def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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Filed by the Registrant x |
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Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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o Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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x Definitive Proxy Statement |
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o Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
ELI LILLY AND COMPANY
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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x No fee required. |
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o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11. |
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1) Title of each class of securities to which transaction applies: |
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2) Aggregate number of securities to which transaction applies: |
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): |
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4) Proposed maximum aggregate value of transaction: |
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o Fee paid previously with preliminary materials. |
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o 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. |
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1) Amount Previously Paid: |
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2) Form, Schedule or Registration Statement No.: |
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SEC 1913 (11-01) |
Persons who are to respond to the collection of information
contained in this form are not required to respond unless the form displays a currently valid
OMB control number. |
Notice of 2007 Annual Meeting and Proxy Statement
March 5, 2007
Dear Shareholder:
You are cordially invited to attend our annual meeting of shareholders on Monday, April 16, 2007,
at the Lilly Center Auditorium, Lilly Corporate Center, Indianapolis, Indiana, at 11:00 a.m. EDT.
The notice of meeting and proxy statement that follow describe the business we will consider
at the meeting. Your vote is very important. I urge you to vote by mail, by telephone, or on the
Internet in order to be certain your shares are represented at the meeting, even if you plan to
attend.
Please
note our procedures for admission to the meeting described on page 5.
I look forward to seeing you at the meeting.
Sidney Taurel
Chairman of the Board and Chief Executive Officer
Notice of Annual Meeting of Shareholders
April 16, 2007
The annual meeting of shareholders of Eli Lilly and Company will be held at the Lilly Center
Auditorium, Lilly Corporate Center, Indianapolis, Indiana, on Monday, April 16, 2007, at 11:00 a.m.
EDT for the following purposes:
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to elect four directors of the company to serve three-year terms |
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to ratify the appointment by the audit committee of Ernst & Young LLP as principal
independent auditors for the year 2007 |
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to approve amendments to the articles of incorporation to provide for the annual election of directors |
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to reapprove performance goals for the companys 2002 Lilly Stock Plan |
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to consider and vote on a shareholder proposal requesting that the board of directors
report on the feasibility of extending the companys animal care and use policy to contract laboratories |
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to consider and vote on a shareholder proposal requesting that the board of directors
report on international outsourcing of animal research |
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to consider and vote on a shareholder proposal requesting that the board of
directors establish a policy separating the roles of chairman and chief executive officer |
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to consider and vote on a shareholder proposal requesting that the company amend its
articles of incorporation to allow shareholders to amend the companys bylaws by majority vote |
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to consider and vote on a shareholder proposal requesting that the board of directors
adopt a simple majority vote standard for certain matters other than the election of directors. |
Shareholders of record at the close of business on February 15, 2007, will be entitled to vote
at the meeting and at any adjournment of the meeting.
Attendance at the meeting will be limited to shareholders, those holding proxies from
shareholders, and invited guests from the media and financial community. A page at the back of
this proxy statement contains an admission ticket. If you plan to attend the meeting, please
bring this ticket with you.
This combined proxy statement and annual report to shareholders and the proxy are being mailed
on or about March 5, 2007.
By order of the board of directors,
James B. Lootens
Secretary
March 5, 2007
Indianapolis, Indiana
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General Information
Why did I receive this proxy statement?
The board of directors of Eli Lilly and Company is soliciting proxies to be voted at the annual
meeting of shareholders (the annual meeting) to be held on Monday, April 16, 2007, and at any
adjournment of the annual meeting. When the company asks for your proxy, we must provide you with a
proxy statement that contains certain information specified by law.
What will the shareholders vote on at the annual meeting?
Nine items:
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election of directors |
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ratification of the appointment of principal independent auditors |
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amending the companys articles of incorporation to allow for annual election of directors |
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reapproving performance goals for the companys stock plan |
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a shareholder proposal on extending the companys animal care and use policy to contract laboratories |
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a shareholder proposal on international outsourcing of animal research |
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a shareholder proposal on separating the roles of chairman and chief executive officer |
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a shareholder proposal on amending the companys articles of incorporation |
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a shareholder proposal on adopting a simple majority vote standard for matters other than election of directors. |
Will there be any other items of business on the agenda?
We do not expect any other items of business because the deadline for shareholder proposals and
nominations has already passed. Nonetheless, in case there is an unforeseen need, the accompanying
proxy gives discretionary authority to the persons named on the proxy with respect to any other
matters that might be brought before the meeting. Those persons intend to vote that proxy in
accordance with their best judgment.
Who is entitled to vote?
Shareholders as of the close of business on February 15, 2007 (the record date) may vote at the
annual meeting. You have one vote for each share of common stock you held on the record date,
including shares:
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held directly in your name as the shareholder of record |
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held for you in an account with a broker, bank, or other nominee |
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attributed to your account in the Lilly Employee 401(k) Plan (the 401(k) plan). |
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, 1,134,034,234 shares of company common stock were issued and
outstanding.
How many votes are required for the approval of each item?
There are differing vote requirements for the various proposals.
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The four nominees for director receiving the most votes will be elected. Abstentions and
instructions to withhold authority to vote for one or more of the nominees will result in those nominees receiving fewer
votes but will not count as votes against a nominee. |
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The appointment of principal independent auditors, the management proposal regarding
performance goals, and the shareholder proposals will be approved if the votes cast for the proposal exceed those
cast against the proposal. Abstentions will not be counted either for or against the proposal. |
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The management proposal to amend the articles of incorporation requires the vote of 80
percent of the outstanding shares. For this item, abstentions and broker nonvotes have the same effect as a
vote against the proposal. |
Broker
nonvotes. If your shares are held by a broker, the broker will ask you how you want your
shares to be voted. If you give the broker instructions, your shares will be voted as you direct.
If you do not give instructions, one of two things can happen, depending on the type of proposal.
For the election of directors and the ratification of auditors, the broker may vote your shares in
its discretion. For all other proposals, the broker may not vote your shares at all. When that
happens, it is called a broker nonvote.
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How do I vote by proxy?
If you are a shareholder of record, you may vote your proxy by any one of the following
methods.
By
mail. Sign and date each proxy card you receive and return it in the prepaid envelope. Sign your
name exactly as it appears on the proxy. If you are signing in a representative capacity (for
example, as an attorney-in-fact, executor, administrator, guardian, trustee, or the officer or
agent of a corporation or partnership), please indicate your name and your 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 owners. If you return your signed proxy but do not indicate your voting
preferences, we will vote on your behalf for the election of the nominees for director listed
below, for the ratification of the appointment of the independent auditors, for the management
proposals on amending the articles of incorporation and reap-proving performance goals for the
companys stock plan, and against the shareholder proposals.
Note that if you previously elected to receive these materials electronically, you did not
receive a proxy card. If you wish to vote by mail, rather than by telephone or on the Internet as
discussed below, you may request paper copies of these materials, including a proxy card, by
calling 317-433-5112. Please make sure you give us the control number from the e-mail message that
you received notifying you of the electronic availability of these materials, along with your name
and mailing address.
By
telephone. Shareholders in the United States, Puerto Rico, and Canada may vote by telephone by
following the instructions on the enclosed proxy card or, if you received these materials
electronically, by following the instructions in the e-mail message that notified you of their
availability. Voting by telephone has the same effect as voting by mail. If you vote by telephone,
do not return your proxy card. Telephone voting will be available until 11:59 p.m. EDT April 15,
2007.
By
Internet. You may vote online at www.proxyvote.com. Follow the instructions on the enclosed
proxy card or, if you received these materials electronically, the instructions in the e-mail
message that notified you of their availability. Voting on the Internet has the same effect as
voting by mail. If you vote on the Internet, do not return your proxy card. Internet voting will be
available until 11:59 p.m. EDT April 15, 2007.
You have the right to revoke your proxy at any time before the meeting by (1) notifying the
companys secretary in writing or (2) delivering a later-dated proxy by telephone, on the Internet,
or in writing. If you are a shareholder of record, you may also revoke your proxy by voting in
person at the meeting.
How do I vote shares that are held by my broker?
If you have shares held by a broker or other nominee, you may instruct your broker or other
nominee to vote your shares by following instructions that the broker or nominee provides for you.
Most brokers offer voting by mail, telephone, and on the Internet.
How do I vote in person?
If you are a shareholder of record, you may vote your shares in person at the meeting.
However, we encourage you to vote by proxy card, by telephone, or on the Internet even if you
plan to attend the meeting.
How do I vote my shares in the 401(k) plan?
You may instruct the plan trustee on how to vote your shares in the 401(k) plan by mail, by
telephone, or on the Internet as described above, except that, if you vote by mail, the card that
you use will be a voting instruction card rather than a proxy card.
How many shares in the 401(k) plan can I vote?
You may vote all the shares allocated to your account on the record date. In addition, unless
you decline, your vote will also apply to a proportionate number of other shares held in the 401(k) plan for which voting directions are not received. These undirected shares include:
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shares credited to the accounts of participants who do not return their voting
instructions (except for a small number of shares from a prior stock ownership plan, which can be voted only on the
directions of the participants to whose accounts the shares are credited) |
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shares held in the plan that are not yet credited to individual participants accounts. |
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All participants are named fiduciaries under the terms of the 401(k) plan and under the
Employee Retirement Income Security Act (ERISA) for the limited purpose of voting shares credited
to their accounts and the portion of undirected shares to which their vote applies. Under ERISA,
fiduciaries are required to act prudently in making voting decisions.
If you do not want to have your vote applied to the undirected shares, you should check the
box marked I decline. Otherwise, the trustee will automatically apply your voting preferences to
the undirected shares proportionally with all other participants who elected to have their votes
applied in this manner.
What happens if I do not vote my 401(k) plan shares?
Your shares will be voted by other plan participants who have elected to have their voting
preferences applied proportionally to all shares for which voting instructions are not otherwise
received.
What does it mean if I receive more than one proxy card?
It means that you hold shares in more than one account. To ensure that all your shares are
voted, sign and return each card. Alternatively, if you vote by telephone or on the Internet,
you will need to vote once for each proxy card and voting instruction card you receive.
Who tabulates the votes?
The votes are tabulated by an independent inspector of election, IVS Associates, Inc.
What should I do if I want to attend the annual meeting?
All shareholders as of the record date may attend by presenting the admission ticket that appears
at the end of this proxy statement. Please fill it out and bring it with you to the meeting. The
meeting will be held at the Lilly Center Auditorium. Please use the Lilly Center entrance to the
south of the fountain at the intersection of Delaware and McCarty streets. You will need to pass
through security, including a metal detector. Present your ticket to the usher at the meeting.
Parking will be available on a first-come, first-served basis in the garage indicated on the
map on page 53.
If you have questions about admittance or parking, you may call 317-433-5112.
How do I contact the board of directors?
You can send written communications to one or more members of the board,
addressed to:
Presiding Director, Board of Directors
Eli Lilly and Company
c/o Corporate Secretary
Lilly Corporate Center
Indianapolis, Indiana 46285
All such communications will be forwarded to the relevant director(s), except for
solicitations or other matters unrelated to the company.
How do I submit a shareholder proposal for the 2008 annual meeting?
The companys 2008 annual meeting is scheduled for April 21, 2008. If a shareholder wishes to have
a proposal
considered for inclusion in next years proxy statement, he or she must submit the proposal in
writing so that we receive it by November 6, 2007. Proposals should be addressed to the companys
corporate secretary, Lilly Corporate Center, Indianapolis, Indiana 46285. In addition, the
companys bylaws provide that any shareholder wishing to propose any other business at the annual
meeting must give the company written notice by November 6, 2007. That notice must provide certain
other information as described in the bylaws. Copies of the bylaws are available online at
http://investor.lilly.com/bylaws.cfm.
Does the company offer an opportunity to receive future proxy materials electronically?
Yes. If you are a shareholder of record or a member of the 401(k) plan, you may, if you wish,
receive future proxy statements and annual reports online. If you elect this feature, you will
receive an e-mail message notifying you when the materials are available along with a web address
for viewing the materials and instructions for voting by telephone or on the Internet. If you have
more than one account, you may receive separate e-mail notifications for each account.
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You may sign up for electronic delivery in two ways:
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If you vote online as described above, you may sign up for electronic delivery at that time. |
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You may sign up at any time by visiting http://proxyonline.lilly.com. |
If you received these materials electronically, you do not need to do anything to continue
receiving materials electronically in the future.
If you hold your shares in a brokerage account, you may also have the opportunity to
receive proxy materials electronically. Please follow the instructions of your broker.
What are the benefits of electronic delivery?
Electronic delivery reduces the companys printing and mailing costs. It is also a convenient way
for you to receive your proxy materials and makes it easy to vote your shares online. If you have
shares in more than one account, it is an easy way to avoid receiving duplicate copies of proxy
materials.
What are the costs of electronic delivery?
The company charges nothing for electronic delivery. You may, of course, incur the usual expenses
associated with Internet access, such as telephone charges or charges from your Internet service
provider.
May I change my mind later?
Yes. You may discontinue electronic delivery at any time. For more information, call 317-433-5112.
What is householding?
We have adopted householding, a procedure under which shareholders of record who have the same
address and last name and do not receive proxy materials electronically will receive only one copy
of our annual report and proxy statement unless one or more of these shareholders notifies us that
they wish to continue receiving individual copies. This procedure saves printing and postage costs
by reducing duplicative mailings.
Shareholders who participate in householding will continue to receive separate proxy cards.
Householding will not affect dividend check mailings.
Beneficial shareholders can request information about householding from their banks, brokers,
or other holders of record.
What if I want to receive a separate copy of the annual report and proxy statement?
If you participate in householding and wish to receive a separate copy of the 2006 annual report
and 2007 proxy statement, or if you wish to receive separate copies of future annual reports and
proxy statements, please call us at 317-433-5112 or write to: Householding Department, 51 Mercedes
Way, Edgewood, New York 11717. We will deliver the requested documents to you promptly upon your
request.
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Board of Directors
Directors Biographies
Class of 2007
The following four directors terms will expire at this years annual meeting. Each of these
directors has been nominated and is standing for election to serve another term that will
expire in 2010. See page 41 of this proxy statement for more information.
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Sir Winfried Bischoff |
Age 65 |
Director since 2000
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Chairman, Citigroup Europe |
Sir Winfried Bischoff has served as chairman, Citigroup Europe, since April 2000.
From 1995 to 2000, he was chairman of Schroders, plc. He joined the Schroder
Group in 1966 and held a number of positions there, including chairman of J.
Henry Schroder Co. and group chief executive of Schroders, plc. He is a
nonexecutive director of The McGraw-Hill Companies, Inc., and Land Securities
plc.
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J. Michael Cook |
Age 64 |
Director since 2005
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Retired Chairman and Chief Executive Officer, Deloitte and Touche LLP |
Mr. Cook served as chairman and chief executive officer of Deloitte and Touche LLP from 1989 until
his retirement in 1999. He joined Deloitte, Haskins & Sells in 1964 and served as chairman and
chief executive officer from 1986 through 1989. Mr. Cook is a member of the Advisory Council of the
Public Company Accounting Oversight Board and is a trustee of The Scripps Research Institute. He
serves on the boards of Comcast Corporation and International Flavors & Fragrances Inc. He is
chairman of the Accountability Advisory Council to the Comptroller General of the United States. He
was a member of the National Association of Corporate Directors Blue Ribbon Panel on Corporate
Governance and was named the 62nd member of the Accounting Hall of Fame in 1999. He is past
president of the Institute of Outstanding Directors.
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Franklyn G. Prendergast, M.D., Ph.D. |
Age 61 |
Director since 1995
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Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and Professor of
Molecular Pharmacology and Experimental Therapeutics, Mayo Medical School; Director, Mayo Clinic
Center for Individualized Medicine; and Director Emeritus, Mayo Clinic Cancer Center |
Dr. Prendergast is the Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology
and Professor of Molecular Pharmacology and Experimental Therapeutics at Mayo Medical School and
the director of the Center for Individualized Medicine. He 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 the Mayo Clinic Board of Governors.
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Kathi P. Seifert |
Age 57 |
Director since 1995
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Retired Executive Vice President, Kimberly-Clark Corporation |
Ms. Seifert served as executive vice president for Kimberly-Clark Corporation until June 2004. She
joined Kimberly-Clark in 1978 and served in several capacities in connection with both the domestic
and international consumer products businesses, most recently leading the team that develops and
manages global plans for branding and product positioning, R&D programs, and capital investment for
personal care products. She also oversaw Kimberly-Clarks U.S. and Canadian sales forces. Prior to
joining Kimberly-Clark, Ms. Seifert held management positions at Procter & Gamble, Beatrice Foods,
and Fort Howard Paper Company. She is chair of Pinnacle Perspectives, LLC. Ms. Seifert serves on
the boards of Supervalu Inc.; Revlon Consumer Products Corporation; Lexmark International, Inc.;
Appleton Papers Inc.; the U.S. Fund for UNICEF; and the Fox Cities Performing Arts Center.
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Class of 2008
The following four directors will continue in office until 2008.
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George M.C. Fisher |
Age 66 |
Director since 2000
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Retired Chairman of the Board and Chief Executive Officer, Eastman Kodak Company |
Mr. Fisher served as chairman of the board of Eastman Kodak Company from 1993 to
December 2000. He also served as chief executive officer from 1993 to January
2000 and as president from 1993 until 1996. Prior to joining Kodak, he was an
executive officer of Motorola, Inc., serving as chairman and chief executive
officer from 1990 to October 1993, and president and chief executive officer
from 1988 to 1990. Mr. Fisher is a senior advisor for Kohlberg Kravis Roberts &
Company, and a director of General Motors Corporation and Visant Corporation. He
is a former chairman of PanAmSat Corporation, and was chairman of the National
Academy of Engineering from 2000 to 2004.
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Alfred G. Gilman, M.D., Ph.D. |
Age 65 |
Director since 1995
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Executive Vice President for Academic Affairs and Provost, The University of
Texas Southwestern Medical Center; Dean, The University of Texas Southwestern
Medical School; and Regental Professor of Pharmacology, The University of Texas
Southwestern Medical Center |
Dr. Gilman has served as executive vice president for academic affairs and
provost of The University of Texas Southwestern Medical Center and dean of The
University of Texas Southwestern Medical School since 2005 and professor of
pharmacology at The University of Texas Southwestern Medical Center since 1981.
He holds the Raymond and Ellen Willie Distinguished Chair in Molecular
Neuropharmacology, the Nadine and Tom Craddick Distinguished Chair in Medical
Science, and the Atticus James Gill, M.D. Chair in Medical Science at the
university and was named a regental professor in 1995. Dr. Gilman was on the
faculty of the University of Virginia School of Medicine from 1971 to 1981 and
was named a professor of pharmacology there 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.
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Karen N. Horn, Ph.D. |
Age 63 |
Director since 1987
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Retired President, Private Client Services, and Managing Director, Marsh, Inc. |
Ms. Horn served as president of Private Client Services and managing director of
Marsh, Inc., a subsidiary of MMC, from 1999 until her retirement in 2003. Prior
to joining Marsh, she was senior managing director and head of international
private banking at Bankers Trust Company; chair and chief executive officer of
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. Ms. Horn serves as director of T. Rowe Price Mutual Funds; The U.S.
Russia Investment Fund, a presidential appointment; Simon Property Group, Inc.;
and Fannie Mae. Ms. Horn has been senior managing director of Brock Capital
Group since 2004.
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John C. Lechleiter, Ph.D. |
Age 53 |
Director since 2005
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President and Chief Operating Officer |
Dr. Lechleiter has served as president and chief operating officer of the
company since October
2005. He joined Lilly in 1979 as a senior organic chemist and has held
management positions in England and the U.S. He was named vice president of
pharmaceutical product development in 1993 and vice president of regulatory
affairs in 1994. In 1996, he was named vice president for development and
regulatory affairs. Dr. Lechleiter became senior vice president of
pharmaceutical products in 1998, and executive vice president, pharmaceutical
products and corporate development in 2001. He was named executive vice
president, pharmaceutical operations in 2004. He is a member of the American
Chemical Society. In 2004, Dr. Lechleiter was appointed to the Visiting
Committee of Harvard Business School and to the Health Policy and Management
Executive Council of the Harvard School of Public Health. He also serves as a
member of the Board of Trustees of Xavier University (Cincinnati, Ohio). In
2006, he became a member of the board of directors and executive committee of
the Fairbanks Institute and a member of the United Way of Central Indiana board
of directors. In addition, he serves as a distinguished advisor to The
Childrens Museum of Indianapolis and as a member of the Deans External
Advisory Board at the Indiana University School of Medicine.
