Eli Lilly 2008 Annual Report Download - page 112

PROXY STATEMENT
110110
For Dr. Paul, the amounts in the table above refl ect the 10 years of additional service credit described on page 106.
• Continuation of medical and welfare benefi ts. Represents the present value of the CIC Plan’s guarantee for
two years following a covered termination of continued coverage equivalent to the company’s current active
employee medical, dental, life, and long-term disability insurance. Effective October 20, 2010, the coverage
period will be reduced to 18 months. For Dr. Paul, the amount in the table refl ects the 10 years of additional
service credit described on page 106, which makes him eligible for an enhanced retiree medical benefi t. The
same actuarial assumptions were used to calculate continuation of medical and welfare benefi ts as were used to
calculate incremental pension benefi ts, with the addition of an assumed COBRA rate of $12,000 per year.
• Acceleration and continuation of equity awards. Under the CIC Plan, upon a covered termination, any unvested
stock options, restricted stock, or other equity awards would vest, and options would be exercisable for up to
three years following termination. Payment of the shareholder value award (SVA) is accelerated in the case
of a change in control in which Lilly is not the surviving entity. For the four retirement-eligible employees, Dr.
Lechleiter, Dr. Paul, Mr. Carmine, and Mr. Armitage, the only other equity award receiving accelerated vesting
and term extension because of the CIC Plan would be 5,000 shares of restricted stock held by Dr. Paul; all
other unvested equity awards (with the exception of the SVA) automatically vest upon retirement regardless of
reason. The amounts in this column represent the previously unamortized expense that would be recognized in
connection with the acceleration of unvested equity grants. In addition, the named executive offi cer who is not
retirement-eligible, Mr. Rice, would receive the benefi t under the CIC Plan of continuation of his outstanding
stock options for up to three years following termination of employment. There would be no incremental expense
to the company for this continuation because the option would already have been fully expensed.
• Excise tax reimbursement. Upon a change in control, employees may be subject to certain excise taxes under
Section 280G of the Internal Revenue Code. The company has agreed to reimburse the affected employees
for those excise taxes as well as any income and excise taxes payable by the executive as a result of the
reimbursement. The amounts in the table are based on a 280G excise tax rate of 20 percent and a 40 percent
federal, state, and local income tax rate. To reduce the company’s exposure to these reimbursements, the
employee’s severance will be cut back by up to three percent (fi ve percent effective October 20, 2010) if the effect
is to avoid triggering the excise tax under Section 280G.
Payments Upon Change in Control Alone. In general, the CIC Program is a “double trigger” program, meaning
payments are made only if the employee suffers a covered termination of employment within two years following
the change in control. Employees do not receive payments upon a change in control alone, except that upon con-
summation of a change in control a partial payment of outstanding performance awards would be made, reduced
to refl ect only the portion of the year worked prior to the change in control. For example, if a change in control
occurred on June 30, the employee would receive one-half of the value of the performance award, calculated
based on the company’s then-current fi nancial forecast for the year. Likewise, in the case of a change in control in
which Lilly is not the surviving entity, the SVA will pay out based on the change-in-control stock price and prorated
for the portion of the three-year performance period elapsed.
Related-Person Transaction
As noted above, for security reasons the company aircraft was made available to Mr. Taurel prior to his retirement
for all travel. The company entered into a time-share arrangement (now ended) with Mr. Taurel in connection with
his personal use of company aircraft. Under the time-share agreement, Mr. Taurel leased the company aircraft,
including crew and fl ight services, for personal fl ights. He paid a time-share fee based on the company’s cost of
the fl ight but capped at the greater of (i) an amount equivalent to fi rst-class airfare for the relevant fl ight (if com-
mercially available) or (ii) the Standard Industry Fare Levels as established by the Internal Revenue Service for
purposes of determining taxable fringe benefi ts.