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:
[X]Preliminary Proxy Statement
[_]CONFIDENTIAL, FOR USE OF THE
[_]Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to (S)240.14a-11(c) or (S)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]$125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_]$500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_]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:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(4) Date Filed:
Notes:
LILLY
ELI LILLY AND COMPANY
LILLY CORPORATE CENTER
INDIANAPOLIS, INDIANA 46285
March 4, 1996
Dear Shareholder:
You are cordially invited to attend the 1996 Annual Meeting of Shareholders
of Eli Lilly and Company on Monday, April 15, 1996. The meeting will be at the
Indiana Convention Center, 100 South Capitol Avenue, Indianapolis, Indiana, at
11:00 a.m. (local time).
The Notice of Annual Meeting of Shareholders and the Proxy Statement
accompanying this letter describe the business we will consider at the
meeting. Please note in particular the Board of Directors' recommendation to
amend the Articles of Incorporation by increasing the number of shares of
authorized common stock and adopting other amendments described in the proxy
statement.
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 15, 1996
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 15, 1996, at 11:00 a.m. (local time), for the
following purposes:
1. To elect four directors of the Company, each for a three-year term;
2. To consider and act upon proposed amendments to the Articles of
Incorporation to increase the authorized number of shares of the
Company's common stock from 800,000,000 to 1,600,000,000 and to revise
certain other provisions;
3. To ratify the appointment by the Board of Directors of Ernst & Young LLP
as principal independent auditors for the year 1996;
4. To consider and act upon a proposal by a shareholder requesting the
Board of Directors to form a committee to study ways to eliminate the
use of certain research material and make a report of its findings
available to all shareholders, if the proposal is presented to the
meeting; and
5. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Holders of common stock of record at the close of business on February 9,
1996, are entitled to notice of and to vote at the Annual Meeting.
Admission to the Annual Meeting will be by Admittance Card or other evidence
of share ownership. Registered shareholders 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.
Shareholders whose shares are held through an intermediary such as a bank or
broker 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 to receive an Admittance Card and directions to
the Indiana Convention Center.
By order of the Board of Directors,
Daniel P. Carmichael
Secretary
March 4, 1996
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 15, 1996
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 15,
1996, 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 9, 1996, the record date for the Annual
Meeting, there were outstanding and entitled to vote 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 1995, 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 4, 1996.
1. ELECTION OF DIRECTORS
NOMINEES FOR ELECTION
The shareholders are requested to vote for four nominees for director whose
terms will expire at this Annual Meeting. Two of the nominees whose terms
expire at this Annual Meeting, Mrs. Karen N. Horn and Dr. J. Clayburn La
Force, Jr., were elected for three-year terms by the shareholders at the 1993
Annual Meeting. Dr. Alfred G. Gilman was elected for a one-year term by the
shareholders at the 1995 Annual Meeting and Dr. August M. Watanabe has 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 three-year terms. To attain the balance
among classes specified in the Articles, Mr. Cozad resigned from the class of
directors whose term ends in 1998 and was elected by the Board to fill a
vacancy in the class of directors whose term ends in 1997. The other directors
listed below will continue to serve in their classes for the remainder of
their terms. The election of all four nominees will result in four directors
serving in each of the three classes.
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 four 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 names 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 1999:
[PHOTO] ALFRED G. GILMAN, M.D., PH.D. Director since 1995
REGENTAL PROFESSOR AND CHAIRMAN, Age 54
DEPARTMENT OF PHARMACOLOGY,
UNIVERSITY OF TEXAS SOUTHWESTERN
MEDICAL CENTER AT DALLAS
Dr. Gilman has served as Professor and Chairman of the
Department of Pharmacology at the University of Texas
Southwestern Medical Center at Dallas 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.
[PHOTO] KAREN N. HORN, PH.D. Director since 1987
CHAIRMAN OF THE BOARD, Age 52
BANK ONE CLEVELAND, N.A.
Mrs. Horn has served as Chairman of the Board, Bank One
Cleveland, N.A., since 1987. 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.
[PHOTO] J. CLAYBURN LA FORCE, JR., PH.D. Director since 1981
DEAN EMERITUS, JOHN E. ANDERSON Age 67
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.; Jacobs Engineering
Group, Inc.; Payden and Rygel Fund; Provident Investment
Counsel Funds; Rockwell International Corporation; and The
Timken Company.
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[PHOTO] AUGUST M. WATANABE, M.D. Director since 1994
VICE PRESIDENT AND PRESIDENT, Age 54
LILLY RESEARCH LABORATORIES
Dr. Watanabe was elected to the Board of Directors and a Vice
President of the Company and President of Lilly Research
Laboratories, a division of the Company, in January 1994. He
joined the Company in 1990 as Vice President of Lilly Research
Laboratories and served as Group Vice President of Lilly
Research Laboratories before being elected to his present
position. Prior to joining the Company, Dr. Watanabe was a
member of the faculty of the Indiana University School of
Medicine from 1972 to 1990, where he served as Chairman of the
Department of Medicine from 1983 through 1990. 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 1997:
[PHOTO] JAMES W. COZAD Director since 1989
RETIRED CHAIRMAN OF THE Age 69
BOARD AND CHIEF EXECUTIVE
OFFICER, WHITMAN CORPORATION
Mr. Cozad served as Chairman of the Board and Chief Executive
Officer of Whitman Corporation from 1990 until his retirement
in 1992. Prior to assuming that position, he served as Vice
Chairman of the Board of Amoco Corporation. Mr. Cozad is a
director of GATX Corporation; Inland Steel Industries, Inc.;
Sears Roebuck & Co.; and Whitman Corporation. He is also a
director of the Chicago Medical School and the Indiana
University Foundation. Mr. Cozad is a Trustee of the Northern
Funds.
[PHOTO] KENNETH L. LAY, PH.D. Director since 1993
CHAIRMAN OF THE BOARD AND Age 53
CHIEF EXECUTIVE OFFICER,
ENRON CORP.
Mr. Lay has served as Chairman of the Board and Chief
Executive Officer of Enron Corp. since 1986 and 1985,
respectively. He joined Enron as President and Chief Operating
Officer in 1985. Prior to serving in that position, he was
President and Chief Executive Officer of Houston Natural Gas
from 1984 to 1985 and Chairman, 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.
[PHOTO] SIDNEY TAUREL Director since 1991
EXECUTIVE VICE PRESIDENT Age 47
Mr. Taurel has served as Executive Vice President of the
Company since 1993. Mr. Taurel 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 and as
Executive Vice President of the Pharmaceutical Division from
1991 until 1993. Mr. Taurel is a director of the
Pharmaceutical Research and Manufacturers of America and
serves on the Board of Overseers of the Columbia Business
School.
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[PHOTO] ALVA O. WAY Director since 1980
CHAIRMAN OF THE BOARD, IBJ Age 66
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 plc., 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.; McGraw-Hill, Inc.; Ryder System,
Inc.; and Schroder plc. Mr. Way also serves as a member of the
board of trustees and chancellor of Brown University.
DIRECTORS CONTINUING IN OFFICE UNTIL 1998:
[PHOTO] STEVEN C. BEERING, M.D. Director since 1983
PRESIDENT, PURDUE UNIVERSITY Age 63
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.
[PHOTO] FRANKLYN G. PRENDERGAST, M.D., PH.D. Director since 1995
PROFESSOR IN BIOCHEMISTRY AND MOLECULAR Age 50
BIOLOGY AND PROFESSOR IN PHARMACOLOGY,
MAYO MEDICAL SCHOOL
Dr. Prendergast has served as Professor in Biochemistry and
Molecular Biology and Professor in Pharmacology at Mayo
Medical School since 1986. He held several other teaching
positions at the school since 1975. Dr. Prendergast serves on
the Board of Governors of Mayo Rochester and on the Board of
Trustees of Mayo Foundation.
[PHOTO] KATHI P. SEIFERT Director since 1995
GROUP PRESIDENT, Age 46
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 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.
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[PHOTO] RANDALL L. TOBIAS Director since 1986
CHAIRMAN OF THE BOARD AND Age 53
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 American
Telephone and Telegraph Company ("AT&T") from 1986 until 1993.
In addition, Mr. Tobias served as Chairman and Chief Executive
Officer of AT&T International (an AT&T subsidiary) from 1991
to 1993. Mr. Tobias is a director of DowElanco; Kimberly-Clark
Corporation; Knight-Ridder, Inc.; and Phillips Petroleum
Company. He also serves as Vice Chairman of the Board of
Trustees of Duke University and as a trustee of the Colonial
Williamsburg Foundation.
During 1995 the Board of Directors of the Company held nine meetings. No
director attended fewer than 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.
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. Information concerning
the committees is set forth below.
The Audit Committee is composed of Directors Way (Chairperson), Beering, La
Force, and Prendergast. During 1995 the Audit Committee held three meetings.
The Audit Committee annually recommends independent auditors for appointment
by the Board of Directors, reviews the services to be performed by the
independent auditors, and receives and reviews the reports submitted by them.
It also determines the duties and responsibilities of the internal auditors,
reviews the internal audit program, and receives and reviews reports submitted
by the internal auditing staff.
The Committee on Directors and Corporate Governance is composed of Directors
Horn (Chairperson), Beering, Cozad, Lay, and Tobias (ex officio). The
Committee held one meeting during 1995. The Committee on Directors and
Corporate Governance 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 nominees for the Board
recommended by shareholders. Recommendations by shareholders should be
forwarded to the Secretary of the Company and should identify the nominee by
name and provide pertinent information concerning his or her background and
experience. A shareholder recommendation must be received at least 90 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. This Committee held five
meetings during 1995. The Compensation and Management Development Committee
establishes the compensation of executive officers and administers the
Deferred Compensation Plan, the Company's management stock plans, and the EVA
Bonus Plan, which replaced the Senior Executive Bonus Plan in 1995. The
Committee also reviews the Company's management development programs and
succession plans.
The Finance Committee is composed of Directors Lay (Chairperson), Cozad,
Horn and Seifert. The Committee, which held one meeting during 1995, 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),
Gilman, Seifert, and Taurel. During 1995 the Committee held two meetings. The
Public Policy Committee reviews and makes recommendations to the Board of
Directors concerning policies, practices, and procedures of the Company that
relate to public policy, including, but not limited to, social, political, and
economic issues.
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The Science and Technology Committee is composed of Directors Beering
(Chairperson), Gilman, La Force, Prendergast, and Watanabe. The Committee held
two meetings during 1995. 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
January 1, 1996.
NAME OF INDIVIDUALS OR SHARES OWNED
IDENTITY OF GROUP BENEFICIALLY(1)
---------------------- ---------------
Steven C. Beering, M.D. ................................. 6,842
James M. Cornelius*...................................... 132,772(2)
James W. Cozad........................................... 6,240
Mitchell E. Daniels, Jr.................................. 23,224(3)
Alfred G. Gilman, M.D., Ph.D............................. 800
Pedro P. Granadillo...................................... 38,726(4)
Karen N. Horn, Ph.D...................................... 6,191
J. Clayburn La Force, Jr., Ph.D.......................... 8,270
Kenneth L. Lay, Ph.D..................................... 14,218(5)
Franklyn G. Prendergast, M.D., Ph.D...................... 1,465
Kathi P. Seifert......................................... 1,800
Sidney Taurel............................................ 50,698(6)
Randall L. Tobias........................................ 134,560(7)
August M. Watanabe, M.D.................................. 30,154(8)
Alva O. Way.............................................. 7,639(9)
All directors and executive officers as a group (24
persons)................................................ 524,241
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* Mr. Cornelius retired as a director and an officer of the Company effective
September 30, 1995.
(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 January 1, 1996: Mr.
Cornelius, 223,474 shares; Mr. Daniels, 20,000 shares; Mr. Granadillo,
19,100 shares; Mr. Taurel, 133,382 shares; Dr. Watanabe, 9,000 shares; and
all directors and executive officers as a group, 356,682 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 .095% of the outstanding common stock of the
Company. All directors and executive officers as a group own .065% of the
outstanding common stock of the Company.
(2) The shares shown for Mr. Cornelius include 80 shares credited to his
account under the Savings Plan.
(3) The shares shown for Mr. Daniels include 1,330 shares credited to his
account under the Savings Plan.
(4) Mr. Granadillo's wife owns 4,000 shares of those shown in the table and he
disclaims any beneficial interest therein. Mr. Granadillo's children own
2,664 shares of those shown in the table, and he disclaims any beneficial
interest therein. The shares shown for Mr. Granadillo include 7,750 shares
credited to his account under the Savings Plan.
(5) Mr. Lay has shared voting power and shared investment power with respect
to 10,000 shares that are included in the table and are owned by a family
partnership of which he is a partner.
(6) The shares shown for Mr. Taurel include 5,957 shares credited to his
account under the Savings Plan.
(7) Mr. Tobias' wife has shared voting power and shared investment power with
respect to 25,600 shares that are included in the table and are owned by
family trusts of which she is a trustee, and he disclaims any beneficial
interest therein. Mr. Tobias has shared voting power and shared investment
power with respect to 30,000 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 531 shares credited to his account under the
Savings Plan.
(8) The shares shown for Dr. Watanabe include 1,482 shares credited to his
account under the Savings Plan.
(9) Mr. Way's wife owns 360 shares of those shown in the table, and he
disclaims any beneficial interest therein.
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PRINCIPAL HOLDERS OF COMMON STOCK
To the best of the Company's knowledge, and except as set out below, Lilly
Endowment, Inc., 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 December 29, 1995:
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS
---------------- ------------------ --------
Lilly Endowment, Inc............................. 93,694,684 17.012
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 and Herr and Messrs. Hollett,
Lake, Lilly, Lofton, and Ratliff are shareholders of the Company.
As of December 29, 1995, National City Bank, Indiana ("NCBI"), held
37,797,953 shares of the Company's common stock (6.863% 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 14,823,523 shares, shared voting power with respect to 2,000 shares, sole
investment power with respect to 2,371,949 shares, shared investment power
with respect to 6,620,617 shares, and the right to vote an additional
18,115,817 shares in the savings plans to the extent it is not instructed on
how to vote such shares by plan participants.
DIRECTORS' COMPENSATION
Each director who is not a salaried officer or employee of the Company
receives a retainer of $2,500 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 traveling expenses
incurred by reason of attendance at such meetings. Employee directors receive
no additional compensation for service on the Board of Directors or
Committees.
Under the Directors' Deferred Compensation Plan (the "Deferred Compensation
Plan") as in effect in 1995, each director who was not an employee of the
Company could elect each year to defer all or part of his or her director's
fees (but not less than $1,000) by filing an irrevocable election with the
Company before the beginning of the year or such shorter period for which the
election may be effective. The deferred compensation was credited to an
account that received a Company credit on all amounts deferred at an annual
rate that was 2% above the prime interest rate. The amount in each
participating director's account, including the accrued Company credit, was to
be paid in accordance with the payment option selected by the participating
director at the time the irrevocable election was made. Under the Plan, a
participating director could elect to receive either lump sum or installment
payments (not exceeding 10 installments). There were alternate payment
provisions for cases of death and hardship. The aggregate amount of the
Company credit accrued during 1995 for the participating directors was
$158,757.
Each director who has never been a full-time employee of the Company
participated in the Non-Employee Directors' Deferred Stock Plan (the "Deferred
Stock Plan"). Under the Plan as in effect in 1995, the Company credited
annually on the first business day in December to the account of each
participating director 800 shares of the Company's common stock. These shares
were not issued or transferred until the director's death or retirement or
resignation from the Board. In addition, the Company credited to the
director's account an amount
7
equal to the dividends that would be payable on the credited shares if the
shares were actually held of record by the director. The director was entitled
to a Company credit on the dividend amounts at an annual rate that was to be
2% above the prime interest rate. Receipt of the dividend amounts and Company
credit was to be deferred until the director's death or retirement or
resignation from the Board. The director could elect to receive the shares and
cash in his or her Plan accounts, including the Company credit, in lump sum or
installment payments (not exceeding 10 installments). There were alternate
payment provisions for cases of death and hardship. The shares credited to the
directors' accounts are included in the table on page 6.
