SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Eli Lilly and Company
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notes:
[LOGO]
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
March 4, 1999
Dear Shareholder:
You are cordially invited to attend our Annual Meeting of Shareholders on
Monday, April 19, 1999. The meeting will be held at the Hilbert Circle
Theatre, 45 Monument Circle, Indianapolis, Indiana, at 11:00 a.m.
(Indianapolis time).
The Notice of Annual Meeting of Shareholders and the Proxy Statement
accompanying this letter describe the business we will consider at the
meeting. Your vote is very important. I urge you to sign, date, and return the
enclosed proxy 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/ Sidney Taurel
Chairman of the Board, President and
Chief Executive Officer
ELI LILLY AND COMPANY
----------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 19, 1999
The Annual Meeting of Shareholders of Eli Lilly and Company will be held at
the Hilbert Circle Theatre, 45 Monument Circle, Indianapolis, Indiana, on
Monday, April 19, 1999, at 11:00 a.m. (Indianapolis time), for the following
purposes:
1. To elect three directors of the Company to serve three-year terms;
2. To ratify the appointment by the Board of Directors of Ernst & Young LLP
as principal independent auditors for the year 1999;
3. To consider and act upon a proposal by shareholders requesting that the
Company endorse the CERES (Coalition for Environmentally Responsible
Economies) Principles, if the proposal is presented at the meeting;
4. To consider and act upon a proposal by a shareholder requesting the
Board of Directors to take the necessary steps to declassify the Board
of Directors so that all directors are elected annually, if the proposal
is presented at the meeting; and
5. To transact any other business properly before the Annual Meeting.
Shareholders of record at the close of business on February 12, 1999, will
be entitled to vote at the meeting and any adjournments thereof.
Attendance at the meeting will be limited to shareholders, those holding
proxies from shareholders, and invited guests from the media and financial
community. To attend the meeting, you must present an Admittance Card or other
evidence of share ownership. Therefore, if you plan to attend, please complete
and return the enclosed Request for Admittance Card and we will mail you an
Admittance Card and directions to the meeting. If you want to attend the
Annual Meeting but your shares are held in the name of a broker or other
nominee, please send proof of share ownership to the Corporate Secretary, DC
1093, Lilly Corporate Center, Indianapolis, Indiana 46285 along with the
Request for Admittance Card.
This Proxy Statement, proxy, and the Company's Annual Report to Shareholders
are being mailed on or about March 4, 1999.
By order of the Board of Directors,
Daniel P. Carmichael
Secretary
March 4, 1999
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
----------------
ANNUAL MEETING OF SHAREHOLDERS
April 19, 1999
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 ("Annual Meeting") to be held on
Monday, April 19, 1999, and at any adjournment of the meeting. The following
questions and answers provide important information about the Annual Meeting
and this Proxy Statement.
What am I voting on?
. Election of three directors (Dr. Alfred G. Gilman, Mrs. Karen N. Horn,
and Dr. August M. Watanabe)
. Ratification of Ernst & Young LLP as the Company's independent auditors
. A proposal by a shareholder requesting that the Company endorse the
CERES (Coalition for Environmentally Responsible Economies) Principles,
if it is presented at the meeting
. A proposal by a shareholder requesting that the Board of Directors take
steps to declassify the Board, if it is presented at the meeting
Who is entitled to vote?
Shareholders as of the close of business on February 12, 1999 (the "Record
Date"), are entitled to vote at the Annual Meeting. Each shareholder is
entitled to one vote for each share of common stock held on the Record Date.
How do I vote?
Sign and date each proxy you receive and return it in the prepaid envelope.
If you return your signed proxy but do not indicate your voting preferences,
we will vote on your behalf FOR the election of the three directors and the
ratification of the selection of the independent auditors and AGAINST the two
shareholder proposals. You have the right to revoke your proxy any time before
the meeting by (1) notifying the Company's Secretary, or (2) returning a
later-dated proxy. You may also revoke your proxy by voting in person at the
meeting.
How do I sign the proxy?
Sign your name exactly as it appears on the proxy. If you are signing in a
representative capacity (for example, as an attorney, executor, administrator,
guardian, trustee, or the officer or agent of a company), you should indicate
your name and title or capacity. If the stock is held in custody for a minor
(for example, under the Uniform Transfers to Minors Act), the custodian should
sign, not the minor. If the stock is held in joint ownership, one owner may
sign on behalf of all the owners.
What does it mean if I receive more than one proxy card?
It means that you hold shares registered in more than one account. Sign and
return all proxies to ensure that all your shares are voted.
I hold shares in the Lilly Employee Savings Plan ("Savings Plan"), and I also
hold shares registered directly in my name. In past years, I received a proxy
card for my registered shares and a separate voting instruction card for my
Savings Plan shares. Why did I receive only one card this year?
This year, to reduce mailing expenses, the Company has combined the voting
instruction card for your Savings Plan shares with the proxy card for the
shares you hold directly in your name. By signing and returning the one card,
you will vote both sets of shares.
1
Who will count the votes?
Representatives of The Corporation Trust Company will tabulate the votes and
act as independent inspectors of election.
What constitutes a quorum?
A majority of the outstanding shares, present or represented by proxy,
constitutes a quorum for the Annual Meeting. As of the Record Date,
1,101,256,334 shares of Company common stock were issued and outstanding.
How many votes are needed for approval of each item?
There are differing vote requirements for the various proposals. Directors
will be elected by a plurality of the votes cast at the Annual Meeting,
meaning the three nominees receiving the most votes will be elected directors.
Only votes cast for a nominee will be counted, except that the accompanying
proxy will be voted for the three management nominees unless the proxy
contains instructions to the contrary. Abstentions, broker non-votes (as
described below), and instructions on the accompanying proxy to withhold
authority to vote for one or more of the nominees will result in those
nominees receiving fewer votes. However, such action will not reduce the
number of votes otherwise received by the nominees.
Each shareholder proposal and the proposal to ratify the selection of the
auditors will be approved if the votes cast for the proposal exceed those cast
against the proposal. Abstentions and broker non-votes will not be counted
either for or against the proposal.
What is a "broker non-vote"?
A "broker non-vote" occurs when a broker submits a proxy that does not
indicate a vote for some of the proposals because the broker has not received
instructions from the beneficial owners on how to vote on such proposals and
does not have discretionary authority to vote in the absence of instructions.
Who can attend the Annual Meeting?
All shareholders as of the Record Date can attend. Eligible shareholders
must request an Admittance Card by returning the enclosed Request for
Admittance Card. If your shares are held in the name of a broker or other
nominee, please send proof of share ownership, such as a broker's statement,
to the Company's Secretary, DC 1093, Lilly Corporate Center, Indianapolis,
Indiana 46285 to receive an Admittance Card.
What percentage of stock do the directors and officers own?
Together, they own approximately 0.2766 percent of Company common stock as
of February 5, 1999. (See page 8 for details.)
Who are the largest principal shareholders?
Lilly Endowment, Inc. owned 173,514,368 shares (or 15.745 percent) as of
February 5, 1999. National City Bank, Indiana held 57,589,060 shares (or 5.226
percent) as of February 5, 1999, in various fiduciary capacities. (See page 9
for details.)
When are shareholder proposals for the 2000 meeting due?
The Company's 2000 Annual Meeting is scheduled for April 17, 2000. To be
considered for inclusion in next year's Proxy Statement, a shareholder
proposal must be submitted in writing by November 5, 1999, to the Company's
Secretary, DC 1093, Lilly Corporate Center, Indianapolis, Indiana 46285. In
addition, the Company's By-laws provide that any shareholder wishing to
nominate a candidate for director or to propose other business at the Annual
Meeting must give the Company written notice 90 days before the meeting, and
the notice must provide certain other information as described in the By-laws.
Copies of the By-laws are available to shareholders free of charge upon
request to the Company's Secretary.
2
ITEM 1. ELECTION OF DIRECTORS
Under the Company's Articles of Incorporation, the Board is divided into
three classes with approximately one-third of the directors standing for
election each year for a three-year term. The shareholders are requested to
vote for three nominees for director whose terms expire at this Annual
Meeting: Dr. Alfred G. Gilman, Mrs. Karen N. Horn, and Dr. August M. Watanabe.
