7 Long-term Incentive Program
On 1 April 2014, MorphoSys established its fourth long-term incentive plan (LTI plan) for the Management Board and the Senior Management Group. According to IFRS 2, the program is considered a share-based payment program with settlement in equity instruments and is accounted for accordingly. The LTI plan is a performance-related share plan and will be paid out in ordinary shares of MorphoSys AG if predefined key performance criteria have been achieved. These criteria are assessed annually by the Supervisory Board. The grant date was 1 April 2014 and the vesting/ performance period is four years. If the predefined key performance criteria for the respective period have been fully achieved, 25% of the performance shares will become vested in each year of the four-year vesting period. The annual number of vested shares shall be reduced to the extent that the performance criteria of the relevant year have been fulfilled between 50% and 99% (<100%), and increased to the extent that the performance criteria were met by more than 100% (maximum 200%). If in one year the specified performance criteria are achieved by less than 50%, then "0" shares will become vested in that year. In any case, the maximum pay-out at the end of the four-year period is limited by a factor determined by the Group which generally amounts to "1". However, in justified cases, if the level of payment is deemed unreasonable in view of the general development of the Company, the Supervisory Board may set this factor freely between "0" and "2". In any case, the right to receive a certain allocation of shares under the LTI plan only occurs at the end of the four-year vesting/ performance period.
If the number of repurchased shares is not sufficient to service the LTI plan, MorphoSys reserves the right to pay a certain amount of the LTI plan in cash equal to the value of the performance shares at the end of the vesting period, provided the cash amount does not exceed 200% of the fair value of the performance shares on the grant date.
If a member of the Management Board ceases to hold an office within the MorphoSys Group by reason of termination (or if the Management Board member terminates the employment contract), resignation, death, injury, disability, or by reaching the retirement age (receipt of a customary retirement pension, early-retirement pension, or disability pension, provided the requirements for the disability pension entitlement are met) or under other circumstances subject to the Supervisory Board's discretion, then the Management Board member (or his/her heirs) is entitled to performance shares determined on a precise daily pro-rata basis.
If a member of the Management Board ceases to hold an office within the MorphoSys Group for good reason within the meaning of § 626 Para. 2 of the German Civil Code (BGB) and/ or within the meaning of § 84 Para. 3 of the German Stock Corporation Act (AktG), the beneficiary shall not be entitled to an allocation of performance shares.
If a change of control occurs during the four-year vesting period, all performance shares shall become fully vested. However, in this case, the right to receive a certain allocation of shares from the LTI plan only occurs at the end of the four-year vesting period.
In March 2014, MorphoSys repurchased 111,000 of its own shares on the stock exchange at an average price of € 70.53 per share. The treasury shares may be used for all purposes named in the authorization of the Annual General Meeting on 19 May 2011 and particularly for any existing or future employee participation schemes and/ or to finance acquisitions. However, they may also be redeemed. A total of 32,513 of these shares were granted to beneficiaries on 1 April 2014, namely 18,264 were granted to the Management Board (further details may be found in the table titled "Performance Shares" in item 10 "Directors' Dealings") and 14,249 shares were granted to the Senior Management Group. The fair value of the performance shares as of the grant date (1 April 2014) was € 67.30 per share. No dividends were taken into account in determining the fair value of the repurchased shares since the Group does not intend to pay dividends in the foreseeable future. From the grant date until 30 September 2014, no beneficiaries have left MorphoSys nor have any performance shares lapsed. For the calculation of the personnel expenses resulting from share-based payments under the LTI program 2014, it was assumed that one beneficiary will leave the Company during the four-year period.