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 their deferred retainer and
meeting fees in a Company stock account. Thus, effective January 1, 1996, the
Deferred Compensation Plan and the Deferred Stock Plan were combined into a
single plan, the Lilly Directors' Deferral Plan ("Deferral Plan"). Under the
Deferral Plan, participating directors may elect to defer all or part of their
cash compensation either in a deferred compensation account, the provisions of
which are essentially the same as the former Deferred Compensation Plan, or in
a deferred stock account pursuant to which the deferred fees are credited in
the form of shares of the Company's common stock, based on the market price of
the stock at the time the deferred fees are earned. The Company will continue
to credit shares of the Company's common stock to the participants' deferred
stock accounts annually in December. However, the number of shares has been
changed to the lesser of 800 shares or that number of shares having a market
value equal to an outside director's total annual cash compensation assuming
attendance at eight meetings, based on the market price at the time of the
credit. Deemed dividend amounts on shares in the deferred 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 at the time dividends are paid.
Like the prior Deferred Stock Plan, the deferred stock account shares are not
issued or transferred until the director's death, retirement or resignation
from the Board. The deferred stock account is payable in the same manner as
the prior Deferred Stock Plan.
Effective upon the inception of the Deferral Plan, the dividend accounts of
the participating directors under the prior Deferred Stock Plan were converted
to additional shares of Company common stock in the deferred stock account
under the Deferral Plan, based on a share price of $55.8375, the average of
the high and low trading prices for the last five trading days of 1995.
Additionally, participants in the prior Deferred Compensation Plan were given
a one-time opportunity to convert all or a portion of their existing balances
under that Plan to additional shares in their deferred stock accounts under
the Deferral Plan at the same conversion price. Together, these conversions
resulted in the following additional deferred stock credits: Dr. Beering, 479
shares; Mr. Cozad, 240 shares; Mrs. Horn, 391 shares; Dr. La Force, 2,270
shares; Mr. Lay, 1,890 shares; Dr. Prendergast, 665 shares; Mr. Tobias, 429
shares; and Mr. Way, 479 shares. Those amounts are included in the share
ownership table on page 6.
Finally, effective in February 1996 the Board terminated the Lilly Non-
employee Directors' Retirement Plan (the "Directors' Retirement Plan"), a non-
contributory retirement plan adopted in 1989. The present value of the accrued
benefits under the Directors' Retirement Plan as of February 1, 1996, was
transferred to the directors' deferred stock accounts under the Deferral Plan.
Based on a Lilly stock price of $ , representing the average of the high
and low stock prices for the last five trading days of January 1996, the
following credits were made to the deferred stock accounts of the directors
under the Deferral Plan: Dr. Beering, shares; Mr. Cozad,
shares; Mrs. Horn, shares; Dr. La Force, shares; Mr. Lay,
shares; and Mr. Way, shares. Those amounts are included in
the share ownership table on page 6.
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 1995, the
four most highly compensated executive officers other than Mr. Tobias who were
serving as executive officers as of December 31, 1995, and Mr. Cornelius, who
served as the Chief Financial Officer through September 30, 1995, ("Named
Executive Officers").
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION(1)
-----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- ---------- ------------
NUMBER OF
SECURITIES
OTHER UNDERLYING LONG-TERM
NAME AND PRINCIPAL ANNUAL OPTIONS INCENTIVE ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION GRANTED(2) PLAN PAYOUTS COMPENSATION
- ------------------ ---- -------- -------- ------------ ---------- ------------ ------------
Randall L. Tobias 1995 $984,000 $983,167(3) $ 42,170 300,000 $1,384,625(4) $59,040(5)
Chairman of the 1994 984,000 864,995 9,059 250,000 962,868 59,040
Board and Chief 1993 503,182 418,861 787,709 400,000 -0- 25,650
Executive Officer
Sidney Taurel 1995 660,000 520,500(3) 76,134 150,000 736,250(4) 39,600(5)
Executive Vice 1994 600,000 455,249 35,411 80,000 511,988 36,240
President 1993 540,000 430,287 -0- 220,000 -0- 46,689
August M. Watanabe,
M.D. 1995 419,400 381,700(3) 35,705 80,000 636,500(4) 25,164(5)
Vice President and 1994 329,400 220,065 12,020 50,000 340,224 19,764
President, Lilly
Research 1993 251,400 67,542 -0- 70,000 -0- 32,790
Laboratories
Pedro P. Granadillo 1995 341,400 249,840(3) 28,572 40,000 489,250(4) 20,484(5)
Vice President, 1994 311,400 222,065 10,271 40,000 274,161 18,684
Human Resources 1993 224,385 50,888 -0- 60,000 -0- 24,582
Mitchell E. Daniels,
Jr. 1995 364,200 173,500(3) 12,864 25,000 394,250(4) 21,852(5)
President, North
American 1994 334,200 152,397 7,463 25,000 274,161 20,052
Pharmaceutical
Operations 1993 309,585 137,762 -0- 40,000 -0- 14,860
James M. Cornelius* 1995 443,925 363,825(3) 29,592 -0- 636,500(4) 26,636(5)
Vice President,
Finance, 1994 555,900 339,771 10,271 50,000 442,622 33,354
and Chief Financial
Officer 1993 537,900 321,140 386 70,000 -0- 57,198
- --------
* Mr. Cornelius retired as a director and an officer of the Company effective
September 30, 1995.
(1) During the years indicated, restricted stock was not awarded and stock
appreciation rights were not granted. As of December 31, 1995, Mr. Daniels
held 8,000 shares of restricted stock valued at $450,000 and Dr. Watanabe
held 20,000 shares of restricted stock valued at $1,125,000.
(2) The number of shares has been adjusted to reflect the two-for-one stock
split effective November 15, 1995.
(3) This amount was earned under the EVA Bonus Plan for 1995 and paid in 1996.
Except for Mr. Cornelius who received full payment under the Plan because
of his retirement, an additional amount was earned for 1995 but not paid
in 1996. The additional amount will be either paid in later years or
forfeited, depending on the extent to which future annual financial
performance goals under the Plan are achieved.
(4) Amounts paid in Company common stock (except for amounts paid in cash to
satisfy federal income tax withholding requirements) in February 1996
under the performance award program for the period January 1, 1994,
through December 31, 1995.
(5) Company contribution to the named individual's account in the Savings
Plan.
9
Stock Option Grants
The following table provides information on options to purchase Company
common stock granted in 1995 to the Named Executive Officers pursuant to the
1994 Lilly Stock Plan.
OPTION SHARES GRANTED IN LAST FISCAL YEAR(1)
INDIVIDUAL GRANTS(2)
- ---------------------------------------------------------------------------------------------
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(3) DATE(4) VALUE(5)
---- --------------- ----------------- ----------- ---------- ------------------
Randall L. Tobias....... 300,000 2.84 $46.82 10/14/05 $3,726,000
Sidney Taurel........... 150,000 1.42 46.82 10/14/05 1,863,000
August M. Watanabe,
M.D. .................. 80,000 .76 46.82 10/14/05 993,600
Pedro P. Granadillo..... 40,000 .38 46.82 10/14/05 496,800
Mitchell E. Daniels,
Jr..................... 25,000 .24 46.82 10/14/05 310,500
James M. Cornelius...... -0- N/A N/A N/A N/A
- --------
(1) Stock appreciation rights were not granted during 1995.
(2) The number of shares and per share exercise price have been adjusted to
reflect the two-for-one stock split effective November 15, 1995.
(3) Market price of the stock on the date of grant.
(4) These options will become exercisable October 16, 1998.
(5) These values were established using the Black-Scholes stock option
valuation model that was modified to include dividends. Assumptions used
to calculate the Grant Date Present Value of option shares granted during
1995 were:
(a) Expected Volatility--The variance in the percent change in daily
stock price during the six-month period immediately preceding each
grant, which was 18.17%.
(b) Risk Free Rate of Return--The average monthly rate for 10-year U.S.
Treasury obligations during the month of grant as published in the
Federal Reserve Statistical Release, which was 6.04%.
(c) Dividend Yield--The yield calculated by dividing the annualized
dividend rate of the Company's common stock in the amount of $1.37
per share (post-split) by the fair market value of the stock on the
date of grant, which resulted in an assumed dividend yield of 2.93%.
(d) Time of Exercise--The maximum exercise period for each grant at the
time of the grant, which was 10 years.
10
Stock Option Exercises and Option Values
The following table contains information concerning stock options exercised
during 1995 and stock options unexercised at the end of 1995 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....... -0- -0- -0- 950,000 -0- $22,470,000
Sidney Taurel........... -0- -0- 133,382 450,000 $3,249,471 9,969,700
August M. Watanabe,
M.D.................... -0- -0- 9,000 260,000 159,030 6,181,000
Pedro P. Granadillo..... 2,620 $ 75,223 19,100 164,000 479,700 4,076,080
Mitchell E. Daniels,
Jr..................... -0- -0- 20,000 130,000 353,400 3,434,300
James M. Cornelius...... 26,126 337,009 223,474 -0- 6,004,212 -0-
- --------
(1) Stock appreciation rights were not exercised during 1995 and no stock
appreciation rights were outstanding on December 31, 1995. The number of
shares has been adjusted to reflect the two-for-one stock split effective
November 15, 1995.
(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, 1995.
Long-Term Incentive Awards
The following table provides information on long-term performance awards
granted in 1995 to the Named Executive Officers pursuant to the 1994 Lilly
Stock Plan.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR(1)
ESTIMATED FUTURE PAYMENTS
UNDER
NON-STOCK PRICE BASED
PLANS(3)
--------------------------
PERFORMANCE
NUMBER OF PERIOD MAXIMUM
SHARES UNTIL THRESHOLD TARGET #
NAME AWARDED(2) 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
Pedro P. Granadillo........... 3,000 2 years 2,200 3,000 10,400
Mitchell E. Daniels, Jr....... 2,400 2 years 1,800 2,400 8,400
James M. Cornelius............ -0- N/A N/A N/A N/A
- --------
(1) The number of shares has been adjusted to reflect the two-for-one stock
split effective November 15, 1995.
(2) Represents the targeted award amount payable in February 1998 if earned
for the fiscal years 1996-1997 award period.
(3) 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 113% or
more of the targeted EPS is achieved. No payment will be made unless at
least 96% of the targeted EPS level is achieved.
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 1995 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 of Lilly employees is based on the level of job
responsibility, the individual's level of 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 employers of a similar stature who compete
with the Company for talent.
. To more closely align the interest 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 the
Company's savings plans and other 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 Company's total compensation is within the broad middle range
of comparative pay of the Peer Group companies. The Committee does not,
however, 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
mathematical weights; rather, the Committee exercises its judgment and
discretion in the information it reviews and the analysis it considers.
12
The Company also retains outside 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 1995 consists of two
components, base salary and a cash bonus under the Eli Lilly and Company EVA
Bonus Plan ("EVA Plan"). Individual base salary increases are determined
primarily by individual performance. Assessment of an individual's 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.
In 1995 the Company instituted the EVA Plan, a new formula-based cash bonus
plan for executives 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 executives who create shareholder wealth
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 a
positive EVA, no bonuses are earned. 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 emphasize the long-term
focus necessary for continued success in the research-based pharmaceutical
business. The Company has also emphasized the importance of substantial equity
ownership by individuals in leadership roles to ensure proper focus on
shareholder value. Stock options and performance awards have traditionally
been granted broadly and deeply within the organization, with approximately
1,800 management and professional employees including the executive officers,
eligible to receive performance awards and stock options.
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 1995 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.
Adjustments for Extraordinary Events. The Committee also believes that
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 non-operating gains. Therefore,
consistent with past practices, the Committee adjusted the financial results
on which awards were determined under the 1994-95 performance awards to
eliminate the effect of certain strategic actions and special charges. The
adjustments were made to take into account the effect in 1994 of the
acquisition of Sphinx Pharmaceuticals Corporation and PCS Health Systems,
Inc., and a recall of oral antibiotics, and the effect in 1995 of the
extraordinary gain resulting from the divestiture of the Medical Devices and
Diagnostics Division.
13
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, to not qualify the EVA Plan, since to do so would have limited the
Committee's flexibility in the administration of the Plan. Further, because
certain executive officers deferred receipt of their bonuses, the loss of
deductibility, if any, with respect to the EVA Plan for 1995 and 1996 is
expected to be nominal. 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 1995, the Committee
reviewed the Company's performance relative to the Peer Group companies. The
review was 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 significant
strategic actions and financial restructuring initiated by Mr. Tobias to
increase the Company's competitiveness.
Mr. Tobias' base salary for 1995 was $984,000, the same level as 1994. This
salary was within the middle range of Peer Group CEO's. The Committee viewed
Mr. Tobias' contributions to the Company very positively and felt an overall
compensation increase was warranted; however, the Committee believed it
appropriate to deliver the increase through performance incentives by
increasing Mr. Tobias' target EVA bonus and the number of shares underlying
stock options in lieu of a salary increase.
The 1995 EVA Plan bonus target for Mr. Tobias was set at $850,000, an
increase over the 1994 target of $834,000 under the prior cash bonus plan. The
increase was consistent with the goal of placing a greater proportion of Mr.
Tobias' pay "at risk." In setting the target, the Committee also considered
that the EVA Plan carries a more significant downside risk than the prior plan
in the event performance does not meet expectations. The bonus was also
targeted to be within the broad middle range relative to other CEO's of Peer
Group companies.
In October 1995 the Committee provided Mr. Tobias a performance award to be
earned over the two-year award period 1996-97. If earnings per share
performance targets are achieved, the award will pay out 12,000* shares of the
Company's common stock in 1998. In determining the size of the award, the
Committee considered Mr. Tobias' level of responsibility and internal
relativity. The target number of shares decreased from prior years' awards in
light of the substantial increase in the market price of Lilly stock during
1995.
In October 1995 the Committee also granted Mr. Tobias an option to purchase
300,000* shares of the Company's common stock at $46.82* 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 Committee believed the larger stock
option grant was appropriate in lieu of a base salary increase since it more
closely aligns Mr. Tobias' total compensation with the strategic initiatives
he implemented and, ultimately, the interests of shareholders.
- --------
*Adjusted to reflect the two-for-one stock split in November, 1995.
14
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. Randall L. Tobias served on the Compensation Committee of the Board of
Directors of Kimberly-Clark Corporation during 1995, during which time Mrs.
Kathi P. Seifert, Group President of Kimberly-Clark Corporation, served on the
Board of Directors 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 1991 through 1995. The graph is constructed
on the assumption that $100 was invested on December 31, 1990, 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
[GRAPH APPEARS HERE]
FISCAL YEARS ENDED DECEMBER 31
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
Lilly ........... $100 $117 $ 88 $ 90 $104 $184
S&P 500 ......... 100 130 140 154 156 215
Peer Group ...... 100 166 137 125 140 220
- --------
* 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 9
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. The Upjohn Company was replaced as a
member of the Peer Group by Pharmacia & Upjohn, Inc. as a result of the
merger in 1995 of The Upjohn Company and Pharmacia AB.
**Total return assumes reinvestment of dividends.
16
RETIREMENT PLAN
PENSION PLAN TABLE
YEARS OF SERVICE
-------------------------------------------------------------------
AVERAGE ANNUAL
EARNINGS (HIGHEST
5 OF LAST 10 YEARS) 15 20 25 30 35 40 45
------------------- -------- -------- --------- --------- --------- --------- ---------
$ 500,000............. $102,460 $136,560 $ 170,710 $ 204,865 $ 239,020 $ 239,020 $ 243,285
750,000............. 155,095 206,775 258,510 310,190 361,870 361,870 364,960
1,000,000............. 207,785 276,990 346,225 415,515 484,775 484,775 486,630
1,250,000............. 260,420 347,210 434,050 520,840 607,630 607,630 608,245
1,500,000............. 313,110 417,425 521,795 626,165 730,535 730,535 730,535
1,750,000............. 365,745 487,640 609,595 731,490 853,385 853,385 853,385
2,000,000............. 418,435 557,860 697,335 836,815 976,295 976,295 976,295
2,250,000............. 471,070 628,075 785,135 942,140 1,099,145 1,099,145 1,099,145
2,500,000............. 523,760 698,290 872,880 1,047,465 1,222,055 1,222,055 1,222,055
2,750,000............. 576,395 768,510 960,680 1,152,790 1,344,905 1,344,905 1,344,905
3,000,000............. 629,085 838,725 1,048,420 1,258,115 1,467,815 1,467,815 1,467,815
The Pension Plan Table sets forth a range of annual retirement benefits 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 10) 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.
The years of service credited to the Named Executive Officers are Mr.