Each has consented to serve for an additional term.
If any director is unable to stand for election, the Board may, by
resolution, provide for a lesser number of directors or designate a
substitute. In the latter event, shares represented by proxies may be voted
for a substitute director.
Biographical Information
Information regarding each director, including each director nominated for
election, is set forth on the following pages.
Nominees for director for three-year terms ending in 2002:
The Board recommends a vote FOR the nominees.
[PHOTO] Alfred G. Gilman, M.D., Ph.D. Director since 1995
Regental Professor and Chairman, Age 57
Department of Pharmacology, The
University of Texas Southwestern
Medical Center
Dr. Gilman has served as Professor and Chairman of the
Department of Pharmacology at The University of Texas
Southwestern Medical Center since 1981. He has held the
Raymond and Ellen Willie Distinguished Chair in Molecular
Neuropharmacology at the University since 1987 and was named a
Regental Professor in 1995. Dr. Gilman was on the faculty of
the University of Virginia School of Medicine from 1971 until
1981, where he was named a Professor of Pharmacology in 1977.
He is a director of Regeneron Pharmaceuticals, Inc. Dr. Gilman
was a recipient of the Nobel Prize in Physiology or Medicine
in 1994.
[PHOTO] Karen N. Horn, Ph.D. Director since 1987
Managing Director and Age 55
Head of International Private
Banking, Bankers Trust Company
Mrs. Horn has served as the Managing Director and Head of
International Private Banking at Bankers Trust Company since
1996. Prior to joining Bankers Trust, she served as Chairman
of the Board, Bank One, Cleveland, N.A.; 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 Rubbermaid Incorporated and
TRW, Inc. She also serves as a trustee of The Rockefeller
Foundation and The Cleveland Clinic Foundation.
3
[PHOTO] August M. Watanabe, M.D. Director since 1994
Executive Vice President, Age 57
Science and Technology
Dr. Watanabe has served as Executive Vice President, Science
and Technology, since 1996. Prior to joining the Company, he
was on the faculty of the Indiana University School of
Medicine from 1972 to 1990, serving as Professor and Chairman
of the Department of Medicine between 1983 and 1990. He joined
the Company in 1990 as Vice President of Lilly Research
Laboratories and was named Group Vice President of Lilly
Research Laboratories in 1992. He was appointed a Vice
President of the Company and elected to the Board of Directors
in 1994. He is a fellow of the American College of Physicians
and the American College of Cardiology; a director of the
Indiana University Foundation, the Regenstrief Institute for
Health Care, and the Indiana Symphony Society; and a member of
the Board of Visitors of Wheaton College.
Directors continuing in office until 2001:
[PHOTO] Steven C. Beering, M.D. Director since 1983
President, Purdue University Age 66
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.; Veridian Corporation; and
NIPSCO Industries, Inc. Dr. Beering is the past national
chairman of the Association of American Universities.
[PHOTO] Franklyn G. Prendergast, M.D., Ph.D. Director since 1995
Edmond and Marion Guggenheim Age 53
Professor of Biochemistry and Molecular
Biology, Mayo Medical School and
Director, Mayo Clinic Cancer Center
Dr. Prendergast is the Edmond and Marion Guggenheim Professor
of Biochemistry and Molecular Biology at Mayo Medical School
and the Director of the Mayo Clinic Cancer Center. Dr.
Prendergast has held several other teaching positions at the
Mayo Medical School since 1975. Dr. Prendergast serves on the
Board of Trustees of the Mayo Foundation and its Executive
Committee.
4
[PHOTO] Kathi P. Seifert Director since 1995
Group President-- Age 49
Global Personal Care Products,
Kimberly-Clark Corporation
Mrs. Seifert is Group President--Global Personal Care Products
for Kimberly-Clark Corporation. She joined Kimberly-Clark in
1978 and has served in several capacities in connection with
both the domestic and international marketing of consumer
products. Mrs. Seifert is a director of the Aid Association
for Lutherans and United Health Group. She also is a member of
the Chancellor's Advisory Board of the University of
Wisconsin--Oshkosh.
Directors continuing in office until 2000:
[PHOTO] Charles E. Golden Director since 1996
Executive Vice President Age 52
and Chief Financial Officer
Mr. Golden joined the Company as Executive Vice President and
Chief Financial Officer in 1996. Prior to joining the Company,
he served as Vice President of General Motors Corporation
("GM"), and Chairman and Managing Director of Vauxhall Motors
Limited, a subsidiary of GM in the United Kingdom, from 1993
to 1996. Mr. Golden joined GM in 1970 and held a number of
executive positions in that company's domestic and
international operations. Mr. Golden is a director of Clarian
Health Partners and is a member of the U.S. advisory board of
INSEAD.
[PHOTO] Kenneth L. Lay, Ph.D. Director since 1993
Chairman of the Board and Age 56
Chief Executive Officer,
Enron Corp.
Mr. Lay has served Enron Corp. as Chairman of the Board since
1986 and its Chief Executive Officer since 1985. He joined
Enron as President and Chief Operating Officer in 1985. Prior
to joining Enron, he served as Chairman and Chief Executive
Officer of Houston Natural Gas and as President, Chief
Operating Officer, and a director of Transco Energy Company.
Mr. Lay is a director of Compaq Computer Corporation and Trust
Company of the West.
5
[PHOTO] Sidney Taurel Director since 1991
Chairman of the Board, President, Age 50
and Chief Executive Officer
Mr. Taurel became the Company's Chief Executive Officer in
July 1998 and Chairman of the Board on January 1, 1999. He
joined the Company in 1971 and has held management positions
in the Company's operations in Brazil and Europe. From 1986
until 1991, Mr. Taurel served as President of Eli Lilly
International Corporation, as Executive Vice President of the
Pharmaceutical Division from 1991 until 1993, as Executive
Vice President of the Company from 1993 until 1996, and as
President and Chief Operating Officer of the Company from 1996
until July 1998. He is immediate past Chairman of the Board of
Directors of Pharmaceutical Research and Manufacturers of
America; a director of both ITT Industries, Inc., and The
McGraw-Hill Companies, Inc.; a member of the Board of
Overseers of the Columbia Business School; and a trustee of
the Indianapolis Museum of Art.
[PHOTO] Alva O. Way Director since 1980
Chairman of the Board, IBJ Age 69
Whitehall Bank & Trust Company
Mr. Way became Chairman of the Board of IBJ Whitehall Bank &
Trust Company in 1986. He also serves as a director of and
consultant to Schroder p.l.c., London, and related companies.
Mr. Way previously served as President of both The Travelers
Corporation and American Express Company and served in
executive positions at General Electric Company. He is a
director of Gould, Inc.; The McGraw-Hill Companies, Inc.; and
Ryder System, Inc. Mr. Way also serves as a member of the
Board of Fellows and Chancellor Emeritus of Brown University.
Meetings of the Board of Directors
During 1998 the Board of Directors held nine meetings. The rules governing
proxy statements require the Company to identify any director who did not
attend at least 75 percent 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. There were none in 1998.
6
Committees of the Board of Directors
Audit Committee
Members: Directors Way (chair), Prendergast, and Seifert
Number of Meetings in 1998: Three
Functions:
. Oversees internal controls, audits and compliance program
. Recommends independent auditors to the Board of Directors and
oversees their activities
Compensation Committee
Members: Directors Beering (chair), Horn, Lay, and Way
Number of Meetings in 1998: Three
Functions:
. Establishes executive officers' compensation
. Administers Deferred Compensation Plan, certain stock plans and EVA
Bonus Plan
Finance Committee
Members: Directors Lay (chair), Golden, Horn, and Seifert
Number of Meetings in 1998: One
Functions:
. Reviews current and long-range financial strategy and planning,
including dividends, share repurchases, complex business transactions
and borrowings
Public Policy Committee
Members: Directors Seifert (chair) and Gilman
Number of Meetings in 1998: Two
Functions:
. Reviews policies, practices, and procedures relating to public policy
and social, political, and economic issues affecting the Company
Science and Technology Committee
Members: Directors Prendergast (chair), Beering, Gilman, and Watanabe
Number of Meetings in 1998: Four
Functions:
. Reviews and makes recommendations regarding the Company's strategic
research goals and objectives
. Reviews new developments, technologies, and trends in pharmaceutical
research and development
Directors and Corporate Governance Committee
Members: Directors Horn (chair), Beering, and Lay
Number of Meetings in 1998: Five
Functions:
. Recommends candidates for membership on the Board and Board
committees
. Considers candidates for the Board recommended by shareholders
. Oversees matters of corporate governance, including board performance
. Reviews and recommends compensation of non-employee directors
This Committee will consider a candidate for director proposed by a
shareholder. A candidate must be highly qualified and be both willing and
expressly interested in serving on the Board. A shareholder wishing to
propose a candidate for the Committee's consideration should forward the
candidate's name and information about the candidate's qualifications to
the Company's Secretary.
