Eli Lilly 2012 Annual Report Download - page 150

46
Termination for Cause. Executives receive no severance or enhanced benefits and forfeit any unvested equity
grants.
Change-in-Control Severance Pay Plan. As described in the “Compensation Discussion and Analysis” under
“Severance Benefits,” the company maintains a change-in-control severance pay plan for nearly all employees,
including the named executive officers. The change-in-control plan defines a change in control very specifically, but
generally the terms include the occurrence of one of the following: (i) acquisition of 20 percent or more of the
company’s stock; (ii) replacement by the shareholders of one half or more of the board of directors;
(iii) consummation of a merger, share exchange, or consolidation of the company; or (iv) liquidation of the company
or sale or disposition of all or substantially all of its assets. The amounts shown in the table for “involuntary or
good-reason termination after change in control” are based on the following assumptions and plan provisions:
• Covered terminations. The table assumes a termination of employment that is eligible for severance under the
terms of the plan, based on the named executive officer’s compensation, benefits, age, and service credit at
December 31, 2012. Eligible terminations include an involuntary termination for reasons other than for cause
or a voluntary termination by the executive for good reason, within two years following the change in control.
— A termination of an executive officer by the company is for cause if it is for any of the following reasons:
(i) the employee’s willful and continued refusal to perform, without legal cause, his or her material
duties, resulting in demonstrable economic harm to the company; (ii) any act of fraud, dishonesty, or
gross misconduct resulting in significant economic harm or other significant harm to the business
reputation of the company; or (iii) conviction of or the entering of a plea of guilty or nolo contendere to a
felony.
— A termination by the executive officer is for good reason if it results from: (i) a material diminution in
the nature or status of the executive’s position, title, reporting relationship, duties, responsibilities, or
authority, or the assignment to him or her of additional responsibilities that materially increase his or
her workload; (ii) any reduction in the executive’s then-current base salary; (iii) a material reduction in
the executive’s opportunities to earn incentive bonuses below those in effect for the year prior to the
change in control; (iv) a material reduction in the executive’s employee benefits from the benefit levels
in effect immediately prior to the change in control; (v) the failure to grant to the executive stock
options, stock units, performance shares, or similar incentive rights during each 12-month period
following the change in control on the basis of a number of shares or units and all other material
terms at least as favorable to the executive as those rights granted to him or her on an annualized
average basis for the three-year period immediately prior to the change in control; or (vi) relocation of
the executive by more than 50 miles.
• Cash severance payment. The amount of cash severance payment pursuant to the change-in-control plan
amounts to the benefit of two times the employee’s 2012 annual base salary plus two times the employee’s
bonus target for 2012 under the bonus plan.
• Continuation of medical and welfare benefits. This amount represents the present value of the change-in-
control plan’s guarantee, following a covered termination, of 18 months of continued coverage equivalent to the
company’s current active employee medical, dental, life, and long-term disability insurance. Similar actuarial
assumptions to those used to calculate incremental pension benefits apply to the calculation for continuation of
medical and welfare benefits, with the addition of actual COBRA rates based on current benefit elections.
• Acceleration of equity awards. Upon a covered termination, any unvested equity awards would vest upon
consummation of a change in control and a partial payment of outstanding PAs would be made, reduced to
reflect the portion of the performance period worked prior to the change in control. Likewise, in the case of a
change in control in which Lilly is not the surviving entity, SVAs would pay out based on the change-in-control
stock price and be prorated for the portion of the three-year performance period elapsed. The amount in this
column represents the value of the acceleration of unvested equity grants.
• 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 does not reimburse the affected employees for those
excise taxes or any income taxes payable by the employee. To reduce the employee's exposure to excise taxes,
the employee’s change-in-control benefit may be decreased to maximize the after-tax benefit to the individual.
Payments Upon Change in Control Alone. In general, the change-in-control plan is a “double trigger” plan,
meaning payments are made only if the employee suffers a covered termination of employment within two years