Tobias, 17 years; Mr. Taurel, 24 years; Dr. Watanabe, 6 years; Mr. Granadillo,
26 years; Mr. Daniels, 5 years; and Mr. Cornelius, 28 years.
Section 415 of the Internal Revenue Code ("Code") generally places a limit
of $120,000 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, Inc. There are additional
conditions that could result in a change-in-control event. The Program would
not be 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
17
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.
2. PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION
TO INCREASE AUTHORIZED COMMON STOCK AND REVISE OTHER PROVISIONS
The Board of Directors has unanimously approved certain amendments to the
Company's Articles of Incorporation and recommends that the shareholders
approve them by voting in favor of Proposal No. 2. The amendments are
summarized below and include changes to certain provisions of the Articles
which would, among other things, (i) increase the authorized common stock,
(ii) revise the indemnification provisions, (iii) authorize the Board of
Directors to determine the voting rights, if any, of future series of
preferred stock, (iv) broaden and simplify the statement of the Company's
purposes and (v) make other changes to conform generally with the provisions
of the Indiana Business Corporation Law ("IBCL"). The following summaries are
qualified in their entirety by reference to the existing Articles of
Incorporation of the Company, a copy of which is attached as Exhibit A to this
Proxy Statement (the "current Articles"), and the revised Articles of
Incorporation which contains the proposed amendments, a copy of which is
attached as Exhibit B to this Proxy Statement (the "proposed Articles").
A. Increase Authorized Common Stock
The Board of Directors has recommended amendment of the Articles of
Incorporation to increase authorized common stock from 800,000,000 shares to
1,600,000,000 shares (proposed Article 4). The presently authorized capital
stock of the Company is 800,000,000 shares of common stock and 5,000,000
shares of preferred stock (current Article 5).
On October 17, 1995, the Company authorized a two-for-one stock split to be
effected in the form of a 100% stock dividend. The stock dividend was paid on
December 20, 1995 to shareholders of record on November 15, 1995. As a result
of that action, the number of authorized but unissued shares of common stock
available to the Company for future use was reduced significantly. As of
December 31, 1995, there were 550,752,560 shares of common stock issued and
outstanding and an additional 53,847,155 shares of common stock reserved for
issuance under the Company's stock plans and in connection with convertible
securities issued pursuant to acquisitions. None of the preferred stock is
outstanding.
The proposed increase in the number of shares of authorized common stock
will insure that shares will be available, if needed, for issuance in
connection with stock splits, stock dividends, acquisitions, and other
corporate purposes. The Board of Directors believes that the availability of
the additional shares for such purposes without delay or the necessity for a
special shareholders' meeting would be beneficial to the Company. The Company
does not have any immediate plans, arrangements, commitments, or
understandings with respect to the issuance of any of the additional shares of
common stock which would be authorized by the proposed amendments.
No further action or authorization by the Company's shareholders would be
necessary prior to the issuance of the additional shares of common stock
unless required by applicable law or regulatory agencies or by the rules of
any stock exchange on which the Company's securities may then be listed.
The holders of any of the additional shares of common stock issued in the
future would have the same rights and privileges as the holders of the shares
of common stock currently authorized and outstanding. Those rights do not
include preemptive rights with respect to the future issuance of any
additional shares.
18
As stated above, the Company has no immediate plans, arrangements,
commitments, or understandings with respect to the issuance of any additional
shares of common stock which would be authorized by the proposed amendments.
However, the increased authorized shares could be used to make a takeover
attempt more difficult such as by using the shares to make a counter-offer for
the shares of the bidder or by selling shares to dilute the voting power of
the bidder. As of this date, the Board is unaware of any effort to accumulate
the Company's shares or to obtain control of the Company by means of a merger,
tender offer, solicitation in opposition to management or otherwise.
The current Articles contain certain other provisions that may be viewed as
having possible anti-takeover effects. Under these provisions the Company's
Board of Directors is divided into three classes, with approximately one-third
of the members of the Board nominated for election each year. Thus, two Annual
Meetings are necessary for a majority shareholder to replace a majority of
incumbent directors. In addition, directors may be removed only for cause and
only upon the affirmative vote of the holders of 80% of the outstanding voting
power of the Company. The current Articles further provide that, in certain
situations, the affirmative vote of the holders of 80% of the Company's
outstanding voting power is required to approve certain business transactions
(such as mergers or sales of assets) involving another entity which
beneficially owns 5% or more of the voting power of the Company. The current
Articles also provide that the Board, when evaluating such transactions,
shall, in connection with the exercise of its judgment in determining what is
in the best interests of the Company and its shareholders, give due
consideration to all relevant factors including the social and economic
effects on employees, customers, suppliers, and other constituents of the
Company and on the communities in which the Company operates or is located.
On July 18, 1988, the Company adopted a Shareholder Rights Plan. Under the
terms of the Plan, all shareholders of common stock received, for each share
owned, a preferred stock purchase right entitling them to purchase from the
Company one one-hundredth of a share of Series A Participating Preferred Stock
at an exercise price of $81.25. The rights are not exercisable until after the
date on which the Company's right to redeem has expired. The Company may
redeem the rights for $.0025 per right up to and including the tenth business
day after the date of a public announcement that a person (the "Acquiring
Person") has acquired ownership of stock having 20% or more of the Company's
general voting power (the "Stock Acquisition Date"). The Plan provides that if
the Company is acquired in a business combination transaction at any time
after a Stock Acquisition Date, generally each holder of a right will be
entitled to purchase at the exercise price a number of the acquiring company's
shares having a market value of twice the exercise price. The Plan also
provides that in the event of certain other business combinations, certain
self-dealing transactions, or the acquisition by a person of stock having 25%
or more of the Company's general voting power, generally each holder of a
right will be entitled to purchase at the exercise price a number of shares of
the Company's common stock having a market value of twice the exercise price.
Any rights beneficially owned by an Acquiring Person shall not be entitled to
the benefit of the adjustments with respect to the number of shares described
above. The rights will expire on July 28, 1998, unless redeemed earlier by the
Company.
The Company also has 5,000,000 shares of authorized preferred stock which
have not been issued. A total of 1,400,000 shares of the preferred stock have
been designated as Series A Participating Preferred Stock and reserved for
issuance pursuant to the Shareholder Rights Plan discussed above. The Board
(subject to applicable law or rules of regulatory agencies and requirements of
stock exchanges) has the power to issue the existing preferred stock without
further shareholder approval, with such rights as the Board deems advisable,
including conversion rights, redemption rights, and liquidation rights. While
the existing preferred stock may not be given voting rights other than the
right to vote in the cases of certain dividend arrearage and certain
fundamental changes in the rights of the holders of existing preferred stock,
the stock could be issued to deter a takeover by establishing the terms of the
existing preferred stock so as to make the takeover substantially more
expensive. See "Authorization of Preferred Stock" below for a description of
(i) a proposed amendment to the current Articles which would give the Board
the ability to issue preferred stock with general voting rights and (ii)
certain other provisions which may be viewed as having possible anti-takeover
effects.
19
B. Revised Indemnification Provisions
The Board of Directors has recommended amendment to the Articles of
Incorporation which would require the Company to indemnify directors, officers
and employees of the Company to the fullest extent permitted by Indiana law
now or hereinafter in effect (proposed Article 11).
The IBCL currently provides, among other things, that, unless limited by its
articles of incorporation, a corporation shall indemnify against reasonable
expenses any director or officer who is wholly successful, on the merits or
otherwise, in defense of any proceeding to which the director or officer was a
party as a result of being or having been a director or officer. The IBCL also
permits a corporation to indemnify directors, officers, employees and agents
against liability to pay a judgment, settlement, penalty, fine or expenses
incurred in connection with any threatened, pending or completed action or
proceeding in respect of any action taken by a director, officer, employee or
agent in their official capacity if (1) the individual's conduct was in good
faith, and (2) the individual reasonably believed (a) in the case of conduct
in the individual's official capacity with the corporation, that the
individual's conduct was in its best interests, and (b) in all other cases,
that the individual's conduct was at least not opposed to its best interests,
and (3) in the case of any criminal proceeding, the individual either (a) had
reasonable cause to believe the individual's conduct was lawful, or (b) had no
reasonable cause to believe the individual's conduct was unlawful. The board
of directors (acting through a quorum of disinterested directors or a special
committee of two or more disinterested directors) or special legal counsel or
the shareholders may authorize indemnification in the specific case after a
determination is made that indemnification is permissible because such
standards have been satisfied. The IBCL also permits a corporation to pay for
or reimburse the reasonable expenses incurred by an officer, director,
employee or agent in advance of final disposition of the proceeding if the
individual furnishes the corporation with a written affirmation of the
individual's good faith belief that the individual has met the standard of
conduct described above, the individual furnishes the corporation with a
written undertaking to repay the advance if it is ultimately determined that
the individual did not meet such standard of conduct and if the board of
directors (or special legal counsel or the shareholders) determines that
indemnification is not precluded under the IBCL. In appropriate circumstances,
the Company could determine to provide for advancement of expenses at any time
after a proceeding is threatened, pending or completed. The indemnification
and advancement of expenses provisions of the IBCL are applicable to all
claims, including claims for monetary damages and equitable relief, as well as
claims on behalf of a corporation, such as shareholder derivative suits.
The amendment provides that the Company shall, to the fullest extent
permitted by applicable law now or hereinafter in effect, indemnify any
director, officer or employee of the Company against all expenses, judgments,
fines, penalties and amounts paid in settlement actually and reasonably
incurred in connection with any threatened, pending or completed action or
proceeding in respect of any action taken by a director, officer or employee
in such capacity. The amendment states, however, that, except to the extent
provided in the Company's By-Laws or in an individual agreement, no
indemnification will be available under the Articles for proceedings which
were commenced by the person seeking indemnification.
The amendment further provides that the Company may establish supplemental
provisions in its By-Laws or in individual agreements concerning, among other
things, determination of eligible persons to indemnification, advancement of
expenses and the effect of a change in control of the Company. Following
approval by shareholders of these proposed amendments and the effectiveness of
the revised Articles, the Company intends to amend its By-Laws to specify the
procedures applicable to indemnification and advancement of expenses.
In addition, the amendment provides that the Company shall provide
indemnification to the fullest extent permitted by applicable law now or
hereinafter in effect. As such, the circumstances under which the Company may
be required or permitted to provide indemnification may in the future be
broader than that presently provided by the Indiana Business Corporation Law
and the Articles as it exists now or as it is proposed to be amended.
Certain aspects of the indemnification provisions in the current Articles
are inconsistent with the indemnification provisions of the IBCL. For example,
the standard of conduct for indemnification contained in
20
the current Articles does not distinguish instances in which conduct is taken
in an official capacity (as an officer, director or employee) from non-
official conduct. In addition, the methods by which the Company may elect to
provide indemnification to a person who is not wholly successful do not
include action by a committee of disinterested directors. The amendment would
eliminate these inconsistencies.
The indemnification provisions of the Company's Articles apply to and may
benefit the existing directors of the Company and, as such, the directors have
a personal interest in the adoption of the amendment. If shareholders approve
the amendment, the Company believes that shareholders would be estopped from
claiming that indemnification provided in accordance with the amendment and
Indiana law is incorrectly provided, although shareholders would not be barred
from challenging any particular indemnification as being provided in violation
of the amendment and Indiana law. The Company maintains directors' and
officers' liability insurance which may offset part of the costs involved in
any indemnification claim, and the Company presently intends to continue such
coverage in the future, subject to availability at a reasonable cost. To the
extent obligations under these provisions exceed any proceeds of insurance (or
if such coverage is discontinued or not applicable), any such indemnification
payments made by the Company may have an adverse effect upon its assets and
equity. Since the indemnification provisions relate to actions occurring while
a person serves as a director, officer or employee of the Company, the Company
may provide, or may be required to provide, indemnification if the appropriate
standards are satisfied even though at the time the indemnification is sought
such person no longer serves the Company in such a position. Similarly, the
Company intends that indemnification pursuant to the provisions of the
amendment may be provided if the appropriate standards are satisfied with
respect to any proceeding occurring after adoption of the amendment. In
addition, adoption of the amendment may result in a reduced likelihood of
derivative litigation and may discourage initiation of actions against persons
who may be entitled to indemnification which may be in the Company or the
shareholders' best interests, to the extent the proceeds of such litigation,
if any, are viewed to be an obligation of the Company. The Company notes,
however, that such a result is presently possible to the extent the Company's
current indemnification provisions are viewed in such a fashion.
The Board of Directors believes that the proposed amendment is in the best
interests of the Company and its shareholders. In recent years, there has been
an increase in the number and amount of claims brought against directors and
officers of corporations. Although no director of the Company has threatened
to resign and, to the best of the Company's knowledge, no qualified person has
refused to serve on the Company's Board of Directors because of the threat of
personal liability, the Board of Directors believes that adoption of the
proposed amendment would enhance the ability of the Company to attract and
retain highly qualified directors in the future. In addition, threat of
personal liability may have an adverse effect on the decision-making process
of directors, officers and employees of the Company. The proposed
indemnification clause may also encourage such persons to make entrepreneurial
decisions which they believe to be in the best interest of the Company with
less threat of personal liability for monetary damages for breach of fiduciary
duty.
C. Authorization of Preferred Stock
The Board of Directors has recommended amending the provisions of its
current Articles authorizing the issuance of up to 5,000,000 shares of
preferred stock (current Articles 6 and 7) with a provision that would permit
the Board of Directors to determine the voting rights of any future series of
preferred stock. The amendment would not increase the authorized shares of
preferred stock which would remain at 5,000,000 shares. A total of 1,400,000
shares of preferred stock out of the 5,000,000 shares authorized have already
been designated as Series A Participating Preferred Stock and are reserved for
issuance pursuant to the Shareholders Rights Plan (Article 14 remains
unchanged).
Prior to the adoption of the IBCL in 1986, Indiana law required that voting
rights of all classes of shares of a corporation be specified in its articles
of incorporation. All other relative rights, preferences and limitations of
classes of preferred or special shares, if so provided in the articles of
incorporation, could be determined by the board of directors without further
action by the shareholders. The IBCL, however, permits corporations to
21
authorize a board of directors to determine the preferences, limitations and
relative voting and other rights of a class or series of authorized shares
without further shareholder action. The amendment would permit the Board of
Directors to designate such matters for any future series of preferred stock.
The rights of the Series A Participating Preferred Stock would remain
unchanged.
Under current Article 7(b), holders of preferred stock would be entitled to
vote as a class for the election of two directors in the event the Company
fails for six quarters to pay the fixed, minimum or other dividend payable
with respect to such shares. In addition, holders of existing preferred stock
would not be entitled to vote in any other matter, including questions of
merger, consolidation and the sale of all or substantially all of the assets
of the Company. Proposed Article 7 provides that the Board has the right to
determine whether preferred stock has voting rights and, if so, the terms of
such voting rights, which may be general or limited and may include the right,
under specified circumstances, to elect additional directors.
The Board of Directors recommends the amendment to the preferred stock
provisions to increase the Company's financial flexibility. The Board believes
that the complexity of modern business financing and acquisition transactions
requires greater flexibility in the Company's capital structure than now
exists. The preferred stock would be available for issuance from time to time
as determined by the Board of Directors for any proper corporate purpose. Such
purposes might include, without limitation, issuance in public or private
sales for cash as a means of obtaining additional capital for use in the
Company's business and operations, and issuance as part or all of the
consideration required to be paid by the Company for acquisitions of other
businesses or properties. No further action or authorization by the Company's
shareholders would be necessary prior to the issuance of the shares of
preferred stock unless required by applicable law or regulatory agencies or by
the rules of any stock exchange on which the Company's securities may then be
listed. The Company does not have any immediate plans, agreements,
understandings or arrangements which would result in the issuance of any
shares of preferred stock. As stated above, a total of 1,400,000 shares of
preferred stock have been designated as Series A Participating Preferred Stock
and reserved for issuance pursuant to the Shareholders Rights Plan. These
shares would remain unchanged leaving 3,600,000 shares of preferred stock
available for issuance.
It is not possible to state the precise effect of the amendment upon the
rights of holders of common stock until the Board of Directors determines the
respective preferences, limitations and relative rights of the holders of any
future series of preferred stock. However, such effects might include a
dilution of the voting power of the common stock to the extent that such
preferred stock has voting rights.