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Class of 2009
The following four directors will continue in office until 2009.
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Martin S. Feldstein, Ph.D. |
Age 67 |
Director since 2002
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President and Chief Executive Officer, National Bureau of Economic Research, and George
F. Baker Professor of Economics, Harvard University |
Dr. Feldstein is president and chief executive officer of the National Bureau of
Economic Research and the George F. Baker Professor of Economics at Harvard
University. He became an assistant professor at Harvard in 1967 and an associate
professor in 1968. From 1982 through 1984, he served as chairman of the Council
of Economic Advisers and President Ronald Reagans chief economic adviser. He is
a member of the American Philosophical Society, a corresponding fellow of the
British Academy, a fellow of the Econometric Society, and a fellow of the
National Association for Business Economics. Dr. Feldstein is a member of the
executive committee of the Trilateral Commission and a director of the Council
on Foreign Relations; American International Group, Inc.; and Economic Studies,
Inc. He is a member of the American Academy of Arts and Sciences and past
president of the American Economic Association.
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J. Erik Fyrwald |
Age 47 |
Director since 2005
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Group Vice President, DuPont Agriculture & Nutrition |
Mr. Fyrwald has been group vice president of DuPont Agriculture & Nutrition
since 2003. He was previously vice president and general manager of DuPonts
nutrition and health businesses, which included The Solae Company, DuPont
Qualicon, Liqui-Box, and DuPont Food Industry Solutions. Mr. Fyrwald joined
DuPont in 1981 as a production engineer, and held a variety of sales and
management positions in a number of areas. In 1990, he became the leader of the
DuPont Engineering Polymers and DuPont Butacite® businesses for the Asia
Pacific region, a position he held until 1994. He was named leader of the DuPont
Nylon Plastics business for the Americas until 1996, when he became head of
global sales and marketing for engineering polymers. In 1998, he was appointed
vice president of corporate plans and business development and then vice
president of e-commerce. Mr. Fyrwald serves on the boards of the Biotechnology
Industry Organization (BIO); CropLife International Presidents Advisory Group;
Des Moines Art Center; 8th Continent L.L.C.; and The Solae Company.
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Ellen R. Marram |
Age 60 |
Director since 2002
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President, The Barnegat Group LLC |
Ms. Marram is president of The Barnegat Group LLC, a firm that provides
business advisory services. She was a managing director at North Castle
Partners, LLC from 2000 to 2005 and is currently an advisor to the firm. Prior
to joining North Castle, she served as the chief executive officer of a start-up
B2B exchange for the food and beverage industry. From 1993 through 1998, Ms.
Marram was president and chief executive officer of Tropicana and the Tropicana
Beverage Group. From 1988 to 1993, she was president and chief executive officer
of the Nabisco Biscuit Company, an operating unit of Nabisco, Inc.; from 1987 to
1988, she was president of Nabiscos Grocery Division; and from 1970 to 1986,
she held a series of marketing positions at Nabisco/Standard Brands, Johnson &
Johnson, and Lever Brothers. Ms. Marram is a member of the board of directors of
Ford Motor Company and The New York
Times Company as well as several private companies. She serves on the boards of
The New York-Presbyterian Hospital, Lincoln Center Theater, Families and Work
Institute, and Citymeals-on-Wheels.
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Sidney Taurel |
Age 58 |
Director since 1991
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Chairman of the Board and Chief Executive Officer |
Mr. Taurel has been the companys chief executive officer since July 1998 and chairman of the
board since January 1999. He also served as president from February 1996 through September 2005. He
joined the company in 1971 and has held management positions in the companys international
operations based in São Paulo, Vienna, Paris, and London. Mr. Taurel served as president of Eli
Lilly International Corporation from 1986 to 1991, executive vice president of the pharmaceutical
division from 1991 to 1993, and executive vice president of the company from 1993 to 1996. He is a
member of the boards of IBM Corporation and The McGraw-Hill Companies, Inc. He is also a member of
the executive committee of the board of directors of Pharmaceutical Research and Manufacturers of
America (PhRMA), a member of the board of overseers of the Columbia Business School, a trustee at
the Indianapolis Museum of Art, a director of the RCA Tennis Championships, and a member of The
Business Council and The Business Roundtable. In early 2003, he was appointed to the Presidents
Export Council to provide advice on international trade issues. He is an officer of the French
Legion of Honor.
10
Highlights of the Companys Corporate Governance Guidelines
The board of directors has established guidelines that it follows in matters of corporate
governance. The following summary provides highlights of those guidelines. A complete copy of the
guidelines is available online at http://investor.lilly.com/guidelines.cfm or in paper form upon
request to the companys corporate secretary.
I. Role of the Board
The directors are elected by the shareholders to oversee the actions and results of the
companys management. Their responsibilities include:
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providing general oversight of the business |
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approving corporate strategy |
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approving major management initiatives |
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providing oversight of legal and ethical conduct |
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overseeing the companys management of significant business risks |
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selecting, compensating, and evaluating directors |
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evaluating board processes and performance |
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selecting, compensating, evaluating, and, when necessary, replacing the chief
executive officer, and compensating other executive officers |
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ensuring that a succession plan is in place for all senior executives. |
II. Composition of the Board
Mix of Independent Directors and Officer-Directors
There should always be a substantial majority (75 percent or more) of independent directors. The
chief executive officer should be a board member. Other officers may, from time to time, be
board members, but no officer other than the chief executive officer should expect to be elected
to the board by virtue of his or her office.
Selection of Director Candidates
The board is responsible for selecting candidates for board membership and for establishing the
criteria to be used in identifying potential candidates. The board delegates the screening process
to the directors and corporate governance committee. For more information on the director
nomination process, including the current selection criteria, see Directors and Corporate
Governance Committee Matters on pages 19-20.
Independence Determinations
The board annually determines the independence of directors based on a review by the directors and
corporate governance committee. No director is considered independent unless the board has
determined that he or she has no material relationship with the company, either directly or as a
partner, shareholder, or officer of an organization
that has a material relationship with the company. Material relationships can include commercial,
industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among
others. To evaluate the materiality of any such relationship, the board has adopted categorical
independence standards consistent with the New York Stock Exchange listing guidelines.
Specifically, a director is not considered independent if (i) the director or an immediate
family member is a current partner of Lillys independent auditor (currently Ernst & Young LLP);
(ii) the director is a current employee of such firm; (iii) the director has an immediate family
member who is a current employee of such firm and who participates in the firms audit, assurance,
or tax compliance (but not tax planning) practice; or (iv) the director or immediate family member
was within the last three years (but is no longer) a partner or employee of such firm and
personally worked on the listed companys audit within that time.
In addition, a director is not considered independent if any of the following
relationships existed within the previous three years:
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a director who is an employee of Lilly, or whose immediate family member is an executive
officer of Lilly. |
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Temporary service by an independent director as interim chairman or chief executive officer
will not disqualify
the director from being independent following completion of that service. |
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a director who receives any direct compensation from Lilly other than the
directors normal director compensation, or whose immediate family member receives more than $100,000 per year in
direct compensation from Lilly other than for service as a non-executive employee. |
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a director who is employed (or whose immediate family member is employed as an executive
officer) by another company where any Lilly executive officer serves on that companys compensation committee. |
11
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a director who is employed by, who is a 10 percent shareholder of, or whose immediate family
member is an
executive officer of a company that makes payments to or receives payments from Lilly for
property or services
that exceed the greater of $1 million or 2 percent of that companys gross revenues in a single
fiscal year. |
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a director who is an executive officer of a nonprofit organization that receives grants
or contributions from Lilly in a single fiscal year exceeding the greater of $1 million or 2 percent of that organizations
gross revenues in a single fiscal year. |
Members of the audit, compensation, and directors and corporate governance committees must
meet all applicable independence tests of the New York Stock Exchange, Securities and Exchange
Commission, and Internal Revenue Service.
In February 2007, the directors and corporate governance committee reviewed directors
responses to a questionnaire asking about their relationships with the company (and those of their
immediate family members) and other potential conflicts of interest, as well as material provided
by management related to transactions, relationships, or arrangements between the company and the
directors or parties related to the directors. The committee determined that all 10 non-employee
directors listed below are independent, and that the members of the audit, compensation, and
directors and corporate governance committees also meet the independence tests referenced above.
The committee recommended this conclusion to the board and explained the basis for its decision,
and this conclusion was adopted by the full board. The committee and the board determined that none
of the 10 directors listed below has had during the last three years (i) any of the relationships
listed above or (ii) any other material relationship with the company that would compromise his or
her independence. The table below includes a description of categories or types of transactions,
relationships, or arrangements considered by the board (in addition to those listed above) in
reaching its determination that the directors are independent.
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Name |
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Independent |
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Transactions/Relationships/Arrangements |
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Sir Winfried Bischoff
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Yes
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Commercial banking, capital markets, and indenture trustee relationships between Lilly and various Citigroup
banks immaterial |
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Mr. Cook
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Yes
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None |
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Dr. Feldstein
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Yes
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Lilly grants and contributions to Harvard University and the National Bureau of Economic Research immaterial |
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Mr. Fisher
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Yes
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None |
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Mr. Fyrwald
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Yes
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Lillys
purchase of DuPont chemicals immaterial |
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Dr. Gilman
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Yes
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Lillys grants and contributions to the University of Texas Southwestern Medical Center immaterial |
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Ms. Horn
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Yes
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None |
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Ms. Marram
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Yes
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None |
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Dr. Prendergast
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Yes
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Lilly grants and contributions to Mayo Clinic, Mayo Medical School, and Mayo Foundation immaterial |
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Ms. Seifert
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Yes
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None |
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Director Tenure
Subject to the companys charter documents, the governance guidelines establish the following
expectations for director tenure:
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A company officer-director, including the chief executive officer, will resign from the
board at the time he or she retires or otherwise ceases to be an active employee of the company. |
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Nonemployee directors will retire from the board not later than the annual meeting of
shareholders that follows their seventy-second birthday. |
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Directors may stand for reelection even though the boards retirement policy
would prevent them from completing a full three-year term. |
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A nonemployee director who retires or changes principal job responsibilities will offer
to resign from the board.
The directors and corporate governance committee will assess the situation and recommend to the
board whether to accept the resignation. |
Voting for Directors
In an uncontested election, any nominee for director who receives a greater number of votes
withheld from his or her election than votes for such election (a majority withheld vote)
shall promptly tender his or her resignation following certification of the shareholder vote. The
directors and corporate governance committee will consider the resignation offer and recommend to
the board whether to accept it. The board will act on the committees recommendation within 90 days
following certification of the shareholder vote. Board action on the matter will require the
approval of a majority of the independent directors.
12
The company will disclose the boards decision on a Form 8-K furnished to the Securities
and Exchange Commission within four business days after the decision, including a full explanation
of the process by which the decision was reached and, if applicable, the reasons why the board
rejected the directors resignation. If the resignation is accepted, the directors and corporate
governance committee will recommend to the board whether to fill the vacancy or reduce the size of
the board.
Any director who tenders his or her resignation under this provision will not participate in
the committee or board deliberations regarding whether to accept the resignation offer. If each
member of the directors and corporate governance committee receives a majority withheld vote at the
same election, then the independent directors who did not receive a majority withheld vote will
appoint a committee amongst themselves to consider the resignation offers and recommend to the
board whether to accept them.
III. Director Compensation and Equity Ownership
The directors and corporate governance committee annually reviews board compensation. Any
recommendations for changes are made to the full board by the committee.
Directors should hold meaningful equity ownership positions in the company; accordingly, a
significant portion of overall director compensation is in the form of company equity.
IV. Key Responsibilities of the Board
Selection of Chairman and Chief Executive Officer; Succession Planning
The board customarily combines the roles of chairman and chief executive officer, believing this
generally provides the most efficient and effective leadership model for the company. The board
anticipates that, in certain occasional circumstances, and particularly during relatively short
periods of leadership transition, these roles could be assigned to two different persons for a
period of time. The presiding director recommends to the board an appropriate process by which a
new chairman and chief executive officer will be selected.
The independent directors are responsible for overseeing succession and management development
programs for senior leadership. The chief executive officer develops and maintains a process for
advising the board on succession planning for the chief executive officer and other key leadership
positions. He or she reviews this plan with the independent directors at least annually.
Evaluation of Chief Executive Officer
The presiding director leads the independent directors annually in assessing the performance of the
chief executive officer. The results of this review are discussed with the chief executive officer
and considered by the compensation committee in establishing his or her compensation for the next
year.
Corporate Strategy
Once each year, the board devotes an extended meeting to an update from management regarding the
strategic issues and opportunities facing the company, allowing the board an opportunity to provide
direction for the corporate strategic plan. Throughout the year, significant corporate strategy
decisions are brought to the board for approval.
Code of Ethics
The board approved the companys code of ethics, which complies with the requirements of the New
York Stock
Exchange and Securities and Exchange Commission. This code is set out in:
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The Red Book, a comprehensive code of ethical and legal business conduct
applicable to all employees worldwide and to our board of directors |
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|
the companys Code of Ethical Conduct for Lilly Financial Management, a supplemental code
for our chief executive officer, chief operating officer, and all members of financial management that
recognizes the unique responsibilities of those individuals in assuring proper accounting, financial reporting,
internal controls, and financial stewardship. |
Both documents are available online at http://investor.lilly.com/code_business_conduct.cfm or
in paper form upon request to the companys corporate secretary.
The audit committee and public policy and compliance committee assist in the boards oversight
of compliance programs with respect to matters covered in the code of ethics.
13
V. Functioning of the Board
Executive Session of Directors
The independent directors meet alone in executive session at every regularly scheduled board
meeting. In addition, at least twice a year, the independent directors meet in executive session
with the chief executive officer.
Presiding Director
The board appoints a presiding director from among the independent directors (currently Ms. Horn).
The presiding director:
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leads the boards process for selecting and evaluating the chief executive officer;
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presides at all meetings of the board at which the chairman is not present,
including executive sessions of the independent directors unless the directors decide that, due to the subject matter of
the session, another independent director should preside; |
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serves as a liaison between the chairman and the independent directors; |
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generally approves information sent to the board and meeting agendas and schedules; and |
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has the authority to call meetings of the independent directors. |
Conflicts of Interest
Occasionally a directors business or personal relationships may give rise to an interest that
conflicts, or appears to conflict, with the interests of the company. Directors must disclose to
the company all relationships that create a conflict or an appearance of a conflict. The board,
after consultation with counsel, takes appropriate steps to ensure that all directors voting on an
issue are disinterested. In appropriate cases, the affected director will be excused from
discussions on the issue.
To avoid any conflict or appearance of a conflict, board decisions on certain matters of
corporate governance are made solely by the independent directors. These include executive
compensation and the selection, evaluation, and removal of the chief executive officer.
Review and Approval of Transactions with Related Persons
The board has adopted a policy and procedures for review, approval and monitoring of transactions
involving the company and related persons (directors and executive officers or their immediate
family members, or shareholders owning five percent or greater of the companys outstanding stock).
The policy covers any related person transaction that meets the minimum threshold for disclosure in
the proxy statement under the relevant SEC rules (generally, transactions involving amounts
exceeding $120,000 in which a related person has a direct or indirect material interest).
Policy
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|
Related person transactions must be approved by the board or by a committee of the board
consisting solely of
independent directors, who will approve the transaction only if they determine that it is in
the best interests of the
company. In considering the transaction, the board or committee will consider all relevant
factors, including as
applicable (i) the companys business rationale for entering into the transaction; (ii) the
alternatives to entering
into a related person transaction; (iii) whether the transaction is on terms comparable to
those available to third
parties, or in the case of employment relationships, to employees generally; (iv) the potential
for the transaction
to lead to an actual or apparent conflict of interest and any safeguards imposed to prevent
such actual or apparent conflicts; and (v) the overall fairness of the transaction to the company. |
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The board or relevant committee will periodically monitor the transaction to ensure that
there are no changed circumstances that would render it advisable for the company to amend or terminate the
transaction. |
Procedures
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Management or the affected director or executive officer will bring the matter to the
attention of the chairman, the presiding director, the chair of the directors and corporate governance committee, or the
secretary. |
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|
The chairman and the presiding director shall jointly determine (or if either is
involved in the transaction, the other shall determine in consultation with the chair of the directors and corporate
governance committee) whether the matter should be considered by the board or by one of its existing committees
consisting only of independent directors. |
|
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|
If a director is involved in the transaction, he or she will be recused from all
discussions and decisions about the transaction. |
|
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|
The transaction must be approved in advance whenever practicable, and if not practicable,
must be ratified as promptly as practicable. |
14
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The board or relevant committee will review the transactions annually to determine whether it
continues to be in the companys best interests. |
Currently the only related person transaction is the time-share arrangement for Mr. Taurels
personal use of the corporate aircraft, as described on page 39. The compensation committee
approved and continues to monitor this arrangement consistent with the above policy.
Orientation and Continuing Education
A comprehensive orientation process is in place for new directors. In addition, directors
receive ongoing continuing education through educational sessions at meetings, the annual strategy
retreat, and periodic mailings between meetings. We hold periodic mandatory training sessions for
the audit committee, to which other directors and executive officers are invited. We also afford
directors the opportunity to attend external director education programs.
Director Access to Management and Independent Advisers
Independent directors have direct access to members of management whenever they deem it
necessary. The independent directors and the committees are also free to retain their own
independent advisers, at company expense, whenever they feel it would be desirable to do so. In
accordance with New York Stock Exchange listing standards, the audit, compensation, and directors
and corporate governance committees have sole authority to retain independent advisers to their
respective committees.
Assessment of Board Processes and Performance
The directors and corporate governance committee annually assesses the performance of the
board, its committees, and board processes based on inputs from all directors. The committee also
considers the contributions of individual directors at least every three years when considering
whether to recommend nominating the director to a new three-year term.
VI. Board Committees
Number, Structure, and Independence
The duties and membership of the six board-appointed committees are described below. Only
independent directors may serve on the audit, compensation, directors and corporate governance, and
public policy and compliance committees. Only independent directors may chair any committee.
Committee membership and selection of committee chairs are recommended to the board by the
directors and corporate governance committee after consulting the chairman of the board and after
considering the desires of the board members.
Functioning of Committees
Each committee reviews and approves its own charter annually, and the directors and corporate
governance committee reviews and approves all committee charters annually. The board may form new
committees or disband a
current committee (except the audit, compensation, and directors and corporate governance
committees) as it deems appropriate. The chair of each committee determines the frequency and
agenda of committee meetings. In addition, the audit and compensation committees meet alone in
executive session on a regular basis; all other committees meet in executive session as needed.
All six committee charters are available online
at http://investor.lilly.com/board-committees.cfm or in paper form upon request to the companys
corporate secretary.
15
Committees of the Board of Directors
Audit Committee
The duties
of the audit committee are described in the audit committee report
found on pages 20-21.
Directors and Corporate Governance Committee
The duties
of the directors and corporate governance committee are described on
page 19.
Compensation Committee
The duties
of the compensation committee are described on page 22, and the compensation committee
report is shown on page 30.
Public Policy and Compliance Committee
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|
oversees the processes by which the company conducts its business so that the company
will do so in a manner that complies with laws and regulations and reflects the highest standards of integrity |
|
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|
reviews and makes recommendations regarding policies, practices, and procedures of the
company that relate to public policy and social, political, and economic issues that may affect the company. |
Finance Committee
|
|
|
reviews and makes recommendations regarding capital structure and strategies, including
dividends, stock repurchases, capital expenditures, financings and borrowings, and significant business
development projects. |
Science and Technology Committee
|
|
|
reviews and makes recommendations regarding the companys strategic research goals and objectives |
|
|
|
|
reviews new developments, technologies, and trends in pharmaceutical research and development. |
Membership and Meetings of the Board and Its Committees
In 2006, each director attended more than 90 percent of the total number of meetings of the
board and the committees on which he or she serves. In addition, all board members are expected to
attend the annual meetings of shareholders, and all attended in 2006. Current committee membership
and the number of meetings of the full board and each committee in 2006 are shown in the table
below.
