SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Eli Lilly and Company
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
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was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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Notes:
[LOGO]LILLY
ELI LILLY AND COMPANY
LILLY CORPORATE CENTER
INDIANAPOLIS, INDIANA 46285
March 5, 1997
Dear Shareholder:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of Eli Lilly and Company on Monday, April 21, 1997. The meeting will be held
at the Indiana Convention Center, 100 South Capitol Avenue, Indianapolis,
Indiana, at 11:00 a.m. (Indianapolis time).
The Notice of Annual Meeting of Shareholders and the Proxy Statement
accompanying this letter describe the business we will consider at the
meeting. Your vote is very important. I urge you to sign, date, and return the
enclosed proxy card in the envelope provided in order to be certain your
shares are represented at the meeting, even if you plan to attend the meeting.
I look forward to seeing you at the meeting.
/s/ Randall L. Tobias
Randall L. Tobias
Chairman of the Board and
Chief Executive Officer
ELI LILLY AND COMPANY
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 21, 1997
The Annual Meeting of Shareholders of Eli Lilly and Company will be held at
the Indiana Convention Center, 100 South Capitol Avenue, Indianapolis,
Indiana, on Monday, April 21, 1997, at 11:00 a.m. (Indianapolis time), for the
following purposes:
1. To elect five directors of the Company, each for a three-year term;
2. To ratify the appointment by the Board of Directors of Ernst & Young
LLP as principal independent auditors for the year 1997; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Shareholders of record at the close of business on February 14, 1997, will
receive notice of and be entitled to vote at the meeting.
Attendance at the meeting will be limited to shareholders, those holding
proxies from shareholders, and invited guests from the media and financial
community. Admission to the meeting will be by Admittance Card or other
evidence of share ownership. Shareholders of record who plan to attend the
meeting should complete and return the enclosed Request for Admittance Card.
An Admittance Card and directions to the Indiana Convention Center will be
sent by return mail. Please do not return the Request for Admittance card
unless you plan to attend the meeting.
Shareholders whose shares are held through an intermediary such as a bank or
broker and who wish to attend the meeting should either bring proof of share
ownership (such as a bank or brokerage firm account statement) to the meeting
or send proof of share ownership to the Corporate Secretary, DC 1093, Lilly
Corporate Center, Indianapolis, Indiana 46285 well in advance of the meeting
to receive an Admittance Card and directions to the Indiana Convention Center.
By order of the Board of Directors,
Daniel P. Carmichael
Secretary
March 5, 1997
Indianapolis, Indiana
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YOUR VOTE IS IMPORTANT. PLEASE DATE, SIGN, AND MAIL PROMPTLY THE ENCLOSED
PROXY, FOR WHICH A RETURN ENVELOPE IS PROVIDED, EVEN IF YOU PLAN TO ATTEND THE
ANNUAL MEETING.
ELI LILLY AND COMPANY
PROXY STATEMENT
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ANNUAL MEETING OF SHAREHOLDERS
April 21, 1997
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Eli Lilly and Company (the "Company") of proxies to be
voted at the Annual Meeting of Shareholders to be held on Monday, April 21,
1997, and at any adjournment thereof.
The accompanying proxy may be revoked at any time before it is exercised by
giving a later proxy, notifying the Secretary of the Company in writing, or
voting in person at the Annual Meeting.
At the close of business on February 14, 1997, the record date for the
Annual Meeting, there were outstanding and entitled to vote 554,528,339 shares
of common stock of the Company. Each shareholder is entitled to one vote for
each such share held of record on that date on all matters that are properly
presented for action at the meeting. The Company has no other outstanding
voting securities.
A copy of the Company's Annual Report to Shareholders, including financial
statements and a description of its operations for the year 1996, is enclosed
with this Proxy Statement. That report is not incorporated in this Proxy
Statement by reference.
The principal executive offices of the Company are located at Lilly
Corporate Center, Indianapolis, Indiana 46285. The approximate mailing date of
this Proxy Statement and the accompanying proxy will be March 5, 1997.
1. ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
The shareholders are requested to vote for five nominees for director. The
terms of four of the present directors will expire at the Annual Meeting. In
addition, Mr. James W. Cozad, who has served as a director since 1989, will
retire effective as of this Annual Meeting.
Three of the nominees whose terms expire at this Annual Meeting, Dr. Kenneth
L. Lay and Messrs. Sidney Taurel and Alva O. Way were elected for three-year
terms by the shareholders at the 1994 Annual Meeting. Messrs. Evan Bayh and
Charles E. Golden have been serving under interim election by the Board.
Under the Company's Articles of Incorporation, the members of the Board are
divided into three classes with approximately one-third of the directors
standing for election each year for a three-year term. All nominees for
election this year have been assigned to the class whose term will expire at
the Annual Meeting of Shareholders in the year 2000. The other directors
listed below will continue to serve in their classes for the remainder of
their terms.
Directors will be elected by a plurality of the votes cast. Only votes cast
for a nominee will be counted, except that the accompanying proxy will be
voted for the five nominees in the absence of instructions to the contrary.
Abstentions, broker non-votes, and instructions on the accompanying proxy card
to withhold authority to vote for one or more of the nominees will result in
the respective nominees receiving fewer votes. However, the number of votes
otherwise received by the nominee will not be reduced by such action.
In the event any nominee for director declines or is unable to serve, it is
intended either that the persons designated as proxies will vote for a
substitute who will be designated by the Board of Directors or that the
authorized number of directors will be reduced accordingly by the Board. The
Board expects that each of the nominees named below will be available for
election.
CERTAIN INFORMATION CONCERNING DIRECTOR NOMINEES AND DIRECTORS CONTINUING IN
OFFICE
The name of each director nominee and each director continuing in office,
along with his or her age, year first served as a director, and recent
business and professional experience, is set forth below by class.
NOMINEES FOR DIRECTOR FOR THREE-YEAR TERMS ENDING IN 2000:
[GRAPHIC] EVAN BAYH Director since 1997
PARTNER, BAKER & DANIELS Age 41
Mr. Bayh became a partner in the law firm of Baker & Daniels,
Indianapolis, Indiana, in January 1997. He was elected to the
Company's Board of Directors on February 17, 1997. From
January 1989 until January 1997, he served as Governor of the
State of Indiana. Prior to being elected Governor, Mr. Bayh
served as Secretary of State for Indiana from 1987 until 1989.
Mr. Bayh is a director of Great Lakes Chemical Corporation,
Indianapolis Life Insurance Company, and Chartwell
Investments, Inc.
[GRAPHIC] CHARLES E. GOLDEN Director since 1996
EXECUTIVE VICE PRESIDENT Age 50
AND CHIEF FINANCIAL OFFICER
Mr. Golden joined the Company as Executive Vice President and
Chief Financial Officer, and was elected to the Board of
Directors on March 4, 1996. Prior to joining the Company, he
served as Vice President of General Motors Corporation ("GM"),
and Chairman and Managing Director of Vauxhall Motors Limited,
a subsidiary of GM in the United Kingdom, from 1993 to 1996.
From 1992 to 1993, Mr. Golden served GM as its Vice President
and Treasurer, from 1989 to 1992 as its Treasurer, and from
1984 to 1989 as an Assistant Treasurer. Mr. Golden joined GM
in 1970 and has held a number of executive positions in that
company's domestic and international operations. Mr. Golden is
a director of DowElanco and Clarian Health Partners.
[GRAPHIC] KENNETH L. LAY, PH.D. Director since 1993
CHAIRMAN OF THE BOARD AND Age 54
CHIEF EXECUTIVE OFFICER,
ENRON CORP.
Mr. Lay has served Enron Corp. as Chairman of the Board since
1986 and as its Chief Executive Officer since 1985. He joined
Enron as President and Chief Operating Officer in 1985. Prior
to joining Enron, he was Chairman and Chief Executive Officer
of Houston Natural Gas from 1984 to 1985 and President, Chief
Operating Officer, and a director of Transco Energy Company
from 1981 to 1984. Mr. Lay is a director of Compaq Computer
Corporation and Trust Company of the West.