The amendment may be viewed as having the effect of discouraging an
unsolicited attempt by another person or entity to acquire control of the
Company. Issuances of authorized preferred shares can be implemented, and have
been implemented by some companies in recent years, with voting or conversion
privileges intended to make acquisition of the company more difficult or more
costly. Such an issuance could be used to discourage or limit the
shareholders' participation in certain types of transactions that might be
proposed (such as a tender offer), whether or not such transactions were
favored by the majority of the shareholders. As stated above the Board is
unaware of any effort to accumulate the Company's shares or to obtain control
of the Company by means of a merger, tender offer, solicitation in opposition
to management or otherwise. See "Increase Authorized Common Stock" above for a
description of certain other provisions which may be viewed as having possible
anti-takeover effects.
D. Simplify and Broaden the Company's Purposes
The Board of Directors has recommended amendment of the Articles of
Incorporation to simplify and broaden the statement of the Company's purposes
set forth in the Articles of Incorporation by replacing the present and
lengthy detailed enumeration in current Article 2 with a brief statement, as
permitted by the IBCL, to the effect that the Company may engage in any lawful
act or activity for which corporations may be organized under the IBCL
(proposed Article 2). This approach to the statutory requirement for a
statement of corporate purposes has become common in recent years and would
permit the Company to engage in business activities in the future without the
necessity of detailed legal analysis of clauses written decades ago.
22
E. Other Changes
The Board of Directors has also recommended amendments to remove certain
provisions in the Articles which are obsolete and, under Indiana law, are no
longer required to be contained in the Company's Articles including, among
others, the name and address of the registered agent of the Company (current
Article 4), the minimum stated capital of the Company (current Article 8) and
the names and addresses of the directors and selected officers of the Company
(current Articles 10 and 11). In addition, the Board of Directors has
recommended removal of certain other provisions in the Articles including
those relating to the designation of committees of the Board, the
establishment of stock plans for officers and employees of the Company and the
sale of assets (portions of current Article 12(a)), the setting up of reserves
(portions of current Article 12(b)) and the determination of the location of
shareholder or director meetings (current Article 12(f)). The Company retains
the power to take any of these actions based on the authority granted to
corporations under IBCL and provisions in the By-Laws of the Company. The
Board of Directors has also recommended the deletion of provisions in the
Articles regarding preemptive rights (current Article 12(c)), certain conflict
of interest transactions (current Article 12(d)) and the approval of
contracts, transactions or acts by shareholders (current Article 12(e))
inasmuch as, absent the articles of a corporation providing to the contrary,
such matters are dictated by the IBCL which contains provisions substantially
similar to those contained in the existing Articles. Finally, the Board of
Directors has recommended amendment of the Articles of Incorporation to
reorder and revise provisions relating to the repurchase and sale of its own
stock (proposed Article 5), the right to pay dividends (proposed Article 8)
and the ability to amend its By-Laws (proposed Article 10) and Articles of
Incorporation (proposed Article 12). Each of these provisions in the proposed
Articles replaces a provision to the same effect in the current Articles.
Articles 1, 9, 13 and 14 of the proposed Articles remain unchanged from the
current Articles.
Approval of a majority of the Company's outstanding shares of common stock
is required for adoption of the proposal to amend the Articles of
Incorporation. If the proposal is adopted, the amendments will become
effective upon the requisite filing under the IBCL. Abstentions from voting on
the amendment and broker non-votes (i.e. shares held by brokers or nominees
which are represented at a meeting but with respect to which the broker or
nominee is not empowered to vote on a particular proposal) will have the
practical effect of voting against the amendment since the affirmative vote of
a majority of the Company's outstanding shares of common stock is required for
adoption of the proposal. If not otherwise specified, properly executed
proxies will be voted in favor of the proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF
THESE AMENDMENTS TO THE ARTICLES OF INCORPORATION.
3. 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 1996. 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
1995. 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 non-votes 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 1996.
23
4. SHAREHOLDER PROPOSAL TO FORM A COMMITTEE ON RESEARCH:
REPORT TO SHAREHOLDERS
Mr. Timothy D. Williams, 5575 Joyceann Drive, Dayton, Ohio 45415, the owner
of 100 shares of common stock, has given notice that he intends to present for
action the following proposal at the Annual Meeting.
Approval of this proposal requires that the votes cast in favor of the
proposal exceed the votes cast opposing the proposal. Only votes cast for or
against the proposal will be counted, except that the accompanying proxy will
be voted against the proposal in the absence of instructions to the contrary.
Abstentions and broker non-votes will not change the number of votes cast for
and against the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE SHAREHOLDER PROPOSAL.
IF NOT OTHERWISE SPECIFIED, PROPERLY EXECUTED PROXIES WILL BE VOTED AGAINST
THE PROPOSAL.
Shareholder Proposal
Whereas, Eli Lilly and Company manufactures health care products.
Whereas, the development and testing of some of these products may require
the use of human fetal tissue.
Whereas, elective abortions provide a major source of human fetal tissue
used for testing, research, and experimentation purposes.
Whereas, alternatives to the use of human fetal tissue obtained from
elective abortions are available.
Whereas, elective abortion is a deeply divisive and highly politicized
issue.
Whereas, many company shareholders, employees, and customers hold strong
moral objections to the use of human fetal tissue obtained from elective
abortions for testing, research, and experimentation purposes.
Resolved, the shareholders request the Board of Directors of the company to
form a committee. The purpose of this committee would be to study ways to
eliminate the use of human fetal tissue obtained from elective abortions in
the development and testing of the company's products. The committee would
report its finding to the Board of Directors no later than November 1,
1996. This report, excluding any proprietary information, should then be
made available to all shareholders.
STATEMENT IN OPPOSITION TO THE SHAREHOLDER PROPOSAL
The Company has in place an appropriate policy and follows practices that
address the issues raised by the proposal. Therefore, the Board of Directors
recommends that shareholders vote against it.
The proposal requests that the Board form a committee to study ways to
eliminate the use in research of human fetal tissue obtained from elective
abortions. It does not oppose the use of fetal tissue in research, per se, nor
does it recommend that the Company discontinue research projects that involve
human fetal tissue. It requests only that the Board take steps in an effort to
eventually eliminate the use of such tissue in research.
The Company has already taken action to minimize the use of human fetal
tissue in research. The Company's policy on the subject is actually broader
than the concerns raised by the shareholder in his statement in support of the
proposal. It is the Company's policy to avoid the use of human fetal tissue,
regardless of its origin, when alternatives are scientifically appropriate.
However, because the mission of the Company involves the discovery and
development of innovative pharmaceutical products to save and improve the
quality of human life, fulfillment of that mission necessarily requires the
use of biological systems in research.
The Company's policy was developed by a committee appointed by management in
late 1992. It is responsible to the sensitivities of certain shareholders,
employees, and others who may be opposed to the use of such tissue, without
limiting the Company's ability to create life-saving medicines. It discourages
the use of human fetal tissue and encourages a consideration of alternatives.
24
However, the policy also recognizes the value of the Company's mission of
discovering and developing innovative, life-saving medicines. That mission is
underpinned by the Company's research programs. People who suffer from the
various debilitating conditions being addressed by Company scientists, such as
Alzheimer's disease, schizophrenia, stroke and various forms of cancer want
our research scientists to be fully committed to the search for treatments. In
that regard, they rely on our scientists to use every available resource to
unlock the secrets of such diseases. Success in those efforts serves many
interests, including those of patients whose lives have been devastated by
disease and family members who must bear the emotional and financial burden
associated with the patient's condition. That success also serves our
shareholders, who participate in both the financial rewards and the
satisfaction associated with Company discoveries that save and improve the
quality of human life.
FOR THOSE REASONS, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS
PROPOSAL.
5. 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.
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 person, by
telephone, by telegraph, 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, telegraph, 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.
Under the federal securities laws, Company directors, executive officers,
and 10% shareholders are required to report to the Securities and Exchange
Commission, by specific due dates, transactions and holdings in the Company's
common stock. The Company believes that during 1995 all these filing
requirements were satisfied, except that one report of Pedro Granadillo, an
executive officer, reporting gifts of stock to his children was filed 17
business days late, and one report of Ronald Dollens, a former executive
officer, reporting a sale of stock after he was no longer a Company employee
was filed 20 business days late.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
The date by which shareholder proposals must be received by the Company for
inclusion in the proxy materials relating to the 1997 Annual Meeting of
Shareholders is November 4, 1996.
By order of the Board of Directors,
Daniel P. Carmichael
Secretary
March 4, 1996
25
EXHIBIT A
CURRENT ARTICLES OF INCORPORATION
ELI LILLY AND COMPANY
(AN INDIANA CORPORATION)
AMENDED ARTICLES OF INCORPORATION
1. The name of the Corporation shall be
ELI LILLY AND COMPANY
2. The purposes for which it is formed are as follows:
(a) To manufacture and sell medical, chemical, pharmaceutical, animal,
biological, agricultural, and industrial products and preparations of every
kind.
(b) To manufacture and sell beverages, foods, and food products, including
beverages and food for infants, invalids, convalescents, and others.
(c) To manufacture and sell capsules, gelatin products, and containers of
all kinds.
(d) To manufacture and sell commodities, merchandise, and products of every
description.
(e) To engage in all lines of medical, chemical, pharmaceutical, biological,
agricultural, and industrial research.
(f) To subscribe for, purchase, or otherwise acquire, underwrite, obtain an
interest in, own, hold, pledge, hypothecate, mortgage, assign, deposit, create
trusts with respect to, sell, exchange, or otherwise dispose of and generally
deal in and with securities of every kind and description of any government,
state, territory, district, municipality, or other political or governmental
division or subdivision, body politic, corporation, association, partnership,
firm, trustee, syndicate, individual, combination, organization, or other
entity, located in or organized under the laws of any part of the world,
including (without limiting the generality of the foregoing) stocks, shares,
voting trust certificates, bonds, mortgages, debentures, notes, land trust
certificates, warrants, rights, scrip, commercial paper, choses in action,
contracts, evidences of indebtedness, certificates of interest, or other
securities of any nature howsoever evidenced; to acquire or become interested
in any such securities by original subscription, underwriting, participation
in syndicates or otherwise and irrespective of whether or not such securities
are fully paid or subject to further payments or assessments; to exercise any
and all rights, powers and privileges of individual ownership or interest in
respect of any such securities, including the right to vote thereon and
otherwise act with respect thereto, and to promote, manage, participate in and
act as agent for any underwriting, purchase or selling syndicate or group and
otherwise to take part in and assist, in any legal manner, by guaranty or
otherwise, the purchase, sale or distribution of any such securities.
(g) To promote, finance, aid and assist, financially or otherwise, any body
politic, corporation, association, partnership, firm, trustee, syndicate,
individual, combination, organization or other entity, located in or organized
under the laws of any part of the world, any stock, share, voting trust
certificate, bond, mortgage, debenture, note, land trust certificate, warrant,
right, scrip, commercial paper, chose in action, contract, evidence of
indebtedness, certificate of interest or other security of any nature
(howsoever evidenced) of which is held directly or indirectly by or for the
Corporation, or in the business, financing or welfare of which the Corporation
shall have any interest; and in connection therewith to guarantee or become
surety for the performance of any undertaking or obligation of any such
entity, and to guarantee by endorsement or otherwise the payment of the
principal of or interest or dividends on any such security of any such entity.
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(h) To promote, institute, enter into, conduct, perform, assist or
participate in every kind of commercial, mercantile, manufacturing, mining,
agricultural, transportation or industrial enterprise, business, work,
contract, undertaking, venture or operation in any part of the world; and for
any such purpose to purchase, lease or otherwise acquire, take over, hold,
sell, liquidate or otherwise dispose of the business and properties, of every
kind, of corporations, associations, partnerships, firms, trustees,
syndicates, individuals, combinations, organizations and other entities
located in or organized under the laws of any part of the world; to continue,
alter, extend and develop their business, assume their liabilities, guarantee
or become surety for the performance of their obligations, reorganize their
capital and participate in any way in their affairs; and to take over as a
going concern and to continue in its own name any business so acquired.
(i) To apply for, obtain, register, purchase, lease, or otherwise acquire,
hold, own, use, operate, introduce, develop or control, sell, assign, or
otherwise dispose of, take or grant licenses or other rights with respect to,
and in any and all ways to exploit or turn to account, inventions,
improvements, processes, copyrights, patents, trade marks, formulae, trade
names and distinctive marks, and similar rights of any and all kinds, and
whether granted, registered or established by or under the laws of the United
States or of any state thereof, or of any other country or place.
(j) For any purpose and upon any terms, to borrow or raise money and to
issue, draw, make, accept, endorse, guarantee, sell and dispose of bonds,
debentures, notes, drafts, bills of exchange, warrants, certificates of
indebtedness, certificates of interest and other obligations and securities of
the Corporation, secured or unsecured and howsoever evidenced, and as security
therefor to mortgage, pledge, convey, assign in trust or grant any charge or
impose any lien upon all or any part of the real or personal property, rights,
interests or franchises of the Corporation, whether owned by it at the time or
thereafter acquired.
(k) To lend money with or without security.
(l) To pay for any property, rights or interests acquired by the Corporation
in cash or other property, rights or interests held by the Corporation, or by
issuing and delivering in exchange therefor its own property, shares of stock,
warrants, bonds, debentures, notes, certificates of indebtedness or other
obligations or securities, howsoever evidenced.
(m) To purchase, hold, cancel, reissue, sell, resell and transfer its own
bonds, debentures, warrants, rights, scrip or other obligations or securities
of any nature howsoever evidenced and to acquire, by purchase or otherwise,
shares of its own stock and to hold, own, pledge, transfer or otherwise
dispose of the same; provided, that no purchase shall be made, either directly
or indirectly, except to the extent permitted by applicable law.
(n) To carry on all or any part of its business, objects or purposes as
principal, factor, agent, partner, joint venturer, contractor, trustee or
otherwise, either alone or associated with any corporation, association,
partnership, firm, trustee, syndicate, individual, combination, organization
or entity, in any part of the world.
(o) In carrying on its business and for the purpose of furthering its
objects and purposes, to enter into and perform agreements and contracts of
any nature.
(p) To conduct its business in any and all branches thereof, so far as
permitted by law, and to maintain one or more offices and agencies, and to
hold, purchase, mortgage, convey and otherwise deal in and with real and
personal property, in each case in any part of the world out of as well as
within the State of Indiana.
(q) To exercise any and all powers and privileges which it might now or
hereafter be lawful for any corporation to exercise under and in pursuance of
The Indiana General Corporation Act or any other law that may now or hereafter
be applicable to the Corporation.
(r) To do any and all other acts and things necessary, convenient or
expedient for the furtherance of the business, objects and purposes herein
enumerated and for the exercise of the powers herein conferred.
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The foregoing clauses of this Article 2 shall be construed as purposes,
objects and powers, and the matters expressed in each clause shall not be
limited in any way, except as otherwise expressly provided, by reference to or
inference from the terms of any other clause (or any other matter within the
same clause), but shall be regarded as independent purposes, objects and
powers. The enumeration of specified purposes, objects and powers shall not be
considered to exclude, limit or restrict in any manner any power, right or
privilege given to the Corporation by law, or to limit or restrict the meaning
of the general terms of this Article 2 or the general powers of the
Corporation, nor shall the expression of one thing be deemed to exclude
another, although it be of like nature, not expressed.
3. The period during which it is to continue as a corporation is perpetual.
4. The post-office address of the principal office of the Corporation is 307
East McCarty Street, Indianapolis, Indiana, and the name and post-office
address of its Resident Agent in charge of such office is C. H. Bradley, Jr.,
307 East McCarty Street, Indianapolis, Indiana.
5. The total number of shares into which its authorized Capital Stock is
divided is 805,000,000, of which 800,000,000 are shares of Common Stock and
5,000,000 are shares of Preferred Stock. The Corporation's shares do not have
any par or stated value, except that, solely for the purpose of any statute or
regulation imposing any tax or fee based upon the capitalization of the
Corporation, each of the Corporation's shares shall be deemed to have a par
value of $0.01 per share.
6. The designation of the different classes of stock of the Corporation, and
the number of shares of each class of such stock, are as follows:
(a) Common Stock consisting of 800,000,000 shares.