7
Common Stock Ownership by Directors and Executive Officers
The following table sets forth the number of shares of Company common stock
beneficially owned by the directors, the Named Executive Officers listed on
page 11, and all directors and executive officers as a group, as of February
5, 1999.
Name of Individuals or Shares Owned
Identity of Group Beneficially(1)
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Steven C. Beering, M.D.......................................... 21,353
Alfred G. Gilman, M.D., Ph.D.................................... 4,213
Charles E. Golden............................................... 53,673(2)
Rebecca O. Goss................................................. 74,585(3)
Pedro P. Granadillo............................................. 130,633(4)
Karen N. Horn, Ph.D............................................. 16,845
Kenneth L. Lay, Ph.D............................................ 45,439(5)
Franklyn G. Prendergast, M.D., Ph.D............................. 8,883
Kathi P. Seifert................................................ 6,647
Sidney Taurel................................................... 584,862(6)
Randall L. Tobias............................................... 535,598(7)
August M. Watanabe, M.D......................................... 548,482(8)
Alva O. Way..................................................... 25,178
All directors and executive officers as a group (29 persons).... 3,048,677
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(1) Unless otherwise indicated in a footnote, each person listed in the table
possesses sole voting and sole investment power with respect to the shares
shown in the table to be owned by that person. The shares shown do not
include the following shares that may be purchased pursuant to stock
options that are exercisable within 60 days of February 5, 1999: Mr.
Golden, 120,000 shares; Ms. Goss, 215,400 shares; Mr. Granadillo, 337,504
shares; Mr. Taurel, 597,416 shares; Mr. Tobias, 1,565,000 shares; Dr.
Watanabe, 77,120 shares; and all directors and executive officers as a
group, 4,761,110 shares. The shares shown include, in the case of
employees of the Company, shares credited to the accounts of the employees
under The Lilly Employee Savings Plan ("Savings Plan") and, in case of
non-employee directors and Mr. Tobias, shares credited to the directors'
accounts under the Lilly Directors' Deferral Plan. No person listed in the
table owns more than 0.0531 percent of the outstanding common stock of the
Company. All directors and executive officers as a group own 0.2766
percent of the outstanding common stock of the Company.
(2) The shares shown for Mr. Golden include 388 shares credited to his account
under the Savings Plan.
(3) The shares shown for Ms. Goss include 8,102 shares credited to her account
under the Savings Plan. Ms. Goss' children have sole voting power and sole
investment power with respect to 192 shares that are included in the
table, and Ms. Goss disclaims any beneficial interest in those shares.
(4) The shares shown for Mr. Granadillo include 16,700 shares credited to his
account under the Savings Plan.
(5) Mr. Lay has shared voting power and shared investment power with respect
to 20,220 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 12,897 shares credited to his
account under the Savings Plan.
(7) Mr. Tobias' wife has sole voting power and sole investment power with
respect to 93,410 shares that are included in the table. In addition, she
has shared voting power and shared investment power with respect to 14,300
shares that are included in the table and are owned by family trusts of
which she is a trustee. Mr. Tobias disclaims any beneficial interest in
all such shares. Mr. Tobias has shared voting power and shared investment
power with respect to 184,000 shares that are included in the table and
are owned by three separate foundations of which he is a director. The
shares shown include 1,665 shares credited to his account under the
Savings Plan.
(8) The shares shown for Dr. Watanabe include 3,664 shares credited to his
account under the Savings Plan.
8
Principal Holders of Common Stock
To the best of the Company's knowledge, and except as set out below, Lilly
Endowment, Inc. (the "Endowment"), is the only beneficial owner of more than 5
percent of the outstanding shares of the Company's common stock. The following
table sets forth information regarding this ownership as of February 5, 1999:
Percent
Number of Shares of
Name and Address Beneficially Owned Class
---------------- ------------------ -------
Lilly Endowment, Inc. ............................ 173,514,368 15.745%
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.; Mrs. Mary K.
Lisher; Drs. William G. Enright, Earl B. Herr, Jr., and Herman B Wells; and
Messrs. Eli Lilly II and Eugene F. Ratliff. Drs. Bowen, Enright, and Herr and
Messrs. Lake, Lilly, Lofton, and Ratliff are shareholders of the Company.
As of February 5, 1999, National City Bank of Indiana ("NCBI") other held
57,589,060 shares of the Company's common stock (5.226 percent of the
outstanding shares) in various fiduciary capacities. About half of the shares
are held by it as trustee under the Savings Plan, savings plans of other
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 26,216,055 shares, shared voting power with respect to 13,856
shares, sole investment power with respect to 5,446,451 shares, shared
investment power with respect to 13,183,901 shares, and the right to vote an
additional 26,768,222 shares in the savings plans to the extent it is not
instructed on how to vote such shares by plan participants.
Directors' Compensation
Employee directors receive no additional compensation for serving on the
Board or its Committees. Non-employee directors receive a retainer of $3,750
per month and $1,600 for each Board meeting attended. In addition, they are
paid $1,600 for each Committee or other meeting attended, if that meeting is
not held on the same day as a Board meeting. Directors are also reimbursed for
customary and usual travel expenses. The Company does not have a retirement
plan for non-employee directors.
Under the Lilly Directors' Deferral Plan, directors may elect to defer all
or part of their cash compensation in either a Deferred Compensation Account
or a Deferred Stock Account. Amounts in the Deferred Compensation Account earn
interest at 2 percent above the prime interest rate annually (as adjusted each
December). The aggregate amount of interest accrued for the participating
directors in 1998 was $110,091.
Compensation deferred in the Deferred Stock Account is credited in the form
of hypothetical shares of the Company's common stock based on the market price
of the stock at the time of the deferral. Hypothetical dividends are
"reinvested" into additional shares based on the market price of the stock on
the date dividends are paid. In addition, on the first business day in
December (through 1998), the Company credited each non-employee director's
Deferred Stock Account with the lesser of 800 shares or the number of shares
at the market price on that date equaling the value of the director's total
annual cash compensation assuming he/she attended all regularly scheduled
Board meetings. In 1998, each non-employee director's Deferred Stock Account
was credited with 501 shares. Effective in 1999 the number of shares credited
annually is fixed at 700. All shares in the Deferred Stock Accounts are
hypothetical and are not issued or transferred until the director resigns or
dies. The shares credited to all non-employee directors' Deferred Stock
Accounts are included in the share ownership table on page 8. The director may
elect that, upon retirement or resignation from the Board, the Deferred
Compensation Account will be paid in a lump sum or in annual or monthly
installments for up to 10 years, and the Deferred Stock Account will be paid
in a lump sum or in annual installments for up to 10 years.
9
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 1994 through 1998. The graph is constructed
on the assumption that $100 was invested on December 31, 1993, 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
[CHART OF ELI LILLY APPEARS HERE]
Fiscal Years Ended December 31
1993 1994 1995 1996 1997 1998
- --------------------------------------------------------------------------------
Lilly......................... $100.00 $115.44 $203.96 $270.16 $522.34 $674.24
- --------------------------------------------------------------------------------
S&P 500....................... 100.00 101.36 139.32 171.23 228.27 293.38
- --------------------------------------------------------------------------------
Peer Group.................... 100.00 113.05 177.88 222.92 335.21 502.58
* The Peer Group has been constructed by the Company as the industry index
for purposes of the performance graph and is composed of 11 companies in
the pharmaceutical industry used by the Company to benchmark compensation
of executive officers. The 11 companies are Abbott Laboratories; American
Home Products Corporation; Bristol-Myers Squibb Company; Glaxo Holdings
p.l.c.; Johnson & Johnson; Merck & Co.; Pfizer, Inc.; Pharmacia & Upjohn,
Inc.; Schering-Plough Corporation; SmithKline Beecham p.l.c.; and Warner-
Lambert Company.
