Eli Lilly 2007 Annual Report Download - page 108

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PROXY STATEMENT
106106
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.
A maximum of 60,000,000 shares may be issued under the Plan in the form of incentive stock options. No
grantee may receive options and SARs, considered together, for more than 2,500,000 shares under the Plan in any
period of three consecutive calendar years.
Proposed Amendments:
• Decrease the incentive stock option limit to 30,000,000 shares.
• Increase the individual limit to 3,500,000 shares in any period of three consecutive calendar years.
The incentive stock option limit is being reduced in light of expected grant patterns. The increase in the
individual limit will increase fl exibility of plan administration.
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. The
Committee establishes the performance goals at the beginning of the award period based on one or more perfor-
mance goals specifi ed in the 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 (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. 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.
At any time prior to payment, the Committee can adjust awards for the effect of unforeseen events that have
a substantial effect on the performance goals and would otherwise make application of the performance goals
unfair. However, the Committee may not increase the amount that would otherwise be payable to individuals who
are subject to Section 162(m) of the Code.
A maximum of 18,000,000 shares may be issued under the Plan in the form of performance awards. 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 compliance with
the 100,000-share limit for Stock Performance Awards.