(b) Preferred Stock, consisting of 5,000,000 shares, which may be issued in
such series and which shall possess such relative rights, preferences,
qualifications, limitations or restrictions as established by resolution of
the Board of Directors, which is vested to the fullest extent permitted by law
with authority to fix the relative rights, preferences, qualifications,
limitations or restrictions for each series of such class of shares
established by it, including, without limitation of the generality of the
foregoing, the following:
(i) The series, if any, of preferred to be issued and manner of its
differentiation from other series of Preferred Stock;
(ii) The number of shares which shall initially constitute each series;
(iii) The rate or rates and the time or times at which dividends and
other distributions on the shares of each series shall be paid, the
relationship or priority of such dividends to those payable on Common Stock
or to other series of Preferred Stock, and whether or not any such
dividends shall be cumulative;
(iv) The amount payable on the shares of each series in the event of the
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, and the relative priorities, if any, to be
accorded such payments in liquidation;
(v) The terms and conditions upon which either the Corporation may
exercise a right to redeem shares of each series or upon which the holder
of such shares may exercise a right to require redemption of such
shareholder's Preferred Stock, including any premiums or penalties
applicable to exercise of such rights;
(vi) Whether or not a sinking fund shall be created for the redemption of
the shares of a series, and the terms and conditions of any such fund;
(vii) Rights, if any, to convert any shares of Preferred Stock either
into shares of Common Stock or into other series of Preferred Stock and the
prices, premiums or penalties, ratios and other terms applicable to any
such conversion;
(viii) Restrictions on acquisition, rights of first refusal or other
limitations on transfer as may be applicable to any series, including any
series intended to be offered to a special class or group, such as
corporate employees; and
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(ix) Any other relative rights, preferences, limitations, qualifications
or restrictions on the Preferred Stock or any series of such shares.
7. The statement of the voting rights of each class of the Capital Stock of
the Corporation is as follows:
(a) Except as provided in the following paragraph (b), all voting rights,
including the right to vote on questions of merger, consolidation and the sale
of substantially all the assets of the Corporation, shall be vested
exclusively in the holders of shares of Common Stock.
(b) The holders of outstanding Preferred Stock shall be entitled to vote as
a class for the election of two (2) directors if the Corporation should fail
for six quarters to pay the fixed, minimum or other dividend payable with
respect to such shares or with respect to a particular series of such shares,
whether or not such dividend is cumulative. Such limited voting rights may be
exercised at the next annual meeting of shareholders following the failure to
pay a dividend for the sixth quarter and at each succeeding annual meeting of
shareholders until payment of all preferred dividends which are in arrears has
been made or provided for, at which time the right to vote for election of two
directors conferred upon the holders of the outstanding Preferred Stock shall
cease. In addition to the conditional right to vote for election of two
directors, any proposal to amend the relative rights and privileges of shares
of Preferred Stock (including those conferred by this provision) upon which
the holders of such Preferred Stock are entitled by the provisions of the
Indiana General Corporation Act to vote upon as a class shall require, instead
of a vote of the holders of a majority of such shares, the affirmative vote of
the holders of two-thirds (2/3) of such shares. Except as specified in this
paragraph, the holders of Preferred Stock shall not be entitled to any vote on
any matter, including questions of merger, consolidation, and the sale of all
or substantially all of the assets of the Corporation.
8. The amount of Stated Capital of the Corporation at the time of filing of
these Articles of Incorporation, as amended, is not less than $41,500,000.00.
9. The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and it is expressly
provided that the same are intended to be in furtherance and not in limitation
or exclusion of the powers conferred by statute:
(a) The number of directors of the Corporation, exclusive of directors who
may be elected by the holders of any one or more series of Preferred Stock
pursuant to Article 7(b) (the "Preferred Stock Directors"), shall not be less
than nine, the exact number to be fixed from time to time solely by resolution
of the Board of Directors, acting by not less than a majority of the directors
then in office.
(b) The Board of Directors (exclusive of Preferred Stock Directors) shall be
divided into three classes, with the term of office of one class expiring each
year. At the annual meeting of shareholders in 1985, five directors of the
first class shall be elected to hold office for a term expiring at the 1986
annual meeting, five directors of the second class shall be elected to hold
office for a term expiring at the 1987 annual meeting, and six directors of
the third class shall be elected to hold office for a term expiring at the
1988 annual meeting. Commencing with the annual meeting of shareholders in
1986, each class of directors whose term shall then expire shall be elected to
hold office for a three-year term. In the case of any vacancy on the Board of
Directors, including a vacancy created by an increase in the number of
directors, the vacancy shall be filled by election of the Board of Directors
with the director so elected to serve for the remainder of the term of the
director being replaced or, in the case of an additional director, for the
remainder of the term of the class to which the director has been assigned.
All directors shall continue in office until the election and qualification of
their respective successors in office. When the number of directors is
changed, any newly created directorships or any decrease in directorships
shall be so assigned among the classes by a majority of the directors then in
office, though less than a quorum, as to make all classes as nearly equal in
number as possible. No decrease in the number of directors shall have the
effect of shortening the term of any incumbent director. Election of directors
need not be by written ballot unless the By-Laws so provide.
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(c) Any director or directors (exclusive of Preferred Stock Directors) may
be removed from office at any time, but only for cause and only by the
affirmative vote of at least 80% of the votes entitled to be cast by holders
of all the outstanding shares of Voting Stock (as defined in Article 13
hereof), voting together as a single class.
(d) Notwithstanding any other provision of these Amended Articles of
Incorporation or of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
of Voting Stock required by law or these Amended Articles of Incorporation,
the affirmative vote of at least 80% of the votes entitled to be cast by
holders of all the outstanding shares of Voting Stock, voting together as a
single class, shall be required to alter, amend or repeal this Article 9.
10. The names and addresses of the Board of Directors with which the
Corporation shall continue to do business are as follows:
Eli Lilly 307 East McCarty Street
Indianapolis, Indiana
E. N. Beesley 307 East McCarty Street
Indianapolis, Indiana
B. E. Beck 307 East McCarty Street
Indianapolis, Indiana
R. E. Crandall 307 East McCarty Street
Indianapolis, Indiana
H. F. DeBoest 307 East McCarty Street
Indianapolis, Indiana
W. B. Fortune, Ph.D. 307 East McCarty Street
Indianapolis, Indiana
R. E. Heine 307 East McCarty Street
Indianapolis, Indiana
J. E. Koffenberger 307 East McCarty Street
Indianapolis, Indiana
K. G. Kohlstaedt, M.D. 307 East McCarty Street
Indianapolis, Indiana
T. H. Lake 307 East McCarty Street
Indianapolis, Indiana
J. E. Marmon 307 East McCarty Street
Indianapolis, Indiana
A. M. McVie, Jr. 307 East McCarty Street
Indianapolis, Indiana
N. H. Noyes 307 East McCarty Street
Indianapolis, Indiana
C. W. Pettinga, Ph.D. 307 East McCarty Street
Indianapolis, Indiana
G. L. Varnes 307 East McCarty Street
Indianapolis, Indiana
J. O. Waymire 307 East McCarty Street
Indianapolis, Indiana
H. M. Wisely, Ph.D. 307 East McCarty Street
Indianapolis, Indiana
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11. The names and addresses of the President and Secretary of the Corporation
are as follows:
E. N. Beesley, President 307 East McCarty Street
Indianapolis, Indiana
C. H. Bradley, Jr., Secretary 307 East McCarty Street
Indianapolis, Indiana
12. Provisions for regulation of business and conduct of affairs of the
Corporation:
(a) In furtherance and not in limitation of the powers conferred upon the
Board of Director by statute, the Board of Directors is expressly authorized,
without any vote or other action by shareholders other than such as at the
time shall be expressly required by statute or by the provisions of these
Articles of Incorporation, as amended, or of the By-Laws, to exercise all of
the powers, rights and privileges of the Corporation (whether expressed or
implied herein or conferred by statute) and to do all acts and things which
may be done by the Corporation, including, without limiting the generality of
the foregoing, the right
(i) pursuant to a provision of the By-Laws, by resolution adopted by a
majority of the actual number of directors elected and qualified, to
designate from among its members an executive committee and one or more
other committees, each of which, to the extent provided in such resolution
or in the By-Laws, shall have and exercise all the authority of the Board
of Directors except as otherwise provided by law;
(ii) to make, alter, amend or repeal by-laws for the Corporation;
(iii) to authorize the issuance from time to time of all or any shares of
the Corporation, now or hereafter authorized, part paid receipts or
allotment certificates in respect of any such shares, and any securities
convertible into or exchangeable for any such shares (whether such shares,
receipts, certificates or securities be unissued or issued and thereafter
acquired by the Corporation), in each case to such corporations,
associations, partnerships, firms, individuals or others (without offering
the same or any part thereof to the holders of any shares of the
Corporation of any class now or hereafter authorized), and for such
consideration and on such terms as the Board of Directors from time to time
in its discretion lawfully may determine;
(iv) from time to time to create and issue rights or options to subscribe
for, purchase or otherwise acquire any shares of stock of the Corporation
of any class now or hereafter authorized or any bonds or other obligations
or securities of the Corporation (without offering the same or any part
thereof to the holders of any shares of the Corporation of any class now or
hereafter authorized);
(v) in furtherance and not in limitation of the provisions of the
foregoing subdivisions (iii) and (iv), from time to time to establish and
amend plans for the distribution among or sale to any one or more of the
officers or employees of the Corporation, or any subsidiary thereof, of any
shares of stock or other securities of the Corporation of any class, or for
the grant to any of such officers or employees of rights or options to
subscribe for, purchase or otherwise acquire any such shares or other
securities, without in any case offering the same or any part thereof to
the holders of any shares of the Corporation of any class now or hereafter
authorized; such distribution, sale or grant may be in addition to or
partly in lieu of the compensation of any such officer or employee and may
be made in consideration for or in recognition of services rendered by him,
or to provide him with an incentive to serve or to agree to serve the
Corporation or any subsidiary thereof, or otherwise as the Board of
Directors may determine; and
(vi) to sell, lease, exchange, mortgage, pledge, or otherwise dispose of
or encumber all or any part of the assets of the Corporation unless and
except to the extent otherwise expressly required by statute.
(b) The Board of Directors, in its discretion, may from time to time
(i) declare and pay dividends upon the shares of the capital stock of the
Corporation out of any assets of the Corporation available for dividends,
but dividends may be declared and paid upon shares issued as partly paid
only upon the basis of the percentage of the consideration actually paid
thereon at the time of such declaration and payment;
A-6
(ii) use and apply any of its assets available for dividends, subject to
the provisions of clause (m) of Article 2 hereof, in purchasing or
acquiring any of the shares of stock of the Corporation; and
(iii) set apart out of its assets available for dividends such sum or
sums as the Board of Directors may deem proper, as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for maintaining or
increasing the property or business of the Corporation, or for any other
purpose it may deem conducive to the best interests of the Corporation. The
Board of Directors in its discretion at any time may increase, diminish or
abolish any such reserve in the manner in which it was created.
(c) No holder of any shares of the Corporation of any class now or hereafter
authorized shall have any preemptive right as such holder (other than such
right, if any, as the Board of Directors in its discretion may determine) to
purchase or subscribe for any additional issues of shares of the Corporation
of any class now or hereafter authorized, nor any shares of the Corporation
purchased and held as treasury shares, or any part paid receipts or allotment
certificates in respect of any such shares, or any securities convertible into
or exchangeable for any such shares, or any warrants or other instruments
evidencing rights or options to subscribe for, purchase or otherwise acquire
any such shares, whether such shares, receipts, certificates, securities,
warrants or other instruments be unissued, or issued and thereafter acquired
by the Corporation; and any such shares, receipts, certificates, securities,
warrants, or other instruments, in the discretion of the Board of Directors,
may be offered from time to time to any holder or holders of shares of any
class or classes to the exclusion of all other holders of shares of the same
or any other class at the time outstanding.
(d) No contract or other transaction between the Corporation and one or more
of its directors or any other corporation, firm, association or entity in
which one or more of its directors is a director or officer or is financially
interested, shall be either void or voidable because of such relationship or
interest or because such director or directors are present at the meeting of
the Board of Directors or a committee thereof which authorizes, approves or
ratifies such contract or transaction or because his or their votes are
counted for such purposes, if:
(i) The fact of such relationship or interest is disclosed or known to
the Board of Directors or committee which authorizes, approves, or ratifies
the contract or transaction by a vote or consent sufficient for the purpose
without counting the votes or consents of such interested directors; or
(ii) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve or ratify
such contract or transaction by vote; or
(iii) The contract or transaction is fair and reasonable to the
Corporation.
Common or interested directors may be counted in determining the presence of
a quorum at a meeting of the Board of Directors or a committee thereof which
authorizes, approves or ratifies such contract or transaction.
(e) Any contract, transaction or act of the Corporation or of the Board of
Directors which shall be authorized, approved or ratified by a majority of a
quorum of the shareholders entitled to vote at any annual meeting or at any
special meeting called for that purpose, or by such vote as may be required by
any provision of these Articles of Incorporation, as amended, or by any
applicable statute, shall be as valid and binding as if such contract,
transaction or act had been authorized, approved or ratified by every
shareholder of the Corporation.
(f) Meetings of both the shareholders and Board of Directors may be held
either within or without the State of Indiana, as provided from time to time
by the By-Laws.
(g) The Corporation shall indemnify each person who is or was a director,
officer or employee of the Corporation, or of any other corporation which he
is serving or served in any capacity at the request of the Corporation,
against any and all liability and reasonable expense that may be incurred by
him in connection with or resulting from any claim, action, suit, or
proceeding (whether actual or threatened, brought by or in the right of the
Corporation or such other corporation or otherwise, civil, criminal,
administrative, investigative, or in
A-7
connection with an appeal relating thereto), in which he may become involved,
as a party or otherwise, by reason of his being or having been a director,
officer, or employee of the Corporation or of such other corporation, or by
reason of any past or future action taken or not taken in his capacity as such
director, officer, or employee, whether or not he continues to be such at the
time such liability or expense is incurred, provided such person acted in good
faith, in what he reasonably believed to be the best interests of the
Corporation or such other corporation, as the case may be, and, in addition,
in any criminal action or proceeding, had no reasonable cause to believe that
his conduct was unlawful. As used in this Article 12.(g), the terms
"liability" and "expense" shall include, but shall not be limited to,
attorneys' fees and disbursements and amounts of judgments, fines, or
penalties against, and amounts paid in settlement by, a director, officer, or
employee. The termination of any claim, action, suit, or proceeding, civil or
criminal, by judgment, settlement (whether with or without court approval) or
conviction or upon a plea of guilty or of nolo contendere, or its equivalent,
shall not create a presumption that a director, officer, or employee did not
meet the standards of conduct set forth in the first sentence of this Article
12.(g).
Any such director, officer, or employee who has been wholly successful, on
the merits or otherwise, with respect to any claim, action, suit, or
proceeding of the character described herein shall be entitled to
indemnification as of right. Except as provided in the preceding sentence, any
indemnification hereunder shall be made at the discretion of the Corporation,
but only if (l) the Board of Directors, acting by a quorum consisting of
directors who are not parties to or who have been wholly successful with
respect to such claim, action, suit, or proceeding, shall find that the
director, officer, or employee has met the standards of conduct set forth in
the first sentence of this Article 12.(g), or (2) independent legal counsel
(who may be regular counsel of the Corporation) shall deliver to it their
written opinion that such director, officer, or employee has met such
standards.
If several claims, issues, or matters of action are involved, any such
person may be entitled to indemnification as to some matters even though he is
not so entitled as to others.
The Corporation may advance expenses to, or where appropriate may at its
expense undertake the defense of, any such director, officer or employee upon
receipt of an undertaking by or on behalf of such person to repay such
expenses if it should ultimately be determined that he is not entitled to
indemnification under this Article 12.(g).
The provisions of this Article 12.(g) shall be applicable to claims,
actions, suits or proceedings made or commenced after the adoption hereof,
whether arising from acts or omissions to act occurring before or after the
adoption hereof.
The rights of indemnification provided hereunder shall be in addition to any
rights to which any person concerned may otherwise be entitled by contract or
as a matter of law, and shall inure to the benefit of the heirs, executors,
and administrators of any such person.
(h) The Corporation shall be deemed, for all purposes, to have reserved the
right to amend, alter, change or repeal any provision contained in its
Articles of Incorporation, as amended, to the extent and in the manner now or
hereafter permitted or prescribed by statute, and all rights herein conferred
upon shareholders are granted subject to such reservation.