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Directors and |
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|
Public Policy and |
|
|
Science and |
|
|
|
|
|
Board |
|
|
Audit |
|
|
Compensation |
|
|
Corporate Governance |
|
|
Finance |
|
|
Compliance |
|
|
Technology |
|
|
Sir Winfried Bischoff |
|
|
Member |
|
|
|
|
|
|
|
|
Member |
|
|
Member |
|
|
|
|
|
|
|
|
Mr. Cook |
|
|
Member |
|
|
Chair |
|
|
|
|
|
|
|
|
Member |
|
|
|
|
|
|
|
|
Dr. Feldstein |
|
|
Member |
|
|
Member |
|
|
|
|
|
|
|
|
Chair |
|
|
Member |
|
|
|
|
|
Mr. Fisher |
|
|
Member |
|
|
|
|
|
Member |
|
|
Chair |
|
|
|
|
|
|
|
|
Member |
|
|
Mr. Fyrwald |
|
|
Member |
|
|
|
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
Member |
|
|
Dr. Gilman |
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member |
|
|
Chair |
|
|
Mr. Golden1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Horn |
|
|
Member |
|
|
|
|
|
Chair |
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
Dr. Lechleiter |
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Member |
|
|
Ms. Marram |
|
|
Member |
|
|
|
|
|
Member |
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
Dr. Prendergast |
|
|
Member |
|
|
Member |
|
|
|
|
|
|
|
|
|
|
|
Member |
|
|
Member |
|
|
Ms. Seifert |
|
|
Member |
|
|
Member |
|
|
|
|
|
|
|
|
Member |
|
|
Chair |
|
|
|
|
|
Mr. Taurel |
|
|
Chair |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Number of 2006 Meetings |
|
|
7 |
|
|
10 |
|
|
5 |
|
|
4 |
|
|
2 |
|
|
4 |
|
|
3 |
|
|
|
|
|
1 |
|
Mr. Golden retired from the board of directors as of April 24, 2006. |
16
Directors Compensation
Directors who are employees receive no additional compensation for serving on the board or
its committees. In 2006, we provided the following annual compensation to directors who are not
employees:
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|
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|
|
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|
|
Fees Earned |
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
or Paid in Cash |
|
Stock Awards |
|
Stock Option Awards |
|
Compensation |
|
|
Total |
|
|
Name |
|
($)1 |
|
($)2 |
|
($)3 |
|
($)4 |
|
|
($)5 |
|
|
Sir Winfried Bischoff |
|
$ |
97,000 |
|
$ |
139,228 |
|
$ |
27,647 |
|
$ |
18,823 |
6 |
|
$ |
282,698 |
|
|
|
Mr. Cook |
|
$ |
108,000 |
|
$ |
139,228 |
|
|
0 |
|
|
0 |
|
|
$ |
247,228 |
|
|
|
Dr. Feldstein |
|
$ |
103,000 |
|
$ |
139,228 |
|
$ |
27,647 |
|
|
0 |
|
|
$ |
269,875 |
|
|
|
Mr. Fisher |
|
$ |
102,000 |
|
$ |
139,228 |
|
$ |
27,647 |
|
$ |
663 |
|
|
$ |
269,538 |
|
|
|
Mr. Fyrwald |
|
$ |
91,000 |
|
$ |
139,228 |
|
|
0 |
|
$ |
641 |
|
|
$ |
230,869 |
|
|
|
Dr. Gilman |
|
$ |
96,000 |
|
$ |
139,228 |
|
$ |
27,647 |
|
$ |
1,253 |
|
|
$ |
264,128 |
|
|
|
Ms. Horn |
|
$ |
122,000 |
|
$ |
139,228 |
|
$ |
27,647 |
|
$ |
1,044 |
|
|
$ |
289,919 |
|
|
|
Ms. Marram |
|
$ |
92,000 |
|
$ |
139,228 |
|
$ |
27,647 |
|
$ |
743 |
|
|
$ |
259,618 |
|
|
|
Dr. Prendergast |
|
$ |
102,000 |
|
$ |
139,228 |
|
$ |
27,647 |
|
|
0 |
|
|
$ |
268,875 |
|
|
|
Ms. Seifert |
|
$ |
109,000 |
|
$ |
139,228 |
|
$ |
27,647 |
|
|
0 |
|
|
$ |
275,875 |
|
|
|
|
|
|
1 |
|
The following directors deferred 2006 cash compensation into their deferred share
account under the Lilly Directors Deferral Plan (further described below): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
2006 Cash Deferred |
|
|
|
Shares |
|
Mr. Cook |
|
|
|
$108,000 |
|
|
|
|
1,971 |
|
Mr. Fisher |
|
|
|
$ 51,000 |
|
|
|
|
|
|
926 |
|
|
|
|
2 |
|
Each nonemployee director received an award of stock with a grant date fair value
of $145,000 (2,672 shares). This stock award and all prior stock awards are fully vested in that they are not subject to forfeiture;
however the shares are not issued until the director ends his or her service on the board, as further described below
under Lilly Directors Deferral Plan. The table shows the expense recognized by the company for each directors
stock award. |
|
3 |
|
No stock options were granted in 2006, as the stock option program for directors was
discontinued in 2005.
The amounts in this column reflect the expenses related to options granted in 2003 and 2004
recognized in our 2006 financial statements. Aggregate total numbers of stock option awards outstanding are shown
below. All outstanding options were vested as of February 17, 2007. Stock option grants were established using
the same procedure for timing and price as is used for employees. Please see the description under Equity
Incentives Stock Options Grant
Timing and Price on page 27. |
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
|
|
Name |
|
|
Grant Date |
|
|
|
Expiration Date |
|
|
|
Exercise Price |
|
|
|
(Exercisable) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sir Winfried Bischoff |
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Cook |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Feldstein |
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Fisher |
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Fyrwald |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Gilman |
|
|
|
4/20/2000 |
|
|
|
|
4/19/2010 |
|
|
|
$ |
75.94 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Horn |
|
|
|
4/20/2000 |
|
|
|
|
4/19/2010 |
|
|
|
$ |
75.94 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Marram |
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Prendergast |
|
|
|
4/20/2000 |
|
|
|
|
4/19/2010 |
|
|
|
$ |
75.94 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ms. Seifert |
|
|
|
4/20/2000 |
|
|
|
|
4/19/2010 |
|
|
|
$ |
75.94 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/20/2001 |
|
|
|
|
2/18/2011 |
|
|
|
$ |
73.98 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/19/2002 |
|
|
|
|
2/17/2012 |
|
|
|
$ |
75.92 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/18/2003 |
|
|
|
|
2/18/2013 |
|
|
|
$ |
57.85 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
2/17/2004 |
|
|
|
|
2/17/2014 |
|
|
|
$ |
73.11 |
|
|
|
|
2,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
For all directors other than Sir Winfried Bischoff, these amounts consist of
tax reimbursements for income imputed to him or her for use of the corporate aircraft, or
commercial flights, by his or her spouse to attend board functions that included spouse
participation. |
|
5 |
|
Directors do not participate in a Lilly pension plan or non-equity incentive plan. |
|
6 |
|
This amount includes expenses for Sir Winfried Bischoffs spouse to travel to and
participate in board functions that included spouse participation. |
Cash Compensation
The company provides directors the following cash compensation:
|
|
|
retainer of $80,000 per year (payable monthly) |
|
|
|
|
$1,000 for each committee meeting attended |
|
|
|
|
$2,000 to the committee chairpersons for each committee meeting conducted as
compensation for the chairpersons preparation time |
|
|
|
|
retainer of $20,000 per year to the presiding director |
|
|
|
|
reimbursement for customary and usual travel expenses. |
Stock Compensation
Stock compensation for directors consists of:
|
|
|
Shares of Lilly stock equaling $145,000, deposited annually in a deferred stock account
in the Lilly Directors Deferral Plan (as described below), payable after service on the board has ended. |
Lilly Directors Deferral Plan
This plan allows directors to defer receipt of all or part of their retainer and meeting fees
until after their service on the board has ended. Each director can choose to invest the funds
in either of two accounts:
|
|
|
Deferred Share Account. This account allows the director, in effect, to invest his or her
deferred cash
compensation in Lilly stock. In addition, the annual award of shares to each director noted
above (2,672 shares |
18
|
|
|
in 2006) is credited to this account on a pre-set annual date. Funds in this account are
credited as hypothetical shares of Lilly stock based on the market price of the stock at the
time the compensation would otherwise have been earned. Hypothetical dividends are reinvested
in additional shares based on the market price of the stock on the date dividends are paid. All
shares in the deferred share accounts are hypothetical and are not issued or transferred until
the director ends his or her service on the board. |
|
|
|
|
Deferred Compensation Account. Funds in this account earn interest each year at a rate of
120 percent of the applicable federal long-term rate, compounded monthly, as established the
preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal
Revenue Code. The rate for 2007 is 5.7 percent. The aggregate amount of interest that
accrued in 2006 for the participating directors was $182,102, at a rate of 5.6 percent. |
Both accounts may be paid in a lump sum or in annual installments for up to 10 years. Amounts
in the deferred share account are paid in shares of Lilly stock.
Lilly Matching Gift Program
Directors are eligible to participate in the Eli Lilly and Company Foundation, Inc. matching gift
program, which is generally available to U.S. employees. Under this program, the foundation matches
100 percent of charitable donations over $25 made to eligible charities up to a maximum of $90,000
per year for each individual. These limits apply to active employees and directors.
Directors and Corporate Governance Committee Matters
Overview
The directors and corporate governance committee recommends candidates for membership on the board
and board committees. The committee also oversees matters of corporate governance, director
independence, director compensation, and board performance. The committees charter is available
online at http://investor.lilly.com/board-committees.cfm or in paper form upon request to the
companys corporate secretary.
All committee members are independent as defined in the New York Stock Exchange listing
requirements.
Director Nomination Process
The board seeks independent directors who represent a mix of backgrounds and experiences that will
enhance the quality of the boards deliberations and decisions. Candidates shall have substantial
experience with one or more publicly traded national or multinational companies or shall have
achieved a high level of distinction in their chosen fields.
Board membership should reflect
diversity in its broadest sense, including persons diverse in geography, gender, and ethnicity. The
board is particularly interested in maintaining a mix that includes the following backgrounds:
|
|
|
active or retired chief executive officers and senior executives, particularly those with
experience in operations, finance or banking, and marketing or sales |
|
|
|
|
international business |
|
|
|
|
medicine and science |
|
|
|
|
government and public policy |
|
|
|
|
information technology. |
The board delegates the screening process to the directors and corporate governance committee,
which receives direct input from other board members. Potential candidates are identified by
recommendations from several sources, including:
|
|
|
incumbent directors |
|
|
|
|
management |
|
|
|
|
shareholders |
|
|
|
|
an independent executive search firm retained by the committee to assist in locating
candidates meeting the boards selection criteria. |
The committee employs the same process for evaluating all candidates, including those
submitted by shareholders. The committee initially evaluates the candidate based on publicly
available information and any additional information supplied by the party recommending the
candidate. If the candidate appears to satisfy the selection criteria and the committees initial
evaluation is favorable, the committee, assisted by management, gathers additional data on the
candidates qualifications, availability, probable level of interest, and any potential conflicts
of interest. If
19
the committees subsequent evaluation continues to be favorable, the candidate is contacted by the
chairman of the board and one or more of the independent directors for direct discussions to
determine the mutual levels of interest in pursuing the candidacy. If these discussions are
favorable, the committee makes a final recommendation to the board to nominate the candidate for
election by the shareholders (or to select the candidate to fill a vacancy, as applicable).
Process for Submitting Recommendations and Nominations
A shareholder who wishes to recommend a director candidate for evaluation by the committee pursuant
to this process should forward the candidates name and information about the candidates
qualifications to the chairman of the directors and corporate governance committee, in care of the
corporate secretary, at Lilly Corporate Center, Indianapolis, Indiana 46285. The candidate must
meet the selection criteria described above and must be willing and expressly interested in serving
on the board.
Under Section 1.9 of the companys bylaws, a shareholder who wishes to directly nominate a
director candidate at the 2008 annual meeting (i.e., to propose a candidate for election who is not
otherwise nominated by the board through the recommendation process described above) must give the
company written notice by November 6, 2007. The notice should be addressed to the corporate
secretary at Lilly Corporate Center, Indianapolis, Indiana 46285. The notice must contain
prescribed information about the candidate and about the shareholder proposing the candidate as
described in more detail in Section 1.9 of the bylaws. A copy of the bylaws is available online at
http://investor.lilly.com/bylaws.cfm. The bylaws will also be provided by mail without charge upon
request to the corporate secretary.
Audit Committee Matters
Audit Committee Membership
All members of the audit committee are independent as defined in the New York Stock Exchange
listing standards applicable to audit committee members. The board of directors has determined that
Mr. J. Michael Cook is an audit committee financial expert as defined in the rules of the
Securities and Exchange Commission.
Audit Committee Report
The audit committee (we or the committee) reviews the companys financial reporting process on
behalf of the board. Management has the primary responsibility for the financial statements and the
reporting process, including the systems of internal controls and disclosure controls. In this
context, we have met and held discussions with management and the independent auditors. Management
represented to us that the companys consolidated financial statements were prepared in accordance
with generally accepted accounting principles, and we have reviewed and discussed the audited
financial statements and related disclosures with management and the independent auditors,
including a review of the significant management judgments underlying the financial statements and
disclosures.
The independent auditors report to us. We have sole authority to appoint (subject to
shareholder ratification) and to terminate the engagement of the independent auditors.
We have discussed with the independent auditors matters required to be discussed by Statement
on Auditing Standards No. 61 (Communication with Audit Committees), including the quality, not just
the acceptability, of the accounting principles, the reasonableness of significant judgments, and
the clarity of the disclosures in the financial statements. In addition, we have received the
written disclosures and the letter from the independent auditors required by the Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and have discussed
with the independent auditors the auditors independence from the company and its management. In
concluding that the auditors are independent, we determined, among other things, that the
nonaudit services provided by Ernst & Young LLP (as described below) were compatible with their
independence. Consistent with the requirements of the Sarbanes-Oxley Act of 2002, we have adopted
policies to avoid compromising the independence of the independent auditors, such as prior
committee approval of nonaudit services and required audit partner rotation.
We discussed with the companys internal and independent auditors the overall scope and plans
for their respective audits including internal control testing under Section 404 of the
Sarbanes-Oxley Act. We periodically meet with the internal and independent auditors, with and
without management present, and in private sessions with members of senior management (such as the
chief financial officer, the chief accounting officer, and the general auditor) to discuss the
results of their examinations, their evaluations of the companys internal controls, and the
overall quality of the companys financial reporting. We also periodically meet in executive
session.
In reliance on the reviews and discussions referred to above, we recommended to the board (and
the board subsequently approved the recommendation) that the audited financial statements be
included in the companys
20
annual report on Form 10-K for the year ended December 31, 2006, for filing with the Securities
and Exchange Commission. We have also appointed the companys independent auditors, subject to
shareholder ratification, for 2007.
Audit Committee
J. Michael Cook, Chair
Martin S. Feldstein, Ph.D.
Franklyn G. Prendergast, M.D., Ph.D.
Kathi P. Seifert
Services Performed by the Independent Auditor
The audit committee preapproves all services performed by the independent auditor, in part to
assess whether the provision of such services might impair the auditors independence. The
committees policy and procedures are as follows:
|
|
|
The committee approves the annual audit services engagement and, if necessary, any
changes in terms,
conditions, and fees resulting from changes in audit scope, company structure, or other
matters. The committee
may also preapprove other audit services, which are those services that only the independent
auditor reasonably
can provide. Since 2004, audit services have included internal controls attestation work under
Section 404 of the
Sarbanes-Oxley Act. |
|
|
|
|
Audit-related services are assurance and related services that are reasonably related to
the performance of the
audit, and that are traditionally performed by the independent auditor. The committee believes
that the provision
of these services does not impair the independence of the auditor. |
|
|
|
|
Tax services. The committee believes that, in appropriate cases, the independent
auditor can provide tax
compliance services, tax planning, and tax advice without impairing the auditors
independence. |
|
|
|
|
The committee may approve other services to be provided by the independent auditor if (i)
the services are permissible under SEC and Public Company Accounting Oversight Board rules, (ii) the committee
believes the
provision of the services would not impair the independence of the auditor, and (iii)
management believes that
the auditor is the best choice to provide the service. |
|
|
|
|
Process. At the beginning of each audit year, management requests prior committee
approval of the annual
audit, statutory audits, and quarterly reviews for the upcoming audit year as well as any other
engagements
known at that time. Management will also present at that time an estimate of all fees for the
upcoming audit
year. As specific engagements are identified thereafter, they are brought forward to the
committee for approval.
To the extent approvals are required between regularly scheduled committee meetings,
preapproval authority is
delegated to the committee chair. |
For each engagement, management provides the committee with information about the services
and fees sufficiently detailed to allow the committee to make an informed judgment about the
nature and scope of the services and the potential for the services to impair the independence of
the auditor.
After the end of the audit year, management provides the committee with a summary of the
actual fees incurred for the completed audit year.
Independent Auditor Fees
The following table shows the fees incurred for services rendered on a worldwide basis by Ernst &
Young LLP, the companys independent auditor, in 2006 and 2005. All such services were
preapproved by the committee in accordance with the preapproval policy.
|
|
|
|
|
|
|
|
|
|
|
2006 (millions) |
|
|
2005 (millions) |
|
|
Audit Fees |
|
|
|
|
|
|
|
|
Annual audit of consolidated and subsidiary financial statements, including Sarbanes-Oxley 404 attestation |
|
|
|
|
|
|
|
|
Reviews of quarterly financial statements |
|
|
|
|
|
|
|
|
Other services normally provided by the auditor in connection with statutory and regulatory filings |
|
|
$5.8 |
|
|
|
$5.8 |
|
|
Audit-Related Fees |
|
|
|
|
|
|
|
|
Assurance and related services reasonably related to the performance of the audit or reviews of the financial statements |
|
|
|
|
|
|
|
|
2006 and 2005: primarily related to employee benefit plan and other ancillary audits, and accounting consultations |
|
|
$0.4 |
|
|
|
$1.0 |
|
|
Tax Fees |
|
|
|
|
|
|
|
|
2006: primarily related to compliance services outside the U.S. |
|
|
|
|
|
|
|
|
2005: primarily related to tax planning and various compliance services |
|
|
$1.5 |
|
|
|
$1.8 |
|
|
All Other Fees |
|
|
|
|
|
|
|
|
2006: primarily related to compliance services outside the U.S. |
|
|
|
|
|
|
|
|
2005: primarily related to upgrading and maintaining on-line training programs |
|
|
$0.1 |
|
|
|
$0.1 |
|
|
Total |
|
|
$7.8 |
|
|
|
$8.7 |
|
|
21
Compensation Committee Matters
Scope of Authority
The compensation committee acts on behalf of the board of directors and by extension the
shareholders to establish the compensation of executive officers of the company and provides
oversight of the companys global compensation philosophy. The committee also acts as the oversight
committee with respect to the companys deferred compensation plans, management stock plans, and
bonus plans covering executive officers and other senior management. In overseeing those plans, the
committee may delegate authority for day-to-day administration and interpretation of the plan,
including selection of participants, determination of award levels within plan parameters, and
approval of award documents, to officers of the company. However, the committee may not delegate
any authority under those plans for matters affecting the compensation and benefits of the
executive officers.
The Committees Processes and Procedures
The committees primary processes for establishing and overseeing executive compensation can be
found in the Compensation Discussion and Analysis section under The Committees Processes on
page 23. Additional processes and procedures include:
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Meetings. The committee meets several times each year (5 times in 2006). Committee
agendas are established
in consultation with the committee chair and the committees independent compensation
consultant. The
committee meets in executive session following each regular meeting. |
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Role of Independent Consultant. The committee has retained Frederic W. Cook and his firm,
Frederic W. Cook & Co.,
as its independent compensation consultant to assist the committee in evaluating executive
compensation programs
and in setting executive officers compensation. The use of an independent consultant provides
additional assurance
that the companys executive compensation programs are reasonable and consistent with company
objectives. The
consultant reports directly to the committee and does not perform any services for management.
