Eli Lilly 2007 Annual Report Download - page 102

PROXY STATEMENT
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the change in control; or (vi) relocation of the executive by more than fi fty (50) miles.
• Cash severance payment. Represents the CIC Program benefi t of two times the 2007 annual base salary plus two
times cash bonus for 2007 under the Eli Lilly and Company Bonus Plan.
• Incremental pension benefi t. Represents the present value of an incremental nonqualifi ed pension benefi t of
two years of age credit and two years of service credit that is provided under the CIC Program. The following
standard actuarial assumptions were used to calculate each individual’s incremental pension benefi t:
Discount rate: 6.75 percent
Mortality (post-retirement only): RP 2000CH
Joint & survivor benefi t: 25% of pension
Because Mr. Taurel already qualifi es for a full pension benefi t, the additional age credit and service credit do not
increase his benefi t. For Dr. Paul, the amounts in the table above refl ect the 10 years of additional service credit
described on pages 96–97.
• 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. For two of the three retirement-eligible
employees, Mr. Taurel and Dr. Lechleiter, there is limited incremental benefi t under the CIC Plan because they
would be entitled to equivalent medical and dental coverage in the ordinary course as retirees regardless of the
reason for termination. For Dr. Paul, the amounts in the table refl ect the 10 years of additional service credit
described on pages 96–97. 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 is accelerated in the case of a change in
control in which Lilly is not the surviving entity. For the three retirement-eligible employees, Mr. Taurel and Drs.
Lechleiter and Paul, 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 two named executive offi cers who are not retirement-eligible, Messrs.
Armitage and Rice, would receive the benefi t under the CIC Plan of continuation of their 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 gross-up. 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.
Payments Upon Change in Control Alone. 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 consummation 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, under board policy, for security reasons the company aircraft is made available to Mr. Taurel for
all travel. The company has entered into a time-share arrangement with Mr. Taurel in connection with his per-
sonal use of company aircraft. Under the time-share agreement, Mr. Taurel leases the company aircraft, including