(i) These Articles of Incorporation, as amended, supersede and take the
place of the heretofore existing Articles of Incorporation of the Corporation
and Amended Articles of Incorporation of the Corporation.
13. In addition to all other requirements imposed by law and these Amended
Articles and except as otherwise expressly provided in paragraph (c) of this
Article 13, none of the actions or transactions listed below shall be effected
by the Corporation, or approved by the Corporation as a shareholder of any
majority-owned subsidiary of the Corporation if, as of the record date for the
determination of the shareholders entitled to vote thereon, any
Related Person (as hereinafter defined) exists, unless the applicable
requirements of paragraphs (b), (c), (d), (e), and (f) of this Article 13 are
satisfied.
A-8
(a) The actions or transactions within the scope of this Article 13 are as
follows:
(i) any merger or consolidation of the Corporation or any of its
subsidiaries into or with such Related Person;
(ii) any sale, lease, exchange, or other disposition of all or any
substantial part of the assets of the Corporation or any of its majority-
owned subsidiaries to or with such Related Person;
(iii) the issuance or delivery of any Voting Stock (as hereinafter
defined) or of voting securities of any of the Corporation's majority-owned
subsidiaries to such Related Person in exchange for cash, other assets or
securities, or a combination thereof;
(iv) any voluntary dissolution or liquidation of the Corporation;
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its subsidiaries, or any other
transaction (whether or not with or otherwise involving a Related Person)
that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of capital stock of the
Corporation, or any securities convertible into capital stock of the
Corporation or into equity securities of any subsidiary, that is
beneficially owned by any Related Person; or
(vi) any agreement, contract, or other arrangement providing for any one
or more of the actions specified in the foregoing clauses (i) through (v).
(b) The actions and transactions described in paragraph (a) of this Article
13 shall have been authorized by the affirmative vote of at least 80% of all
of the votes entitled to be cast by holders of the outstanding shares of
Voting Stock, voting together as a single class.
(c) Notwithstanding paragraph (b) of this Article 13, the 80% voting
requirement shall not be applicable if any action or transaction specified in
paragraph (a) is approved by the Corporation's Board of Directors and by a
majority of the Continuing Directors (as hereinafter defined).
(d) Unless approved by a majority of the Continuing Directors, after
becoming a Related Person and prior to consummation of such action or
transaction
(i) the Related Person shall not have acquired from the Corporation or
any of its subsidiaries any newly issued or treasury shares of capital
stock or any newly issued securities convertible into capital stock of the
Corporation or any of its majority-owned subsidiaries, directly or
indirectly (except upon conversion of convertible securities acquired by it
prior to becoming a Related Person or as a result of a pro rata stock
dividend or stock split or other distribution of stock to all shareholders
pro rata);
(ii) such Related Person shall not have received the benefit directly or
indirectly (except proportionately as a shareholder) of any loans,
advances, guarantees, pledges, or other financial assistance or tax credits
provided by the Corporation or any of its majority owned subsidiaries, or
made any major changes in the Corporation's or any of its majority owned
subsidiaries' businesses or capital structures or reduced the current rate
of dividends payable on the Corporation's capital stock below the rate in
effect immediately prior to the time such Related Person became a Related
Person; and
(iii) such Related Person shall have taken all required actions within
its power to ensure that the Corporation's Board of Directors included
representation by Continuing Directors at least proportionate to the voting
power of the shareholdings of Voting Stock of the Corporation's Remaining
Public Shareholders (as hereinafter defined), with a Continuing Director to
occupy an additional Board position if a fractional right to a director
results and, in any event, with at least one Continuing Director to serve
on the Board so long as there are any Remaining Public Shareholders.
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(e) A proxy statement responsive to the requirements of the Securities
Exchange Act of 1934, as amended, whether or not the Corporation is then
subject to such requirements, shall be mailed to the shareholders of the
Corporation for the purpose of soliciting shareholder approval of such action
or transaction and shall contain at the front thereof, in a prominent place,
any recommendations as to the advisability or inadvisability of the action or
transaction which the Continuing Directors may choose to state and, if deemed
advisable by a majority of the Continuing Directors, the opinion of an
investment banking firm selected by a majority of the Continuing Directors as
to the fairness (or not) of the terms of the action or transaction from a
financial point of view to the Remaining Public Shareholders, such investment
banking firm to be paid a reasonable fee for its services by the Corporation.
The requirements of this paragraph (e) shall not apply to any such action or
transaction which is approved by a majority of the Continuing Directors.
(f) For the purpose of this Article 13
(i) the term "Related Person" shall mean any other corporation, person,
or entity which beneficially owns or controls, directly or indirectly, 5%
or more of the outstanding shares of Voting Stock, and any Affiliate or
Associate (as those terms are defined in the General Rules and Regulations
under the Securities Exchange Act of 1934) of a Related Person; provided,
however, that the term Related Person shall not include (a) the Corporation
or any of its subsidiaries, (b) any profit-sharing, employee stock
ownership or other employee benefit plan of the Corporation or any
subsidiary of the Corporation or any trustee of or fiduciary with respect
to any such plan when acting in such capacity, or (c) Lilly Endowment,
Inc.; and further provided, that no corporation, person, or entity shall be
deemed to be a Related Person solely by reason of being an Affiliate or
Associate of Lilly Endowment, Inc.;
(ii) a Related Person shall be deemed to own or control, directly or
indirectly, any outstanding shares of Voting Stock owned by it or any
Affiliate or Associate of record or beneficially, including without
limitation shares
a. which it has the right to acquire pursuant to any agreement, or
upon exercise of conversion rights, warrants, or options, or otherwise
or
b. which are beneficially owned, directly or indirectly (including
shares deemed owned through application of clause a. above), by any
other corporation, person, or other entity with which it or its
Affiliate or Associate has any agreement, arrangement, or understanding
for the purpose of acquiring, holding, voting, or disposing of Voting
Stock, or which is its Affiliate (other than the Corporation) or
Associate (other than the Corporation);
(iii) the term "Voting Stock" shall mean all shares of any class of
capital stock of the Corporation which are entitled to vote generally in
the election of directors;
(iv) the term "Continuing Director" shall mean a director who is not an
Affiliate or Associate or representative of a Related Person and who was a
member of the Board of Directors of the Corporation immediately prior to
the time that any Related Person involved in the proposed action or
transaction became a Related Person or a director who is not an Affiliate
or Associate or representative of a Related Person and who was nominated by
a majority of the remaining Continuing Directors; and
(v) the term "Remaining Public Shareholders" shall mean the holders of
the Corporation's capital stock other than the Related Person.
(g) A majority of the Continuing Directors of the Corporation shall have the
power and duty to determine for the purposes of this Article 13, on the basis
of information then known to the Continuing Directors, whether (i) any Related
Person exists or is an Affiliate or an Associate of another and (ii) any
proposed sale, lease, exchange, or other disposition of part of the assets of
the Corporation or any majority-owned subsidiary involves a substantial part
of the assets of the Corporation or any of its subsidiaries. Any such
determination by the Continuing Directors shall be conclusive and binding for
all purposes.
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(h) Nothing contained in this Article 13 shall be construed to relieve any
Related Person or any Affiliate or Associate of any Related Person from any
fiduciary obligation imposed by law.
(i) The fact that any action or transaction complies with the provisions of
this Article 13 shall not be construed to waive or satisfy any other
requirement of law or these Amended Articles of Incorporation or to impose any
fiduciary duty, obligation, or responsibility on the Board of Directors or any
member thereof, to approve such action or transaction or recommend its
adoption or approval to the shareholders of the Corporation, nor shall such
compliance limit, prohibit, or otherwise restrict in any manner the Board of
Directors, or any member thereof, with respect to evaluations of or actions
and responses taken with respect to such action or transaction. The Board of
Directors of the Corporation, when evaluating any actions or transactions
described in paragraph (a) of this Article 13, shall, in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its shareholders, give due consideration to all relevant
factors, including without limitation the social and economic effects on the
employees, customers, suppliers, and other constituents of the Corporation and
its subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located.
(j) Notwithstanding any other provision of these Amended Articles of
Incorporation or of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
of Voting Stock required by law or these Amended Articles of Incorporation,
the affirmative vote of the holders of at least 80% of the votes entitled to
be cast by holders of all the outstanding shares of Voting Stock, voting
together as a single class, shall be required to alter, amend, or repeal this
Article 13.
14. A total of 1,400,000 shares of the 5,000,000 shares of authorized
Preferred Stock are designated as "Series A Participating Preferred Stock"
(the "Series A Preferred Stock"), which shall possess the rights, preferences,
qualifications, limitations, and restrictions set forth below:
(a) The holders of shares of Series A Preferred Stock shall have the
following rights to dividends and distributions:
(i) The holders of shares of Series A Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on
the first day of April, July, October and January in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in
an amount per share (rounded to the nearest cent) equal to the greater of
(i) $0.05 or (ii) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and
100 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend or distribution
payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $.621/2 per share, of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock.
If on any Quarterly Dividend Payment Date the Corporation's Articles of
Incorporation shall limit the amount of dividends which may be paid on the
Series A Preferred Stock to an amount less than that provided above, such
dividends will accrue and be paid in the maximum permissible amount and the
shortfall from the amount provided above shall be a cumulative dividend
requirement and be carried forward to subsequent Quarterly Dividend Payment
Dates.
(ii) In the event the Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which holders
of shares of Series A Preferred Stock are entitled immediately prior to
such event under the second preceding sentence shall be adjusted by
multiplying such amount by a fraction,
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the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(iii) When, as and if the Corporation shall declare a dividend or
distribution on the Common Stock (other than a dividend payable in shares
of Common Stock), the Corporation shall at the same time declare a dividend
or distribution on the Series A Preferred Stock as provided in this
paragraph (a) and no such dividend or distribution on the Common Stock
shall be paid or set aside for payment on the Common Stock unless such
dividend or distribution on the Series A Preferred Stock shall be
simultaneously paid or set aside for payment; provided that, in the event
no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share
on the Series A Preferred Stock shall nevertheless be payable, when, as and
if declared by the Board of Directors, on such subsequent Quarterly
Dividend Payment Date.
(iv) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the date of issue of such shares of
Series A Preferred Stock, unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
which event such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock
in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares
of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 60
days prior to the relevant Quarterly Dividend Payment Date.
(b) The holders of shares of Series A Preferred Stock shall have the
following voting rights:
(i) The holders of outstanding Series A Preferred Stock shall be entitled
to vote as a class for the election of two (2) directors if the Corporation
shall fail for six quarters to pay the dividend payable with respect to
such shares pursuant to paragraph (a) hereof. Such limited voting rights
may be exercised at the next annual meeting of shareholders following the
failure to pay a dividend for the sixth quarter and at each succeeding
annual meeting of shareholders until payment of all such preferred
dividends which are in arrears has been made or provided for (the "Dividend
Date"), at which time the right to vote for election of two directors
conferred upon the holders of the outstanding Series A Preferred Stock
shall cease. Each of such two directors shall be elected to one of the
three classes of directors so that the three classes shall be as equal in
number as may be feasible and shall be elected to hold office for a term
expiring at the earlier of (i) the expiration of the term of the class to
which he is elected or (ii) the Dividend Date. In addition to the
conditional right to vote for election of two directors, any proposal to
amend the relative rights and privileges of shares of Series A Preferred
Stock (including those conferred by this paragraph (b) (i)) upon which the
holders of such Series A Preferred Stock are entitled by the provisions of
the Indiana Business Corporation Law to vote upon as a class shall require,
instead of a vote of the holders of a majority of such shares, the
affirmative vote of the holders of two-thirds (2/3) of such shares.
(ii) Except as specified in paragraph (b) (i) above, the holders of
Series A Preferred Stock shall not be entitled to any vote on any matter,
including questions of merger, consolidation, and the sale of all or
substantially all of the assets of the Corporation.
(c) The Corporation shall be subject to the following restrictions:
(i) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in paragraph (a) of
this Article 14 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Corporation
shall not
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a. declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
b. declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all such
shares are then entitled;
c. except as permitted by subparagraph d of this paragraph (c)(i),
redeem or purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, provided
that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred
Stock; or
d. purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes,
provided that the Corporation may at any time purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred
Stock.
(ii) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under subparagraph (i) of
this paragraph (c), purchase or otherwise acquire shares at such time and
in such manner.
(iii) The Corporation shall not issue any shares of Series A Preferred
Stock except upon exercise of Rights issued pursuant to that certain Rights
Agreement dated as of July 18, 1988 between the Corporation and Bank One,
Indianapolis, NA, a copy of which is on file with the Secretary of the
Corporation at its principal executive office and shall be made available
to shareholders of record without charge upon written request therefor
addressed to said Secretary. Notwithstanding the foregoing sentence,
nothing contained herein shall prohibit or restrict the Corporation from
issuing for any purpose any series of preferred stock with rights and
privileges similar to or different from those of the Series A Preferred
Stock.
(d) Any shares of Series A Preferred Stock purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares shall upon their
cancellation without designation as to series, become authorized but unissued
shares of preferred stock and may be reissued as part of a new series of
preferred stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
(e) Upon any voluntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preferred Stock unless, prior thereto, the
holders of shares of Series A Preferred Stock shall have received, subject to
adjustment as hereinafter provided, an aggregate amount equal to (a) $100 per
share, plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment or (b) if
greater, an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 100 times the aggregate amount to
be distributed per share to holders of Common Stock plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or
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not declared, to the date of such payment, or (ii) to the holders of stock
ranking on a parity (either as to dividends or upon liquidation, dissolution
or winding up) with the Series A Preferred Stock, except distributions made
ratably on the Series A Preferred Stock and all other such parity stock in
proportion to the total amounts to which the holders of all such shares are
entitled upon such liquidation, dissolution, or winding up, disregarding for
this purpose the amounts referred to in clause (i) (b) of this paragraph (e).
In the event the Corporation shall at any time declare or pay any dividend or
make any distribution on Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the aggregate amount to which holders
of shares of Series A Preferred Stock were entitled immediately prior to such
event under the provision in clause (i) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(f) In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case proper provision shall be made so that the
shares of Series A Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. The Corporation shall not consummate any such consolidation,
merger, combination or other transaction unless prior thereto the Corporation
and the other party or parties to such transaction shall have so provided in
any agreement relating thereto. In the event the Corporation shall at any time
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in share of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(g) The shares of Series A Preferred Stock shall not be redeemable.
Notwithstanding the foregoing sentence, the Corporation may acquire shares of
Series A Preferred Stock in any other manner permitted by law, hereby and the
Articles of Incorporation of the Corporation, as from time to time amended.
(h) The Articles of Incorporation of the Corporation shall not be amended in
any manner which would increase or decrease the aggregate number of authorized
shares of Series A Preferred Stock, increase or decrease the par value of the
shares of Series A Preferred Stock, or alter or change the powers, preferences
or special rights of the shares of Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of two-thirds or
more of the outstanding shares of Series A Preferred Stock, voting together as
a single class.
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EXHIBIT B
PROPOSED ARTICLES OF INCORPORATION
ELI LILLY AND COMPANY
(AN INDIANA CORPORATION)
AMENDED ARTICLES OF INCORPORATION
1. The name of the Corporation shall be
ELI LILLY AND COMPANY.
2. The purposes for which the Corporation is formed are to engage in any
lawful act or activity for which a corporation may be organized under the
Indiana Business Corporation Law.
3. The period during which the Corporation is to continue as a corporation is
perpetual.
4. The total number of shares which the Corporation shall have authority to
issue is 1,605,000,000 shares, consisting of 1,600,000,000 shares of Common
Stock and 5,000,000 shares of Preferred Stock. The Corporation's shares do not
have any par or stated value, except that, solely for the purpose of any
statute or regulation imposing any tax or fee based upon the capitalization of
the Corporation, each of the Corporation's shares shall be deemed to have a
par value of $0.01 per share.