The consultant
regularly participates in committee meetings and advises the committee with respect to
compensation trends and
best practices, plan design, and the reasonableness of individual compensation awards. In
addition, with respect to
the chief executive officer, the consultant prepares the specific compensation recommendations
for the committees
consideration; the CEO does not participate in the development of the recommendations and has
no knowledge of
the recommendations when they are presented to the committee. |
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Role of Executive Officers and Management. With the oversight of the CEO, chief operating
officer, and the senior
vice president of human resources, the companys global compensation group formulates
recommendations on
matters of compensation philosophy, plan design, and the specific compensation recommendations
for executive
officers (other than the CEO as noted above). The CEO gives the committee a performance
assessment and
compensation recommendation for each of the other named executive officers. Those
recommendations are
then considered by the committee with the assistance of its compensation consultant. The CEO
and the senior
vice president of human resources generally attend committee meetings but are not present for
the executive
sessions or for any discussion of their own compensation. |
Directors compensation is established by the board of directors upon the recommendation of
the directors and corporate governance committee.
Compensation Committee Interlocks and Insider Participation
None of the compensation committee members
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has ever been an officer or employee of the company |
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is or was a participant in a related person
transaction in 2006 (see pages 14-15 for a description of our policy
on related person transactions) |
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is an executive officer of another entity, at which one of our executive officers serves on the
board of directors. |
Executive Compensation
Compensation Discussion and Analysis
Executive Compensation Policy
As a research-based pharmaceutical company, our long-term success depends on our ability to
discover, develop, and market a stream of innovative medicines that address important medical
needs. In addition, the intense global
22
pressures on health care costs require us to continually improve productivity in all that we
do. To achieve these goals, it is critical that we be able to attract, motivate, and retain highly
talented individuals at all levels of the organization who are committed to the companys core
values of excellence, integrity, and respect for people.
The compensation committee bases its executive compensation programs on the same objectives
that guide the company in establishing all its compensation programs:
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Compensation should be based on the level of job responsibility, individual performance,
and company
performance. As employees progress to higher levels in the organization, an increasing
proportion of their pay
should be linked to company performance and shareholder returns, because they are more able to
affect the
companys results. |
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Compensation should reflect the value of the job in the marketplace. To attract and
retain a highly skilled work
force, we must remain competitive with the pay of other premier employers who compete with us
for talent. |
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Compensation should reward performance. Our programs should deliver top-tier compensation
given top-tier
individual and company performance; likewise, where individual performance falls short of
expectations and/or
company performance lags the industry, the programs should deliver lower-tier compensation. In
addition, the
objectives of pay-for-performance and retention must be balanced. Even in periods of temporary
downturns in
company performance, the programs should continue to ensure that successful, high-achieving
employees will
remain motivated and committed to Lilly. |
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Compensation should foster the long-term focus required for success in the pharmaceutical
industry. While
all employees receive a mix of both annual and longer-term incentives, employees at higher
levels have an
increasing proportion of their compensation tied to longer-term performance because they are in
a position to
have greater influence on longer-term results. |
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To be effective, performance-based compensation programs should enable employees to
easily understand how
their efforts can affect their pay, both directly through individual performance
accomplishments and indirectly
through contributing to the companys achievement of its strategic and operational goals. No
matter how elegant
a performance measure may be in theory, if in practice employees cannot easily understand how
it works or how
it relates to their daily jobs, it will not be an effective motivator. |
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Compensation and benefit programs should be egalitarian. While the programs and
individual pay levels will
always reflect differences in job responsibilities, geographies, and marketplace
considerations, the overall
structure of compensation and benefit programs should be broadly similar across the
organization. Perquisites
for executives should be rare and limited to those that are important to the executives
ability to safely and
effectively carry out his or her responsibilities. |
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Compensation and benefit programs should attract employees who are interested in a career
at Lilly. The
companys nationally recognized benefit programs provide a competitive advantage by helping the
company
attract and retain highly talented employees who are looking for the opportunity to build a
career. These
programs include a strong retirement program, flexible health care coverage options for active
employees and
retirees, and leading-edge work/life programs to help employees manage the sometimes
conflicting demands of
career and family. |
The Committees Processes
The compensation committee has established a number of processes to assist it in ensuring that the
companys executive compensation program is achieving its objectives. Among those are:
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Assessment of Company Performance. The committee uses company performance measures in two
ways. First,
in establishing total compensation ranges, the committee considers various measures of company
and industry
performance, including sales, earnings per share, return on assets, return on equity, and total
shareholder
return. The committee does not apply a formula or assign these performance measures relative
weights.
Instead, it makes a subjective determination after considering such measures collectively.
Second, as described
in more detail below, the committee has established specific company performance measures that
determine
the size of payouts under the companys three formula-based
incentive programs the Eli Lilly
and Company Bonus Plan, the performance award program and, beginning in 2007, the shareholder value award
which replaces the stock option program (the shareholder value award
is discussed on pages 29-30.) |
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Assessment of Individual Performance. Individual performance has a strong impact on the
compensation of
all employees, including the CEO and the other executive officers. With respect to the CEO, the
independent
directors, under the direction of the presiding director, meet with the CEO in executive
session annually at the
beginning of the year to agree upon the CEOs performance objectives (both individual and
company objectives)
for the year. At the end of the year, the independent directors meet in executive session under
the direction
of the presiding director to conduct a performance review of the CEO based on his or her
achievement of the |
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agreed-upon objectives, contribution to the companys performance, and other leadership
accomplishments. This evaluation is shared with the CEO by the presiding director and is
provided to the compensation committee for its consideration in setting the CEOs compensation. |
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For the other named executive officers, the committee receives a performance assessment
and compensation recommendation from the CEO and also exercises its judgment based on the
boards interactions with the executive officer. As with the CEO, the performance evaluation of
these executives is based on achievement of pre-agreed objectives by the executive and his or
her organization, his or her contribution to the companys performance, and other leadership
accomplishments. |
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Benchmarking. The committee benchmarks the companys programs with a peer group of global
pharmaceutical
companies. Pharmaceutical companies needs for scientific and sales/marketing talent are unique
to the
industry and as such, Lilly must compete with these companies for talent: Abbott Laboratories;
Amgen; Bristol-Myers Squibb Company; GlaxoSmithKline; Johnson & Johnson; Merck & Co.; Pfizer, Inc.;
Schering-Plough
Corporation; and Wyeth Laboratories. The committee compares the companies executive
compensation
programs as a whole, and also compares the pay of individual executives if the jobs are
sufficiently similar
to make the comparison meaningful. The committee uses the peer group data primarily to ensure
that the executive compensation program as a whole is competitive, meaning generally within the
broad middle range of comparative pay of the peer group companies when the company achieves the
targeted performance levels. The individuals relative position is driven by individual and
company performance. |
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Total Compensation Review. The committee reviews each executives base pay, bonus, and
equity incentives
annually with the guidance of the committees independent consultant. In addition to these
primary
compensation elements, the committee reviews the deferred compensation program, perquisites and
other
compensation, and payments that would be required under various severance and change-in-control
scenarios.
Following the 2006 review, the committee determined that these elements of compensation were
reasonable in
the aggregate. In response to evolving corporate governance trends, the committee recommended
to the board,
and it approved, amendments to the change-in-control severance pay programs in 2006 to reduce
the severance
benefit for executive officers from three times to two times annual base salary plus bonus.
This change aligns
the executive officers benefit with that of all other executives. See Severance Benefits on
pages 28-29. |
Components of Executive Compensation for 2006
For 2006, the compensation of executives consisted of the same four primary components as were
provided to other levels of management base salary, a cash incentive bonus award under the Eli
Lilly and Company Bonus Plan, equity grants of a performance award (a performance-based stock
incentive award under the 2002 Lilly Stock Plan) and stock options, and a benefits package. The
committee believes that this program balances both the mix of cash and equity compensation, the mix
of currently-paid and longer-term compensation, and the security of foundational benefits in a way
that furthers the compensation objectives discussed above. Following is a discussion of the
committees considerations in establishing each of the components for the executive officers.
Base Salary
Base salary is the guaranteed element of employees annual cash compensation. The value of base
salary reflects the employees long-term performance, skill set and the market value of that skill
set. In setting base salaries for 2006, the committee considered the following factors:
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The corporate merit budget, meaning the companys overall budget for base salary
increases. The aggregate
increases for the executive officers were within the corporate merit budget. The corporate
merit budget was
established based on company performance for 2005, planned performance for 2006, and peer group
data. The
objective of the merit budget is to allow salary increases to retain and motivate successful
performers while
maintaining affordability within the companys business plan. |
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Internal relativity, meaning the relative pay differences for different job levels. |
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Individual performance. As described above under The Committees Processes, base
salary increases were
driven by individual performance assessments. |
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In establishing Mr. Taurels base salary for 2006, the committee applied the principles
described above under The Committees Processes. In an executive session including all
independent directors, the committee assessed Mr. Taurels 2005 performance. They considered
the companys and Mr. Taurels accomplishment of objectives that had been established at the
beginning of the year and its own subjective assessment of his performance. They noted that
under Mr. Taurels leadership, in 2005 the company achieved 6 percent sales growth, with strong
growth of several recently launched products offsetting declines in Zyprexa and Strattera
sales. The companys successful implementation of Six Sigma exceeded objectives in its first
year, |
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as did other productivity initiatives. Through strict headcount control, the company was able
to reduce its headcount through attrition by nearly 2,000 employees. Improved productivity led
to a 9 percent increase in reported earnings per share and an 11 percent increase in adjusted
earnings per share. The company also made significant strides in brand equity and customer
satisfaction, compliance and enterprise risk management, and diversity. In recognition of his
continued strong leadership in 2005, the committee increased Mr. Taurels annual salary by 4.4
percent effective March 2006. |
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The committee reviewed similar considerations for each of the other named executives. In
addition, with regard to Dr. Lechleiters performance, the committee considered his leadership
in increasing the productivity of the sales and marketing, manufacturing, and other operational
functional areas of the company. The committee had increased Dr. Lechleiters annual salary by
18 percent in recognition of his promotion to president and chief operating officer in October
2005, and therefore did not increase his annual salary in 2006. |
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With regard to Dr. Pauls performance, the committee gave particular weight to his
leadership of the companys research and development efforts, noting that Lilly Research
Laboratories improved productivity in all phases of discovery and development, increasing the
number and success of early phase candidates, and more quickly identifying compounds likely to
be unsuccessful. The committee increased Dr. Pauls annual salary by 4 percent effective March
2006. |
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In establishing Mr. Armitages annual salary (an 8 percent increase), the committee noted
his leadership in implementing successful litigation strategies, enhancing the companys
compliance programs, and improving productivity within the law division. |
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Mr. Rices base salary was raised upon his promotion to chief financial officer in May
2006. |
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Peer group data specific to the executives position, where applicable. As noted above,
we used the peer group
data to test for reasonableness and competitiveness of base salaries, but we also exercised
subjective judgment
in view of our compensation objectives. |
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Consideration of the mix of overall compensation. Consistent with our compensation
objectives, as employees
progress to higher levels in the organization, a greater proportion of overall compensation is
directly linked to
company performance and shareholder returns. Thus, for example, Mr. Taurels overall
compensation is more
heavily weighted toward incentive compensation and equity compensation than that of the other
executive officers. |
Cash Incentive Bonuses
The company has established an annual cash bonus program in order to align employees goals
with the companys sales and earnings growth objectives for the current year. Cash incentive
bonuses for all management employees worldwide, as well as all non-management employees in the U.S.
other than sales representatives, were determined under the Eli Lilly and Company Bonus Plan, a
shareholder-approved formula-based incentive plan adopted in 2004. The bonuses paid for 2006 appear
in the Summary Compensation Table under the Non-equity Incentive Plan Compensation column. Under
the plan, bonus target amounts, expressed as a percentage of base salary, are established for
participants at the beginning of each year. Bonus payouts for the year are then determined by the
companys financial results for the year relative to predetermined performance measures.
Satisfactory individual performance is a condition to payment. At the end of the performance
period, the committee has discretion to adjust an award payout downward, but not upward, from the
amount yielded by the formula. The committee considered the following when establishing the awards
for 2006:
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Bonus Targets. Bonus targets were based on job responsibilities, internal relativity, and
peer group data. Our
objective was to set bonus targets such that total annual cash compensation was within the
broad middle range
of peer group companies and a substantial portion of that compensation was linked to company
performance.
Consistent with our executive compensation policy, individuals with greater job
responsibilities had a greater
proportion of their total cash compensation tied to company performance through the bonus plan.
Thus, the
committee established the following bonus targets for 2006 (expressed as a percentage of base
salary): Mr.
Taurel, 125 percent; Dr. Lechleiter, 100 percent; Dr. Paul, 85 percent; Mr. Golden, 85 percent;
Mr. Rice, 75
percent; and Mr. Armitage, 75 percent. |
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Company performance measures. For all participants in the plan, including the executive
officers, the committee
established 2006 company performance measures based 25 percent on sales growth (target of 5
percent
growth) and 75 percent on earnings per share (EPS) growth adjusted for certain items as
described below
under Adjustments for Certain Items (target of 7 percent growth). The measures were
determined in January
2006. The committee believes that this mix of performance measures will encourage employees to
focus
appropriately on improving both top-line sales and bottom-line earnings. Special emphasis is
given to bottom
line earnings so that employees can be directly rewarded for their productivity improvements.
The measures
are also effective motivators because they are easy to track and clearly understood by
employees. Under the |
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plan formula, payouts can range from zero to 200 percent of target depending on company
performance. In establishing the target growth rates for both sales and EPS (that is, the
growth rates at which the payouts would be 100 percent of target), the committee considered the
expected 2006 performance of companies in our peer group, based on published investment analyst
estimates. Consistent with the compensation objectives discussed above, the target growth
percentages represented approximately the median expected growth for our peer group;
accordingly, Lilly performance exceeding the peer group would result in above-target payouts
and Lilly performance lagging the peer group would result in below-target payouts. The bonuses
paid to executive officers for 2006 were 134 percent of target as a result of above-target
growth in both sales (7 percent) and adjusted earnings per share (11 percent). (Adjustments for
certain items are discussed on page 29.) |
Equity
Incentives Total Equity Program
Through 2006, we employed two forms of equity incentives granted under the 2002 Lilly Stock Plan:
stock options and performance awards. These incentives foster the long-term perspective necessary
for continued success in our business. They also ensure that our leaders are properly focused on
shareholder value. Stock options and performance awards have traditionally been granted broadly and
deeply within the organization, with approximately 4,900 management and professional employees now
participating. In determining the value of grants for executives, the committees overall objective
was to set combined grant values of stock options and performance awards that were competitive
within the broad middle range of peer company long-term incentive grant amounts. The committee
approves grant values (expressed in U.S. dollars) prior to the pre-established grant date. The
committees process for setting grant dates is discussed on page
27. Then, on the grant date those
values are converted to the equivalent number of shares using the same valuation methodology as the
company uses to determine the accounting expense of the grants under Statement of Financial
Accounting Standards (SFAS) 123R.
For 2005, the committee had lowered grant values significantly at all levels consistent with
marketplace trends, and had also shifted the mix of awards to increase emphasis on performance
awards and decrease emphasis on stock options. For 2006, the committee maintained the same total
grant values but continued to place greater emphasis on performance-based equity incentives by
increasing the performance award portion of executive officers equity grants from 40 percent to 50
percent of the total grant value. In making this determination, the committee reviewed available
peer group data but found it provided only limited insight because of rapidly changing equity grant
practices. Grant values for individuals were determined by individual performance and internal
relativity. Consistent with the companys compensation philosophy, individuals at higher levels
received a greater proportion of total pay in the form of equity. The values for 2006 grants for
the named executives were as follows:
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Name |
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Stock Options |
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Performance Awards |
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Current |
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Mr. Taurel |
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$ |
3,600,000 |
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$ |
3,600,000 |
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Dr. Lechleiter |
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$ |
2,340,000 |
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$ |
2,340,000 |
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Dr. Paul |
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$ |
1,200,000 |
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$ |
1,200,000 |
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Mr. Armitage |
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$ |
900,000 |
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$ |
900,000 |
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Mr. Rice
1 |
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$ |
450,000 |
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$ |
450,000 |
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Retired |
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Mr. Golden
2 |
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$ |
1,100,000 |
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$ |
1,100,000 |
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1 |
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Mr. Rices grants were made before he was promoted to chief financial
officer. Mr. Rice received an additional
grant of stock options valued at $471,900 in May 2006 upon his promotion to chief financial
officer. |
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Mr. Golden retired in April 2006, and his 2006 stock option grant was forfeited in
accordance with its terms. His
2006 performance award was prorated based on the portion of the year worked. |
Equity
Incentives Performance Awards
Performance awards provide employees with shares of Lilly stock if certain company performance
goals are
achieved, aligning employees with shareholder interests and providing an ownership stake in the
company. The awards, normally granted annually, are structured as a schedule of shares of Lilly
stock based on the companys achievement of specific earnings-per-share (EPS) levels over specified
time periods of one or more years. We granted performance awards for 2006 to executive officers
with possible payouts ranging from zero to 200 percent of the target amount, depending on 2006 EPS
growth as adjusted based on predetermined criteria. No dividends are paid on the awards during the
performance period. At the end of the performance period, the committee has
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discretion to adjust an award payout downward, but not upward, from the amount yielded by the
formula. For executive officers, the payout was in the form of restricted stock, as noted below.
The committee approved the terms of the 2006 performance awards in January 2006, and took into
consideration the following:
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Target grant size. As noted above, following a substantial reduction in total equity
grant values in 2005, the
committee decided to maintain the same grant values in 2006 but increased the performance award
portion of
the total grant value from 40 to 50 percent. |
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Company performance measure. As in previous years, the committee established the
performance measure
as EPS growth (adjusted as described below under Adjustments for Certain Items) over a
one-year period.
The committee believes EPS growth is an effective motivator because it is closely linked to
shareholder
value and it is easily understood by employees. In setting the target growth percentage of 7
percent, the
committee considered the expected earnings performance of companies in our peer group.
Consistent with the
compensation objectives discussed above, the target growth percentage represented approximately
the median
expected growth for our peer group; accordingly, Lilly performance exceeding the peer group
would result in
above-target payouts and Lilly performance lagging the peer group would result in below-target
payouts. Above-target growth in adjusted earnings per share (11 percent) resulted in a 2006 performance award
payout at 150
percent of target. |
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Longer-term focus and retention considerations. To enhance the performance awards
incentives for longer-term
focus and retention, the awards to executive officers for 2006 are payable in restricted stock
that is subject
to forfeiture if the executive leaves the company prior to February 2008, except by reason
of death, disability, retirement, or by consent of the committee. The additional one-year
restriction period is consistent with our share retention guidelines
discussed on page 29. |
Equity
Incentives Stock Options
Stock options align employee incentives with shareholders because options have value only if the
stock price increases over time. The companys 10-year options, granted at the market price on the
date of grant, help focus employees on long-term growth. In addition, options are intended to help
retain key employees because they typically cannot be exercised for three years and, if not
exercised, are forfeited if the employee leaves the company before retirement. The three-year
vesting also helps keep employees focused on long-term performance. The company does not reprice
options; likewise, if the stock price declines after the grant date, we do not replace options.
