. See, Treas. Reg. Section 1.83-3(e). Thus, the granting of such
an award or right will not result in taxable income to the participant at the
time of grant. When and to the extent that an award or right is paid in cash,
the participant will normally recognize ordinary income equal to the amount of
cash received. Code Section 61. To the extent that an award or right is paid
in shares of the Company's Common Stock, the participant will normally
recognize taxable income equal to the fair market value of any shares received
as of the later of when the shares are received or when the shares cease to be
subject to a substantial risk of forfeiture. Code Section 83(a). Generally,
shares acquired pursuant to an incentive award, a performance award or a
dividend equivalent right are not subject to a substantial risk of forfeiture
for purposes of Code Section 83. Nevertheless, such shares will be considered
to be subject to a substantial risk of forfeiture so long as sale of the
shares could subject the participant to suit under the provisions of Section
16(b) of the Act. Under the Plan, a sale can subject a participant to suit
under Section 16(b) of the Act only in limited circumstances. In the
event a participant sells in such circumstances, the participant may
nevertheless be taxed on the date of exercise if the participant makes the
election permitted under Code Section 83(b). Code Section 83(c)(3). On
the other hand, the participant will not be entitled to a deduction (upon the
lapse of the restrictions of Section 16(b) of the Act) for any portion of the
amount included in income as a result of this election if there is a
subsequent decline in the value of the shares. Id. If the stock is a capital
asset in the hands of the participant, however, the participant will be
allowed to treat the decline in value as giving rise to a capital loss.
Treas. Reg. Section 1.83-2(a).
When the participant recognizes taxable income as a result of the
payment of an incentive award, a performance award or a dividend equivalent
right, the Company will generally be entitled to claim a deduction in the
amount of the participant's income inclusion. Code Sections 404(a)(5), 83(h).
To the extent, however, that the participant's income inclusion is
attributable to payment of the award or right in the form of shares of Company
Common Stock, the Company will be able to claim such a deduction only if the
participant includes or is deemed to have included the related income in his
or her taxable income, as described above. Treas. Reg. Section 1.83-6.
To the extent that any shares acquired upon payment of an award or
right constitute a capital asset in the hands of a participant, on the
disposition of any such shares, the difference between the amount received for
the shares and the fair market value of the shares as of the exercise of the
stock appreciation right will be treated as long-term or short-term capital
gain or loss, depending on the holding period. Code Sections 1001, 1221,
1222. A discussion of holding period and the federal income tax treatment of
a long-term capital gain is included under "Capital Gains Treatment," infra.
The foregoing analysis applies to any shares acquired pursuant to
performance awards regardless of whether the awards were made under the Plan
or as a result of a conversion to performance awards of cash awards made under
the Company's Executive Value Sharing Plan.
Capital Gains Treatment
Gain or loss from the sale or exchange of property will be treated
as long-term capital gain or loss if that property is deemed to have been held
for more than one year. Code Section 1222(3). Any gain or loss other than
long-term capital gain or loss will be treated as short-term capital gain or
loss. Code Section 1222(1).
Generally, the holding period of shares acquired pursuant to the
exercise of an incentive stock option, nonqualified stock option or stock
appreciation right begins on the date immediately following the date the
shares are acquired by exercising the option or right. Weir; Frederick v.
United States, 68-1 USTC Paragraph 9195 (E.D. Mich. 1968). In certain
circumstances, however, as discussed above, the holding period of stock
acquired pursuant to the exercise of an option using existing shares of the
Company's Common Stock includes the holding period of the existing shares.
The holding period of shares acquired pursuant to a restricted stock award, an
incentive award, a performance award or a dividend equivalent right begins on
the date following the date of acquisition, if the stock is transferred to the
participant without restriction or if it is transferred with restrictions and
the participant makes an election under Code Section 83(b). Rev. Rul 70-598,
1970-2 C.B. 168; Treas. Reg. Section 1.83-4(a). If, however, such shares are
transferred with restrictions and the participant does not make a
Section 83(b) election, the holding period begins on the date following the
date on which the restrictions lapse. Treas. Reg. Section 1.83-4(a).
For net capital gains recognized by individuals, the Code imposes
a preferential maximum tax rate of 28% (as compared with a 39.6% maximum tax
rate on ordinary income).
* * *
We are rendering no opinion as to the tax consequences of those
provisions of the Plan which relate to United Kingdom participants. We hereby
consent to the filing of this opinion as Exhibit 8 to the Registration
Statement.
Very truly yours,
Sutherland, Asbill & Brennan
By: /s/ Carol A. Weiser
Note, however, that the tax treatment accorded to incentive stock
options under Code Section 421 only applies with respect to optionees who are
"employees" of the corporation granting the option (or a related corporation).