2
[GRAPHIC] SIDNEY TAUREL Director since 1991
PRESIDENT AND CHIEF Age 48
OPERATING OFFICER
Mr. Taurel has served as President and Chief Operating Officer
of the Company since February 1996. He joined the Company in
1971 and has held management positions in the Company's
operations in Brazil and Europe. He served as President of Eli
Lilly International Corporation from 1986 until 1991, as
Executive Vice President of the Pharmaceutical Division from
1991 until 1993 and as Executive Vice President of the Company
from 1993 until 1996. Mr. Taurel is Chairman Elect of the
Board of Directors of the Pharmaceutical Research and
Manufacturers of America and is a director of ITT Industries,
Inc., and The McGraw-Hill Companies, Inc., and a member of the
Board of Overseers of the Columbia Business School.
[GRAPHIC] ALVA O. WAY Director since 1980
CHAIRMAN OF THE BOARD, IBJ Age 67
SCHRODER BANK & TRUST COMPANY
Mr. Way became Chairman of the Board of IBJ Schroder Bank &
Trust Company in 1986. He also serves as a director of and
consultant to Schroder p.l.c., London, and related companies.
Mr. Way previously served as President of both The Travelers
Corporation and American Express Company and served in
executive positions at General Electric Company. He is a
director of Gould, Inc.; The McGraw-Hill Companies, Inc.;
Ryder System, Inc.; and Schroder p.l.c. Mr. Way also serves as
a member of the Board of Fellows of Brown University and is
chancellor emeritus of the University.
DIRECTORS CONTINUING IN OFFICE UNTIL 1999:
[GRAPHIC] ALFRED G. GILMAN, M.D., PH.D. Director since 1995
REGENTAL PROFESSOR AND CHAIRMAN, Age 55
DEPARTMENT OF PHARMACOLOGY, THE
UNIVERSITY OF TEXAS SOUTHWESTERN
MEDICAL CENTER
Dr. Gilman has served as Professor and Chairman of the
Department of Pharmacology at The University of Texas
Southwestern Medical Center since 1981. He has held the
Raymond and Ellen Willie Distinguished Chair in Molecular
Neuropharmacology at the University since 1987 and was named a
Regental Professor in 1995. Dr. Gilman was on the faculty of
the University of Virginia School of Medicine from 1971 until
1981, where he was named a Professor of Pharmacology in 1977.
He is a director of Regeneron Pharmaceuticals, Inc. Dr. Gilman
was a recipient of the Nobel Prize in Physiology or Medicine
in 1994.
[GRAPHIC] KAREN N. HORN, PH.D. Director since 1987
SENIOR MANAGING DIRECTOR AND Age 53
HEAD OF INTERNATIONAL PRIVATE BANKING,
BANKERS TRUST COMPANY
Mrs. Horn has served as the Senior Managing Director and Head
of International Private Banking at Bankers Trust Company
since October 1996. She had served as Chairman of the Board,
Bank One Cleveland, N.A., from 1987 to 1996. Prior to joining
Bank One, she served as President of the Federal Reserve Bank
of Cleveland, Treasurer of Bell of Pennsylvania, and Vice
President of First National Bank of Boston. Mrs. Horn is a
director of The British Petroleum Company p.l.c.; Rubbermaid
Incorporated; and TRW, Inc. She also serves as a trustee of
The Rockefeller Foundation and The Cleveland Clinic
Foundation.
3
[GRAPHIC] J. CLAYBURN LA FORCE, JR., PH.D. Director since 1981
DEAN EMERITUS, THE JOHN E. ANDERSON Age 68
GRADUATE SCHOOL OF MANAGEMENT,
UNIVERSITY OF CALIFORNIA AT LOS ANGELES
Dr. La Force served as Dean of The John E. Anderson Graduate
School of Management of the University of California at Los
Angeles ("UCLA") from 1978 until he retired in 1993. He joined
the faculty of UCLA in 1962 and served as Chairman of the
Economics Department. Dr. La Force is a director of BlackRock
Funds; Imperial Credit Industries, Inc.; Payden & Rygel
Investment Trust; Provident Investment Council Mutual Funds;
Rockwell International Corporation; Jacobs Engineering Group,
Inc.; and the Timken Company.
[GRAPHIC] AUGUST M. WATANABE, M.D. Director since 1994
EXECUTIVE VICE PRESIDENT, Age 55
SCIENCE AND TECHNOLOGY
Dr. Watanabe has served as Executive Vice President, Science
and Technology, since February 1996. He served as a Vice
President of the Company and President of Lilly Research
Laboratories, a division of the Company, since January 1994.
He joined the Company in 1990 as Vice President of Lilly
Research Laboratories and has also served as Group Vice
President of Lilly Research Laboratories. He is also a fellow
of the American College of Physicians and the American College
of Cardiology and a director of the Indiana University
Foundation.
DIRECTORS CONTINUING IN OFFICE UNTIL 1998:
[GRAPHIC] STEVEN C. BEERING, M.D. Director since 1983
PRESIDENT, PURDUE UNIVERSITY Age 64
Dr. Beering has served as President of Purdue University since
1983. He served as Dean of the Indiana University School of
Medicine and Director of the Indiana University Medical Center
from 1974 until 1983. Dr. Beering is a fellow of the American
College of Physicians and the Royal Society of Medicine and a
member of the National Academy of Sciences Institute of
Medicine. He is a director of American United Life Insurance
Company; Arvin Industries, Inc.; and NIPSCO Industries, Inc.
Dr. Beering currently serves as the national chairman of the
Association of American Universities.
[GRAPHIC] FRANKLYN G. PRENDERGAST, M.D., PH.D. Director since 1995
PROFESSOR OF BIOCHEMISTRY AND MOLECULAR Age 51
BIOLOGY, MAYO MEDICAL SCHOOL AND
DIRECTOR, MAYO CANCER CENTER
Dr. Prendergast is the Edmond and Marion Guggenheim Professor
of Biochemistry and Molecular Biology at Mayo Medical School.
He also serves as the Director of the Mayo Cancer Center. Dr.
Prendergast has held several other teaching positions at the
Mayo Medical School since 1975. Dr. Prendergast serves on the
Board of Governors of Mayo Rochester and on the Board of
Trustees of Mayo Foundation.
4
[GRAPHIC] KATHI P. SEIFERT Director since 1995
GROUP PRESIDENT, Age 47
NORTH AMERICAN PERSONAL CARE PRODUCTS,
KIMBERLY-CLARK CORPORATION
Mrs. Seifert is Group President, North American Personal Care
Products, for Kimberly-Clark Corporation, responsible for the
Infant Care, Child Care, Feminine Care, and Adult Care
businesses as well as the corporation's U.S. and Canadian
sales forces. She joined Kimberly-Clark in 1978 and has served
in several capacities in connection with both the domestic and
international marketing of consumer products. She is a member
of the University of Wisconsin-Oshkosh Chancellor's Council of
Advisors and a trustee of United Health Group of Wisconsin.
[GRAPHIC] RANDALL L. TOBIAS Director since 1986
CHAIRMAN OF THE BOARD AND Age 54
CHIEF EXECUTIVE OFFICER
Mr. Tobias became Chairman of the Board and Chief Executive
Officer of the Company in 1993. Prior to assuming this
position, he served as Vice Chairman of the Board of AT&T from
1986 until 1993 and as Chairman and Chief Executive Officer of
AT&T International (an AT&T subsidiary) from 1991 to 1993. Mr.
Tobias is a director of Kimberly-Clark Corporation; Knight-
Ridder, Inc.; and Phillips Petroleum Company. He also serves
as Vice Chairman of the Board of Trustees of Duke University.
During 1996 the Board of Directors of the Company held nine meetings. All
but one director attended at least 75% of the aggregate of the total number of
meetings of the Board of Directors and the total number of meetings of all
committees of the Board of Directors on which the director served. Mr. Lay
attended 71% of the aggregate of the total number of meetings of the Board of
Directors and the committees on which he served.