The committee considered the following in establishing the 2006 option grants to executive officers:
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Grant size. As noted above under Equity
Incentives Total Equity Program, stock option
grants were 50 percent
of the total equity grant values (measured in accordance with SFAS 123R) established by the
committee. The
total equity grant values were unchanged from 2005; however, we decreased the stock option
portion of the total
grant value from 60 to 50 percent. |
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Grant Timing and Price. The committees procedure for timing of equity grants
(performance awards and stock
options) provides assurance that grant timing is not being manipulated to result in a price
that is favorable to
employees. The annual equity grant date for all eligible employees, including executive
officers (more than 4,900
employees), is in mid-February. This date is established by the
committee well in advance typically at the
committees October meeting or in December when there is no meeting in October. The
mid-February grant date
timing is driven by three considerations: |
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It coincides with the companys calendar-year-based performance management cycle,
allowing supervisors
to deliver the equity awards close in time to performance appraisals, which increases the
impact of the
awards by strengthening the link between pay and performance. |
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It is within about two weeks after release of quarterly earnings, so that the
stock price at that time can
reasonably be expected to fairly represent the markets collective view of our
then-current results and
prospects. |
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To take advantage of favorable local tax laws for stock options in certain
jurisdictions outside the U.S., options may not be granted within a specified number of
days before or after announcing earnings or filing
financial reports. |
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In the event of grants to new hires, the grants are effective on the first trading day of the month
following hire. |
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Our process for establishing the grant date well in advance provides assurance that
grant timing is not being manipulated for employee gain. |
Employee and Post-Employment Benefits
The company offers core employee benefits coverage in order to:
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provide our global workforce with a reasonable level of financial support in the event of
illness or injury, and |
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enhance productivity and job satisfaction through programs that focus on work/life
balance. |
The benefits available are the same for all U.S. employees and executive officers and include
medical and dental coverage, disability insurance, and life insurance. In addition, the Lilly 401(k) Plan and the Lilly Retirement Plan provide a reasonable level of retirement income reflecting
employees careers with the company. All U.S. employees, including executive officers, participate
in these plans. To the extent that any employees retirement benefit exceeds IRS limits for amounts
that can be paid through a qualified plan, Lilly also offers a non-qualified retirement plan and
savings plan. These plans provide only the difference between the calculated benefits and the IRS
limits.
The cost of both employee and post-employment benefits is partially borne by the employee,
including each executive officer.
Perquisites
The company does not provide significant perquisites or personal benefits to executive officers,
except that the company aircraft is made available for the personal use of Mr. Taurel and Dr.
Lechleiter, where the committee believes the security and efficiency benefits to the company
clearly outweigh the expense. Mr. Taurels only use of the corporate aircraft for personal flights
in 2006 was to attend outside board meetings for the two public companies at which he serves as an
independent director. The compensation committee believes that Mr. Taurels service on these
boards, and his ability to conduct company business while traveling to board meetings, provides
clear benefits to the company. As described on page 39, Mr. Taurel has entered into a time share
arrangement for the corporate aircraft under which he pays the company a lease fee for personal
use. This amount offsets part of the companys incremental cost of providing the aircraft. Dr.
Lechleiter did not use the corporate aircraft for personal flights. In addition, depending on seat
availability, family members of executive officers may travel on the company aircraft to accompany
executives who are traveling on business. There is no incremental cost to the company for these
trips.
Deferred Compensation Program
Executives may defer receipt of part or all of their cash compensation under the companys deferred
compensation program. The program allows executives to save for retirement in a tax-effective way
at minimal cost to the company. Under this unfunded program, amounts deferred by the executive are
credited at an interest rate of 120 percent of the applicable federal long-term rate, as described
in more detail following the Non-qualified Deferred Compensation in
2006 Table on page 36.
Severance Benefits
Except in the case of a change in control of the company, the company is not obligated to pay
severance or other enhanced benefits to named executive officers upon termination of their
employment.
The company has adopted a change-in-control severance pay program for nearly all employees of
the company, including the executive officers. The program is intended to preserve employee morale
and productivity and encourage retention in the face of the disruptive impact of an actual or
rumored change in control of the company. In addition, for executives, the program is intended to
align executive and shareholder interests by enabling executives to consider corporate transactions
that are in the best interests of the shareholders and other constituents of the company without
undue concern over whether the transactions may jeopardize the executives own employment.
Although there are some differences in benefit levels depending on the employees job level
and seniority, the basic elements of the program are comparable for all employees:
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Double trigger. Unlike single trigger plans that pay out immediately upon a change in
control, the Lilly program
requires a double trigger a change in control followed by an involuntary loss of employment
within two years
thereafter. This is consistent with the purpose of the program, which is to provide employees
with a guaranteed
level of financial protection upon loss of employment. The only exception is performance
awards, a portion of
which would be paid out upon change in control, based on time worked prior to the change in
control and the
target or forecasted payout level at the time of the change in control. The committee believes
this partial payment
is appropriate because of the difficulties in converting the Lilly EPS targets into an award
based on the surviving
companys EPS. |
|
|
|
|
Covered terminations. Employees are eligible for payments if, within two years of the
change in control, their employment is terminated (i) without cause by the company or (ii) for good reason by the
employee, each as is
defined in the program. See pages 38-39 for a more detailed discussion. |
|
|
|
|
Severance payment. Eligible terminated employees would receive a severance payment
ranging from six months to
two years base salary. Executives are all eligible for two years base salary plus cash bonus
(with bonus established
as the higher of the then-current years target bonus or the last bonus paid prior to the
change in control). |
28
|
|
|
Benefit continuation. Basic employee benefits such as health and life insurance would be
continued for up to two
years following termination of employment. All executives, including named executive officers
are entitled to two
years benefit continuation. |
|
|
|
|
Pension supplement. Under the portion of the program covering executives, a terminated
employee would be
entitled to a supplement of two years of age credit and two years of service credit for
purposes of calculating
eligibility and benefit levels under the companys defined benefit pension plan. |
|
|
|
|
Accelerated vesting of equity awards. Any unvested equity awards at the time of
termination of employment would
become vested. |
|
|
|
|
Excise tax. In the event the payments made to the employee, or the value of other
benefits received by the
employee, in connection with a change in control exceed certain limits, Section 280G of the
Internal Revenue
Code imposes an excise tax on the employee. The costs of this excise tax, including related tax
gross-ups, would
be borne by the company. |
Share Retention Guidelines; Hedging Prohibition
Share retention guidelines help to foster a focus on long-term growth. We expect our executive
officers to retain all net shares received from stock options and performance awards, net of taxes,
for at least one year. Consistent with this objective, performance award shares earned for 2006
performance were issued in the form of restricted stock that is subject to forfeiture if the
executive leaves the company prior to February 2008, except by reason of death, disability, or
retirement. Employees are not permitted to hedge their economic exposures to the Lilly stock that
they own.
Adjustments for Certain Items
Consistent with past practice and based on criteria established at the beginning of the performance
period, the committee adjusted the earnings results on which 2006 bonuses and performance awards
were determined to eliminate the effect of certain items. The adjustments are intended to ensure
that award payments represent the underlying growth of the core business and are not artificially
inflated or deflated due to such items either in the award year or the previous (comparator) year.
For the 2006 awards calculation, the committee adjusted EPS to eliminate the effect in both 2005
and 2006 of product liability charges, major asset impairments, restructuring and other special
charges. In addition, the committee eliminated the 2005 cumulative effect of an accounting change
relating to the adoption of FIN 47 (conditional asset retirement obligations).
Deductibility Cap on Executive Compensation
U.S. federal income tax law prohibits the company from taking a tax deduction for certain
compensation paid in excess of $1,000,000 to the named executive officers listed in the summary
compensation table below. However, performance-based compensation, as defined in the tax law, is
fully deductible if the programs are approved by shareholders and meet other requirements. Our
policy is to qualify our incentive compensation programs for full corporate deductibility to the
extent feasible and consistent with our overall compensation goals as reflected in the summary
compensation table below.
The company has taken steps to qualify compensation under the Eli Lilly and Company Bonus
Plan, as well as stock options and performance awards under its management stock plans, for full
deductibility as performance-based compensation. The committee may make payments that are not
fully deductible if, in its judgment, such payments are necessary to achieve the companys
compensation objectives and to protect shareholder interests. For 2006, the non-deductible
compensation under this law was essentially the portion of Mr. Taurels and Dr. Lechleiters base
salary that exceeded $1,000,000 as shown in the Summary Compensation Table.
Executive Compensation Recovery Policy
The committee has adopted an executive compensation recovery policy applicable to executive
officers. Under this policy, the company may recover incentive compensation (cash or equity) that
was based on achievement of financial results that were subsequently the subject of a restatement
if an executive officer engaged in intentional misconduct that caused or partially caused the need
for the restatement and the effect of the wrongdoing was to increase the amount of bonus or
incentive compensation. This policy covers income related to cash bonuses and performance awards.
2007 Compensation Decisions
Beginning in 2007, the company is implementing a new equity program, the shareholder value award
(SVA), which replaces our stock option program going forward. The SVA pays out shares of stock
based on the growth of the companys stock price over a three-year performance period. Payouts are
based on individual target grids, and range from 60 percent of target (zero for executive officers)
to 140 percent of target. Targets are set based on an
29
expected investment return for large cap companies. Because the SVA pays in shares, it has
stronger retention power.
The performance award program remains in place, and executive officers received 50 percent
of their total equity grant value for 2007 in performance award shares and 50 percent in SVA
shares. All other compensation programs are unchanged from 2006.
The following table summarizes the compensation committees 2007 equity compensation
decisions for named executive officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
Shareholder Value Awards |
|
|
Performance Awards |
|
|
Mr. Taurel |
|
|
$ |
3,060,000 |
|
|
|
$ |
3,060,000 |
|
|
|
Dr. Lechleiter |
|
|
$ |
1,989,000 |
|
|
|
$ |
1,989,000 |
|
|
|
Dr. Paul |
|
|
$ |
1,200,000 |
|
|
|
$ |
1,200,000 |
|
|
|
Mr. Armitage |
|
|
$ |
855,000 |
|
|
|
$ |
855,000 |
|
|
|
Mr. Rice |
|
|
$ |
855,000 |
|
|
|
$ |
855,000 |
|
|
|
Compensation Committee Report
The compensation committee (we or the committee) evaluates and establishes compensation for
executive officers and oversees the deferred compensation plan, the companys management stock
plans, and other management incentive, benefit and perquisite programs. Management has the primary
responsibility for the companys financial statements and reporting process, including the
disclosure of executive compensation. With this in mind, we have reviewed and discussed with
management the Compensation Discussion and Analysis found on pages
22-30 of this report. The
committee is satisfied that the Compensation Discussion and Analysis fairly and completely
represents the philosophy, intent, and actions of the committee with regard to executive
compensation. We recommended to the board of directors that the Compensation Discussion and
Analysis be included in this proxy statement for filing with the Securities and Exchange
Commission.
Karen N. Horn, Ph.D., Chair
George M.C. Fisher
J. Erik Fyrwald
Ellen R. Marram
Summary Compensation Table1
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity |
|
|
Change in |
|
|
All Other |
|
|
Total |
|
|
|
|
|
|
|
|
Salary |
|
|
Stock Awards2 |
|
|
Option Awards2 |
|
|
Incentive Plan |
|
|
Pension Value4 |
|
|
Compensation5 |
|
|
Compensation |
|
|
Name and Principal Position |
|
|
Year |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
Compensation3
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sidney Taurel
Chairman of the Board and
Chief Executive Officer |
|
|
2006 |
|
|
$1,650,333 |
|
|
$5,400,000 |
|
|
$3,805,333 |
|
|
$2,764,308 |
|
|
$1,417,434 |
|
|
$192,409 |
|
|
$15,229,817 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John C. Lechleiter, Ph.D.
President and Chief Operating
Officer |
|
|
2006 |
|
|
$1,112,000 |
|
|
$3,510,000 |
|
|
$3,967,976 |
|
|
$1,490,080 |
|
|
$1,156,247 |
|
|
$ 68,790 |
|
|
$11,305,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven M. Paul, M.D.
Executive Vice President,
Science and Technology |
|
|
2006 |
|
|
$ 916,167 |
|
|
$1,864,460 |
|
|
$1,240,000 |
|
|
$1,043,514 |
|
|
$ 607,463 |
|
|
$ 55,789 |
|
|
$ 5,727,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert A.
Armitage
Senior Vice President and
General Counsel |
|
|
2006 |
|
|
$ 701,657 |
|
|
$1,394,053 |
|
|
$1,339,911 |
|
|
$ 705,165 |
|
|
$ 231,862 |
|
|
$ 42,691 |
|
|
$ 4,415,339 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derica W. Rice
Senior Vice President and
Chief Financial Officer Retired |
|
|
2006 |
|
|
$ 615,000 |
|
|
$ 675,000 |
|
|
$ 590,928 |
|
|
$ 580,466 |
|
|
$ 168,627 |
|
|
$ 37,722 |
|
|
$ 2,667,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles E.
Golden
Retired Executive Vice
President and Chief Financial
Officer
|
|
|
2006 |
|
|
$ 285,900 |
|
|
$ 550,000 |
|
|
$ 619,1676 |
|
|
$ 325,640 |
|
|
$ 134,878 |
|
|
$475,494 |
|
|
$ 2,391,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
No bonus was paid to a named executive officer except as part of a non-equity
incentive plan. |
|
2 |
|
A discussion of the assumptions used in calculating these values may be found in
Note 7 to our 2006 audited
financial statements on pages 40-41 of our annual report. |
30
|
|
|
3 |
|
Payment for 2006 performance made in March 2007 under the Lilly Bonus Plan. |
|
4 |
|
The amounts in this column are the change in pension value for each individual. No named
executive officer received preferential or above-market earnings on deferred compensation. |
|
5 |
|
The table below shows the components of this column, which include the company match
for each individuals 401(k) plan contributions, tax gross-ups, perquisites, and the cost of
Mr. Goldens retiree medical and dental coverage. We calculate the incremental cost to the
company of any personal use of the corporate aircraft based on the cost of fuel, trip-related
maintenance, crew travel expenses, on-board catering, landing fees, trip-related hangar and
parking costs, and smaller variable costs, offset by any time share lease payments by the
executive. Since the company-owned aircraft are used primarily for business travel, we do not
include the fixed costs that do not change based on usage, such as pilots salaries, the
purchase costs of the company-owned aircraft, and the cost of maintenance not related to
trips. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total All |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retiree Medical |
|
|
Other |
|
|
Name |
|
|
401(k) Match |
|
|
Tax Gross-ups |
|
|
Perquisites |
|
|
Expense |
|
|
Compensation |
|
|
Mr. Taurel |
|
|
$ |
99,020 |
|
|
|
$ |
1,382 |
a |
|
|
$ |
92,007 |
d |
|
|
|
0 |
|
|
|
$ |
192,409 |
|
|
|
Dr. Lechleiter |
|
|
$ |
66,720 |
|
|
|
$ |
2,070 |
b |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
$ |
68,790 |
|
|
|
Dr. Paul |
|
|
$ |
54,970 |
|
|
|
$ |
819 |
b |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
$ |
55,789 |
|
|
|
Mr. Armitage |
|
|
$ |
42,099 |
|
|
|
$ |
592 |
b |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
$ |
42,691 |
|
|
|
Mr. Rice |
|
|
$ |
36,900 |
|
|
|
$ |
822 |
b |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
$ |
37,722 |
|
|
|
Mr. Golden |
|
|
$ |
17,154 |
|
|
|
$ |
361,916 |
c |
|
|
|
0 |
|
|
|
$ |
96,424 |
|
|
|
$ |
475,494 |
|
|
|
|
a |
|
Tax reimbursements on income imputed to Mr. Taurel for his use of the corporate
aircraft to attend outside
board meetings and for travel by his wife on the corporate aircraft to attend certain company
functions involving spouse participation. |
|
|
b |
|
Tax reimbursements for travel by the executives spouses on the corporate aircraft to
attend certain company functions involving spouse participation. |
|
|
c |
|
Tax reimbursements on income imputed to Mr. Golden for FICA tax payments made by the
company on his
benefits accrued under the companys non-qualified pension plan. All participants in the
non-qualified pension
plan are eligible for this one-time reimbursement upon retirement. |
|
|
d |
|
Includes $91,069, representing the incremental cost to the company of use of the corporate
aircraft to attend outside board meetings. The amount in this column also includes Mrs. Taurels expenses to
attend board
functions that included spouse participation. In addition, Mr. Taurels family members have
occasionally accompanied him on business trips, at no incremental cost to the company. |
|
|
|
6 |
|
This amount reflects expense to the company for options granted to Mr. Golden in 2004
and 2005. There was no expense for Mr. Goldens 2006 stock option award, which was forfeited
on his retirement according to its terms. |
We have no employment agreements with our named executive officers.
The compensation plans under which the grants in the following table were made are generally
described in the Compensation Discussion and Analysis, beginning on
page 22, and include the Eli
Lilly and Company Bonus Plan, a non-equity incentive plan, and the 2002 Lilly Stock Plan, which
provides for performance awards, stock options, restricted stock grants, and restricted stock
units.
31
Grants of Plan-Based Awards During 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
Estimated |
|
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Possible Payouts |
|
|
Possible Payouts |
|
|
Awards: |
|
|
Exercise or |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Under Non-Equity |
|
|
Under Equity |
|
|
Number of |
|
|
Base Price |
|
|
Grant Date |
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
Incentive Plan Awards1 |
|
|
Incentive Plan Awards2 |
|
|
Securities |
|
|
of Option |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Committee |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
Underlying |
|
|
Awards |
|
|
of Equity |
|
|
Name |
|
|
Grant Date |
|
|
Action Date |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
(# shares) |
|
|
(# shares) |
|
|
(# shares) |
|
|
Options3 |
|
|
($/share) |
|
|
Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Taurel |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
2,062,917 |
|
|
|
$ |
4,125,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
12/19/2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
64,080 |
|
|
|
|
128,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,600,000 |
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
12/19/2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
216,867 |
|
|
|
$ |
56.18 |
|
|
|
$ |
3,600,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lechleiter |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
1,112,000 |
|
|
|
$ |
2,224,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
12/19/2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
41,652 |
|
|
|
|
83,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,340,000 |
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
12/19/2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,964 |
|
|
|
$ |
56.18 |
|
|
|
$ |
2,340,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
778,742 |
|
|
|
$ |
1,557,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
12/19/2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
21,360 |
|
|
|
|
42,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,200,000 |
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
12/19/2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,289 |
|
|
|
$ |
56.18 |
|
|
|
$ |
1,200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Armitage |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
526,243 |
|
|
|
$ |
1,052,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
12/19/2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
16,020 |
|
|
|
|
32,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
900,000 |
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
12/19/2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,217 |
|
|
|
$ |
56.18 |
|
|
|
$ |
900,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Rice |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
433,183 |
|
|
|
$ |
866,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
8,010 |
|
|
|
|
16,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
450,000 |
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,108 |
|
|
|
$ |
56.18 |
|
|
|
$ |
450,000 |
|
|
|
|
|
|
|
5/1/2006 |
5 |
|
|
|
1/20/2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
$ |
52.54 |
|
|
|
$ |
471,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Golden |
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
$ |
729,045 |
6 |
|
|
$ |
1,458,090 |
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
12/19/2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
19,580 |
7 |
|
|
|
39,160 |
7 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,100,000 |
9 |
|
|
|
|
|
|
2/10/2006 |
|
|
|
|
12/19/2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,265 |
8 |
|
|
$ |
56.18 |
|
|
|
$ |
1,100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
These columns show the range of payouts targeted for 2006 performance under
the Eli Lilly and Company Bonus Plan as described in the section titled Cash Incentive
Bonuses in the Compensation Discussion and Analysis. The 2007 bonus payment for 2006
performance has been made based on the metrics described, at 134 percent of target, and is
shown in the Summary Compensation Table in the column titled Non-equity Incentive Plan
Compensation. |
|
2 |
|
These columns show the range of payouts targeted for 2006 performance under the
2002 Lilly Stock Plan as described in the section titled Equity
Incentives Performance
Awards in the Compensation Discussion and Analysis. The dollar amount recognized by the
company for these performance awards is shown in the Summary Compensation Table in the
column titled Stock Awards and their valuation assumptions are referenced in footnote 2
to that table. The 2006 stock award payout was made in January 2007 and is shown in more
detail below. |
|
3 |
|
Stock options granted under the 2002 Lilly Stock Plan are described in the
Outstanding Equity Awards at Fiscal Year-End Table below. |
|
4 |
|
Mr. Rices stock award and stock option award granted in February 2006 were not approved by
the compensation committee because he was not an executive officer at the time they were
granted. |
|
5 |
|
Mr. Rice became an executive officer when he was promoted to his current
position effective May 1, 2006, and received a special grant of stock options at that time. |
|
6 |
|
Mr. Goldens bonus payment was prorated, based on the amount of base salary he
earned prior to his retirement and is shown in the Summary
Compensation Table on page 30. |
|
7 |
|
Mr. Goldens equity incentive grant payout was prorated, based on his retirement date.