5. The following provisions shall apply to the Corporation's shares:
(a) The Corporation shall have the power to acquire (by purchase,
redemption, or otherwise), hold, own, pledge, sell, transfer, assign, reissue,
cancel, or otherwise dispose of the shares of the Corporation in the manner
and to the extent now or hereafter permitted by the laws of the State of
Indiana (but such power shall not imply an obligation on the part of the owner
or holder of any share to sell or otherwise transfer such share to the
Corporation), including the power to purchase, redeem, or otherwise acquire
the Corporation's own shares, directly or indirectly, and without pro rata
treatment of the owners or holders of any class or series of shares, unless,
after giving effect thereto, the Corporation would not be able to pay its
debts as they become due in the usual course of business or the Corporation's
total assets would be less than its total liabilities (and without regard to
any amounts that would be needed, if the Corporation were to be dissolved at
the time of the purchase, redemption, or other acquisition, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those of the holders of the shares of the Corporation being
purchased, redeemed, or otherwise acquired, unless otherwise expressly
provided with respect to a series of Preferred Stock). Shares of the
Corporation purchased, redeemed, or otherwise acquired by it shall constitute
authorized but unissued shares, unless prior to any such purchase, redemption,
or other acquisition, or within thirty (30) days thereafter, the Board of
Directors adopts a resolution providing that such shares constitute authorized
and issued but not outstanding shares.
(b) Preferred Stock of any series that has been redeemed (whether through
the operation of a retirement or sinking fund or otherwise) or purchased by
the Corporation, or which, if convertible, have been converted into shares of
the Corporation of any other class or series, may be reissued as a part of
such series or of any other series of Preferred Stock, subject to such
limitations (if any) as may be fixed by the Board of Directors with respect to
such series of Preferred Stock in accordance with the provisions of Article 7
of these Amended Articles of Incorporation.
(c) The Board of Directors of the Corporation may dispose of, issue, and
sell shares in accordance with, and in such amounts as may be permitted by,
the laws of the State of Indiana and the provisions of these Amended Articles
of Incorporation and for such consideration, at such price or prices, at such
time or times and upon such terms and conditions (including the privilege of
selectively repurchasing the same) as the Board of Directors of the
Corporation shall determine, without the authorization or approval by any
shareholders of the
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Corporation. Shares may be disposed of, issued, and sold to such persons,
firms, or corporations as the Board of Directors may determine, without any
preemptive or other right on the part of the owners or holders of other shares
of the Corporation of any class or kind to acquire such shares by reason of
their ownership of such other shares.
6. The following provisions shall apply to the Common Stock:
(a) Except as otherwise provided by the Indiana Business Corporation Law and
subject to such shareholder disclosure and recognition procedures (which may
include voting prohibition sanctions) as the Corporation may by action of its
Board of Directors establish, shares of Common Stock shall have unlimited
voting rights and each outstanding share of Common Stock shall, when validly
issued by the Corporation, entitle the record holder thereof to one vote at
all shareholders' meetings on all matters submitted to a vote of the
shareholders of the Corporation.
(b) Shares of Common Stock shall be equal in every respect insofar as their
relationship to the Corporation is concerned, but such equality of rights
shall not imply equality of treatment as to redemption or other acquisition of
shares by the Corporation. Subject to the rights of the holders of any
outstanding series of Preferred Stock, the holders of Common Stock shall be
entitled to share ratably in such dividends or other distributions (other than
purchases, redemptions, or other acquisitions of shares by the Corporation),
if any, as are declared and paid from time to time on the Common Stock at the
discretion of the Board of Directors.
(c) In the event of any liquidation, dissolution, or winding up of the
Corporation, either voluntary or involuntary, after payment shall have been
made to the holders of any outstanding series of Preferred Stock of the full
amount to which they shall be entitled, the holders of Common Stock shall be
entitled, to the exclusion of the holders of the Preferred Stock of any and
all series, to share, ratably according to the number of shares of Common
Stock held by them, in all remaining assets of the Corporation available for
distribution to its shareholders.
7. The Board of Directors is hereby expressly authorized to provide, out of
the unissued shares of Preferred Stock, for one or more series of Preferred
Stock. Before any shares of any such series are issued, the Board of Directors
shall fix, and hereby is expressly empowered to fix, by the adoption and
filing in accordance with the Indiana Business Corporation Law, of an
amendment or amendments to these Amended Articles of Incorporation, the terms
of such Preferred Stock or series of Preferred Stock, including the following:
(a) the designation of such series, the number of shares to constitute such
series and the stated value thereof if different from the par value thereof;
(b) whether the shares of such series shall have voting rights, in addition
to any voting rights provided by law, and, if so, the terms of such voting
rights, which may be general or limited and may include the right, under
specified circumstances, to elect additional directors;
(c) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, the preference or relation
which such dividends shall bear to the dividends payable on any shares of
stock of any other class or any other series of Preferred Stock;
(d) whether the shares of such series shall be subject to redemption by the
Corporation and, if so, the times, prices and other conditions of such
redemption;
(e) the amount or amounts payable upon shares of such series upon, and the
rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the
assets, of the Corporation;
(f) whether the shares of such series shall be subject to the operation of a
retirement or sinking fund and, if so, the extent to and manner in which any
such retirement or sinking fund shall be applied to the purchase or
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redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relative to the operation thereof;
(g) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
Preferred Stock or any other securities (whether or not issued by the
Corporation) and, if so, the price or prices or the rate or rates of
conversion or exchange and the method, if any, of adjusting the same, and any
other terms and conditions of conversion or exchange;
(h) the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of Preferred Stock;
(i) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of Preferred
Stock or of any other class of stock; and
(j) any other powers, preferences and relative, participating, optional and
other special rights, and any qualifications, limitations and restrictions
thereof.
Except to the extent otherwise expressly provided in these Amended Articles
of Incorporation or required by law (i) no share of Preferred Stock shall have
any voting rights other than those which shall be fixed by the Board of
Directors pursuant to this Article 7 and (ii) no share of Common Stock shall
have any voting rights with respect to any amendment to the terms of any
series of Preferred Stock; provided however, that in the case of this clause
(ii) the terms of such series of Preferred Stock, as so amended, could have
been established without any vote of any shares of Common Stock.
8. The Corporation shall have the power to declare and pay dividends or other
distributions upon the issued and outstanding shares of the Corporation,
subject to the limitation that a dividend or other distribution may not be
made if, after giving it effect, the Corporation would not be able to pay its
debts as they become due in the usual course of business or the Corporation's
total assets would be less than its total liabilities (and without regard to
any amounts that would be needed, if the Corporation were to be dissolved at
the time of the dividend or other distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those of the holders of shares receiving the dividend or other
distribution, unless otherwise expressly provided with respect to any
outstanding series of Preferred Stock). The Corporation shall have the power
to issue shares of one class or series as a share dividend or other
distribution in respect of that class or series or one or more other classes
or series.
9. The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation, and it is expressly
provided that the same are intended to be in furtherance and not in limitation
or exclusion of the powers conferred by statute:
(a) The number of directors of the Corporation, exclusive of directors who
may be elected by the holders of any one or more series of Preferred Stock
pursuant to Article 7(b) (the "Preferred Stock Directors"), shall not be less
than nine, the exact number to be fixed from time to time solely by resolution
of the Board of Directors, acting by not less than a majority of the directors
then in office.
(b) The Board of Directors (exclusive of Preferred Stock Directors) shall be
divided into three classes, with the term of office of one class expiring each
year. At the annual meeting of shareholders in 1985, five directors of the
first class shall be elected to hold office for a term expiring at the 1986
annual meeting, five directors of the second class shall be elected to hold
office for a term expiring at the 1987 annual meeting, and six directors of
the third class shall be elected to hold office for a term expiring at the
1988 annual meeting. Commencing with the annual meeting of shareholders in
1986, each class of directors whose term shall then expire shall be elected to
hold office for a three-year term. In the case of any vacancy on the Board of
Directors, including a
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vacancy created by an increase in the number of directors, the vacancy shall
be filled by election of the Board of Directors with the director so elected
to serve for the remainder of the term of the director being replaced or, in
the case of an additional director, for the remainder of the term of the class
to which the director has been assigned. All directors shall continue in
office until the election and qualification of their respective successors in
office. When the number of directors is changed, any newly created
directorships or any decrease in directorships shall be so assigned among the
classes by a majority of the directors then in office, though less than a
quorum, as to make all classes as nearly equal in number as possible. No
decrease in the number of directors shall have the effect of shortening the
term of any incumbent director. Election of directors need not be by written
ballot unless the By-Laws so provide.
(c) Any director or directors (exclusive of Preferred Stock Directors) may
be removed from office at any time, but only for cause and only by the
affirmative vote of at least 80% of the votes entitled to be cast by holders
of all the outstanding shares of Voting Stock (as defined in Article 13
hereof), voting together as a single class.
(d) Notwithstanding any other provision of these Amended Articles of
Incorporation or of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
of Voting Stock required by law or these Amended Articles of Incorporation,
the affirmative vote of at least 80% of the votes entitled to be cast by
holders of all the outstanding shares of Voting Stock, voting together as a
single class, shall be required to alter, amend or repeal this Article 9.
10. The Board of Directors of the Corporation is exclusively authorized (a) to
adopt, repeal, alter or amend the By-laws of the Corporation by the vote of a
majority of the entire Board of Directors and (b) to adopt any By-laws which
the Board of Directors may deem necessary or desirable for the efficient
conduct of the affairs of the Corporation, including, without limitation,
provisions governing the conduct of, and the matters which may properly be
brought before, meetings of the shareholders and provisions specifying the
manner and extent to which prior notice shall be given of the submission of
proposals to be submitted at any meeting of shareholders or of nominations of
elections of directors to be held at any such meeting.
11. The Corporation shall, to the fullest extent permitted by applicable law
now or hereafter in effect, indemnify any person who is or was a director,
officer or employee of the Corporation (an "Eligible Person") and who is or
was involved in any manner (including, without limitation, as a party or a
witness) or is threatened to be made so involved in any threatened, pending or
completed investigation, claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative (including, without limitation, any
action, suit or proceeding by or in the right of the Corporation to procure a
judgment in its favor) (a "Proceeding") by reason of the fact that such person
is or was a director, officer or employee of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee,
partner, member, manager, trustee, fiduciary or agent of another corporation,
partnership, joint venture, limited liability company, trust or other
enterprise (including, without limitation, any employee benefit plan), against
all expenses (including attorneys' fees), judgments, fines or penalties
(including excise taxes assessed with respect to an employee benefit plan) and
amounts paid in settlement actually and reasonably incurred by such Eligible
Person in connection with such Proceeding; provided, however, that the
foregoing shall not apply to a Proceeding commenced by an Eligible Person
except to the extent provided otherwise in the Corporation's By-laws or an
agreement with an Eligible Person. The Corporation may establish provisions
supplemental to or in furtherance of the provisions of this Article 11,
including, but not limited to, provisions concerning the determination of any
Eligible Person to indemnification, mandatory or permissive advancement of
expenses to an Eligible Person incurred in connection with a Proceeding, the
effect of any change in control of the Corporation on indemnification and
advancement of expenses and the funding or other payment of amounts necessary
to effect indemnification and advancement of expenses, in the By-laws of the
Corporation or in agreements with any Eligible Person.
12. Except as otherwise expressly provided for in these Amended Articles of
Incorporation, the Corporation reserves the right to amend, alter or repeal
any provision contained in these Amended Articles of Incorporation, in the
manner now or hereafter prescribed by law, and all rights conferred upon
shareholders herein are subject to this reservation.
B-4
13. In addition to all other requirements imposed by law and these Amended
Articles and except as otherwise expressly provided in paragraph (c) of this
Article 13, none of the actions or transactions listed below shall be effected
by the Corporation, or approved by the Corporation as a shareholder of any
majority-owned subsidiary of the Corporation if, as of the record date for the
determination of the shareholders entitled to vote thereon, any Related Person
(as hereinafter defined) exists, unless the applicable requirements of
paragraphs (b), (c), (d), (e), and (f) of this Article 13 are satisfied.
(a) The actions or transactions within the scope of this Article 13 are as
follows:
(i) any merger or consolidation of the Corporation or any of its
subsidiaries into or with such Related Person;
(ii) any sale, lease, exchange, or other disposition of all or any
substantial part of the assets of the Corporation or any of its majority-
owned subsidiaries to or with such Related Person;
(iii) the issuance or delivery of any Voting Stock (as hereinafter
defined) or of voting securities of any of the Corporation's majority-owned
subsidiaries to such Related Person in exchange for cash, other assets or
securities, or a combination thereof;
(iv) any voluntary dissolution or liquidation of the Corporation;
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its subsidiaries, or any other
transaction (whether or not with or otherwise involving a Related Person)
that has the effect, directly or indirectly, of increasing the
proportionate share of any class or series of capital stock of the
Corporation, or any securities convertible into capital stock of the
Corporation or into equity securities of any subsidiary, that is
beneficially owned by any Related Person; or
(vi) any agreement, contract, or other arrangement providing for any one
or more of the actions specified in the foregoing clauses (i) through (v).
(b) The actions and transactions described in paragraph (a) of this Article
13 shall have been authorized by the affirmative vote of at least 80% of all
of the votes entitled to be cast by holders of the outstanding shares of
Voting Stock, voting together as a single class.
(c) Notwithstanding paragraph (b) of this Article 13, the 80% voting
requirement shall not be applicable if any action or transaction specified in
paragraph (a) is approved by the Corporation's Board of Directors and by a
majority of the Continuing Directors (as hereinafter defined).
(d) Unless approved by a majority of the Continuing Directors, after
becoming a Related Person and prior to consummation of such action or
transaction.
(i) the Related Person shall not have acquired from the Corporation or
any of its subsidiaries any newly issued or treasury shares of capital
stock or any newly issued securities convertible into capital stock of the
Corporation or any of its majority-owned subsidiaries, directly or
indirectly (except upon conversion of convertible securities acquired by it
prior to becoming a Related Person or as a result of a pro rata stock
dividend or stock split or other distribution of stock to all shareholders
pro rata);
(ii) such Related Person shall not have received the benefit directly or
indirectly (except proportionately as a shareholder) of any loans,
advances, guarantees, pledges, or other financial assistance or tax credits
provided by the Corporation or any of its majority owned subsidiaries, or
made any major changes in the Corporation's or any of its majority owned
subsidiaries' businesses or capital structures or reduced the current rate
of dividends payable on the Corporation's capital stock below the rate in
effect immediately prior to the time such Related Person became a Related
Person; and
B-5
(iii) such Related Person shall have taken all required actions within
its power to ensure that the Corporation's Board of Directors included
representation by Continuing Directors at least proportionate to the voting
power of the shareholdings of Voting Stock of the Corporation's Remaining
Public Shareholders (as hereinafter defined), with a Continuing Director to
occupy an additional Board position if a fractional right to a director
results and, in any event, with at least one Continuing Director to serve
on the Board so long as there are any Remaining Public Shareholders.
(e) A proxy statement responsive to the requirements of the Securities
Exchange Act of 1934, as amended, whether or not the Corporation is then
subject to such requirements, shall be mailed to the shareholders of the
Corporation for the purpose of soliciting shareholder approval of such action
or transaction and shall contain at the front thereof, in a prominent place,
any recommendations as to the advisability or inadvisability of the action or
transaction which the Continuing Directors may choose to state and, if deemed
advisable by a majority of the Continuing Directors, the opinion of an
investment banking firm selected by a majority of the Continuing Directors as
to the fairness (or not) of the terms of the action or transaction from a
financial point of view to the Remaining Public Shareholders, such investment
banking firm to be paid a reasonable fee for its services by the Corporation.
The requirements of this paragraph (e) shall not apply to any such action or
transaction which is approved by a majority of the Continuing Directors.
(f) For the purpose of this Article 13
(i) the term "Related Person" shall mean any other corporation, person,
or entity which beneficially owns or controls, directly or indirectly, 5%
or more of the outstanding shares of Voting Stock, and any Affiliate or
Associate (as those terms are defined in the General Rules and Regulations
under the Securities Exchange Act of 1934) of a Related Person; provided,
however, that the term Related Person shall not include (a) the Corporation
or any of its subsidiaries, (b) any profit-sharing, employee stock
ownership or other employee benefit plan of the Corporation or any
subsidiary of the Corporation or any trustee of or fiduciary with respect
to any such plan when acting in such capacity, or (c) Lilly Endowment,
Inc.; and further provided, that no corporation, person, or entity shall be
deemed to be a Related Person solely by reason of being an Affiliate or
Associate of Lilly Endowment, Inc.;
(ii) a Related Person shall be deemed to own or control, directly or
indirectly, any outstanding shares of Voting Stock owned by it or any
Affiliate or Associate of record or beneficially, including without
limitation shares
a. which it has the right to acquire pursuant to any agreement, or
upon exercise of conversion rights, warrants, or options, or otherwise
or
b. which are beneficially owned, directly or indirectly (including
shares deemed owned through application of clause a. above), by any
other corporation, person, or other entity with which it or its
Affiliate or Associate has any agreement, arrangement, or understanding
for the purpose of acquiring, holding, voting, or disposing of Voting
Stock, or which is its Affiliate (other than the Corporation) or
Associate (other than the Corporation);
(iii) the term "Voting Stock" shall mean all shares of any class of
capital stock of the Corporation which are entitled to vote generally in
the election of directors;
(iv) the term "Continuing Director" shall mean a director who is not an
Affiliate or Associate or representative of a Related Person and who was a
member of the Board of Directors of the Corporation immediately prior to
the time that any Related Person involved in the proposed action or
transaction became a Related Person or a director who is not an Affiliate
or Associate or representative of a Related Person and who was nominated by
a majority of the remaining Continuing Directors; and
(v) the term "Remaining Public Shareholders" shall mean the holders of
the Corporation's capital stock other than the Related Person.