COMMITTEES OF THE BOARD OF DIRECTORS
Committees of the Board of Directors consist of the Audit Committee, the
Committee on Directors and Corporate Governance, the Compensation and
Management Development Committee, the Finance Committee, the Public Policy
Committee, and the Science and Technology Committee.
The Audit Committee is composed of Directors Way (Chairperson), Bayh,
Beering, La Force, and Prendergast. During 1996 the Audit Committee held three
meetings. The Committee annually recommends independent auditors for
appointment by the Board of Directors, reviews the services to be performed by
the independent auditors, and exercises oversight of their activities. It also
determines the duties and responsibilities of the internal auditors, reviews
the internal audit program, and oversees other activities of the internal
auditing staff.
The Committee on Directors and Corporate Governance, composed of Directors
Horn (Chairperson), Beering, Cozad, Lay, and Tobias (ex officio), held three
meetings during 1996. The Committee recommends to the Board of Directors
candidates for membership on the Board and Board committees. It also oversees
matters of corporate governance. The Committee will consider candidates for
the Board recommended by shareholders. Recommendations by shareholders should
be forwarded to the Secretary of the Company and should identify the candidate
by name and provide pertinent information concerning his or her background and
experience. In order to be considered by the Committee, a shareholder
recommendation must be received at least 120 days prior to the date of the
Annual Meeting of Shareholders.
The Compensation and Management Development Committee is composed of
Directors Cozad (Chairperson), Horn, Lay, and Way. The Committee held three
meetings during 1996. The Committee establishes the compensation of executive
officers and administers the Deferred Compensation Plan, the Company's
management stock plans, and the EVA Bonus Plan. The Committee also reviews the
Company's management development programs and succession plans.
5
The Finance Committee is composed of Directors Lay (Chairperson), Cozad,
Golden, Horn, and Seifert. The Committee, which held one meeting during 1996,
reviews and makes recommendations to the Board of Directors and management on
matters concerning both current and long-range financial strategy and
planning, including, but not limited to, budgets, dividends, and borrowings.
The Public Policy Committee is composed of Directors La Force (Chairperson),
Bayh, Gilman, Seifert, and Taurel. During 1996 the Committee held three
meetings. The Committee reviews and makes recommendations to the Board of
Directors concerning policies, practices, and procedures of the Company that
relate to public policy, and social, political, and economic issues.
The Science and Technology Committee is composed of Directors Beering
(Chairperson), Gilman, La Force, Prendergast, and Watanabe. The Committee held
five meetings during 1996. The Committee reviews and makes recommendations to
the Board of Directors and management on the Company's strategic research
goals and objectives and reviews and assists the Company on new developments,
technologies, and trends in pharmaceutical research and development.
COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the number of shares of common stock of the
Company beneficially owned by the directors, the Named Executive Officers
listed on page 9, and all directors and executive officers as a group, as of
February 3, 1997.
NAME OF INDIVIDUALS OR SHARES OWNED
IDENTITY OF GROUP BENEFICIALLY(1)
---------------------- ---------------
Evan Bayh................................................ -0-
Steven C. Beering, M.D................................... 9,842
James W. Cozad*.......................................... 9,130
Alfred G. Gilman, M.D., Ph.D............................. 1,484
Charles E. Golden........................................ 17,207(2)
Pedro P. Granadillo...................................... 58,485(3)
Karen N. Horn, Ph.D. .................................... 7,640
J. Clayburn La Force, Jr., Ph.D.......................... 12,611
Kenneth L. Lay, Ph.D..................................... 21,006(4)
Franklyn G. Prendergast, M.D., Ph.D...................... 2,912
Kathi P. Seifert......................................... 2,444
Sidney Taurel............................................ 83,573(5)
Randall L. Tobias........................................ 218,307(6)
August M. Watanabe, M.D. ................................ 52,601(7)
Alva O. Way.............................................. 12,818(8)
All directors and executive officers as a group (27 per-
sons)................................................... 879,996
- --------
* Mr. Cozad will retire as a director of the Company effective April 21,
1997.
(1) Unless otherwise indicated in a footnote, each person listed in the table
possesses sole voting and sole investment power with respect to the shares
shown in the table to be owned by that person. The shares shown do not
include the following shares that may be purchased pursuant to stock
options that are exercisable within 60 days of February 3, 1997: Mr.
Granadillo, 37,052 shares; Mr. Taurel, 340,000 shares; Mr. Tobias, 350,000
shares; Dr. Watanabe, 64,500 shares; and all directors and executive
officers as a group, 1,251,550 shares. The shares shown include shares
credited to the accounts of certain of those persons listed in the table
under The Lilly Employee Savings Plan ("Savings Plan") and the Lilly
Directors' Deferral Plan. No person listed in the table owns more than
.0394% of the outstanding common stock of the Company. All directors and
executive officers as a group own .159% of the outstanding common stock of
the Company.
(2) The shares shown for Mr. Golden include 56 shares credited to his account
under the Savings Plan.
6
(3) The shares shown for Mr. Granadillo include 8,035 shares credited to his
account under the Savings Plan.
(4) Mr. Lay has shared voting power and shared investment power with respect
to 10,110 shares that are included in the table and are owned by a family
partnership of which he is a partner.
(5) The shares shown for Mr. Taurel include 6,222 shares credited to his
account under the Savings Plan.
(6) Mr. Tobias' wife has sole voting power and sole investment power with
respect to 42,500 shares that are included in the table. In addition, she
has shared voting and investment power over 1,600 shares that are included
in the table and are owned by family trusts of which she is a trustee. Mr.
Tobias disclaims any beneficial interest in all such shares. Mr. Tobias
has shared voting power and shared investment power with respect to 33,000
shares that are included in the table and are owned by a family foundation
of which he is a director. The shares shown for Mr. Tobias include 709
shares credited to his account under the Savings Plan.
(7) The shares shown for Dr. Watanabe include 1,660 shares credited to his
account under the Savings Plan.
(8) Mr. Way's wife owns 360 shares of those shown in the table, and he
disclaims any beneficial interest therein.
PRINCIPAL HOLDERS OF COMMON STOCK
To the best of the Company's knowledge, and except as set out below, Lilly
Endowment, Inc. (the "Endowment"), is the only beneficial owner of more than
5% of the outstanding shares of common stock of the Company. The following
table sets forth information regarding this ownership as of February 3, 1997:
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS
---------------- ------------------ --------
Lilly Endowment, Inc. ........................... 91,994,684 16.590%
2801 North Meridian Street
Indianapolis, Indiana 46208
The Endowment has sole voting and sole investment power with respect to
these shares. The Endowment may be deemed to be a parent of the Company as
that term is defined for purposes of the Securities Act of 1933. The Board of
Directors of the Endowment is composed of Mr. Thomas H. Lake, Honorary
Chairman; Mr. Thomas M. Lofton, Chairman; Otis R. Bowen, M.D.; Drs. William G.
Enright, Earl B. Herr, Jr., and Herman B Wells; and Messrs. Byron P. Hollett,
Eli Lilly II, and Eugene F. Ratliff. Drs. Bowen, Enright, and Herr and Messrs.
Hollett, Lake, Lilly, Lofton, and Ratliff are shareholders of the Company.
As of February 3, 1997, National City Bank of Indiana ("NCBI"), held
32,505,676 shares of the Company's common stock (5.862% of the outstanding
shares) in various fiduciary capacities. Over half of the shares are held by
it as trustee under the Savings Plan, savings plans of affiliated companies,
and the employee stock ownership plan. In addition, NCBI holds such shares for
various parties in personal trusts, agency and custodial accounts, pension
accounts, estates, and guardianships. NCBI has sole voting power with respect
to 14,236,347 shares, shared voting power with respect to 210,250 shares, sole
investment power with respect to 1,768,109 shares, shared investment power
with respect to 7,364,771 shares, and the right to vote an additional
16,307,824 shares in the savings plans to the extent it is not instructed on
how to vote such shares by plan participants.