** Total return assumes reinvestment of dividends.
10
Executive Compensation
Summary Compensation Table
The following Summary Compensation Table shows the compensation paid to Mr.
Tobias and to Mr. Taurel and to the four most highly compensated executive
officers other than Mr. Tobias and Mr. Taurel who were serving as executive
officers as of December 31, 1998. Mr. Tobias served as Chief Executive Officer
in 1998 until Mr. Taurel succeeded him on July 1, 1998. Mr. Taurel succeeded
Mr. Tobias as Chairman of the Board on January 1, 1999. The following
individuals are referred to as the "Named Executive Officers."
Summary Compensation Table
Long-Term Compensation(1)
--------------------------------
Annual Compensation Awards Payouts
------------------------------------- --------------------- ----------
Number of
Securities Long-Term
Underlying Incentive
Name and Principal Other Annual Restricted Options Plan All Other
Position Year Salary Bonus(2) Compensation Stock(3) Granted Payout Compensation
------------------ ---- ---------- ---------- ------------ ---------- ---------- --------- ------------
Randall L. Tobias* 1998 $1,200,000 $4,196,328(4) $611,444(5) 240,000 $3,597,000(6) $72,004(7)
Chairman of the Board 1997 1,200,000 1,298,074 180,891 225,000 1,661,280 72,004
and Chief Executive 1996 1,100,000 1,152,111 149,216 150,000 2,470,463 66,002
Officer
Sidney Taurel** 1998 1,016,690 1,658,051 144,278 290,000 1,962,000(6) 61,001(7)
Chairman of the Board, 1997 860,000 650,778 123,246 125,000 1,245,960 51,602
President and Chief 1996 786,700 578,667 123,148 75,000 1,313,625 47,202
Executive Officer
August M. Watanabe, M.D. 1998 663,000 862,058 24,353 80,000 1,553,250(6) 39,780(7)
Executive Vice
President, 1997 636,000 518,534 20,856 60,000 899,860 38,160
Science and Technology 1996 579,900 459,800 18,386 40,000 1,135,650 34,794
Charles E. Golden 1998 663,000 844,801 14,667 80,000 1,553,250(6) 39,780(7)
Executive Vice
President 1997 636,000 492,649 5,797 60,000 824,872 38,160
and Chief Financial 1996 497,600 945,371(8) 184,633(9) $801,625 100,000 -0- 9,000
Officer
Pedro P. Granadillo 1998 469,190 579,587 30,192 65,000 1,144,500(6) 28,151(7)
Senior Vice President, 1997 401,400 299,985 18,833 40,000 692,200 24,084
Human Resources and 1996 371,400 267,127 10,336 20,000 872,925 22,284
Manufacturing
Rebecca O. Goss 1998 427,020 509,265 14,901 50,000 1,144,500(6) 25,621(7)
Senior Vice President 1997 413,880 299,985 9,417 40,000 692,200 24,833
and
General Counsel 1996 329,880 267,127 5,491 20,000 872,925 19,973
- -------
* Mr. Tobias was succeeded as Chief Executive Officer on July 1, 1998. He
retired from the Company and from the Board of Directors on December 31,
1998.
** Mr. Taurel was elected Chief Executive Officer effective July 1, 1998. He
was elected Chairman of the Board effective upon Mr. Tobias's retirement.
(1) The Company's stock plans do not provide for stock appreciation rights.
Accordingly, none were granted during the years indicated.
(2) Amounts earned under the EVA(R) Bonus Plan for the year indicated and paid
in the following year. An additional amount was credited to a "bonus bank"
for the individual for the year indicated but not paid. The amounts
credited to the "bonus bank" will be either paid in later years or
forfeited, depending on the extent to which future annual financial
performance goals under the EVA Bonus Plan are achieved.
(3) Mr. Golden was awarded 25,000 shares of restricted stock when he joined
the Company as a means of replacing a portion of certain equity-based
compensation he forfeited when he resigned from his previous employer to
become an
11
Executive Vice President of the Company. Dividends will be paid on the
restricted stock awarded to Mr. Golden which was valued at $2,221,875 at
December 31, 1998. Dr. Watanabe has 20,000 shares of restricted stock
valued at $1,451,800 on December 31, 1998.
(4) Mr. Tobias earned $2,198,816 in 1998 with the remainder representing
amounts credited to his "bonus bank" under the EVA Bonus Plan in previous
years but not paid until after his retirement on December 31, 1998.
(5) Includes $382,785 in reimbursement for certain taxes associated with Mr.
Tobias's retirement, pursuant to the Company's normal practices under the
supplemental retirement plan described on p. 18.
(6) Amounts paid in Company common stock (except for amounts paid in cash to
satisfy tax withholding requirements) in February 1999 under the
performance award program for the period January 1, 1997, through December
31, 1998.
(7) Company contribution to the named individual's account in the Savings
Plan.
(8) Mr. Golden's 1996 bonus was composed of $352,121 paid in cash under the
EVA Bonus Plan as described in footnote (2) and $593,250 paid in stock
(except for tax withholding amounts) under the performance award program
for the 1996 calendar year.
(9) Includes relocation expenses incurred as a result of Mr. Golden's move
from the United Kingdom to Indiana in 1996.
Stock Option Grants
The following table provides information on options to purchase Company
common stock granted in 1998 to the Named Executive Officers under the 1998
Lilly Stock Plan.
Option Shares Granted in Last Fiscal Year(1)
Individual Grants
---------------------------------------------------------------------
Number of % of Total Option Exercise or
Securities Shares Granted to Base Price Grant Date
Underlying Employees in Per Expiration Present
Name Options Granted Fiscal Year Share(2) Date Value(5)
---- --------------- ----------------- ----------- ---------- ----------
Randall L. Tobias....... 240,000 3.54% $74.2813 12/31/03(3) $3,993,600
Sidney Taurel........... 50,000 0.74 $61.22 5/30/08(4) 686,000
240,000 3.54 $74.2813 10/17/08(3) 3,993,600
August M. Watanabe,
M.D.................... 80,000 1.18 $74.2813 10/17/08(3) 1,331,200
Charles E. Golden....... 80,000 1.18 $74.2813 10/17/08(3) 1,331,200
Pedro P. Granadillo..... 65,000 0.96 $74.2813 10/17/08(3) 1,081,600
Rebecca O. Goss......... 50,000 0.74 $74.2813 10/17/08(3) 832,000
- --------
(1) The Company's stock plans do not provide for stock appreciation rights.
Accordingly, none were granted in 1998.
(2) Options are granted at the market price of Company common stock on the
date of grant.
(3) These options will become exercisable October 19, 2001, except that Mr.
Tobias's option became exercisable on January 1, 1999, as a result of his
retirement. Mr. Tobias's option expires five years after his retirement.
(4) These options will become exercisable June 4, 2001.
(5) These values were established using the Black-Scholes stock option
valuation model. Assumptions used to calculate the grant date present
value of option shares granted during 1998 were in accordance with SFAS
123, as follows:
(a) Expected Volatility--The standard deviation of the continuously
compounded rates of return calculated on the average daily stock
price over a period of time immediately preceding the grant and equal
in length to the expected life. The volatility was 23.5%.
(b) Risk-Free Interest Rate--The rate available at the time the grant was
made on zero-coupon U.S. Government issues with a remaining term
equal to the expected life. The risk-free interest rate was 4.29%.
12
(c) Dividend Yield--The expected dividend yield was 2.96% based on the
historical dividend yield over a period of time immediately preceding
the grant date equal in length to the expected life of the grant.
(d) Expected Life--The expected life of the grant was seven years,
calculated based on the historical expected life of previous grants.
(e) Forfeiture Rate--Under SFAS 123, forfeitures may be estimated or
assumed to be zero. The forfeiture rate was assumed to be zero, based
on the immateriality of actual calculated forfeiture rates.
