Eli Lilly 2006 Annual Report Download - page 100

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PROXY STATEMENT
9898
under the 2002 Plan or prior shareholder approved stock plans.
The maximum number is subject to adjustment for stock splits, stock dividends, spin offs, reclassifi cations or
other relevant changes affecting Lilly stock.
Grants Under the Plan
Under the 2002 Plan all employees of the company, including offi cers, are eligible to participate. Currently approxi-
mately 41,500 employees, including all 10 executive offi cers, are eligible to participate. The compensation com-
mittee (the “committee”) may make grants to offi cers and employees in its discretion. The board may grant stock
options under the 2002 Plan to nonemployee directors. There are currently 10 nonemployee directors.
Stock Options and Stock Appreciation Rights. The committee may grant nonqualifi ed options, incentive stock
options, or other tax favored stock options under the Code. The committee establishes the option price, which may
not be less than 100 percent of the fair market value of the stock on the date of grant. Options may not be repriced.
The committee also establishes the vesting date and the term of the option.
The committee may also grant stock appreciation rights (“SARs”) – the right to receive an amount based on
appreciation in the fair market value of shares of Lilly stock over a base price. If granted without a related stock
option, the committee establishes the base price of the SARs, which may not be less than 100 percent of the fair
market value of the stock on the date of grant, and the settlement or exercise date, which may not be more than
eleven years after the grant date. If granted in connection with a stock option, the holder of SARs may, upon exer-
cise, surrender the related options and receive payment, in the form of Lilly stock, equal to the excess of the the
fair market value of Lilly stock over the exercise price in the date of exercise multiplied by the number of shares
exercised. The price and term of the SARs mirror those of the related stock option, and the SARs automatically
terminate to the extent the related options are exercised. Effectively, these awards give the holder the benefi t of
the related stock options (in the form of shares of Lilly stock) without requiring payment of the exercise price.
No grantee may receive options and SARs, considered together, for more than 2,500,000 shares under the
2002 Plan in any period of three consecutive calendar years.
Performance Awards. The committee may grant performance awards under which payment is made in shares
of Lilly stock, cash, or both if the fi nancial performance of the company or a subsidiary, division, or other business
unit of the company selected by the committee meets certain performance goals during an award period. A maxi-
mum of 18,000,000 shares may be issued under the 2002 Plan in the form of performance awards.
The committee establishes the performance goals at the beginning of the award period based on one or more per-
formance goals specifi ed in the 2002 Plan. The material terms of those performance goals are:
• earnings per share
• net income
• divisional income
• corporate or divisional net sales
• EVA® (after tax operating profi t less the annual total cost of capital)
• Market Value Added (MVA—the difference between a company’s fair market value, as refl ected primarily in its
stock price, and the economic book value of capital employed)
• any of the foregoing goals before the effect of acquisitions, divestitures, accounting changes, and restructuring
and special charges
• total shareholder return
• other Lilly stock price goals.
The committee also establishes the award period (four or more consecutive fi scal quarters), the threshold,
target and maximum performance levels, and the number of shares or dollar amounts payable at various perfor-
mance levels from the threshold to the maximum.
Awards may be denominated either in shares of Lilly stock (“Stock Performance Awards”) or in dollar amounts
(“Dollar Performance Awards”). The maximum number of shares that may be received by an individual in payment
of Stock Performance Awards in any calendar year is 100,000. As to Dollar Performance Awards, the maximum
payment to an individual in any calendar year is $8,000,000. The committee can elect to pay cash in lieu of part or
all of the shares of Lilly stock payable under a Stock Performance Award, and such cash payment is counted as a
payment of shares (based on the market value of Lilly stock on the payment date) for purposes of determining com-
pliance with the 100,000 share limit for Stock Performance Awards. In order to receive payment, a grantee must
generally remain employed by the company to the end of the award period. The committee may impose additional
conditions on a grantee’s entitlement to receive payment under a performance award.