7
DIRECTORS' COMPENSATION
Effective in 1997, each director who is not a salaried officer or employee
of the Company receives a retainer of approximately $2,915 per month. In
addition, each such director receives $1,600 for each Board meeting attended
and $1,600 for each Committee or other meeting attended if not held on the
same day as a Board meeting. Each such director also is reimbursed for
customary and usual travel expenses incurred by reason of attendance at such
meetings. Employee directors receive no additional compensation for service on
the Board of Directors or Committees.
Based on an overall review of directors' compensation, the Board approved a
number of changes in the outside directors' compensation and benefit plans
effective in 1996, including termination of the retirement plan for outside
directors. The changes were designed to better align directors' compensation
with the interests of the shareholders by (i) providing that a greater
proportion of total annual compensation be delivered in the form of Company
stock, and (ii) giving directors the ability to further increase their
ownership interest in the Company by investing any deferred retainer and
meeting fees in a Company stock account.
Under the Lilly Directors' Deferral Plan ("Deferral Plan"), participating
directors may elect to defer all or part of their cash compensation in either
or both of a deferred compensation account (the "Compensation Account") or a
deferred stock account pursuant to which the deferred fees are credited in the
form of shares of the Company's common stock (the "Stock Account"). Directors
may participate in the Deferral Plan by filing an irrevocable election before
the beginning of the year. Amounts credited to the Compensation Account
receive a Company credit at an annual rate that is 2% above the prime interest
rate. This rate is adjusted each December based on the prevailing prime rate.
The aggregate amount of this Company credit accrued in 1996 for the
participating directors was $146,794. In the Stock Account, deferrals are
credited in the form of hypothetical shares of the Company's common stock
based on the market price of the stock on the date the fees are earned.
Additionally, each nonemployee director, whether or not otherwise
participating in the Deferral Plan, receives an annual Company credit to his
or her Stock Account on the first business day in December equal to the lesser
of 800 shares or that number of shares having a market value equal to a
director's total annual cash compensation assuming attendance at all regularly
scheduled Board meetings and further assuming that all such meetings were one
day in length. In 1996, each such director's account was credited with 564
shares based on the market value of the Company's common stock on December 2,
1996. Deemed dividend amounts on shares in the Stock Account are credited in
the form of additional shares of Company common stock based on the market
value of the Company's common stock on the date dividends are paid. The Stock
Account shares are hypothetical and are not issued or transferred until the
director's death or retirement or resignation from the Board. All shares
credited to participating directors' Stock Accounts are included in the share
ownership table on page 6.
Participating directors can elect to receive either lump sum or installment
payments not to exceed 10 annual installments under the Stock Account and 120
monthly installments under the Compensation Account. There are alternate
payment provisions for cases of death or hardship.
8
EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table shows the compensation paid to Mr.
Tobias, who served as Chief Executive Officer of the Company during 1996 and
the four most highly compensated executive officers other than Mr. Tobias who
were serving as executive officers as of December 31, 1996 ("Named Executive
Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION(1)
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------- --------------------- ------------
NUMBER OF
SECURITIES
OTHER UNDERLYING LONG-TERM
ANNUAL RESTRICTED OPTIONS INCENTIVE ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) COMPENSATION STOCK(3) GRANTED PLAN PAYOUTS COMPENSATION
- --------------------------- ---- ---------- ---------- ------------ ---------- ---------- ------------ ------------
Randall L. Tobias 1996 $1,100,000 $1,152,111 $149,216 150,000 $2,470,463(4) $66,002(5)
Chairman of the Board
and 1995 984,000 983,167 42,170 300,000 1,697,988 59,040
Chief Executive Officer 1994 984,000 864,955 9,059 250,000 962,868 59,040
Sidney Taurel 1996 786,700 578,667 123,148 75,000 1,313,625(4) 47,202(5)
President and Chief 1995 660,000 520,300 76,134 150,000 902,875 39,600
Operating Officer 1994 600,000 455,429 35,411 80,000 511,988 36,240
August M. Watanabe, M.D. 1996 579,900 459,800 18,386 40,000 1,135,650(4) 34,794(5)
Executive Vice
President, 1995 419,400 381,700 35,705 80,000 780,550 25,164
Science and Technology 1994 329,400 222,065 12,020 50,000 320,224 19,764
Charles E. Golden 1996 497,600 945,371(6) 184,683(7) $801,625 100,000 -0- 9,000(5)
Executive Vice President
and Chief Financial
Officer
Pedro P. Granadillo 1996 371,400 267,127 10,336 20,000 872,925(4) 22,284(5)
Vice President, 1995 341,400 249,840 28,572 40,000 599,975 20,484
Human Resources 1994 311,400 222,065 10,271 40,000 274,161 18,684
- -------
(1) During the years indicated, stock appreciation rights were not granted.
(2) For 1996 and 1995, the amounts shown on the table were earned under the
EVA Bonus Plan, which is described on page 13. For 1994, the amounts were
earned under the Senior Executive Bonus Plan that was replaced by the EVA
Bonus Plan. The amounts shown for 1995 were earned in 1995 and paid in
1996. An additional amount was earned by each executive (except
Mr. Golden) in 1995 but not paid in 1996. That amount was credited to an
account, or "bank," for the executive to be either paid in future years or
forfeited, depending on the extent to which future annual financial
performance goals under the Plan are achieved. The amounts shown for 1996
were paid in 1997 and include amounts earned in 1996 as well as partial
payment of the amounts credited to the executives' banks for 1995. An
additional amount was earned for 1996 but not paid. It has been credited
to the executives' banks to be either paid in future years or forfeited,
depending on whether future annual financial performance goals are
achieved.
(3) Mr. Golden was awarded 12,500 shares of restricted stock when he joined
the Company as a means of replacing a portion of certain equity-based
compensation he forfeited when he resigned from his previous employer to
become an Executive Vice President of the Company. Dividends will be paid
on the restricted stock awarded to Mr. Golden which was valued at $912,500
at December 31, 1996. Dr. Watanabe has 16,000 shares of restricted stock
valued at $1,168,000 on December 31, 1996.
(4) Amounts paid in Company common stock (except for amounts paid in cash to
satisfy tax withholding requirements) in February 1997 under the
performance award program for the period January 1, 1995, through December
31, 1996.
(footnotes continued on following page)
9
(5) Company contribution to the named individual's account in the Savings
Plan.
(6) Mr. Golden's bonus is composed of $352,121 paid in cash in 1997 under the
EVA Plan as described in footnote (2) and $593,250 paid in stock (except
for amounts paid in cash to satisfy tax withholding requirements) in
February 1997 under the performance award program for the period January
1, 1996, through December 31, 1996.
(7) Includes the following amounts paid either directly to third parties or to
Mr. Golden pursuant to the Company's relocation program in connection with
his move from the United Kingdom to Indiana: relocation, temporary living,
and lending costs and expenses, $98,759; relocation allowance, $53,734;
and reimbursement of taxes payable by him on certain of the costs and
expenses paid by the Company, $30,122.
Stock Option Grants
The following table provides information on options to purchase Company
common stock granted in 1996 to the Named Executive Officers pursuant to the
1994 Lilly Stock Plan.
OPTION SHARES GRANTED IN LAST FISCAL YEAR(1)
INDIVIDUAL GRANTS
- ----------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL OPTION
SECURITIES SHARES GRANTED EXERCISE OR GRANT DATE
UNDERLYING TO EMPLOYEES BASE PRICE EXPIRATION PRESENT
NAME OPTIONS GRANTED IN FISCAL YEAR PER SHARE(2) DATE VALUE(5)
---- --------------- ----------------- ------------ ----------- ----------
Randall L. Tobias....... 150,000 4.74 $69.19 10/20/06(3) $2,487,000
Sidney Taurel........... 75,000 2.37 69.19 10/20/06(3) 1,243,500
August M. Watanabe,
M.D.................... 40,000 1.27 69.19 10/20/06(3) 663,200
Charles E. Golden....... 60,000 1.90 60.19 3/17/06(4) 865,200
40,000 1.27 69.19 10/20/06(3) 663,200
Pedro P. Granadillo..... 20,000 0.63 69.19 10/20/06(3) 331,600
- --------
(1) Stock appreciation rights were not granted during 1996.