Stock Option Exercises and Option Values
The following table contains information concerning stock options exercised
during 1998 and stock options unexercised at the end of 1998 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....... 535,000 $32,082,563 2,030,000 -0- $115,216,065 $ -0-
Sidney Taurel........... 137,500 $ 7,000,359 951,300 565,000 68,790,474 16,323,360
August M. Watanabe,
M.D.................... 73,496 $ 3,766,748 177,120 220,000 11,785,334 7,074,432
Charles E. Golden....... -0- -0- -0- 340,000 -0- 14,169,288
Pedro P. Granadillo..... 16,600 $ 847,375 337,504 145,000 24,765,042 4,162,242
Rebecca O. Goss......... 13,400 $ 749,624 215,400 130,000 15,426,919 3,938,179
- --------
(1) The Company's stock plans do not provide for stock appreciation rights.
Accordingly, stock appreciation rights were not exercised during 1998 and
no stock appreciation rights were outstanding on December 31, 1998.
(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, 1998.
Long-Term Incentive Awards
The following table provides information on long-term performance awards
granted in 1998 to the Named Executive Officers under the 1998 Lilly Stock
Plan.
Long-Term Incentive Plan Awards in Last Fiscal Year
Estimated Future Payments
Under
Non-Stock Price Based
Plans(2)
Performance --------------------------
Number of Period Maximum
Shares Until Threshold Target #
Name Awarded(1) Payout # Shares # Shares Shares
- ---- ---------- ----------- --------- -------- -------
Randall L. Tobias............. -0- N/A N/A N/A N/A
Sidney Taurel................. 28,000 2 years 18,680 28,000 56,000
August M. Watanabe, M.D....... 9,000 2 years 6,000 9,000 18,000
Charles E. Golden............. 9,000 2 years 6,000 9,000 18,000
Pedro P. Granadillo........... 7,300 2 years 4,870 7,300 14,600
Rebecca O. Goss............... 5,600 2 years 3,735 5,600 11,200
- --------
(1) Represents the targeted award amount payable in the year 2001 if earned
for the fiscal years 1999-2000 award period.
13
(2) Payouts are determined by the aggregate earnings per share ("EPS") level
for the award period. The target amount will be paid if 100% of the
targeted EPS is achieved; the threshold amount will be paid if at least
96.77% of the targeted EPS is achieved; and the maximum amount will be
paid if 110.3% or more of the targeted EPS is achieved. No payment will be
made unless at least 96.77% of the targeted EPS level is achieved.
Compensation Committee Report
The Compensation Committee consists of four non-employee directors. The
Committee regularly reviews the Company's executive compensation policies and
practices and establishes the compensation of executive officers. The
Committee also administers the Deferred Compensation Plan, the EVA Bonus Plan
(the "EVA Plan") and the 1998 Lilly Stock Plan, the stock plan covering
executive officers and other members of management.
A. Executive Compensation Policy
The Committee's executive compensation policy is based on principles that
guide the Company in establishing all its compensation programs. The Company
designs compensation programs to attract, retain, and motivate highly talented
individuals at all levels of the organization. In addition, the programs are
designed to be cost-effective and to treat all employees fairly. To that end,
all programs, including those for executive officers, share these
characteristics:
. Compensation is based on the level of job responsibility, individual
performance, and Company performance. Executives have a greater portion
of their pay based on Company performance than do other employees.
. Compensation also reflects the value of the job in the marketplace. To
retain its highly skilled work force, the Company strives to remain
competitive with the pay of other highly respected employers who compete
with the Company for talent.
. To align the interests of employees with those of shareholders, the
Company provides employees worldwide at all levels of the organization
the opportunity for equity ownership through various Company programs.
In addition, executive officers and other key employees worldwide have
the opportunity to build more substantial equity ownership through
Company stock plans.
. Compensation programs are developed and administered to foster the long-
term focus required for success in the research-based pharmaceutical
industry.
The Committee believes that the Company's executive compensation program
reflects the principles described above and provides executives strong
incentives to maximize Company performance and therefore enhance shareholder
value. The program consists of both annual and long-term components. The
Committee believes that the executive compensation program should be
considered as a whole in order to properly assess whether it is attaining its
objectives.
In establishing total compensation, the Committee considers various measures
of historical and projected Company performance, including sales, net income,
return on shareholders' equity, return on sales and assets, sales and net
income per employee, total market value, total shareholder return, and
Economic Value Added ("EVA"). 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 them relative
weights or rankings; rather it makes a subjective determination based on a
collective consideration of all such factors.
14
The Committee also compares the Company's total compensation package (and,
to the extent meaningful, 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
10. The Peer Group companies are identified in a footnote to the Performance
Graph. The Committee uses the Peer Group data primarily as benchmarks to
ensure that the executive compensation program as a whole is within the broad
middle range of comparative pay of the Peer Group companies. The Committee
does not target a specific position in the range of comparative data for each
individual or for each component of compensation. Individual amounts are
established in view of the comparative data and such other factors as level of
responsibility, prior experience, and the Committee's subjective judgment as
to individual contribution. These factors are not assigned specific
mathematical weights; rather, the Committee exercises its judgment and
discretion in the information it reviews and the analysis it considers.
The Company also retains independent compensation and benefits consultants
to assist in evaluating executive compensation programs. The use of
independent consultants provides additional assurance that the Company's
programs are reasonable and consistent with the Company's objectives.
B. Components of Executive Compensation
Annual Cash Compensation. Annual cash compensation for 1998 consisted of two
components, base salary and a cash bonus under the EVA Plan.
Base salaries are determined with reference to Company and individual
performance for the previous year, internal relativity, and market conditions,
including pay at the Peer Group companies and general inflationary trends.
Assessment of individual performance includes consideration of a person's
impact on financial performance as well as judgment, creativity, effectiveness
in developing subordinates and a diverse organization, and contributions to
improvement in the quality of the Company's products, services, and
operations. As noted above, the Committee uses the Peer Group and other market
data to test for reasonableness and competitiveness of base salaries but also
exercises subjective judgment in view of the Company's compensation
objectives.
Cash bonuses for management are paid under the EVA Plan, a formula-based
plan that is designed around the concept of Economic Value Added. In basic
terms, EVA is after-tax operating profit less the annual total cost of
capital. Under the EVA Plan, the size of bonuses varies directly with the
amount by which after-tax operating profit exceeds the cost of capital. Thus,
the EVA Plan rewards managers who increase shareholder value by most
effectively deploying the capital contributed by the shareholders. The EVA
Plan places bonuses "at risk" in that if the Company fails to achieve the
target EVA, the bonuses earned can be reduced or even be negative, resulting
in a reduction of future years' bonuses. The Committee determines the
participants and sets the target bonus levels prior to the beginning of the
year. As to the executive officers, the Committee's intent is to set target
bonuses such that total annual compensation is within the broad middle range
of Peer Group companies.
Long-Term Incentives. The Company employs two forms of long-term incentives
granted under the 1998 Lilly Stock Plan, performance awards and stock options.
These incentives foster the long-term focus necessary for continued success in
the research-based pharmaceutical business. They also provide individuals in
leadership roles the opportunity for substantial equity ownership to ensure
proper focus on shareholder value. Performance awards and stock options have
traditionally been granted broadly and deeply within the organization, with
more than 2,500 management and professional employees now participating.
Performance awards provide employees 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
15
stock price increases over time. The Company's 10-year options, granted at the
market price on the date of grant, ensure that employees are oriented to
growth over the long term. In addition, the options encourage retention
because they carry a three-year vesting period and, if not exercised, may be
forfeited if the employee leaves the Company before retirement. The size of
grants to executive officers in 1998 was based primarily on the recipient's
level of responsibility. The Committee also considered the size of grants to
individuals in previous years, internal relativity, and comparisons to Peer
Group companies.
Adjustments for Extraordinary Events. Consistent with past practices, the
Committee adjusted the financial results on which awards were determined under
the 1997-98 performance awards to minimize or eliminate the effect on earnings
per share of accounting adjustments and other extraordinary one-time items.