Treas. Reg. Section 1.421-7(h). The following discussion of the tax treatment
of grantees of incentive stock options applies only to those participants in
the Plan who are "employees" (as that term is defined in Code Section 3401(c)
and the regulations promulgated thereunder) of the Company or one of its
subsidiaries at the time of the granting and exercise of an incentive stock
option. We are rendering no opinion as to the status of any individual
holding an agent's or broker's contract with a subsidiary of the Company as an
"employee." The tax treatment of options granted to or exercised by non-
employees is addressed under "Nonqualified Stock Options" below.
For purposes of determining whether shares acquired pursuant to the
exercise of an incentive stock option have been disposed of before the
expiration of the required period, the term "disposition" includes a sale,
exchange, gift or transfer of legal title of the shares, but does not include
a transfer from a decedent to an estate, a transfer by bequest or inheritance,
a pledge or hypothecation, or certain exchanges in connection with a corporate
reorganization. Code Section 424(c).
The Internal Revenue Service reached this result in the context of the
exercise of a nonqualified stock option using shares of stock acquired through
the prior exercise of a qualified stock option. Rev. Rul. 80-244, 1980-2 C.B.
234. A qualified option (which is no longer recognized under the Code) is
substantially similar to an incentive stock option (compare prior version of
Code Section 422 with the current version of that section). In addition,
Prop. Treas. Reg. Section 1.422A-2(i) indicates that the nonrecognition
treatment of Code Section 1036 and the basis substitution provided for under
Code Section 1031(d) apply in the case of an exercise of an incentive stock
option. Nevertheless, until 1992, the Internal Revenue Service had an
explicit policy of not ruling on whether the holding of Rev. Rul. 80-244
applies to incentive stock options. Rev. Proc. 91-3, 1991-1 C.B. 364. This
no-ruling policy does not appear in any revenue procedure subsequent to Rev.
Proc. 91-3, but, because we are unaware of any ruling subsequent to that time
addressing the issue, we believe the issue is not free from doubt.
If a dividend equivalent is reinvested in additional dividend equivalent
rights, the participant will recognize no taxable income at that time.
In accordance with Rule 16b-3, because the Plan is administered by at
least two disinterested directors, the grant of an option, a stock
appreciation right, a restricted stock award, an incentive award or a
performance award to a participant subject to Section 16(b) (i.e.,
participants who are policy making officers, directors or 10% beneficial owners
of the Company) will be deemed, for purposes of Section 16(b), to be a
purchase of the shares that underlie the option or award unless at least six
months have elapsed from the date the option or award was granted to the date
of the disposition of shares of Common Stock that underlie the option award or
award. Failure to comply with this holding period requirement will result in
a grant of options or awards under the Plan being deemed a "purchase" of the
underlying Common Stock for Section 16(b) purposes, which can be matched with
any sale of Common Stock (including, but not limited to, a sale of the Common
Stock obtained by exercising the option or pursuant to the award) within the
preceding or succeeding six-month period to determine whether a participant is
liable to the Company for any profits derived from the purchase and sale of
Common Stock.
Therefore, if at least six months have elapsed between the date of an award
under the Plan and the disposition of the underlying Common Stock, no purchase
of Common Stock would be deemed to have occurred under Section 16(b) for
purposes of determining whether a participant is liable to the Company for any
profits derived from the purchase and sale of Common Stock. The Plan contains
provisions that effectively prohibit the disposition of stock acquired
pursuant to a stock option, a stock appreciation right or a restricted stock
award for at least six months from the date of grant, thereby making it
impossible for a participant to be subject to suit under Section 16(b) in
connection with the grant of a stock option, a stock appreciation right or a
restricted stock award. No similar provisions are set forth in the Plan with
respect to incentive awards, performance awards or dividend equivalent rights.
Thus, taxation will be delayed beyond the date of payment of the award or
right, but only until the expiration of six months from the date of the grant
of the award or right.
As noted above, under Code Section 83(b), a participant may elect,
within 30 days after receipt of property subject to taxation under Code
Section 83, to treat the fair market value (determined as of the date
received) of the stock received pursuant to the award or right as ordinary
income.
EX-23
5
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Lincoln National
Corporation related to the Lincoln National Corporation 1986 Stock Option
Incentive Plan and to the incorporation by reference therein of our report
dated February 9, 1995, with respect to the consolidated financial statements
and schedules of Lincoln National Corporation included in its Annual Report
(Form 10-K) for the year ended December 31, 1994, filed with the Securities
and Exchange Commission.
Fort Wayne, Indiana
August 28, 1995