His actual stock award is listed in the table below. |
|
8 |
|
Mr. Goldens 2006 stock option award was forfeited on his retirement according to
its terms. |
|
9 |
|
The value shown is the grant date fair value of the full award; however,
Mr. Goldens equity incentive grant was prorated based on his retirement date. |
Our performance awards granted in 2006 paid out in January 2007, and the named executive
officers received the following shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value on |
|
|
Name |
|
|
Performance Awards |
|
|
December 31, 2006 |
|
|
Mr. Taurel |
|
|
|
96,120 |
|
|
|
$ |
5,007,852 |
|
|
|
Dr. Lechleiter |
|
|
|
62,478 |
|
|
|
$ |
3,255,104 |
|
|
|
Dr. Paul |
|
|
|
32,040 |
|
|
|
$ |
1,669,284 |
|
|
|
Mr. Armitage |
|
|
|
24,030 |
|
|
|
$ |
1,251,963 |
|
|
|
Mr. Rice |
|
|
|
12,015 |
|
|
|
$ |
625,982 |
|
|
|
Mr. Golden |
|
|
|
9,656 |
|
|
|
$ |
503,078 |
|
|
|
For 2006 performance, payouts were 150 percent of target. In order to receive a
performance award payout, a participant must have remained employed with the company through
December 31, 2006 (except in the case of death, disability, or retirement). In addition, an
executive who was an executive officer at the time of grant and at the time of payout received
payment in shares of restricted stock. Non-preferential dividends are paid during the one-year
restriction period. Each executive was awarded the shares identified above, and except for Mr. Rice
and
32
Mr. Golden, these shares will remain restricted (and subject to forfeiture if the executive
resigns) until February 2008. Mr. Rices shares are not restricted because he was not an executive
officer at the time of grant, and Mr. Goldens shares are not restricted because he retired prior
to payment.
Options are granted at 100 percent of fair market value on the date of grant; they vest after
three years and expire after 10 years. We do not pay dividend equivalents on stock options. More
discussion of our equity compensation programs can be found in the Compensation Discussion and
Analysis on pages 22-30.
Outstanding
Equity Awards at December 31, 20061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards2 |
|
|
|
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Value |
|
|
|
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
of Shares or |
|
|
|
|
|
Unexercised |
|
|
Unexercised |
|
|
|
|
|
|
|
|
|
|
|
|
Shares or Units |
|
|
Units of Stock |
|
|
|
|
|
Options |
|
|
Options |
|
|
Option |
|
|
Option |
|
|
That Have Not |
|
|
That Have Not |
|
|
|
|
|
(#)3 |
|
|
(#)3 |
|
|
Exercise |
|
|
Expiration |
|
|
Vested |
|
|
Vested |
|
|
Name |
|
|
Exercisable |
|
|
Unexercisable |
|
|
Price ($) |
|
|
Date |
|
|
(#) |
|
|
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Taurel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92,120 |
5 |
|
|
$ |
5,007,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,690 |
6 |
|
|
$ |
3,370,349 |
|
|
|
|
|
|
|
|
|
|
|
|
216,867 |
4 |
|
|
$ |
56.18 |
|
|
|
|
2/09/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
255,621 |
|
|
|
|
55.65 |
|
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
400,000 |
|
|
|
|
73.11 |
|
|
|
|
2/14/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
2/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000 |
7 |
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
2/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
10/04/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350,000 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240,000 |
|
|
|
|
|
|
|
|
|
74.28 |
|
|
|
|
10/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
61.22 |
|
|
|
|
5/30/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,000 |
|
|
|
|
|
|
|
|
|
64.06 |
|
|
|
|
10/19/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lechleiter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,478 |
5 |
|
|
$ |
3,255,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,345 |
6 |
|
|
$ |
1,685,174 |
|
|
|
|
|
|
|
|
|
|
|
|
140,964 |
4 |
|
|
$ |
56.18 |
|
|
|
|
2/09/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
127,811 |
|
|
|
|
55.65 |
|
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
73.11 |
|
|
|
|
2/14/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
2/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
8 |
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
2/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
10/04/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
74.28 |
|
|
|
|
10/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
64.06 |
|
|
|
|
10/19/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,040 |
5 |
|
|
$ |
1,669,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
$ |
260,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000 |
|
|
|
$ |
156,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,564 |
6 |
|
|
$ |
1,123,484 |
|
|
|
|
|
|
|
|
|
|
|
|
72,289 |
4 |
|
|
$ |
56.18 |
|
|
|
|
2/09/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,207 |
|
|
|
|
55.65 |
|
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
|
|
|
|
73.11 |
|
|
|
|
12/14/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
2/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,000 |
|
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
2/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,900 |
|
|
|
|
|
|
|
|
|
73.98 |
|
|
|
|
2/18/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
10/04/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
9 |
|
|
|
|
|
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000 |
9 |
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
9 |
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,000 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
74.28 |
|
|
|
|
10/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
|
|
|
64.06 |
|
|
|
|
10/19/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
|
|
|
|
|
|
|
54.80 |
|
|
|
|
7/18/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Armitage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,030 |
5 |
|
|
$ |
1,251,963 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,478 |
6 |
|
|
$ |
702,204 |
|
|
|
|
|
|
|
|
|
|
|
|
54,217 |
4 |
|
|
$ |
56.18 |
|
|
|
|
2/09/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,254 |
|
|
|
|
55.65 |
|
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
|
73.11 |
|
|
|
|
2/14/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
2/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,800 |
|
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
2/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
10/04/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,100 |
|
|
|
|
|
|
|
|
|
73.98 |
|
|
|
|
2/18/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,000 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Rice |
|
|
|
|
|
|
|
|
30,000 |
10 |
|
|
$ |
52.54 |
|
|
|
|
4/29/2016 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
27,108 |
|
|
|
|
56.18 |
|
|
|
|
2/09/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,077 |
|
|
|
|
55.65 |
|
|
|
|
2/10/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000 |
|
|
|
|
73.11 |
|
|
|
|
2/14/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,200 |
|
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
2/15/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
2/17/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
10/04/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,000 |
|
|
|
|
|
|
|
|
|
73.98 |
|
|
|
|
2/18/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,300 |
|
|
|
|
|
|
|
|
|
74.28 |
|
|
|
|
10/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,700 |
|
|
|
|
|
|
|
|
|
64.06 |
|
|
|
|
10/19/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Golden |
|
|
|
78,107 |
11 |
|
|
|
|
|
|
|
$ |
55.65 |
|
|
|
|
4/30/2011 |
13 |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
120,000 |
11 |
|
|
|
|
|
|
|
|
73.11 |
|
|
|
|
4/30/2011 |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
57.85 |
|
|
|
|
4/30/2011 |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
12 |
|
|
|
|
|
|
|
|
75.92 |
|
|
|
|
4/30/2011 |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
79.28 |
|
|
|
|
4/30/2011 |
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
88.41 |
|
|
|
|
12/17/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
66.38 |
|
|
|
|
10/16/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
74.28 |
|
|
|
|
10/17/2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000 |
|
|
|
|
|
|
|
|
|
64.06 |
|
|
|
|
10/19/2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
No executive officer had any unearned equity awards
outstanding as of December 31, 2006. |
33
|
|
|
2 |
|
These two columns show performance award shares paid in restricted shares with a
holding period of one year. The restricted stock shares pay dividends during the restriction period, but the dividends are not
preferential. For Dr. Paul this also reflects additional restricted stock grants totaling 8,000 shares. |
|
3 |
|
The vesting date of each option is listed in the table below by expiration date: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration |
|
|
Vesting |
|
|
Expiration |
|
|
Vesting |
|
|
Date |
|
|
Date |
|
|
Date |
|
|
Date |
|
|
04/29/2016 |
|
|
05/01/2009 |
|
|
02/18/2011 |
|
|
02/20/2004 |
|
|
02/09/2016 |
|
|
02/10/2009 |
|
|
12/17/2010 |
|
|
12/18/2003 |
|
|
02/10/2015 |
|
|
02/11/2008 |
|
|
10/16/2009 |
|
|
10/18/2002 |
|
|
02/14/2014 |
|
|
02/19/2007 |
|
|
10/17/2008 |
|
|
10/19/2001 |
|
|
02/15/2013 |
|
|
02/17/2006 |
|
|
05/30/2008 |
|
|
06/04/2001 |
|
|
02/17/2012 |
|
|
02/18/2005 |
|
|
10/19/2007 |
|
|
10/19/2000 |
|
|
10/04/2011 |
|
|
10/03/2003 |
|
|
07/18/2007 |
|
|
07/21/2000 |
|
|
|
|
|
|
|
|
4 |
|
Options were granted on February 10, 2006 and expire on February 9, 2016. |
|
5 |
|
Shares paid out in January 2007 for 2006 performance. These shares are restricted until
February 2008. |
|
6 |
|
Shares paid out in January 2006 for 2005 performance. These shares vested in February
2007. |
|
7 |
|
Mr. Taurel transferred 348,683 shares of this option to an irrevocable trust for
the benefit of his children, and these shares vested on April 30, 2002. |
|
8 |
|
Dr. Lechleiter transferred 118,683 shares of his option to an irrevocable trust for
the benefit of his children, and these shares vested on April 30, 2002. |
|
9 |
|
These options were granted outside of the normal annual cycle and vest in three
installments, as follows: 25 percent on December 19, 2005; 25 percent on December 18, 2008;
and 50 percent on November 2, 2009. |
|
10 |
|
Options were granted on May 1, 2006 and expire on April 29, 2016. |
|
11 |
|
Mr. Goldens two most recent options vesting dates were accelerated due to his retirement on April 30, 2006. |
|
12 |
|
Mr. Golden transferred 118,683 shares of this option to an irrevocable trust for the benefit of his children, and these shares vested on April 30, 2002. |
|
13 |
|
The exercise period for the first five option grants shown were shortened to
correspond with the fifth anniversary of Mr. Goldens retirement. Since Mr. Golden retired
within 12 months of receiving the 2006 stock option, it did not vest, and it was forfeited. |
Options Exercised and Stock Vested in 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
|
Stock Awards2 |
|
|
|
|
|
Number of Shares |
|
|
|
|
|
Number of Shares |
|
|
|
|
|
|
|
|
Acquired on |
|
|
Value Realized on |
|
|
Acquired on |
|
|
Value Realized on |
|
|
Name |
|
|
Exercise (#) |
|
|
Exercise ($)1 |
|
|
Vesting (#) |
|
|
Vesting ($) |
|
|
Current |
|
|
Mr. Taurel |
|
|
|
147,110 |
|
|
|
$ |
3,189,738 |
|
|
|
|
28,000 |
|
|
|
$ |
1,585,360 |
|
|
|
Dr. Lechleiter |
|
|
|
13,110 |
|
|
|
$ |
269,072 |
|
|
|
|
14,000 |
|
|
|
$ |
792,680 |
|
|
|
Dr. Paul |
|
|
|
2,890 |
|
|
|
$ |
59,664 |
|
|
|
|
9,000 |
|
|
|
$ |
509,580 |
|
|
|
Mr. Armitage |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
10,600 |
|
|
|
$ |
588,572 |
|
|
|
Mr. Rice |
|
|
|
2,800 |
|
|
|
$ |
57,246 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
Retired |
|
|
Mr. Golden |
|
|
|
109,170 |
|
|
|
$ |
2,443,373 |
|
|
|
|
28,7663 |
|
|
|
$ |
1,552,236 |
|
|
|
|
|
|
1 |
|
Amounts reflect the difference between the exercise price of the option and the
market price at the time of exercise. |
|
2 |
|
Amounts reflect the market value of the stock on the day the stock
vested. These shares represent performance awards issued in January 2005 for company performance in 2004, which were subject to forfeiture for
one year following issuance. |
|
3 |
|
In addition to the January 2005 performance award, for Mr. Golden this number includes performance awards paid out in
restricted stock in January 2006 for 2005 performance, which vested on his retirement. |
Retirement Benefits
We maintain two programs to provide retirement income to all eligible U.S. employees, including executive officers:
|
|
|
The Lilly Employee 401(k) Plan, a defined contribution plan qualified
under sections 401(a) and 401(k) of the Internal Revenue Code. Eligible employees may elect
to contribute a portion of their salary to the plan, and the company provides matching
contributions on the employees contributions up to 6 percent of base salary. |
34
|
|
|
The matching contributions are in the form of Lilly stock. The employee contributions,
company contributions, and earnings thereon are paid out in accordance with elections made by the participant. See the
Summary Compensation Table on page 30 for information about company contributions to the named
executive officers. |
|
|
|
|
The Lilly Retirement Plan (the retirement plan), a tax-qualified defined benefit plan that provides monthly
retirement benefits to eligible employees. See the Summary
Compensation Table on page 30 for
additional information about the value of these pension benefits. |
Section 415 of the Internal Revenue Code generally places a limit on the amount of annual
pension that can be paid from a tax-qualified plan ($175,000) as well as on the amount of annual
earnings that can be used to calculate a pension benefit ($220,000). However, since 1975 the
company has maintained a non-tax-qualified plan that pays eligible employees the difference between
the amount payable under the tax-qualified plan and the amount they would have received without the
qualified plans limit. The non-qualified plan is unfunded and subject to forfeiture in the event
of bankruptcy.
The following table shows benefits that named executive officers are entitled to under the
retirement plan.
Pension Benefits in 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years of |
|
|
|
|
|
|
|
Payments |
|
|
|
|
|
|
|
|
|
|
|
Credited |
|
|
Present Value of |
|
|
|
During Last |
|
|
|
Name |
|
|
Plan Name |
|
|
Service |
|
|
Accumulated Benefit ($)1 |
|
|
|
Fiscal year ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Taurel2 |
|
|
tax-qualified plan |
|
|
35 |
|
|
$ |
1,203,846 |
|
|
|
|
|
|
|
|
|
|
|
non-qualified plan |
|
|
35 |
|
|
$ |
30,103,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
$ |
31,307,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lechleiter3 |
|
|
tax-qualified plan |
|
|
27 |
|
|
$ |
693,969 |
|
|
|
|
|
|
|
|
|
|
|
non-qualified plan |
|
|
27 |
|
|
$ |
5,682,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
$ |
6,376,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul4 |
|
|
tax-qualified plan |
|
|
14 |
|
|
$ |
242,446 |
|
|
|
|
|
|
|
|
|
|
|
non-qualified plan |
|
|
145 |
|
|
$ |
2,650,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
$ |
2,892,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Armitage |
|
|
tax-qualified plan |
|
|
8 |
|
|
$ |
165,003 |
|
|
|
|
|
|
|
|
|
|
|
non-qualified plan |
|
|
86 |
|
|
$ |
581,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
$ |
746,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Rice |
|
|
tax-qualified plan |
|
|
17 |
|
|
$ |
230,177 |
|
|
|
|
|
|
|
|
|
|
|
non-qualified plan |
|
|
17 |
|
|
$ |
378,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
$ |
608,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Golden |
|
|
tax-qualified plan |
|
|
10 |
|
|
$ |
237,299 |
|
|
|
$ |
13,486 |
|
|
|
|
|
|
non-qualified plan |
|
|
357 |
|
|
$ |
14,909,762 |
|
|
|
$ |
850,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
$ |
15,147,061 |
|
|
|
$ |
864,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The calculation of present value of accumulated benefit assumes a discount rate of 6 percent, mortality RP 2000CH (post-retirement decrement only), and joint and survivor benefit of 25 percent. |
|
2 |
|
Mr. Taurel is currently eligible for full retirement benefits. |
|
3 |
|
Dr. Lechleiter is currently eligible for early retirement. He qualifies for approximately 13 percent less than his full retirement benefit. Early retirement benefits are further described below. |
|
4 |
|
Dr. Paul is currently eligible for early retirement because he is over 55 years old and has more than 10 years of service. He qualifies for approximately 32 percent less than his
full retirement benefit. Early retirement benefits are further described below. |
|
5 |
|
Dr. Paul will be eligible for an additional 10 years of service, should he still be employed by the company past age 60. This additional service credit increased the present value of his non-qualified pension benefit
shown above by $1,033,206. |
|
6 |
|
Mr. Armitage will be credited with approximately one year of service when he reaches age 60, making him eligible to receive a reduced retirement benefit under the companys retirement program. Since this arrangement
only applies towards his eligibility for a benefit, it does not change the present value of his non-qualified pension benefit. |
|
7 |
|
Mr. Goldens additional years of service credit increased the present value of his non-qualified pension benefit by $11,615,578. |
The retirement plan benefits shown in the table are net present values. The benefits are not
payable as a lump sum; they are generally paid as a monthly annuity for the life of the retiree.
The annual benefit under the plan is calculated using the average of the annual earnings for the
highest five out of the last 10 years of service (average annual earnings). Annual earnings covered
by the retirement plan consist of salary and bonus (amounts disclosed in the companys proxy
statements for the relevant years) calculated for the amount of bonus paid (rather than credited)
and for the year in which earnings are paid (rather than earned or
credited). In addition, for years
prior to 2003, the calculation includes performance award payouts. The amount of the benefit also
depends on the retirees age and years of service at the time of retirement. Benefit calculations
are based on points, with an employees
35
points equaling the sum of his or her age plus years of service. Employees who retire (i) at age 65
with at least five years of service, (ii) at age 62 with at least 80 points, or (iii) with 90 or
more points receive an unreduced benefit. Employees may elect early retirement with reduced
benefits under either of the following two options:
|
|
|
Employees with between 80 and 90 points may retire with a benefit that is reduced by
three percent for each year that the employee has left to reach 90 points or age 62. |
|
|
|
|
Employees who have less than 80 points, but who have reached age 55 and have at least 10
years of service, may retire with a benefit that is reduced as described above and is further reduced by six percent
for each year that the employee has left to reach 80 points or age 65. |
All U.S. retirees are entitled to medical insurance under the companys plans. Retirees with
spouses or unmarried dependents may elect that, upon the retirees death, the plan will pay
survivor annuity benefits at either 25 or 50 percent of the retirees annuity benefit. Election of
the higher survivor benefit will result in a lower annuity payment during the retirees life.
Dr. Paul joined the company in 1993. If he remains employed by the company past age 60, he
will receive 10 years additional service credit, and as a result, his retirement benefit will not
be reduced for early retirement. When Mr. Armitage joined the company in 1999, the company agreed
to provide him with a retirement benefit based on his actual years of service and earnings at age
60. When Mr. Armitage reaches age 60 with 9.75 years of service, he will be treated as though he
has, for eligibility purposes only, 20 years of service. The additional service credits will make
him eligible to begin reduced benefits nine months earlier, but will not change the timing or
amount of his unreduced benefits (shown in the Pension Benefits in 2006 Table above). Mr. Golden
received additional service credit when be began his employment in February 1996, contingent upon
his remaining employed by Lilly for 10 years. His retirement benefits include the standard retiree
medical benefits that would be available to retirees of the same age and with the same number of
years of service credited. A grant of additional years of service credit to any employee must be
approved by the compensation committee of the board of directors.