The purpose of the adjustments is to ensure that award payouts reflect ongoing
operating results and are not artificially inflated or deflated due to
unusual, one-time events. Adjustments were made to eliminate the extraordinary
income effect and to eliminate or reduce the effect of extraordinary charges,
resulting from certain business development and licensing arrangements, asset
dispositions and asset writedowns during the award period.
Deductibility Cap on Executive Compensation. Federal income tax law
disallows corporate deductibility for certain compensation paid in excess of
$1 million to the Named 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. The
Committee's policy is to qualify incentive compensation for full deductibility
whenever feasible and consistent with the goals of the compensation program.
Stock option and performance award compensation of the Named Executive
Officers under the 1998 Lilly Stock Plan qualifies as "performance-based
compensation" and therefore is fully deductible. Beginning in 1999, bonuses
under the EVA Plan will also be fully deductible as performance-based
compensation under the tax law. The loss of deductibility for compensation
payments in 1998 was insignificant to the Company's overall tax liability.
C. Chief Executive Officer Compensation
The compensation of Messrs. Tobias and Taurel, each of whom served as Chief
Executive Officer for part of 1998, consisted of the same components as for
other senior executives, namely base salary, EVA bonus, performance awards,
and stock options. In establishing the chief executive officers' compensation,
the Committee applied the principles outlined above in essentially the same
manner as they were applied to the other executives. The Committee reviewed
Company performance relative to the Peer Group companies, including sales,
earnings, return on sales and assets, return on equity and total shareholder
return. The Committee did not assign these factors relative weights or
rankings but rather made a subjective determination after considering all such
factors collectively.
1. Mr. Randall L. Tobias
In considering Mr. Tobias's 1998 total cash compensation, the Committee
considered the Company's strong 1997 growth in revenues, earnings before
extraordinary items, and shareholder return. The Committee determined that a
moderate increase in 1998 would allow Mr. Tobias's cash compensation to remain
competitive with that of the Peer Group chief executive officers. The
Committee also believed it appropriate to place a greater proportion of Mr.
Tobias's cash compensation "at risk." Therefore, the Committee maintained his
base salary at the same level as 1997 but increased his 1998 EVA Plan bonus
target from $1,000,000 to $1,200,000. The bonus and total annual compensation
remained within the broad middle range relative to other chief executive
officers of Peer Group companies.
In 1998, the Committee granted Mr. Tobias an option to purchase 240,000
shares of Company common stock at $74.2813 per share, the market price on the
date of the grant. In determining the size of the grant, the Committee took
note of the number of option shares previously granted to Mr. Tobias and
internal relativity as well as Peer Group data on the size of total equity
compensation.
16
2. Mr. Sidney Taurel
In June 1998, after Mr. Taurel's election as Chief Executive Officer, the
Committee approved increases in his base salary and EVA bonus target to
reflect his new responsibilities. The increases were designed to bring Mr.
Taurel's total annual cash compensation closer to the median of the Peer Group
chief executive officers and to place a greater proportion of his cash
compensation "at risk." Accordingly, his base salary was increased from
$900,000 to $1,100,000 (calculated on an annualized basis) and his annualized
EVA bonus target was increased from $700,000 to $1,100,000. These increases
placed Mr. Taurel's total annual cash compensation in the broad middle range
of Peer Group chief executive officers.
In recognition of Mr. Taurel's new responsibilities, the Committee granted
him a stock option in June 1998 for 50,000 shares of Company common stock at
$61.22 per share, the market price on the date of the grant. In addition, as a
part of the Company's normal annual grant cycle for 1998, Mr. Taurel received
an option for 240,000 shares at $74.2813 per share, the market price on the
date of the grant. The Committee considered options previously granted to Mr.
Taurel and internal relativity as well as Peer Group data on the size of total
equity compensation.
The Committee granted a performance award to Mr. Taurel to be earned over
the two-year award period 1999-2000. If earnings per share targets are
achieved, Mr. Taurel will receive 28,000 shares (before taxes) in 2001. In
determining the size of the award, the Committee considered Mr. Taurel's level
of responsibility and internal relativity. For executives at all levels, the
1999-2000 performance awards were essentially the same as the previous year's
grants in terms of both the number of shares payable and the required
percentage increases in earnings per share.
Compensation Committee
Steven C. Beering, M.D., Chairperson
Karen N. Horn, Ph.D.
Kenneth L. Lay, Ph.D.
Alva O. Way
Compensation Committee Interlocks
Mr. Tobias served on the Compensation Committee of the Board of Directors of
Kimberly-Clark Corporation during 1998, during which time Mrs. Seifert, Group
President of Kimberly-Clark Corporation, served as a director of the Company.
Retirement Plan
Pension Plan Table
Average Annual Years of Service
Earnings (Highest ---------------------------------------------------------------------
5 of Last 10 Years) 15 20 25 30 35 40 45
------------------- --------- --------- --------- --------- --------- --------- ---------
$ 750,000.............. 154,755 206,340 257,225 309,510 361,095 361,085 364,955
1,000,000.............. 207,415 276,555 345,695 414,830 483,970 483,970 486,605
1,500,000.............. 312,740 416,985 521,235 625,485 729,730 729,730 729,905
2,000,000.............. 418,065 557,425 696,780 836,135 975,490 975,490 975,490
2,500,000.............. 523,390 697,855 872,320 1,046,785 1,221,250 1,221,250 1,221,250
3,000,000.............. 628,715 838,290 1,047,865 1,257,435 1,467,010 1,467,010 1,467,010
3,500,000.............. 734,043 978,725 1,223,405 1,468,085 1,712,765 1,712,770 1,712,770
4,000,000.............. 839,370 1,119,160 1,398,945 1,678,735 1,958,525 1,958,525 1,958,525
4,500,000.............. 944,695 1,259,590 1,574,490 1,889,385 2,204,285 2,204,285 2,204,285
5,000,000.............. 1,050,020 1,400,025 1,750,030 2,100,035 2,450,045 2,450,045 2,450,045
5,500,000.............. 1,155,345 1,540,460 1,925,575 2,310,690 2,695,800 2,695,800 2,695,800
6,000,000.............. 1,260,670 1,680,890 2,101,115 2,521,340 2,941,560 2,941,560 2,941,560
17
The Pension Plan Table sets forth a range of annual retirement benefits
under The Lilly Retirement Plan ("Retirement Plan") for graduated levels of
average annual earnings and years of service for the life of a retired
employee, assuming retirement at age 65 with a 50% survivor income benefit.
Annual earnings covered by the Retirement plan consist of Salary, Bonus and
Long-Term Incentive Plan Payouts as set forth in the Summary Compensation
Table on page 11, calculated for the year in which earnings are paid rather
than earned. Accordingly, Mr. Tobias's Bonus and Long-Term Incentive Plan
Payouts set forth in the Summary Compensation Table for 1998 do not contribute
toward his retirement benefit because they were paid in 1999, after he
retired. The amounts shown in the table are not subject to reduction for
social security benefits.
The years of service credited to the Named Executive Officers are Mr.
Tobias, 34 years; Mr. Taurel, 27 years; Ms. Goss, 21 years; Mr. Granadillo, 29
years; Dr. Watanabe, 17 years; and Mr. Golden, 29 years. The ultimate pension
benefits from the Retirement Plan for Messrs. Tobias and Golden will be
reduced by the amount of the pension payments they receive from their previous
employers.
Section 415 of the Internal Revenue Code ("Code") generally places a limit
of $130,000 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
$10,000 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.
The Company is continuing to provide Mr. Tobias with office space and
secretarial support after his retirement from the Company and the Board.
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 15% 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 the Endowment. There are additional conditions
that could result in a change-in-control event. The Program is not subject to
amendment by the Board, whether prior to or following a change-in-control, in
any manner adverse to a participant without his or her prior written consent.
Under the portion of the Program covering the Named Executive Officers, each
would be entitled to severance payments and benefits in the event that his or
her employment is terminated following a change-in-control (i) without "cause"
by the Company; (ii) for "good reason" by the executive officer, each as is
defined in the Program; or (iii) for a limited period of time, for any reason
by the executive officer. In such case, the executive officer would be
entitled to a severance payment equal to three times his or her current annual
cash compensation. Additional benefits would include a pension supplement and
full and immediate vesting of all stock options and other equity incentives.