(2) Options are granted at the market price of Company common stock on the
date of grant.
(3) These options will become exercisable October 21, 1999.
(4) This option will become exercisable March 18, 1999.
(5) These values were established using the Black-Scholes stock option
valuation model. Assumptions used to calculate the grant date present
value of option shares granted during 1996 were in accordance with SFAS
123, as follows:
(a) Expected Volatility--The standard deviation of the continuously
compounded rates of return calculated on the average daily stock
price over a period of time immediately preceding the grant and
equal in length to the expected life. The volatility was 21.0%.
(b) Risk-Free Interest Rate--The rate available at the time the grant
was made on zero-coupon U.S. Government issues with a remaining term
equal to the expected life. The risk-free interest rate was 6.36%.
(c) Dividend Yield--The expected dividend yield was 3.24% based on the
historical dividend yield over a period of time immediately
preceding the grant date equal in length to the expected life of the
grant.
(d) Expected Life--The expected life of the grant was seven years,
calculated based on the historical expected life of previous grants.
(e) Forfeiture Rate--Under SFAS 123, forfeitures may be estimated or
assumed to be zero. The forfeiture rate was assumed to be zero.
10
Stock Option Exercises and Option Values
The following table contains information concerning stock options exercised
during 1996 and stock options unexercised at the end of 1996 with respect to
the Named Executive Officers.
AGGREGATED OPTION SHARES EXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES(1)
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED,
NUMBER OF OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
SHARES END AT FISCAL YEAR-END(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ---------- ----------- ------------- ----------- -------------
Randall L. Tobias....... 50,000 $1,739,000 350,000 700,000 $17,860,500 $20,135,750
Sidney Taurel........... 13,382 497,843 220,000 425,000 10,002,800 13,492,825
August M. Watanabe,
M.D. .................. 4,500 82,890 64,500 240,000 3,197,340 8,087,700
Charles E. Golden....... -0- -0- -0- 100,000 -0- 1,033,500
Pedro P. Granadillo..... 6,048 244,294 37,052 160,000 1,728,037 5,953,500
- --------
(1) Stock appreciation rights were not exercised during 1996 and no stock
appreciation rights were outstanding on December 31, 1996.
(2) Represents the amount by which the market price of the common stock of the
Company exceeded the exercise prices of unexercised options on December
31, 1996.
Long-Term Incentive Awards
The following table provides information on long-term performance awards
granted in 1996 to the Named Executive Officers pursuant to the 1994 Lilly
Stock Plan.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYMENTS UNDER
NON-STOCK PRICE BASED PLANS(2)
NUMBER OF PERFORMANCE ----------------------------------
SHARES PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME AWARDED(1) PAYOUT # SHARES # SHARES # SHARES
- ---- ---------- ------------ ----------- ---------- ----------
Randall L. Tobias....... 12,000 2 years 8,000 12,000 30,000
Sidney Taurel........... 6,000 2 years 4,000 6,000 16,000
August M. Watanabe,
M.D.................... 4,500 2 years 3,000 4,500 13,200
Charles E. Golden....... 4,125(3) 2 years 2,750 4,125 12,100
4,500 2 years 3,000 4,500 13,200
Pedro P. Granadillo..... 3,000 2 years 2,200 3,000 10,400
- --------
(1) Except as otherwise noted, represents the targeted award amount payable in
1999 if earned for the fiscal years 1997-1998 award period.
(2) Payouts are determined by the aggregate earnings per share (EPS) level for
the award period. The target amount will be paid if 100% of the targeted
EPS is achieved; the threshold amount will be paid if at least 96% of the
targeted EPS is achieved; and the maximum amount will be paid if 112% or
more of the targeted EPS is achieved. No payment will be made unless at
least 96% of the targeted EPS level is achieved.
(3) Represents the targeted award amount payable in 1998 if earned for the
fiscal years 1996-1997 award period.
11
Compensation and Management Development Committee Report
The Compensation and Management Development Committee (the "Committee")
consists of four non-employee directors. The Committee regularly reviews the
executive compensation policies and practices of the Company and establishes
the salaries of executive officers. The Committee also administers the
Deferred Compensation Plan and the Company's cash bonus plan and stock plans
covering executive officers. Committee members during 1996 were Mr. Cozad
(Chairperson), Mrs. Horn, Mr. Lay, and Mr. Way.
A. Executive Compensation Policy
The Committee's executive compensation policy is founded on principles that
guide the Company in establishing all its compensation programs. The Company
designs compensation programs to attract, retain, and motivate highly talented
individuals at all levels of the organization. In addition, the programs are
designed to be cost-effective and to treat all employees fairly. To that end,
all programs, including those for executive officers, share these
characteristics:
. Compensation is based on the level of job responsibility, individual
performance, and Company performance. Members of senior management have
a greater portion of their pay based on Company performance than other
employees.
. Compensation also reflects the value of the job in the marketplace. To
retain its highly skilled work force, the Company strives to remain
competitive with the pay of other highly respected employers who compete
with the Company for talent.
. To align more closely the interests of employees with those of
shareholders, the Company provides employees at all levels of the
organization the opportunity for equity ownership. Employees worldwide
are given the opportunity to own Company common stock through various
Company programs. In addition, executive officers and other key
employees worldwide have the opportunity to build more substantial
equity ownership through Company stock plans.
. Compensation programs are developed and administered to foster the long-
term focus required for success in the research-based pharmaceutical
industry.
The Committee believes that the Company's executive compensation program
reflects the principles described above and provides executives strong
incentives to maximize Company performance and therefore enhance shareholder
value. The program consists of both annual and long-term components. The
Committee believes that the various components of compensation should be
considered collectively in order to properly assess the appropriateness of the
Company's program to the attainment of its objectives.
In establishing total compensation, the Committee considers a variety of
measures of historical and projected Company performance. This review includes
such measures as sales, net income, return on shareholders' equity, return on
sales and assets, sales and net income per employee, total market value, and
total shareholder return. These data form the basis for the Committee's
assessment of the overall performance and prospects of the Company that
underpins the Committee's judgment in establishing total compensation ranges.
In evaluating these factors the Committee does not assign relative weights or
rankings to each; rather it makes a subjective determination based on a
collective consideration of all such factors.
The Committee also compares the Company's total compensation package (and,
to the extent possible, the compensation of individual executive officers)
with those global pharmaceutical companies of comparable size and stature to
the Company that constitute the "Peer Group" for the Performance Graph on page
16. The Peer Group companies are identified in a footnote to the Performance
Graph. The Committee uses the Peer Group data primarily as benchmarks to
ensure that the executive compensation program as a whole is within the broad
middle range of comparative pay of the Peer Group companies. The Committee
does not target a specific position in the range of comparative data for each
individual or for each component of compensation. Individual amounts are
established in view of the comparative data and such other factors as level of
responsibility, prior experience, and the Committee's subjective judgment as
to individual contribution. These factors are not assigned specific
12
mathematical weights; rather, the Committee exercises its judgment and
discretion in the information it reviews and the analysis it considers.
The Company also retains independent compensation and benefits consultants
to assist in evaluating executive compensation programs. The use of
independent consultants provides additional assurance that the Company's
programs are reasonable and appropriate to the Company's objectives.
B. Components of Executive Compensation
Annual Compensation. Annual compensation for 1996 consisted of two
components, base salary and a cash bonus under the Eli Lilly and Company EVA
Bonus Plan ("EVA Plan"). Base salaries are determined with reference to
Company and individual performance for the previous year, internal relativity,
and market conditions, including pay at the Peer Group companies and general
inflationary trends. Assessment of individual performance includes
consideration of a person's impact on financial performance as well as
judgment, creativity, effectiveness in developing subordinates and a diverse
organization, and contributions to improvement in the quality of the Company's
products, services, and operations. As noted above, the Committee uses the
Peer Group and other market data to test for reasonableness and
competitiveness of base salaries but also exercises subjective judgment in
view of the Company's compensation objectives.