Nonqualified Deferred Compensation in 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
|
Registrant |
|
|
Aggregate |
|
|
Aggregate |
|
|
Aggregate |
|
|
|
|
|
|
|
|
|
|
Contributions in Last |
|
|
Contributions in Last |
|
|
Earnings in |
|
|
Distributions in |
|
|
Balance at Last |
|
|
Named Executive |
|
|
Plan |
|
|
Fiscal Year ($)1 |
|
|
Fiscal Year ($)2 |
|
|
Last Fiscal Year ($) |
|
|
Last Fiscal Year ($) |
|
|
Fiscal Year End
($)3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Taurel |
|
|
non-qualified savings |
|
|
|
85,820 |
|
|
|
|
85,820 |
|
|
|
|
79,063 |
|
|
|
|
0 |
|
|
|
|
2,517,012 |
|
|
|
|
|
|
deferred compensation |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
433,657 |
|
|
|
|
|
|
|
|
|
8,086,877 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
85,820 |
|
|
|
|
85,820 |
|
|
|
|
512,720 |
|
|
|
|
|
|
|
|
|
10,603,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Lechleiter |
|
|
non-qualified savings |
|
|
|
53,520 |
|
|
|
|
53,520 |
|
|
|
|
30,424 |
|
|
|
|
0 |
|
|
|
|
677,192 |
|
|
|
|
|
|
deferred compensation |
|
|
|
259,884 |
|
|
|
|
0 |
|
|
|
|
125,752 |
|
|
|
|
|
|
|
|
|
2,390,033 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
313,404 |
|
|
|
|
53,520 |
|
|
|
|
156,176 |
|
|
|
|
|
|
|
|
|
3,067,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Paul |
|
|
non-qualified savings |
|
|
|
41,770 |
|
|
|
|
41,770 |
|
|
|
|
25,454 |
|
|
|
|
0 |
|
|
|
|
621,447 |
|
|
|
|
|
|
deferred compensation |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
41,770 |
|
|
|
|
41,770 |
|
|
|
|
25,454 |
|
|
|
|
|
|
|
|
|
621,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Armitage |
|
|
non-qualified savings |
|
|
|
28,899 |
|
|
|
|
28,899 |
|
|
|
|
14,670 |
|
|
|
|
0 |
|
|
|
|
271,672 |
|
|
|
|
|
|
deferred compensation |
|
|
|
527,858 |
|
|
|
|
0 |
|
|
|
|
80,027 |
|
|
|
|
|
|
|
|
|
1,583,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
556,757 |
|
|
|
|
28,899 |
|
|
|
|
94,697 |
|
|
|
|
|
|
|
|
|
1,855,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Rice |
|
|
non-qualified savings |
|
|
|
23,700 |
|
|
|
|
23,700 |
|
|
|
|
4,002 |
|
|
|
|
0 |
|
|
|
|
101,584 |
|
|
|
|
|
|
deferred compensation |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
23,700 |
|
|
|
|
23,700 |
|
|
|
|
4,002 |
|
|
|
|
|
|
|
|
|
101,584 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Golden |
|
|
non-qualified savings |
|
|
|
3,954 |
|
|
|
|
3,954 |
|
|
|
|
36,969 |
|
|
|
|
10,405 |
|
|
|
|
622,345 |
|
|
|
|
|
|
deferred compensation |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
131,934 |
|
|
|
|
0 |
|
|
|
|
2,460,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
total |
|
|
|
3,954 |
|
|
|
|
3,954 |
|
|
|
|
168,903 |
|
|
|
|
10,405 |
|
|
|
|
3,082,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
The amounts in this column are also included in the Summary Compensation Table on
page 30, in the salary column (non-qualified savings) or the non-equity incentive plan
compensation column (deferred compensation). |
|
2 |
|
The amounts in this column are also included in the Summary Compensation Table on page
30, in the all other compensation column as a portion of the
401(k) match. |
|
3 |
|
Of the totals in this column, the following totals have previously been reported in
the Summary Compensation Table for this year, and for previous years: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
|
|
2006 ($) |
|
|
Previous Years ($) |
|
|
Total ($) |
|
|
Mr. Taurel |
|
|
$ |
171,640 |
|
|
|
$ |
3,170,235 |
|
|
|
$ |
3,341,875 |
|
|
|
Dr. Lechleiter |
|
|
$ |
366,924 |
|
|
|
$ |
1,815,963 |
|
|
|
$ |
2,182,887 |
|
|
|
Dr. Paul |
|
|
$ |
83,540 |
|
|
|
$ |
135,171 |
|
|
|
$ |
218,711 |
|
|
|
Mr. Armitage |
|
|
$ |
585,657 |
|
|
|
$ |
1,281,715 |
|
|
|
$ |
1,867,372 |
|
|
|
Mr. Rice |
|
|
$ |
47,400 |
|
|
|
|
0 |
|
|
|
$ |
47,400 |
|
|
|
Mr. Golden |
|
|
$ |
7,908 |
|
|
|
$ |
1,995,961 |
|
|
|
$ |
2,003,869 |
|
|
|
36
The Nonqualified Deferred Compensation in 2006 Table above shows information about two company
programs: a non-qualified savings plan and a deferred compensation plan. The non-qualified savings
plan is designed to allow each executive to contribute a percentage of his or her base salary, and
receive a company match, beyond the contribution limits prescribed by
the IRS with regard to 401(k) plans. This plan is administered in the
same manner as the company 401(k) Plan, with the same
participation and investment elections, and all employees are eligible to participate. Executive
officers and other executives may also defer receipt of all or part of their cash compensation
under the companys deferred compensation plan. Amounts deferred by executives under this program
are credited with interest at 120 percent of the applicable federal long-term rate as established
for the preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal
Revenue Code with monthly compounding, which was 5.6 percent for 2006 and is 5.7 percent for 2007.
Participants may elect to receive the funds in a lump sum or in up to 10 annual installments
following retirement, but may not make withdrawals during their employment, except in the event of
hardship as approved by the compensation committee. All deferral elections and associated
distribution schedules are irrevocable. Both plans are unfunded and subject to forfeiture in the
event of bankruptcy.
Potential Payments Upon Termination or Change in Control
The following table describes the potential payments and benefits under the companys compensation
and benefit plans and arrangements to which the named executive officers would be entitled upon
termination of employment. Except for (i) certain terminations following a change in control of the
company, as described below, and (ii) certain pension arrangements as described under Pension
Benefits above, there are no agreements, arrangements or plans that entitle executive officers to
severance, perquisites, or other enhanced benefits upon termination of their employment. Any
agreement to provide such payments or benefits to a terminating executive officer (other than
following a change in control) would be in the discretion of the compensation committee.
Potential Payments Upon Termination of Employment
|
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Acceleration and |
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Continuation of |
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Continuation of Equity |
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Cash |
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Incremental |
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Medical/Welfare |
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Awards (unamortized |
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Severance |
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Pension Benefit |
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Benefits (present |
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expense as of |
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Excise Tax |
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Total Termination |
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Payment |
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(present value) |
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value) |
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|
12/31/06) |
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Gross-up |
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Benefits |
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Current |
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|
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|
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|
|
Mr. Taurel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary retirement |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary or good reason |
|
|
$ |
8,853,216 |
|
|
|
|
0 |
1 |
|
|
$ |
24,000 |
2 |
|
|
$ |
600,000 |
|
|
|
|
0 |
|
|
|
$ |
9,477,216 |
|
|
|
|
|
termination after change in |
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|
|
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|
|
|
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|
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|
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|
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|
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|
|
control (CIC) |
|
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|
|
|
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|
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|
|
|
|
|
|
Dr. Lechleiter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary retirement |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary or good reason |
|
|
$ |
5,204,160 |
|
|
|
$ |
1,254,031 |
|
|
|
$ |
24,000 |
2 |
|
|
$ |
390,000 |
|
|
|
$ |
2,699,273 |
|
|
|
$ |
9,571,464 |
|
|
|
|
|
termination after CIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
|
|
|
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
Dr. Paul |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary retirement |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary or good reason |
|
|
$ |
3,931,028 |
|
|
|
$ |
3,999,724 |
|
|
|
$ |
116,360 |
|
|
|
$ |
264,460 |
|
|
|
$ |
3,470,583 |
|
|
|
$ |
11,782,155 |
|
|
|
|
|
termination after CIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
Mr. Armitage |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary or good reason |
|
|
$ |
2,834,330 |
|
|
|
$ |
1,146,757 |
|
|
|
$ |
255,584 |
|
|
|
$ |
1,160,453 |
|
|
|
$ |
2,114,798 |
|
|
|
$ |
7,511,922 |
|
|
|
|
|
termination after CIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Rice |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary termination |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Involuntary or good reason |
|
|
$ |
2,561,850 |
|
|
|
$ |
70,796 |
|
|
|
$ |
24,000 |
|
|
|
$ |
880,075 |
|
|
|
$ |
974,403 |
|
|
|
$ |
4,511,124 |
|
|
|
|
|
termination after CIC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Golden |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary retirement (4/30/06) |
|
|
|
0 |
|
|
|
$ |
14,909,762 |
3 |
|
|
$ |
96,424 |
4 |
|
|
|
0 |
|
|
|
|
0 |
|
|
|
$ |
15,006,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
See Change-in-Control Severance Pay Program Incremental Pension Benefit below. |
|
2 |
|
See Accrued Pay and Regular Retirement Benefits
and Change-in-Control Severance Pay Program Continuation of Medical and Welfare Benefits below. |
|
3 |
|
See the Pension Benefits in 2006 Table on page 35. |
|
4 |
|
See the footnote 5 to the Summary Compensation Table on page
31. |
37
Accrued
Pay and Regular Retirement Benefits. The amounts shown in the table above do not include
payments and benefits to the extent they are provided on a non-discriminatory basis to salaried
employees generally upon termination of employment. These include:
|
|
|
Accrued salary and vacation pay |
|
|
|
|
Regular pension benefits under the Lilly Retirement Plan and the non-qualified retirement plan. See Retirement
Benefits on page 34. The amounts shown in the table above as Incremental Pension Benefits are
explained below. |
|
|
|
|
Welfare benefits provided to all U.S. retirees, including retiree medical and dental
insurance. The amounts shown in the table above as Continuation of Medical / Welfare Benefits are explained below. |
|
|
|
|
Distributions of plan balances under the Lilly 401(k) plan and the non-qualified savings
plan. See the narrative following the Nonqualified Deferred
Compensation in 2006 Table for information about the 401(k) plan
and Non-qualified Deferred Compensation on pages 36-37 for information about the non-qualified savings
plan. |
|
|
|
|
The value of accelerated vesting of certain unvested equity grants upon retirement. Under
the companys stock plans, employees who terminate employment while retirement-eligible receive accelerated vesting
of unvested stock options (except for options granted in the 12 months before retirement, which are
forfeited), outstanding performance awards (which are paid on a reduced basis for time worked during the award period),
and restricted stock awarded in payment of previous performance awards. |
|
|
|
|
The value of option continuation upon retirement. When an employee terminates prior to
retirement, his or her stock options are terminated 30 days thereafter. However, when a retirement-eligible employee
terminates, his or her options remain in force until the earlier of five years after retirement or the options
normal expiration date. |
Deferred Compensation. The amounts shown in the table do not include distributions of plan balances
under the Lilly deferred compensation plan. Those amounts are shown in the Non-qualified Deferred
Compensation in 2006 Table on page 36.
Death and Disability. A termination of employment due to death or disability does not entitle
the named executive officers to any payments or benefits that are not available to salaried
employees generally.
Change-in-Control Severance Pay Program. As described in the Compensation Discussion and Analysis
under Severance Pay on pages 28-29, the company maintains a change-in-control severance pay
program for nearly all employees, including the named executive officers (the CIC Program). The
amounts shown in the table for involuntary or good reason termination following a change in
control are based on the following assumptions and plan provisions:
|
|
|
Covered terminations. The table assumes a termination of employment that is eligible for
severance under the terms of the current plan, based on the named executives compensation, benefits, age, and
service credit at December 31, 2006. Eligible terminations include an involuntary termination for reasons other
than cause, or a voluntary termination by the executive for good reason, within two years following the change
in control. |
|
|
|
A termination of an executive officer by the company is for cause if it is for any of
the following reasons: (i) the employees willful and continued refusal to perform,
without legal cause, his/her material duties, resulting in demonstrable economic harm to
the company; (ii) any act of fraud, dishonesty or gross misconduct resulting in
significant economic harm or other significant harm to the business reputation of the
company; or (iii) conviction of or the entering of a plea of guilty or nolo contendere to
a felony. |
|
|
|
|
A termination by the executive officer is for good reason if it results from (i) a
material diminution in the nature or status of the executives position, title, reporting
relationship, duties, responsibilities or authority, or the assignment to him/her of
additional responsibilities that materially increase his/her workload; (ii) any reduction
in the executives then-current base salary; (iii) a material reduction in the
executives opportunities to earn incentive bonuses below those in effect for the year prior to the change in control;
(iv) a material reduction in the executives employee benefits from the benefit levels in
effect immediately prior to the change in control; (v) the failure to grant to the executive
stock options, stock units, performance shares or similar incentive rights during each
twelve (12) month period following the change in control on the basis of a number of shares
or units and all other material terms at least as favorable to the executive as those rights
granted to him/her on an annualized average basis for the three (3) year period immediately
prior to the change in control; or (vi) relocation of the executive by more than fifty (50)
miles. |
|
|
|
Cash severance payment. Represents the CIC Program benefit of two times the 2006 annual
base salary plus two times cash bonus for 2006 under the Eli Lilly and Company Bonus Plan. |
|
|
|
|
Incremental pension benefit. Represents the present value of an incremental non-qualified
pension benefit of two years of age credit and two years of service credit that is provided under the CIC Program. The following |
38
|
|
|
standard actuarial assumptions were used to calculate each individuals incremental pension
benefit: |
|
|
|
Discount rate:
|
|
6 percent |
Mortality (post-retirement only):
|
|
RP 2000CH |
Joint & survivor benefit:
|
|
25% of pension |
|
|
|
Because Mr. Taurel already qualifies for a full pension benefit, the additional age credit
and service credit do not increase his benefit.
|
|
|
Continuation of medical and welfare benefits. Represents the present value of the CIC
Plans guarantee for two years following a covered termination of continued coverage equivalent to the companys
current active employee medical, dental, life, and long-term disability insurance. For the three
retirement-eligible employees, Mr. Taurel and Drs. Lechleiter and Paul, there is limited incremental benefit under the CIC
Plan because they would be entitled to equivalent medical and dental coverage in the ordinary course as retirees
regardless of the reason for termination. The same actuarial assumptions were used to calculate continuation of
medical and welfare benefits as were used to calculate incremental pension benefits, with the addition of
an assumed COBRA rate of $12,000 per year. |
|
|
|
|
Acceleration and continuation of equity awards. Under the CIC Plan, upon a covered
termination, any unvested stock options, restricted stock, or other equity awards would vest, and options would be
exercisable for up to three years following termination. For the three retirement-eligible employees, Mr. Taurel and
Drs. Lechleiter and Paul, the only equity award receiving accelerated vesting and term extension because of the
CIC Plan would be 8,000 shares of restricted stock held by Dr. Paul; all other unvested equity awards
automatically vest upon retirement regardless of reason. The amounts in this column represent the previously
unamortized expense that would be recognized in connection with the acceleration of unvested equity grants. In addition,
the two named executive officers who are not retirement-eligible, Messrs. Armitage and Rice, would receive
the benefit under the CIC Plan of continuation of their outstanding stock options for up to three years following
termination of employment. There would be no incremental expense to the company for this continuation because
the option would already have been fully expensed. |
|
|
|
|
Excise tax gross-up. Upon a change in control, employees may be subject to certain excise
taxes under Section 280G of the Internal Revenue Code. The company has agreed to reimburse the affected employees
for those excise taxes as well as any income and excise taxes payable by the executive as a result of any
reimbursements for the 280G excise taxes. The amounts in the table are based on a 280G excise tax rate of 20
percent, a statutory 25 percent federal income tax rate, a 1.45 percent Medicare tax rate and a 3.4 percent state income tax rate. |
Payments
Upon Change in Control Alone. The CIC Program is a double trigger program, meaning
payments are made only if the employee suffers a covered termination of employment within two years
following the change in control. Employees do not receive payments upon a change in control alone,
except that upon consummation of a change in control a partial payment of outstanding performance
awards would be made, reduced to reflect the portion of the year prior to the change in control.
For example, if a change in control occurred on June 30, the employee would receive one-half of the
value of the performance award, calculated based on the companys then-current financial forecast
for the year.
Related Person Transaction
As noted above, under board policy, for security reasons the company aircraft is made available to
Mr. Taurel for all travel. The company has entered into a time-share arrangement with Mr. Taurel in
connection with his personal use of company aircraft. Under the time-share agreement, Mr. Taurel
leases the company aircraft, including crew and flight services, for personal flights. He pays a
time-share fee based on the companys cost of the flight but capped at the greater of (i) an amount
equivalent to first-class airfare for the relevant flight (if commercially available), and (ii) the
Standard Industry Fare Levels as established by the Internal Revenue Service for purposes of
determining taxable fringe benefits.
Ownership of Company Stock
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, and all directors and executive officers as a group, as of February
5, 2007.
The table shows shares held by named executives in the Lilly Employee 401(k) Plan, shares credited
to the ac-
39
counts of outside directors in the Directors Deferral Plan, and total shares beneficially owned by
each individual, including the shares in the respective plans. In addition, the table shows shares
that may be purchased pursuant to stock options that are exercisable within 60 days of February 5,
2007.
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Stock Options |
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Exercisable Within |
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Directors' Deferral |
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Total Shares Owned |
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60 Days of |
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Name of Individual or Identity of Group |
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401(k) Plan Shares |
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Plan Shares1 |
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Beneficially2 |
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February 5, 2007 |
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Robert A. Armitage |
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1,218 |
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49,701 |
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227,900 |
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Sir Winfried Bischoff |
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8,115 |
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10,115 |
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11,200 |
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J. Michael Cook |
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7,601 |
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9,401 |
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Martin S. Feldstein, Ph.D. |
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6,528 |
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7,528 |
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8,400 |
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George M.C. Fisher |
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14,383 |
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24,383 |
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11,200 |
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J. Erik Fyrwald |
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4,391 |
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4,491 |
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Alfred G. Gilman, M.D., Ph.D. |
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13,861 |
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13,861 |
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14,000 |
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Charles E. Golden |
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1,716 |
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127,778 |
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878,107 |
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Karen N. Horn, Ph.D. |
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26,258 |
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26,258 |
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14,000 |
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John C. Lechleiter, Ph.D. |
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12,538 |
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201,258 |
3 |
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760,000 |
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Ellen R. Marram |
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6,528 |
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7,528 |
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5,600 |
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Steven M. Paul, M.D. |
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3,036 |
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69,396 |
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530,900 |
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Franklyn G. Prendergast, M.D., Ph.D. |
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19,335 |
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19,335 |
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14,000 |
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Kathi P. Seifert |
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15,489 |
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19,022 |
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14,000 |
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Derica W. Rice |
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4,585 |
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37,410 |
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86,200 |
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Sidney Taurel |
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16,366 |
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1,114,992 |
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2,390,000 |
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All directors and executive officers as a group (21 people): |
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2,071,697 |
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1 |
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See description of the Directors Deferral Plan, pages
18-19. |
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2 |
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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. No person listed in the table owns more than 0.10 percent of the
outstanding common stock of the company. All directors and executive officers as a group own
0.18 percent of the outstanding common stock of the company. 24,349 of Mr. Goldens shares
were pledged and 1,800 of Mr. Cooks shares were on deposit in a margin account as of February
5, 2007. |
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3 |
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The shares shown for Dr. Lechleiter include 10,698 shares that are owned by a family
foundation for which he is a director. Dr. Lechleiter has shared voting power and shared
investment power over the shares held by the foundation. |
Principal Holders of Stock
To the best of the companys knowledge, the only beneficial owners of more than 5 percent of
the outstanding shares of the companys common stock are the shareholders listed below:
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Number of Shares |
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Percent of |
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Name and Address |
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Beneficially Owned |
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Class |
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Lilly Endowment, Inc. (the Endowment) |
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140,350,804 |
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12.4 |
% |
2801 North Meridian Street |
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(as of 2/5/07 |
) |
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Indianapolis, Indiana 46208 |
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Capital Research and Management Company |
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108,167,000 |
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9.6 |
% |
333 South Hope Street |
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(as of 12/29/06 |
) |
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Los Angeles, California 90071 |
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Wellington Management Company, LLP |
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66,929,125 |
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5.9 |
% |
75 State Street |
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(as of 12/31/06 |
) |
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Boston, Massachusetts 02109 |
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The Endowment has sole voting and sole investment power with respect to its shares. The
board of directors of the Endowment is composed of Mr. Thomas M. Lofton, chairman; Mr. N. Clay
Robbins, president; Mrs. Mary K. Lisher; Drs. Otis R. Bowen and William G. Enright; and Messrs.
Daniel P. Carmichael, Eli Lilly II, and Eugene F. Ratliff (Emeritus Director). Each of the
directors is, either directly or indirectly, a shareholder of the company.
Capital Research and Management Company acts as investment advisor to various investment
companies. It has sole voting power with respect to 17,450,000 shares (approximately 1.5 percent of
shares outstanding) and sole investment power with respect to all of its shares.
40
Wellington Management Company, LLP, acts as investment advisor to various clients. It has
shared voting power with respect to 26,252,339 shares (approximately 2.3 percent of shares
outstanding) and shared investment power with respect to all of its shares.