In the event that any payments made in connection with the change-in-control
would be subject to the excise tax imposed under Section 4999 of the Internal
Revenue Code as a result of the aggregate compensation payments and benefits
made to the individual, under the Program or otherwise, in connection with a
change-in-control, the Company is obligated to make whole the individual with
respect to such excise tax.
18
ITEM 2. PROPOSAL TO RATIFY THE APPOINTMENT BY THE BOARD OF DIRECTORS 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 1999. In accordance with the By-laws of the Company,
this appointment will be submitted to the shareholders for ratification. Ernst
& Young served as the principal independent auditors for the Company in 1998.
Representatives of Ernst & Young 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.
The Board of Directors recommends that you vote FOR ratifying the
appointment of Ernst & Young LLP as principal independent auditors for the
year 1999.
ITEM 3. SHAREHOLDER PROPOSAL TO ENDORSE CERES PRINCIPLES
The American Baptist Home Mission Society, the beneficial owner of 800
shares of common stock, P. O. Box 851, Valley Forge, Pennsylvania 19482-0851;
the American Baptist Foreign Mission Society, the beneficial owner of 6,000
shares of common stock, P. O. Box 851, Valley Forge, Pennsylvania 19482-0851;
and the General Board of Pension and Health Benefits of the United Methodist
Church, the beneficial owner of 650,200 shares of common stock, 1201 Davis
Street, Evanston, Illinois 60201-4118, have given notice that they intend 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
or 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
ENDORSEMENT OF THE CERES PRINCIPLES FOR PUBLIC ENVIRONMENTAL ACCOUNTABILITY
WHEREAS:
All leaders of industry in the United States now acknowledge their
obligation to pursue superior environmental performance and to disclose
information about that performance to their investors and other stakeholders.
The integrity, utility, and comparability of environmental disclosure
depends on the creation of environmental reports that employ a common format,
use credible metrics, and follow a set of a generally accepted environmental
disclosure standards.
The Coalition for Environmentally Responsible Economies (CERES), a ten year
old partnership among some of the largest investors, environmental groups, and
corporations in the country, has established what we believe is the most
thorough and well-respected environmental disclosure form in the United
States.
CERES has also gathered leading international organizations, including the
United Nations Environment Programme, into a collaborative Global Reporting
Initiative to guide and accelerate the worldwide trend toward standardized
environmental reporting.
19
The CERES Principles and the CERES Report have already been adopted by
leading firms in highly diverse industries such as Bank America, Baxter
International, Bethlehem Steel, Coca-Cola, General Motors, Interface, ITT
Industries, Pennsylvania Power and Light, Polaroid, and Sunoco.
We believe endorsing the CERES Principles commits a company to the prudent
oversight of its financial and physical resources through: 1) protection of
the biosphere; 2) sustainable use of natural resources; 3) waste reduction; 4)
energy conservation; 5) risk reduction; 6) safe products/services; 7)
environmental restoration; 8) informing the public; 9) management commitment;
10) audits and reports. (The full text of the CERES Principles and
accompanying CERES Report form are obtainable from CERES, 11 Arlington Street,
Boston, Massachusetts 02116, (617) 247-0700 or at www.ceres.org).
RESOLVED: Shareholders request that the company endorse the CERES Principles
as a reasonable and beneficial component of their corporate commitment to be
publicly accountable for environmental performance.
SUPPORTING STATEMENT
Recent studies show that the integration of environmental commitment into
business operations provide competitive advantage and improve long-term
financial performance for companies. In addition, the depth of a firm's
environmental commitment and the quality with which it manages its
environmental performance provide us with indicators of the foresight of its
management.
Given investors' needs for credible information about a firm's environmental
performance, and given the large number of companies that have already
endorsed the CERES Principles and adopted its report format, endorsement of
the CERES Principles is a reasonable, widely accepted step for any company
wishing to demonstrate its seriousness about superior environmental
performance.
The goal of the CERES Principles is continuous improvement in corporate
environmental performance, coupled with public accountability. One cannot
measure improvement without having data over time. Standardizing that data
enables investors to assess environmental progress within and across
industries. By endorsing the CERES Principles, a company agrees to a single
consistent standard for environmental reporting. An endorsing company works
with CERES and other endorsing companies in setting that reporting standard.
Your vote FOR this resolution serves the best interests of our Company and
its shareholders.
STATEMENT IN OPPOSITION TO THE SHAREHOLDER PROPOSAL
The Board of Directors believes this proposal is not in the best interests
of the Company or its shareholders.
The Company shares the proponents' commitment to continuous improvement and
accountability in environmental performance. However, the Board does not
believe the endorsement of the CERES Principles would enhance the Company's
program or performance.
The Company has a deep commitment to environmental quality and a
comprehensive, global environmental management program that includes
performance expectations, accountability, management and Board oversight, and
public disclosure. Among the major elements of the Company's program are the
following:
. A corporate environmental policy that applies to operations worldwide.
The complete text of the Environmental Policy and Guidelines is
available on the Company's worldwide web site, www.lilly.com. This
policy, established in 1991, requires the Company to design, construct,
and operate its facilities in a manner that protects human health and
minimizes impact on the environment; to place a priority on
environmental considerations in the development of new products; to
promote waste minimization, the sustainable use of natural resources,
recycling, energy efficiency, resource conservation, and resource
recovery; to provide to the public information regarding the Company's
environmental programs; and to assess and report compliance status to
management and the Board of Directors.
20
. Public disclosure of environmental performance. The Company began
issuing publicly available environmental reports beginning in 1995.
Shareholders, employees, neighbors, and any other interested persons may
examine the most recent Lilly environmental, health, and safety reports
on the Company's worldwide web site at ehs.lilly.com.
. A comprehensive environmental audit program initiated in 1989. The
audits identify opportunities for improved performance and encourage the
spread of best practices from one Company facility to another.
. An integrated, global environmental, health and safety management
system. The Company has combined its environmental, health and safety
policies into a single document that is consistent with leading
international standards for management systems.
. Active participation in the Chemical Manufacturers Association's
Responsible Care(R) Program. This program stresses continuous
improvement in community awareness, emergency response, pollution
prevention, process safety, distribution, health and safety, and product
stewardship.
Endorsement of the CERES Principles entails more than a simple affirmation
of the principles themselves. It is the Board's understanding that companies
endorsing the principles are also expected to pay an annual fee to the CERES
organization. In addition, the mandatory, annual report prescribed by CERES
Principles imposes additional burdens beyond those already borne by the
Company through its voluntary initiatives and its legal obligations. In light
of the measures the Company has already taken, the Board believes that any
potential benefits that might result from endorsing the CERES principles would
be outweighed by the additional commitment of resources that would be
required.
The Board believes this proposal is not in the best interests of the
shareholders and urges you to vote AGAINST it.
ITEM 4. SHAREHOLDER PROPOSAL TO DECLASSIFY
THE BOARD OF DIRECTORS
The National Retirement Fund of the Union of Needletrades, Industrial and
Textile Employees, 2100 L Street, N.W., Suite 210, Washington, D.C. 20037, the
beneficial owner of 2,500 shares of common stock, has given notice that it
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
or 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
RESOLVED: The shareholders of Eli Lilly and Company ("Company") request that
our Board of Directors take the necessary steps in compliance with state law
to declassify the Board of Directors so that all directors are elected
annually, such declassification to be carried out in a manner that does not
affect the unexpired terms of directors previously elected.
Our Company faces substantial challenges in the near future. Exclusive
patents on Prozac(R) will run out in the next four years. New products are
facing problems which must be overcome to replace future sales losses of
Prozac. For example the Food and Drug Administration sent a nonapproval letter
to our Company regarding Zyprexa(R), damaging this drug's prospects. In
addition, initial sales of Evista(R) have been disappointing.
21
Given these immediate problems and broader concerns we have about the
Company's future prospects, we believe that greater Board of Director
accountability to shareholders is called for at this time. We want to ensure
that the performance of our entire Board of Directors is subject to
shareholder review every year. One way to achieve this higher level of
accountability is to eliminate the staggered board terms currently in place.