In 1995 the Company instituted the EVA Plan, a new formula-based cash bonus
plan for management that is based on the concept of Economic Value Added
("EVA"). In basic terms, EVA is after-tax operating profit less the annual
total cost of capital. Under the EVA Plan, the size of bonuses varies directly
with the amount by which after-tax operating profit exceeds the cost of
capital. Thus, the EVA Plan rewards managers who increase shareholder value by
most effectively deploying the capital contributed by the shareholders. The
EVA Plan places bonuses "at risk" in that if the Company fails to achieve the
target EVA, the bonuses earned can be reduced or even be negative, resulting
in a reduction of future years' bonuses. The Committee determines the
participants and sets the target bonus levels prior to the beginning of the
year. As to the executive officers, the Committee's intent is to set target
bonuses within the broad middle range of Peer Group companies.
Long-Term Incentives. The Company employs two forms of long-term incentives,
performance awards and stock options. These incentives foster the long-term
focus necessary for continued success in the research-based pharmaceutical
business. They also provide the opportunity for substantial equity ownership
by individuals in leadership roles to ensure proper focus on shareholder
value. Performance awards and stock options have traditionally been granted
broadly and deeply within the organization with over 2,000 management and
professional employees now participating in the programs. Additionally,
through the GlobalShares stock option program, equity incentives are provided
to nearly every Company employee worldwide.
Performance awards provide recipients the opportunity to earn shares of
Company common stock annually if certain performance goals are achieved. The
awards, which are granted annually, are structured as a schedule of shares of
common stock based on the Company's achievement of specific cumulative
earnings-per-share ("EPS") levels over a two-year award period. Individual
award size varies depending on the recipient's level of responsibility.
Stock options are an important part of the Company's performance-based
compensation. Stock options provide a strong incentive to increase shareholder
value, since Company stock options have value only if the stock price
increases over time. The Company's 10-year options, granted at the market
price on the date of grant, ensure that management and professional employees
are oriented to growth over the long term and not simply to short-term
profits. In addition, the options encourage retention because they carry a
three-year vesting period and, if not exercised, are forfeited if the employee
leaves the Company before retirement. The size of grants to executive officers
in 1996 was based primarily on the recipient's level of responsibility. The
Committee also considered the size of grants to individuals in previous years
and internal relativity.
13
Adjustments for Extraordinary Events. Employees should not be penalized by
the implementation of strategic actions that are in the best long-term
interest of the shareholders but reduce current earnings. Likewise, employees
should not receive windfall bonuses when strategic actions result in
extraordinary nonoperating gains. Therefore, consistent with past practices,
the Committee adjusted the financial results on which awards were determined
under the 1995-96 performance awards to eliminate the effect of extraordinary
income items. The adjustments were made primarily to eliminate the effect in
1995 of the extraordinary gain resulting from the divestiture of the Medical
Devices and Diagnostics Division and the effect of extraordinary licensing and
other nonoperating income in 1996.
Deductibility Cap on Executive Compensation. Federal income tax law
disallows corporate deductibility for certain compensation paid in excess of
$1 million to the chief executive officer and the four other most highly paid
executive officers. "Performance-based compensation," as defined in the tax
law, is not subject to the deductibility limitation provided certain
shareholder approval and other requirements are met. Stock option and
performance award compensation under the Stock Plan qualifies as "performance-
based compensation," and therefore is fully deductible. The Committee decided,
however, that it was not in the best interest of the shareholders to qualify
the EVA Plan, since to do so would have limited the Committee's flexibility in
administering the Plan to achieve its objectives as described above. Further,
because certain executive officers deferred receipt of portions of their base
pay, bonuses, or both, the loss of deductibility with respect to the EVA Plan
for 1996 and 1997 is expected to be minimal. The Committee will continue to
review the Company's executive compensation plans periodically to determine
what changes, if any, should be made as the result of the limitation on
deductibility.
C. Chief Executive Officer Compensation
The compensation of Randall L. Tobias, Chairman of the Board and Chief
Executive Officer, consists of the same components as for other senior
executives, namely base salary, EVA bonus, performance awards, and stock
options.
In establishing Mr. Tobias' compensation package for 1996, the Committee
applied the principles outlined above in the same manner as they were applied
to the other executives. The Committee reviewed the Company's performance
relative to the Peer Group companies, based on a number of factors including
sales, earnings, return on sales and assets, return on equity, and total
shareholder return. The Committee did not assign relative weights or rankings
to these factors but rather made a subjective determination based on a
consideration of all such factors collectively. In addition, the Committee
took note of the successful completion of the divestiture of the medical
devices and diagnostics companies and the other significant strategic actions
and financial restructuring initiated under the leadership of Mr. Tobias to
increase the Company's competitiveness.
Mr. Tobias' base salary for 1996 was increased to $1,100,000. This salary
was within the middle range of Peer Group CEOs. The Committee believed this
increase was appropriate in light of Mr. Tobias' strong individual performance
as described above.
The 1996 EVA Plan bonus target for Mr. Tobias was set at $1,000,000, an
increase over the 1995 target of $850,000. The increase was consistent with
the goal of placing a greater proportion of Mr. Tobias' pay "at risk." The
bonus was also targeted to be within the broad middle range relative to other
CEOs of Peer Group companies.
14
In October 1996 the Committee provided Mr. Tobias a performance award to be
earned over the two-year award period 1997-98. If earnings per share
performance targets are achieved, the award will pay out 12,000 shares of the
Company's common stock in 1999. In determining the size of the award, the
Committee considered Mr. Tobias' level of responsibility and internal
relativity. As with all job levels, the size of Mr. Tobias' award was
unchanged from the previous year.
In October 1996 the Committee also granted Mr. Tobias an option to purchase
150,000 shares of the Company's common stock at $69.19 per share, the market
price of the stock on the date of the grant. In determining the size of the
grant, the Committee considered Mr. Tobias' strong leadership in initiating
strategic and financial actions designed to better position the Company for
long-term growth. The Committee also took note of the number of option shares
previously granted to Mr. Tobias. The number of shares granted in 1996 was the
same as the previous year excluding the adjustment to the 1995 grant as a
result of the 2-for-1 stock split in late 1995.
Compensation and Management Development Committee
James W. Cozad, Chairperson
Karen N. Horn, Ph.D. Kenneth L. Lay, Ph.D. Alva O. Way
COMPENSATION COMMITTEE INTERLOCKS
Mr. Tobias served on the Compensation Committee of the Board of Directors of
Kimberly-Clark Corporation during 1996, during which time Mrs. Seifert, Group
President of Kimberly-Clark Corporation, served as a director of the Company.
15
PERFORMANCE GRAPH
The following performance graph compares the cumulative total shareholder
return on the Company's common stock with Standard & Poor's 500 Stock Index
and the Peer Group* for the years 1992 through 1996. The graph is constructed
on the assumption that $100 was invested on December 31, 1991, in each of the
Company's common stock, the S&P 500 Stock Index, and the Peer Group common
stock.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN**
AMONG LILLY, S&P 500 STOCK INDEX, AND PEER GROUP
Fiscal Years Ended December 31
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
Lilly..................$100.00 $ 75.26 $ 77.07 $ 88.97 $157.19 $208.22
S&P 500................ 100.00 107.61 118.41 120.01 164.95 202.73
Peer Group............. 100.00 82.26 75.41 84.00 132.25 168.14
- --------
* The Peer Group has been constructed by the Company as the industry index
for purposes of the performance graph. This Peer Group, which consists of
nine companies in the pharmaceutical industry, consists of the same
companies used by the Company to compare compensation of executive
officers. The companies included in the Peer Group are Abbott Laboratories;
American Home Products Corporation; Bristol-Myers Squibb Company; Glaxo
Holdings p.l.c.; Merck & Co.; Pfizer, Inc.; Pharmacia & Upjohn, Inc.;
SmithKline Beecham p.l.c.; and Warner-Lambert Company.