B-6
(g) A majority of the Continuing Directors of the Corporation shall have the
power and duty to determine for the purposes of this Article 13, on the basis
of information then known to the Continuing Directors, whether (i) any Related
Person exists or is an Affiliate or an Associate of another and (ii) any
proposed sale, lease, exchange, or other disposition of part of the assets of
the Corporation or any majority-owned subsidiary involves a substantial part
of the assets of the Corporation or any of its subsidiaries. Any such
determination by the Continuing Directors shall be conclusive and binding for
all purposes.
(h) Nothing contained in this Article 13 shall be construed to relieve any
Related Person or any Affiliate or Associate of any Related Person from any
fiduciary obligation imposed by law.
(i) The fact that any action or transaction complies with the provisions of
this Article 13 shall not be construed to waive or satisfy any other
requirement of law or these Amended Articles of Incorporation or to impose any
fiduciary duty, obligation, or responsibility on the Board of Directors or any
member thereof, to approve such action or transaction or recommend its
adoption or approval to the shareholders of the Corporation, nor shall such
compliance limit, prohibit, or otherwise restrict in any manner the Board of
Directors, or any member thereof, with respect to evaluations of or actions
and responses taken with respect to such action or transaction. The Board of
Directors of the Corporation, when evaluating any actions or transactions
described in paragraph (a) of this Article 13, shall, in connection with the
exercise of its judgment in determining what is in the best interests of the
Corporation and its shareholders, give due consideration to all relevant
factors, including without limitation the social and economic effects on the
employees, customers, suppliers, and other constituents of the Corporation and
its subsidiaries and on the communities in which the Corporation and its
subsidiaries operate or are located.
(j) Notwithstanding any other provision of these Amended Articles of
Incorporation or of law which might otherwise permit a lesser vote or no vote,
but in addition to any affirmative vote of the holders of any particular class
of Voting Stock required by law or these Amended Articles of Incorporation,
the affirmative vote of the holders of at least 80% of the votes entitled to
be cast by holders of all the outstanding shares of Voting Stock, voting
together as a single class, shall be required to alter, amend, or repeal this
Article 13.
14. A total of 1,400,000 shares of the 5,000,000 shares of authorized
Preferred Stock are designated as "Series A Participating Preferred Stock"
(the "Series A Preferred Stock"), which shall possess the rights, preferences,
qualifications, limitations, and restrictions set forth below:
(a) The holders of shares of Series A Preferred Stock shall have the
following rights to dividends and distributions:
(i) The holders of shares of Series A Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, quarterly dividends payable in cash on
the first day of April, July, October and January in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series A Preferred Stock, in
an amount per share (rounded to the nearest cent) equal to the greater of
(i) $0.05 or (ii) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends, and
100 times the aggregate per share amount (payable in kind) of all non-cash
dividends or other distributions other than a dividend or distribution
payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $.62 1/2 per share, of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock.
If on any Quarterly Dividend Payment Date the Corporation's Articles of
Incorporation shall limit the amount of dividends which may be paid on the
Series A Preferred Stock to an amount less than that provided above, such
dividends will accrue and be paid in the maximum permissible amount and the
shortfall from the amount provided above shall be a cumulative dividend
requirement and be carried forward to subsequent Quarterly Dividend Payment
Dates.
B-7
(ii) In the event the Corporation shall at any time declare or pay any
dividend on Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which holders
of shares of Series A Preferred Stock are entitled immediately prior to
such event under the second preceding sentence shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(iii) When, as and if the Corporation shall declare a dividend or
distribution on the Common Stock (other than a dividend payable in shares
of Common Stock), the Corporation shall at the same time declare a dividend
or distribution on the Series A Preferred Stock as provided in this
paragraph (a) and no such dividend or distribution on the Common Stock
shall be paid or set aside for payment on the Common Stock unless such
dividend or distribution on the Series A Preferred Stock shall be
simultaneously paid or set aside for payment; provided that, in the event
no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share
on the Series A Preferred Stock shall nevertheless be payable, when, as and
if declared by the Board of Directors, on such subsequent Quarterly
Dividend Payment Date.
(iv) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the date of issue of such shares of
Series A Preferred Stock, unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
which event such dividends shall begin to accrue and be cumulative from
such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock
in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a share-
by-share basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of shares
of Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more than 60
days prior to the relevant Quarterly Dividend Payment Date.
(b) The holders of shares of Series A Preferred Stock shall have the
following voting rights:
(i) The holders of outstanding Series A Preferred Stock shall be entitled
to vote as a class for the election of two (2) directors if the Corporation
shall fail for six quarters to pay the dividend payable with respect to
such shares pursuant to paragraph (a) hereof. Such limited voting rights
may be exercised at the next annual meeting of shareholders following the
failure to pay a dividend for the sixth quarter and at each succeeding
annual meeting of shareholders until payment of all such preferred
dividends which are in arrears has been made or provided for (the "Dividend
Date"), at which time the right to vote for election of two directors
conferred upon the holders of the outstanding Series A Preferred Stock
shall cease. Each of such two directors shall be elected to one of the
three classes of directors so that the three classes shall be as equal in
number as may be feasible and shall be elected to hold office for a term
expiring at the earlier of (i) the expiration of the term of the class to
which he is elected or (ii) the Dividend Date. In addition to the
conditional right to vote for election of two directors, any proposal to
amend the relative rights and privileges of shares of Series A Preferred
Stock (including those conferred by this paragraph (b) (i)) upon which the
holders of such Series A Preferred Stock are entitled by the provisions of
the Indiana Business Corporation Law to vote upon as a class shall require,
instead of a vote of the holders of a majority of such shares, the
affirmative vote of the holders of two-thirds ( 2/3) of such shares.
(ii) Except as specified in paragraph (b) (i) above, the holders of
Series A Preferred Stock shall not be entitled to any vote on any matter,
including questions of merger, consolidation, and the sale of all or
substantially all of the assets of the Corporation.
B-8
(c) The Corporation shall be subject to the following restrictions:
(i) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in paragraph (a) of
this Article 14 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the Corporation
shall not
a. declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
b. declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A Preferred Stock
and all such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all such
shares are then entitled;
c. except as permitted by subparagraph d of this paragraph (c)(i),
redeem or purchase or otherwise acquire for consideration shares of any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred Stock, provided
that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred
Stock; or
d. purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity
with the Series A Preferred Stock, except in accordance with a purchase
offer made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes,
provided that the Corporation may at any time purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any
stock of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred
Stock.
(ii) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under subparagraph (i) of
this paragraph (c), purchase or otherwise acquire shares at such time and
in such manner.
(iii) The Corporation shall not issue any shares of Series A Preferred
Stock except upon exercise of Rights issued pursuant to that certain Rights
Agreement dated as of July 18, 1988 between the Corporation and Bank One,
Indianapolis, NA, a copy of which is on file with the Secretary of the
Corporation at its principal executive office and shall be made available
to shareholders of record without charge upon written request therefor
addressed to said Secretary. Notwithstanding the foregoing sentence,
nothing contained herein shall prohibit or restrict the Corporation from
issuing for any purpose any series of preferred stock with rights and
privileges similar to or different from those of the Series A Preferred
Stock.
(d) Any shares of Series A Preferred Stock purchased or otherwise acquired
by the Corporation in any manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such shares shall upon their
cancellation without designation as to series, become authorized but unissued
shares of preferred stock and may be reissued as part of a new series of
preferred stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
(e) Upon any voluntary liquidation, dissolution or winding up of the
Corporation, no distribution shall be made (i) to the holders of shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution
or winding up) to the Series A Preferred Stock unless, prior thereto, the
holders of shares of Series A Preferred
B-9
Stock shall have received, subject to adjustment as hereinafter provided, an
aggregate amount equal to (a) $100 per share, plus an amount equal to accrued
and unpaid dividends and distributions thereon, whether or not declared, to
the date of such payment or (b) if greater, an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of Common
Stock plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, or (ii) to the
holders of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except distributions made ratably on the Series A Preferred Stock and all
other such parity stock in proportion to the total amounts to which the
holders of all such shares are entitled upon such liquidation, dissolution, or
winding up, disregarding for this purpose the amounts referred to in clause
(i) (b) of this paragraph (e). In the event the Corporation shall at any time
declare or pay any dividend or make any distribution on Common Stock payable
in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the provision in clause (i) of
the preceding sentence shall be adjusted by multiplying such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(f) In case the Corporation shall enter into any consolidation, merger,
combination or other transaction in which the shares of Common Stock are
exchanged for or changed into other stock or securities, cash and/or any other
property, then in any such case proper provision shall be made so that the
shares of Series A Preferred Stock shall at the same time be similarly
exchanged or changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. The Corporation shall not consummate any such consolidation,
merger, combination or other transaction unless prior thereto the Corporation
and the other party or parties to such transaction shall have so provided in
any agreement relating thereto. In the event the Corporation shall at any time
declare or pay any dividend on Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the outstanding
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in share of Common Stock) into a greater or lesser number of shares
of Common Stock, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of shares of Series A
Preferred Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(g) The shares of Series A Preferred Stock shall not be redeemable.
Notwithstanding the foregoing sentence, the Corporation may acquire shares of
Series A Preferred Stock in any other manner permitted by law, hereby and the
Articles of Incorporation of the Corporation, as from time to time amended.
(h) The Articles of Incorporation of the Corporation shall not be amended in
any manner which would increase or decrease the aggregate number of authorized
shares of Series A Preferred Stock, increase or decrease the par value of the
shares of Series A Preferred Stock, or alter or change the powers, preferences
or special rights of the shares of Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of two-thirds or
more of the outstanding shares of Series A Preferred Stock, voting together as
a single class.
B-10
[LOGO]
PRINTED ON RECYCLED AND RECYCLABLE PAPER
LILLY
ELI LILLY AND COMPANY
LILLY CORPORATE CENTER
INDIANAPOLIS, INDIANA 46285
March 4, 1996
Dear Savings Plan Participant:
It is my pleasure to provide you a meeting notice, proxy statement, and
voting instruction card for the 1996 Annual Meeting of Shareholders of Eli
Lilly and Company.
The proxy statement describes the business we will consider at the meeting.
Please note in particular the Board of Directors' recommendation to amend the
Articles of Incorporation by increasing the number of shares of authorized
common stock and adopting other amendments described in the proxy statement.
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 PLANS FOR AFFILIATED COMPANIES
ANNUAL MEETING OF SHAREHOLDERS
APRIL 15, 1996
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 15, 1996, at 11:00 a.m. (local time), for the
following purposes:
1.To elect four directors of the Company, each for a three-year term;
2. To consider and act upon proposed amendments to the Articles of
Incorporation to increase the authorized number of shares of the
Company's common stock from 800,000,000 to 1,600,000,000 and to revise
certain other provisions;
3. To ratify the appointment by the Board of Directors of Ernst & Young LLP
as principal independent auditors for the year 1996;
4. To consider and act upon a proposal by a shareholder requesting the Board
of Directors to form a committee to study ways to eliminate the use of
certain research material and make a report of its findings available to
all shareholders, if the proposal is presented to the meeting; and
5. 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 4, 1996
Indianapolis, Indiana
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 15, 1996, and at any
adjournment thereof, as follows:
THE BOARD OF DIRECTORS 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 WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) [_] listed below [_]
A.G. GILMAN, K.N. HORN, J.C. LA FORCE, JR., A.M. WATANABE
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.
-----------------------------------------------
(2) Approval of amendments to the Articles of Incorporation
[_] FOR [_] AGAINST [_] ABSTAIN
(3) Ratification of the appointment by the Board of Directors of Ernst & Young
LLP as principal independent auditors for 1996
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS HAS RECOMMENDED TO THE SHAREHOLDERS A VOTE AGAINST THE
FOLLOWING ITEM:
(4) The Shareholder Proposal requesting a study and report on research material
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
(Continued on other side)
In the Trustee's discretion, upon such other matters as may properly come before
the meeting.
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 EMPLOYEES STOCK OWNERSHIP PLAN (PAYSOP)
FOR WHICH INSTRUCTIONS HAVE BEEN RECEIVED.
Dated _____________________________, 1996
-----------------------------------------
Signature of Participant
PLEASE SIGN, DATE, AND RETURN THIS CARD ON
OR BEFORE APRIL 5, 1996, IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE.
THESE CONFIDENTIAL VOTING INSTRUCTIONS WILL BE SEEN ONLY BY AUTHORIZED PERSONNEL
OF THE TRUSTEE.
CONFIDENTIAL VOTING INSTRUCTIONS
TO FIDELITY MANAGEMENT TRUST COMPANY, TRUSTEE
The undersigned, as a participant in DowElanco Employee Savings Plan, 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 the
plan at the Annual Meeting of Shareholders of Eli Lilly and Company to be held
on April 15, 1996, and at any adjournment thereof, as follows.
THE BOARD OF DIRECTORS OF ELI LILLY AND COMPANY 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 WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) [_] listed below [_]
A.G. GILMAN, K.N. HORN, J.C. LA FORCE, JR., A.M. WATANABE
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.
-----------------------------------------------
(2) Approval of amendments to the Articles of Incorporation
[_] FOR [_] AGAINST [_] ABSTAIN
(3) Ratification of the appointment by the Board of Directors of Ernst & Young
LLP as principal independent auditors for 1996
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS OF ELI LILLY AND COMPANY HAS RECOMMENDED TO THE
SHAREHOLDERS A VOTE AGAINST THE FOLLOWING ITEM:
(4) The Shareholder Proposal requesting a study and report on research material
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF CARD. (Continued on other side)
In the Trustee's discretion, upon such other matters as may properly come before
the meeting.
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW. ANY SHARES OF ELI LILLY AND COMPANY
COMMON STOCK IN THE PLAN FOR WHICH VOTING INSTRUCTIONS ARE NOT RECEIVED WILL BE
VOTED PROPORTIONAL TO THE VOTING OF SHARES FOR WHICH VOTING INSTRUCTIONS ARE
RECEIVED.
These confidential voting instructions
will be seen only by authorized
personnel of the Trustee.
Dated _____________________________, 1996
-----------------------------------------
Signature of Participant
PLEASE SIGN, DATE, AND RETURN THIS CARD ON
OR BEFORE APRIL 5, 1996, IN THE ENCLOSED
ENVELOPE WHICH REQUIRES NO POSTAGE.
ELI LILLY AND COMPANY
P R O X Y
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 9, 1996, at the Annual Meeting of Shareholders to be
held on April 15, 1996, at 11:00 a.m. (local 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 WITHHOLD AUTHORITY
(except as marked to the to vote for all nominees
contrary below) [_] listed below [_]
A.G. GILMAN, K.N. HORN, J.C. LA FORCE, JR., A.M. WATANABE
INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below.
-----------------------------------------------
(2) Approval of amendments to the Articles of Incorporation
[_] FOR [_] AGAINST [_] ABSTAIN
(3) Ratification of the appointment by the Board of Directors of Ernst & Young
LLP as principal independent auditors for 1996
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE FOLLOWING ITEM:
(4) The Shareholder Proposal requesting a study and report on research material
[_] FOR [_] AGAINST [_] ABSTAIN
- --------------------------------------------------------------------------------
Return this proxy in the enclosed envelope. (Continued on other side)
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.
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, 2, AND 3 AND AGAINST ITEM 4.
Dated _____________________________, 1996
-----------------------------------------
-----------------------------------------
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