Our Company's Board of Directors is divided into three (3) classes serving
staggered, three-year terms. We believe this structure can be used to maintain
the incumbency of the current Board and is an anti-takeover device. There are
indications from studies that classified boards and other anti-takeover
devices have an adverse impact on shareholder value. In 1991 a study by Lilli
Gordon of the Gordon Group and John Pound of Harvard University found that
companies with restrictive corporate governance structures, including those
with classified boards, are "significantly less likely to exhibit outstanding
long-term performance relative to their industry peers."
The staggered board is also a shield to protect incumbent directors and
management from regular shareholder accountability. We believe that allowing
shareholders to annually register their views on the performance of the Board
is a good method of ensuring that our Company will be managed in a manner that
is in the best interests of the shareholders.
Classified boards like ours have become increasingly unpopular with
shareholders in recent years. In 1998, a majority of shareholders at Eastman
Kodak, Fleming, and Sybase, among other companies, voted in favor of proposals
asking management to repeal the classified board. Stockholders have also voted
overwhelmingly in favor of company-sponsored resolutions to declassify the
board of directors at Time Warner, Fedders and Travelers Group.
Given the recent problems experienced by our Company, we believe our Board
should take the steps necessary to increase its accountability to shareholders
by standing for election annually.
We urge you to vote FOR this resolution.
STATEMENT IN OPPOSITION TO THE SHAREHOLDER PROPOSAL
The Board of Directors believes that this proposal is not in the best
interests of the Company or its shareholders.
The proponent suggests that the Board should be more accountable to
shareholders for increasing the value of their investment. On the contrary,
the Board is fully committed to increasing shareholder value. The Board has
instituted a number of corporate governance measures to foster its own
accountability, including the adoption of written corporate governance
guidelines, regular self-evaluations, periodic reviews of individual
directors, and a Board compensation program that aligns directors' interests
with the shareholders' by paying a substantial portion of overall compensation
in Lilly stock.
The ultimate measure of accountability, however, is performance. As the
graph on page 10 illustrates, the Company has delivered top-tier performance
for its shareholders. During the past five years:
. Total shareholder return was 574 percent, significantly higher than the
S&P 500 and the Peer Group.
. The Company's market capitalization increased from $17 billion to $98
billion.
. The Company's stock split twice.
While the proponent states that the Company's "new products are facing
problems," their sales performance suggests otherwise. In 1998, the Company's
five newer products--Zyprexa, Evista, ReoPro(R), Gemzar(R), and Humalog(R)--
contributed 93 percent of the Company's overall sales growth of 16 percent.
22
The Company's current system for electing directors, with the Board divided
into three classes of directors serving staggered three-year terms, was
adopted by the Company's shareholders. The Board believes that this system
provides important benefits for the Company:
. The staggered system helps assure continuity and stability of the
Company's business strategies and policies. Since at least two
shareholders' meetings will be required to effect a change in control of
the Board, a majority of directors at any given time will be familiar
with the Company's business strategy through service as a director. This
is particularly important to a research-based life sciences company such
as Lilly, where product development requires many years, necessitating a
strategy that focuses on the long term.
. In the event of an unfriendly or unsolicited takeover proposal, the
staggered system helps give the Company critically needed time and
bargaining power to negotiate with the acquirer, to consider alternative
proposals, and to ensure that shareholder value is maximized. Although
the proponent cites an academic study that suggests that corporate
control measures may adversely affect shareholder value, other studies,
including a 1997 study by J. P. Morgan Securities, suggest that such
measures may actually enhance shareholder value by leading to higher
takeover premiums.
The Board agrees with the proponent that the Company will face many
challenges over the longer term in building on its successful record of
delivering shareholder value. The Company believes that a classified Board can
help the Company better meet those challenges by fostering a strong, stable
Board of Directors to guide the implementation of the Company's long-term
strategies of innovation and growth.
The Board believes this proposal is not in the best interests of the
shareholders and urges you to vote AGAINST it.
OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Under Securities and Exchange Commission rules relating to reporting of
changes of beneficial ownership of Company common stock, the following reports
relating to transactions of directors and executive officers of the Company
were not timely filed due to inadvertence: One report relating to a purchase
of stock by Mr. Lay; three reports relating to sales of stock from accounts
held for the benefit of the children of Mr. Robert N. Postlethwait, a Company
executive; and one report relating to two sales of stock incident to the
exercise of an employee stock option by Mr. Alan S. Clark, a Company
executive. Upon discovery, these oversights were promptly corrected.
Other
The Company will pay all expenses in connection with solicitation of
proxies. 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, telefax, mail, or electronic mail. The Company has retained
Georgeson and Co., Inc., to assist in the distribution and solicitation of
proxies. The firm may solicit proxies by personal interview, telephone,
telefax, mail, and electronic mail. It is anticipated that the fee for those
services will not exceed $17,000 plus reimbursement of customary out-of-pocket
expenses.
As of the date of this Proxy Statement, the management of the Company does
not know of any other 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.
By order of the Board of Directors,
Daniel P. Carmichael
Secretary
March 4, 1999
23
Trademarks appearing in this Proxy Statement:
Evista(R) (raloxifene hydrochloride, Lilly)
Gemzar(R) (gemcitabine hydrochloride, Lilly)
Humalog(R) (insulin lispro, Lilly)
Prozac(R) (fluoxetine hydrochloride, Dista)
Zyprexa(R) (olanzapine, Lilly)
EVA(R) is a registered trademark of Stern, Stewart, and Company.
Responsible Care(R) is a registered trademark of the Chemical
Manufacturers Association.
[LOGO]
ELI LILLY AND COMPANY
The undersigned hereby appoints Ms. R. O. Goss and Messrs. C. E. Golden and S.
Taurel, 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 12, 1999 at the Annual Meeting
of Shareholders to be held on April 19, 1999 at 11:00 a.m. (Indianapolis time),
and at any adjournment thereof, with all the powers the undersigned would have
if personally present as indicated on the back of this card.
For participants in The Lilly Employee Savings Plan or in a savings plan of an
affiliated company, this card also provides voting instructions for shares held
for the account of the undersigned. The undersigned hereby directs the Trustee
to vote (in person or in proxy) the number of shares of Eli Lilly and Company
Common Stock credited to the undersigned's account under those plans at the
Annual meeting of Shareholders to be held on April 19, 1999, at 11:00 a.m.
(Indianapolis time), and at any adjournment thereof, as indicated on the back of
this card.
If this card 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 card will be
voted for items 1 and 2, against
items 3 and 4, and in the discretion
of the proxy holders or Trustee,
upon such other matters as may
properly come before the meeting.
------------------------------------
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Mark your votes on the back of this card. SIGNATURE(S) DATE
FOLD AND DETACH HERE
Eli Lilly and Company
NOTICE: 1999 Annual Meeting of Shareholders
The 1999 Annual meeting of Shareholders of Eli Lilly and Company will be
held on Monday, April 19, 1999, at 11:00 a.m. (Indianapolis time), at The
Hilbert Circle Theatre, 45 Monument Circle, Indianapolis, Indiana.
Lilly
Your vote is very important
Please sign, date and return your proxy/voting card above.
Detach and return the card in the envelope provided.
PROXY
The Board of Directors recommends a vote FOR the following items.
(1) Election of Directors, each for a three year term.
A. G. Gilman, K. N. Horn, A. M. Watanabe
FOR [_] all nominees except as listed below
WITHHOLD AUTHORITY [_] To vote for all nominees
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name on the following line. _________________________
(2) Ratification of the appointment by the Board of Directors of Ernst & Young
LLP as principal independent auditors for 1999.
FOR [_] AGAINST [_] ABSTAIN [_]
The Board of Directors recommends a vote AGAINST the following items.
(3) Proposal by shareholders requesting the Company to endorse the CERES
(Coalition for Environmentally Responsible Economies) principles.
FOR [_] AGAINST [_] ABSTAIN [_]
(4) Proposal by a shareholder requesting the Board to take necessary steps to
declassify the Board of Directors.
FOR [_] AGAINST [_] ABSTAIN [_]
This Proxy/voting instruction card is solicited on behalf of the Board of
Directors.
Sign on
reverse side
FOLD AND DETACH HERE