** Total return assumes reinvestment of dividends.
16
RETIREMENT PLAN
The Pension Plan Table sets forth a range of annual retirement benefits
under The Lilly Retirement Plan ("Retirement Plan") for graduated levels of
average annual earnings (consisting of Salary, Bonus, and Long-Term Incentive
Plan Payouts as set forth in the Summary Compensation Table on page 9) and
years of service for the life of a retired employee, assuming retirement at
age 65 with a 50% survivor income benefit. The amounts shown in the table are
not subject to deduction for social security benefits.
PENSION PLAN TABLE
AVERAGE ANNUAL YEARS OF SERVICE
EARNINGS (HIGHEST ---------------------------------------------------------------------
5 OF LAST 10 YEARS) 15 20 25 30 35 40 45
- ------------------- --------- --------- --------- --------- --------- --------- ---------
$ 750,000............. 154,985 206,640 258,295 309,965 361,620 361,620 364,960
1,000,000............. 207,640 276,855 346,075 415,290 484,495 484,495 486,630
1,500,000............. 312,965 417,290 521,615 625,940 730,255 730,255 730,255
2,000,000............. 418,290 557,725 697,160 836,590 976,015 976,015 976,015
2,500,000............. 523,615 698,160 872,700 1,047,230 1,221,775 1,221,775 1,221,775
3,000,000............. 628,940 838,590 1,048,240 1,257,895 1,467,530 1,467,530 1,467,530
3,500,000............. 734,265 979,025 1,223,785 1,468,545 1,713,290 1,713,290 1,713,290
4,000,000............. 839,590 1,119,460 1,399,325 1,679,195 1,959,050 1,959,050 1,959,050
4,500,000............. 944,915 1,259,890 1,574,870 1,889,845 2,204,810 2,204,810 2,204,810
5,000,000............. 1,050,220 1,400,350 1,750,420 2,100,495 2,450,570 2,450,570 2,450,750
5,500,000............. 1,155,545 1,540,780 1,925,965 2,311,145 2,696,325 2,696,325 2,696,325
The years of service credited to the Named Executive Officers are Mr.
Tobias, 18 years; Mr. Taurel, 25 years; Dr. Watanabe, 7 years; Mr. Granadillo,
27 years and Mr. Golden, 27 years, including 26 years credited to him at the
time he joined the Company. Mr. Golden's ultimate pension benefit from the
Retirement Plan will be reduced by the amount of the pension payments he
receives from his previous employer.
Section 415 of the Internal Revenue Code ("Code") generally places a limit
of $125,000 on the amount of annual pension benefits that may be paid at age
65 from a plan such as the Company's Retirement Plan. The Code also places a
$9,500 limit, subject to adjustment by the Internal Revenue Service, on annual
contributions by an employee to the Company's Savings Plan and, in addition,
imposes a combined limitation when an employee is covered by both types of
plans. Under an unfunded plan adopted in 1975, however, the Company will make
payments as permitted by the Code to any employee who is a participant in the
Retirement Plan or the Savings Plan in an amount equal to the difference, if
any, between the benefits that would have been payable under such plans
without regard to the limitations imposed by the Code and the actual benefits
payable under such plans as so limited.
CHANGE-IN-CONTROL SEVERANCE PAY ARRANGEMENTS
The Company has adopted a change-in-control severance pay program
("Program") covering most employees of the Company and its subsidiaries,
including the Company's executive officers. In general, the Program would
provide severance payments and benefits to eligible employees and executive
officers in the event of their termination of employment under certain
circumstances within fixed periods of time following a change in control. A
"change-in-control" would occur if 20% or more of the Company's voting stock
were acquired by an entity other than the Company, a subsidiary, an employee
benefit plan of the Company, or Lilly Endowment,
17
Inc. There are additional conditions that could result in a change-in-control
event. The Program is not subject to amendment by the Board, whether prior to
or following a change-in-control, in any manner adverse to a participant
without his or her prior written consent.
Under the portion of the Program covering the Named Executive Officers, each
would be entitled to severance payments and benefits in the event that his or
her employment is terminated following a change-in-control (i) without "cause"
by the Company; (ii) for "good reason" by the executive officer, each as is
defined in the Program; or (iii) for a limited period of time, for any reason
by the executive officer. In such case, the executive officer would be
entitled to a severance payment equal to three times his or her current annual
cash compensation. Additional benefits would include a pension supplement and
full and immediate vesting of all stock options and other equity incentives.
In the event that any payments made in connection with the change-in-control
would be subject to the excise tax imposed under Section 4999 of the Internal
Revenue Code as a result of the aggregate compensation payments and benefits
made to the individual, under the Program or otherwise, in connection with a
change-in-control, the Company is obligated to make whole the individual with
respect to such excise tax.
CERTAIN BUSINESS RELATIONSHIPS
During the past calendar year, the Company, in the normal course of
business, utilized the services of the law firm of Baker & Daniels, in which
Mr. Bayh is a partner. The Company plans to continue using the services of the
firm in 1997.
2. PROPOSAL TO RATIFY APPOINTMENT OF PRINCIPAL INDEPENDENT AUDITORS
The Board of Directors, on the recommendation of the Audit Committee, has
appointed the firm of Ernst & Young LLP as principal independent auditors for
the Company for the year 1997. In accordance with the By-laws of the Company,
this appointment will be submitted to the shareholders for ratification. Ernst
& Young LLP served as the principal independent auditors for the Company in
1996. Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and will be available to respond to appropriate questions.
Those representatives will have the opportunity to make a statement if they
desire to do so.
Ratification of this appointment requires that the number of votes cast in
favor of ratification exceed the number of votes cast opposing ratification.
Only votes cast for or against ratification will be counted, except that the
accompanying proxy will be voted in favor of ratification in the absence of
instructions to the contrary. Abstentions and broker nonvotes will not change
the number of votes cast for or against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS PRINCIPAL INDEPENDENT
AUDITORS FOR THE YEAR 1997.
3. OTHER MATTERS
As of the date of this Proxy Statement, the management of the Company has no
knowledge of any matters to be presented for consideration at the meeting
other than those described in this Proxy Statement. If any other matters
properly come before the meeting, the accompanying proxy confers discretionary
authority with respect to those matters, and the persons named in the
accompanying form of proxy intend to vote that proxy to the extent entitled in
accordance with their best judgment.
The Company receives many suggestions from shareholders, some as formal
shareholder proposals. All are given careful attention. Formal proposals are
sometimes withdrawn by proponents after discussions with the Company. For
example, two religious groups that are shareholders filed a proposal calling
on the Company to endorse the CERES Principles. Upon agreement by the Company
to explore with them the possibility of the Company's endorsing the CERES
Principles, the shareholders agreed to withdraw the proposal.
All expenses in connection with solicitation of proxies will be borne by the
Company. The Company will pay brokers, nominees, fiduciaries, or other
custodians their reasonable expenses for sending proxy material to, and
obtaining instructions from, persons for whom they hold stock of the Company.
The Company expects to solicit proxies primarily by mail, but directors,
officers, and other employees of the Company may also solicit in
18
person, by telephone, by telefax, or by mail. The Company may retain D. F.
King & Co., Inc., to assist in the solicitation of proxies. If retained, the
firm will solicit proxies by personal interview, telephone, telefax, and mail.
It is anticipated that the fee for those services will not exceed $18,000 plus
reimbursement of customary out-of-pocket expenses.
The Corporation Trust Company has been retained to receive and tabulate
proxies and to provide representatives to act as inspectors of election for
the Annual Meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under SEC rules relating to reporting of changes of beneficial ownership of
Company common stock, reports during the last fiscal year relating to the
following transactions were not timely filed due to inadvertence: one report
pertaining to the automatic quarterly acquisition of shares under the
Company's dividend reinvestment plan by Arnold C. Hanish, an officer of the
Company; and two reports by trusts established by Randall L. Tobias, Chairman
and Chief Executive Officer, indicating the contribution of shares to the
trusts. Mr. Tobias timely reported the trust transactions on his personal
report, but the then-existing rules required the trusts to file a duplicate
report. Upon discovery, all these oversights were corrected.
SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR 1998 ANNUAL MEETING
The 1998 Annual Meeting of Shareholders is scheduled for April 20, 1998. The
date by which shareholder proposals must be received by the Company for
possible inclusion in the Company's proxy materials for the 1998 Annual
Meeting is November 5, 1997. Securities and Exchange Commission rules set
forth standards as to what shareholder proposals are required to be included
in the Company's proxy materials. In addition, the Company's By-laws provide
that any shareholder wishing to nominate a candidate for director or propose
other business at the Annual Meeting generally must give the Company at least
60 days advance written notice, and the notice must provide certain other
information as described in the By-laws. All such proposals and notices must
be addressed to the Secretary of the Company at Lilly Corporate Center, DC
1093, Indianapolis, Indiana 46285. Requests for copies of the By-laws should
also be addressed to the Secretary.
By order of the Board of Directors,
Daniel P. Carmichael
Secretary
March 5, 1997
19
[GRAPHIC]
PRINTED ON RECYCLED AND RECYCLABLE PAPER
ELI LILLY AND COMPANY
NOTICE: 1997 Annual Meeting Of Shareholders
The 1997 Annual Meeting of Shareholders of Eli Lilly and Company will be
held on Monday, April 21, 1997, at 11:00 a.m. (Indianapolis time) in the
Sagamore Ballroom of the Indiana Convention Center, 100 South Capital
Avenue, Indianapolis, Indiana.
LILLY[LOGO]
YOUR VOTE IS VERY IMPORTANT
Please sign, date and return your proxy/voting instruction card below.
Detach and return the card in the envelope provided.
DETACH HERE DETACH HERE
- --------------------------------------------------------------------------------
ELI LILLY AND COMPANY
PROXY
The undersigned hereby appoints R. O. Goss, S. Taurel and R. L. Tobias, and each
of them, as proxies of the undersigned, each with full power to act without the
others and with full power of substitution, to vote all the shares of common
stock of ELI LILLY AND COMPANY held in the name of the undersigned at the close
of business on February 14, 1997, at the Annual Meeting of Shareholders to be
held on April 21, 1997, at 11:00 a.m. (Indianapolis time), and at any
adjournment thereof, with all the powers the undersigned would have if
personally present, as follows:
The Board of Directors recommends a vote FOR the following items:
(1) Election of Directors, all nominated as Directors to serve for the
terms indicated in the Proxy Statement
FOR all nominees listed below (except as
marked to the contrary below [_]
WITHHOLD AUTHORITY
to vote for all nominees listed below [_]
E. BAYH, C.E. GOLDEN, K.L. LAY, S. TAUREL, A.O. WAY
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.
--------------------------------------------------
(2) Ratification of the appointment by the Board of Directors of Ernst &
Young LLP as principal independent auditors for 1997
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
In their discretion, upon such other matters as may properly come before the
meeting, all in accordance with the accompanying Notice and Proxy Statement,
receipt of which is acknowledged.
- --------------------------------------------------------------------------------
Please sign on reverse side and return this proxy in the enclosed envelope.
(Continued on other side)
DETACH HERE DETACH HERE
- --------------------------------------------------------------------------------
IF THIS PROXY IS PROPERLY EXECUTED AND RETURNED, THE SHARES REPRESENTED
THEREBY WILL BE VOTED. IF A CHOICE IS SPECIFIED BY THE SHAREHOLDER, THE SHARES
WILL BE VOTED ACCORDINGLY. IF NOT OTHERWISE SPECIFIED, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR ITEMS 1 AND 2.
Dated_________________________,1997
__________________________________
__________________________________
SIGN EXACTLY AS NAME APPEARS
HEREON. WHEN SIGNING IN A
REPRESENTATIVE CAPACITY, PLEASE
GIVE FULL TITLE.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
[LOGO]LILLY
ELI LILLY AND COMPANY
LILLY CORPORATE CENTER
INDIANAPOLIS, INDIANA 46285
March 5, 1997
Dear Savings Plan Participant:
It is my pleasure to provide you a meeting notice, proxy statement, and
voting instruction card for the 1997 Annual Meeting of Shareholders of Eli
Lilly and Company.
The proxy statement describes the business we will consider at the meeting.
As a participant in the savings plan, you may instruct the Trustee on how to
vote the number of shares of Company stock credited to your account under the
plan. As a member of the Lilly family, your participation in these matters is
very important. I urge you to sign, date, and return the enclosed voting
instruction card in the envelope provided in order to be certain the Trustee
is aware of your views on the matters to be presented at the meeting.
/s/ Randall L. Tobias
Randall L. Tobias
Chairman of the Board and
Chief Executive Officer
PARTICIPANTS IN
THE LILLY EMPLOYEE SAVINGS PLAN
AND
PARTICIPANTS IN
THE SAVINGS PLAN FOR AFFILIATED COMPANIES
----------------
ANNUAL MEETING OF SHAREHOLDERS
APRIL 21, 1997
The Annual Meeting of Shareholders of Eli Lilly and Company will be held at
the Indiana Convention Center, 100 South Capitol Avenue, Indianapolis,
Indiana, on Monday, April 21, 1997, at 11:00 a.m. (Indianapolis time), for the
following purposes:
1. To elect five directors of the Company, each for a three-year term;
2. To ratify the appointment by the Board of Directors of Ernst & Young
LLP as principal independent auditors for the year 1997; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Each participant in the above plans is permitted to instruct the Trustee on
how to vote the number of shares of Company common stock credited to the
participant's account under those plans. For that purpose, the enclosed voting
instruction card is being furnished to each participant in lieu of the proxy
referred to in the accompanying Proxy Statement.
Eli Lilly and Company
March 5, 1997
Indianapolis, Indiana
ELI LILLY AND COMPANY
SAVINGS
PLAN
PARTICIPANTS
Complete, sign, and return this card in the enclosed
envelope to instruct the Trustee how to vote your
shares in the Savings Plan.
DETACH HERE DETACH HERE
- --------------------------------------------------------------------------------
CONFIDENTIAL VOTING INSTRUCTIONS
TO NATIONAL CITY BANK, INDIANA, TRUSTEE
The undersigned, as a participant in The Lilly Employee Savings Plan or
in a savings plan of an affiliated company, hereby directs the Trustee to vote
(in person or by proxy) the number of shares of Eli Lilly and Company Common
Stock credited to the undersigned's account under those plans or a combination
thereof at the Annual Meeting of Shareholders to be held on April 21, 1997, and
at any adjournment thereof, as follows:
The Board of Directors has recommended to the shareholders a vote FOR the
following items:
(1) Election of Directors, all nominated as Directors to serve for the
terms indicated in the Proxy Statement
FOR all nominees listed below (except as marked to the
contrary below[_]
WITHHOLD AUTHORITY
to vote for all nominees listed below [_]
E. BAYH, C.E. GOLDEN, K.L. LAY, S. TAUREL, A.O. WAY
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.
--------------------------------------------------
(2) Ratification of the appointment by the Board of Directors of Ernst &
Young LLP as principal independent auditors for 1997
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
In the Trustee's discretion, upon such other matters as may properly come before
the meeting.
- --------------------------------------------------------------------------------
(Continued on other side)
DETACH HERE DETACH HERE
________________________________________________________________________________
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW. THE TRUSTEE MAY VOTE, AT ITS
DISCRETION, ANY SHARES OF ELI LILLY AND COMPANY COMMON STOCK IN ANY OF THE PLANS
FOR WHICH VOTING INSTRUCTIONS ARE NOT RECEIVED, EXCEPT THE TRUSTEE MAY ONLY VOTE
THOSE SHARES FORMERLY HELD IN THE LILLY EMPLOYEE STOCK OWNERSHIP PLAN (PAYSOP)
FOR WHICH INSTRUCTIONS HAVE BEEN RECEIVED.
Dated__________________________,1997
____________________________________
Signature of Participant
PLEASE SIGN, DATE, AND RETURN THIS
CARD ON OR BEFORE APRIL 4, 1997, IN
THE ENCLOSED ENVELOPE WHICH
REQUIRES NO POSTAGE.
These confidential voting instructions will be seen only by authorized personnel
of the Trustee.