Items of Business to Be Acted Upon at the Meeting
Item 1. Election of Directors
Under the companys articles of incorporation, the board is divided into three classes with
approximately one-third of the directors standing for election each year. The term for directors
elected this year will expire at the annual meeting of shareholders held in 2010. Each of the
nominees listed below has agreed to serve that 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.
The board recommends that you vote FOR each of the following nominees:
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Sir Winfried Bischoff |
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J. Michael Cook |
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Franklyn G. Prendergast, M.D., Ph.D. |
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Kathi P. Seifert |
Biographical
information about these nominees may be found on page 7 of this proxy statement.
Item 2. Proposal to Ratify the Appointment of Principal Independent Auditors
The audit committee has appointed the firm of Ernst & Young LLP as principal independent auditors
for the company for the year 2007. In accordance with the bylaws, this appointment is being
submitted to the shareholders for ratification. Ernst & Young served as the principal independent
auditors for the company in 2006. 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 wish to do so.
The board recommends that you vote FOR ratifying the appointment of Ernst & Young LLP as principal independent auditors for 2007.
Item 3. Proposal to Amend the Companys Articles of Incorporation to Provide for Annual Election of Directors
The companys Amended Articles of Incorporation currently provide that the board of directors is
divided into three classes, with each class elected every three years. In December 2006, on the
recommendation of the directors and corporate governance committee, the board unanimously adopted
resolutions approving, and recommending to the shareholders for approval, amendments to provide for
the annual election of directors.
If approved, this proposal will become effective upon the filing of Amended Articles of
Incorporation containing these amendments with the Secretary of State of Indiana, which the company
intends to do promptly after shareholder approval is obtained. Directors elected prior to the
effectiveness of the amendments will stand for election for one-year terms once their then-current
terms expire. This means that directors whose terms expire at the 2008 and 2009 annual meetings of
shareholders would be elected for one-year terms, and beginning with the 2010 annual meeting, all
directors would be elected for one-year terms at each annual meeting. In addition, in the case of
any vacancy on the board occurring after the 2007 annual meeting, including a vacancy created by an
increase in the number of directors, the vacancy would be filled by interim election of the board,
with the new director to serve a term ending at the next annual meeting. At all times, directors
are elected to serve for their respective terms and until their successors have been elected and
qualified. This proposal would not change the present number of directors, and it would not change
the boards authority to change that number and to fill any vacancies or newly created
directorships.
Article 9(b) of the companys Amended Articles of Incorporation contains the provisions that
will be affected if this proposal is adopted. This article, set forth in Appendix A to this proxy
statement, shows the proposed changes with deletions indicated by strike-outs and additions
indicated by underlining. The board has also adopted conforming amendments to the companys bylaws,
to be effective immediately upon the effectiveness of the amendments to the Amended Articles of
Incorporation.
41
Background of Proposal
The proposal is a result of ongoing review of corporate governance matters by the board. The board,
assisted by the directors and corporate governance committee, considered the advantages and
disadvantages of maintaining the classified board structure. The board considered the view of some
shareholders who believe that classified boards have the effect of reducing the accountability of
directors to shareholders because classified boards limit the ability of shareholders to evaluate
and elect all directors on an annual basis. The election of directors is the primary means for
shareholders to influence corporate governance policies. The board gave considerable weight to the
approval at the 2006 annual meeting of a shareholder proposal requesting that the board take all
necessary steps to elect the directors annually.
The board also considered benefits of retaining the classified board structure, which has a
long history in corporate law. Proponents of a classified structure believe it provides continuity
and stability in the management of the business and affairs of a company because a majority of
directors always have prior experience as directors of the company. Proponents also assert that
classified boards may enhance shareholder value by forcing an entity seeking control of a target
company to initiate arms-length discussions with the board of that company, because the entity
cannot replace the entire board in a single election. While the board generally concurred with that
view, it also took note that even without a classified board, the company has other means to compel
a takeover bidder to negotiate with the board, including a shareholder rights plan, certain
supermajority vote requirements in its Amended Articles of Incorporation (as described in the
companys response to Item 9 at pages 50-51), and certain provisions of Indiana law.
The directors and corporate governance committee and the board heard advice from outside
governance and legal experts on the annual election of directors. On the recommendation of the
committee, the board approved the amendments, and determined to recommend that shareholders approve
the amendments, to the companys Amended Articles of Incorporation to provide for the annual
election of directors. The board believes that by taking this action, it can provide shareholders
further assurance that the directors are accountable to shareholders while maintaining appropriate
defenses to respond to inadequate takeover bids.
Vote Required
The affirmative vote of at least 80 percent of the outstanding common shares is needed to pass this
proposal.
The board recommends that you vote FOR amending the companys articles of incorporation.
Item 4. Reapproval of Material Terms of Performance Goals for the 2002 Lilly Stock Plan
Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code), limits the amount of
compensation expense that the company can deduct for income tax purposes. In general, a public
corporation cannot deduct compensation in excess of $1 million paid to any of the named executive
officers in the proxy statement. However, compensation that qualifies as performance-based is not
subject to this deduction limitation.
The 2002 Lilly Stock Plan (2002 Plan) allows the grant of performance awards that qualify as
performance-based compensation under Section 162(m). One of the conditions to qualify as
performance-based is that the material terms of the performance goals must be approved by the
shareholders at least every five years. The last such approval for the 2002 Plan was when the plan
itself was approved in 2002. To preserve the tax status of performance awards as performance-based,
and thereby to allow the company to continue to fully deduct the compensation expense related to
the awards, we are now asking the shareholders to reapprove the performance goals. We are not
amending or altering the 2002 Plan. If this proposal is not adopted, the committee will continue to
grant performance awards under the 2002 Plan but certain awards to executive officers would no
longer be fully tax deductible by the company.
Shares Subject to Plan
The maximum number of shares of Lilly stock that may be issued or transferred for grants under the
2002 Plan is the sum of:
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80,000,000 shares; |
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5,243,448 shares that were available under the previous shareholder-approved plan (the 1998
Lilly Stock Plan)
at the time that plan terminated in April 2002; |
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any shares subject to grants under the 2002 Plan or prior shareholder approved stock plans
(the 1989, 1994 and
1998 Lilly Stock Plans) that are not issued or transferred due to termination, lapse, or
forfeiture of the grant; and |
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any shares exchanged by grantees as payment to the company of the exercise price of stock
options granted under the 2002 Plan or prior shareholder approved stock plans. |
42
The maximum number is subject to adjustment for stock splits, stock dividends, spin offs,
reclassifications or other relevant changes affecting Lilly stock.
Grants Under the Plan
Under the 2002 Plan all employees of the company, including officers, are eligible to participate.
Currently approximately 41,500 employees, including all 10 executive officers, are eligible to
participate. The compensation committee (the committee) may make grants to officers and employees
in its discretion. The board may grant stock options under the 2002 Plan to nonemployee directors.
There are currently 10 nonemployee directors.
Stock
Options and Stock Appreciation Rights. The committee may grant nonqualified options,
incentive stock options, or other tax favored stock options under the Code. The committee
establishes the option price, which may not be less than 100 percent of the fair market value of
the stock on the date of grant. Options may not be repriced. The committee also establishes the
vesting date and the term of the option.
The committee may also grant stock appreciation rights (SARs) the right to receive an
amount based on appreciation in the fair market value of shares of Lilly stock over a base price.
If granted without a related stock option, the committee establishes the base price of the SARs,
which may not be less than 100 percent of the fair market value of the stock on the date of grant,
and the settlement or exercise date, which may not be more than eleven years after the grant date.
If granted in connection with a stock option, the holder of SARs may, upon exercise, surrender the
related options and receive payment, in the form of Lilly stock, equal to the excess of the
fair market value of Lilly stock over the exercise price in the date of exercise multiplied by the
number of shares exercised. The price and term of the SARs mirror those of the related stock
option, and the SARs automatically terminate to the extent the related options are exercised.
Effectively, these awards give the holder the benefit of the related stock options (in the form of
shares of Lilly stock) without requiring payment of the exercise price.
No grantee may receive options and SARs, considered together, for more than 2,500,000
shares under the 2002 Plan in any period of three consecutive
calendar years.
Performance
Awards. The committee may grant performance awards under which payment is made in
shares of Lilly stock, cash, or both if the financial performance of the company or a subsidiary,
division, or other business unit of the company selected by the committee meets certain performance
goals during an award period. A maximum of 18,000,000 shares may be issued under the 2002 Plan in
the form of performance awards.
The committee establishes the performance goals at the beginning of
the award period based on one or more performance goals specified in the 2002 Plan. The material
terms of those performance goals are:
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earnings per share |
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net income |
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divisional income |
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corporate or divisional net sales |
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EVA® (after tax operating profit less the annual total cost of capital) |
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Market Value Added (MVA the difference between a companys fair market value, as
reflected primarily in its stock price, and the economic book value of capital employed) |
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any of the foregoing goals before the effect of acquisitions, divestitures, accounting
changes, and restructuring and special charges |
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total shareholder return |
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other Lilly stock price goals. |
The committee also establishes the award period (four or more consecutive fiscal quarters),
the threshold, target and maximum performance levels, and the number of shares or dollar amounts
payable at various performance levels from the threshold to the maximum.
Awards may be denominated either in shares of Lilly stock (Stock Performance Awards) or in
dollar amounts (Dollar Performance Awards). The maximum number of shares that may be received by
an individual in payment of Stock Performance Awards in any calendar year is 100,000. As to Dollar
Performance Awards, the maximum payment to an individual in any calendar year is $8,000,000. The
committee can elect to pay cash in lieu of part or all of the shares of Lilly stock payable under a
Stock Performance Award, and such cash payment is counted as a payment of shares (based on the
market value of Lilly stock on the payment date) for purposes of determining compliance with the
100,000 share limit for Stock Performance Awards. In order to receive payment, a grantee must
generally remain employed by the company to the end of the award period. The committee may impose
additional conditions on a grantees entitlement to receive payment under a performance award.
43
At any time prior to payment, the committee can adjust awards for the effect of unforeseen
events that have a substantial effect on the performance goals and would otherwise make application
of the performance goals unfair. However, the committee may not increase the amount that would
otherwise be payable to individuals who are subject to Section 162(m) of the Code.
Restricted
Stock Grants or Stock Units. The committee may also issue or transfer shares under a
restricted stock grant. The grant will set forth a restriction period during which the shares may
not be transferred. If the grantees employment terminates during the restriction period, the grant
terminates and the shares are returned to the company. However, the committee can provide complete
or partial exceptions to that requirement as it deems equitable. If the grantee remains employed
beyond the end of the restriction period, the restrictions lapse and the shares become freely
transferable.
The committee may grant stock unit awards subject to vesting and transfer restrictions and
conditions of payment determined by the committee. The value of each stock unit equals the fair
market value of Lilly stock and may include the right to receive the equivalent of dividends on the
shares granted. Payment is made in the form of Lilly stock.
A maximum of 3,000,000 shares of Lilly stock may be issued or transferred under the 2002 Plan
in the form of restricted stock grants or stock unit awards, considered together.
Authority of Committee
The 2002 Plan is administered and interpreted by the committee, each member of which must be a
nonemployee director within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934
and an outside director within the meaning of section 162(m) of the Code. As to grants to
employees, the committee selects persons to receive grants from among the eligible employees,
determines the type of grants and number of shares to be awarded, and sets the terms and conditions
of the grants. The committee may establish rules for administration of the 2002 Plan and may
delegate authority to others for plan administration, subject to limitations imposed by SEC and IRS
rules and state law.
Other Information
The 2002 Plan remains effective until April 14, 2012, unless earlier terminated by the board. The
board may amend the 2002 Plan as it deems advisable, except that shareholder approval is required
for any amendment that would (i) allow the repricing of stock options below the original option
price, (ii) allow the grant of stock options at an option price below fair market value of Lilly
stock on the date of grant, (iii) increase the number of shares authorized for issuance or
transfer, or (iv) increase any of the various maximum limits established for stock options,
performance awards, and restricted stock.
The Committee may provide in the grant agreement, or by subsequent action, that the following
shall occur in the event of a change in control (as defined in Article 12 of the 2002 Plan), in
order to preserve all of the grantees rights: (i) any outstanding stock option not already vested
shall become immediately exercisable; (ii) any restriction periods on restricted stock grants shall
immediately lapse; and (iii) outstanding performance awards will be vested and paid out on a
prorated basis, based on the maximum award opportunity and the number of months elapsed compared to
the total number of months in the award period.
The future amounts that will be received by grantees under the 2002 Plan are not determinable.
In 2006, the named executive officers received stock option grants as
set forth on page 32 in the
Grants of Plan-Based Awards During 2006 Table, and in connection with the 2006 award year received
performance awards as detailed on page 32 in the narrative following the Grants of Plan-Based
Awards During 2006 Table. Also in 2006, the executive officers as a group (10 officers) received
stock option grants for 755,302 shares and all other employees (3,854 employees) received options
grants for 4,804,932 shares. With respect to the 2006 award year, the executive officers as a group
received payouts for performance awards totaling 321,468 shares and all other employees received
performance awards, restricted stock grants, and restricted stock units totaling 2,357,195 shares.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information as of December 31, 2006, regarding our compensation plans
under which shares of Lilly common stock have been authorized for issuance.
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(c) Number of
securities
remaining |
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(a) Number of securities
to be issued |
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(b) Weighted-average
exercise |
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available for future
issuance under |
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upon exercise of
outstanding options, |
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price of
outstanding options, |
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equity compensation
plans (excluding securities |
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Plan category |
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warrants, and rights |
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warrants, and rights |
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reflected in column (a)) |
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Equity
compensation plans
approved by
security holders |
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|
79,012,219 |
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$ |
68.59 |
|
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|
45,157,699 |
|
|
|
Equity compensation
plan not approved
by security
holders1 |
|
|
|
9,797,960 |
|
|
|
$ |
75.74 |
|
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|
|
320,555 |
|
|
|
Total |
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|
|
88,810,179 |
|
|
|
$ |
69.38 |
|
|
|
|
45,478,254 |
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44
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1 |
|
Represents shares in the Lilly GlobalShares Stock Plan, which permits the company
to grant stock options to nonmanagement employees worldwide. The plan is administered by the senior
vice president responsible for human resources. The stock options are nonqualified for U.S. tax
purposes. The option price cannot be less than the fair market value at the time of grant. The
options shall not exceed 11 years in duration and shall be subject to vesting schedules established
by the plan administrator. There are provisions for early vesting and early termination of the
options in the event of retirement, disability, and death. In the event of stock splits or other
recapitalizations, the administrator may adjust the number of shares available for grant, the
number of shares subject to outstanding grants, and the exercise price of outstanding grants. |
The board recommends that you vote FOR reapproval of the performance goals for the 2002 Lilly Stock Plan.
Item 5. Shareholder Proposal Regarding Care and Use of Animals
Jamie Moran, P.O. Box 15889, Seattle, Washington 98115 and Meredith Page, on behalf of People for
the Ethical Treatment of Animals (PETA), 501 Front Street, Norfolk, Virginia 23510, beneficial
owner of approximately 675 and 100 shares, respectively, have submitted the following proposal.
Resolved, that the Board issue a report to shareholders on the feasibility of amending the
Companys Animal Care and Use Policy to ensure that: i) it extends to all contract laboratories and
is reviewed with such outside laboratories on a regular basis, and ii) it addresses animals social
and behavioral needs. Further, the shareholders request that the report include information on the
extent to which in-house and contract laboratories are adhering to the Policy, including the
implementation of enrichment measures.
Supporting Statement:
Our Company conducts tests on animals as part of its product research and
development, as well as retaining independent laboratories to conduct such tests. Abuses in
independent laboratories are not uncommon and have recently been exposed by the media. Eli Lilly
has posted on its Web site an Animal Care and Use Policy. The Company, as an industry leader, is
commended for its stated commitment to an ethical and scientific obligation to ensure the
appropriate treatment of animals used in research...1
However, the disclosure of atrocities recorded at Covance, Inc., an independent laboratory
headquartered in Princeton, New Jersey,2 has made the need for a formalized, publicly
available animal welfare policy that extends to all outside contractors all the more relevant,
indeed urgent.3 Filmed footage showed primates being subjected to such gross physical
abuses and psychological torments that Covance sued to enjoin People for the Ethical Treatment of
Animals in Europe from publicizing it. The Honorable Judge Peter Langan in the United Kingdom
refused to stop PETA from publicizing the film and instead ruled in PETAs favor. The Judge stated
in his opinion that the rough manner in which the animals are handled and the bleakness of the
surroundings in which they are kept... even to a viewer with no particular interest in animal
welfare, at least cry out for explanation.4
Shareholders cannot monitor what goes on behind the closed doors of the animal testing
laboratories, so the Company must. Accordingly, we urge the Board to commit to promoting basic
animal welfare measures as an integral part of our Companys corporate stewardship.
We urge shareholders to support this Resolution.
Statement in Opposition to Animal Care and Use Proposal and International Outsourcing of Animal Research Proposal
The public policy and compliance committee of the board has reviewed both proposals submitted on
PETAs behalf (this Item 5 and Item 6 below) and believes that additional reporting is an
unnecessary use of company resources. Lillys current report on our use of animals can be found
in our Corporate Citizenship Report on our website at www.lilly.com.
Lilly is dedicated to the discovery and development of medicines that improve the health and
well-being of people worldwide. This entails careful and thorough evaluation of our products. While
efforts to minimize the use of animal testing have been underway for some time, the appropriate use
of animals in research is essential to ensure that safe and efficacious medicines become available
to patients. Furthermore, it is a requirement dictated by regulatory agencies around the world.
Lilly fully recognizes the fundamental ethical obligation to treat animals used in
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1 |
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http://www.lilly.com/about/policies/#animal |
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PETAs undercover investigator videotaped the systematic abuse of animals at Covances
laboratory in Vienna, VA over a six month investigation. |
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In October 2005, Covances Director of Early Development stated that Weve worked with
just about every major company around the world (http://www.azcentral.com/arizonarepublic/eastvalleyopinions/articles/1021credit21.html) |
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The case captioned Covance Laboratories Limited v. PETA Europe Limited was filed in the
High Court of Justice, Chancery Division, Leeds District Registry, Claim No. 5C-00295. In addition to ruling in PETAs favor, the Court ordered Covance to pay PETA
£50,000 in costs and fees. |
45
research responsibly. We have both an ethical and a scientific interest in ensuring that
appropriate standards are in place at company and third party facilities to ensure appropriate
standards of animal care yield valid study results.
Lilly maintains the highest standards of animal care and use in all our facilities. In the
United States, Lilly has been accredited by the Association for the Assessment and Accreditation of
Laboratory Animal Care International (AAALAC) for more than 30 years. AAALAC accreditation is a
voluntary process that includes a detailed, comprehensive review of research animal programs such
as animal care and use policies and procedures, animal environment, housing and management,
veterinary medical care, and physical plant operations. Globally, Lilly complies with local, state,
and national laws and regulations on the use of animals in research, which are enforced by the
relevant authorities. All animal facilities are subject to external review and inspection. For
example, our U.S. facilities are subject to unannounced site inspections by the U.S. Department of
Agriculture. In Europe, local and national authorities regularly inspect all animal facilities.
As a global company, Lilly develops contractual relationships with select laboratory animal
research and animal supply companies inside and outside the United States. Animal research and
animal supply companies throughout the world are subject to local laws, which may vary from country
to country. Regardless of local variations, Lilly seeks to do business only with those companies
that share our commitment to animal welfare. Lilly requires these companies to comply with
applicable local laws and treat animals in a humane manner. To ensure animal welfare, Lilly has
increased oversight of these companies to assess their adherence to these expectations. In
addition, we continue to work to harmonize global animal welfare standards.
The board recommends that you vote AGAINST this proposal and Item 6 below.
Item 6. Shareholder Proposal Regarding International Outsourcing of Animal Research
Gloria J. Eddie, 1060 Cambridge Avenue, Menlo Park, California 94025, on behalf of People for the
Ethical Treatment of Animals (PETA), beneficial owner of approximately 281 shares, has submitted
the following proposal.
Resolved, that the Board report to shareholders on the rationale for increasingly exporting the
Companys animal experimentation to countries which have either non-existent or substandard animal
welfare regulations and little or no enforcement. Further, the shareholders request that the report
include information on the extent to which Lilly requires at a minimum adherence to U.S. animal
welfare standards at its facilities in foreign countries.
Supporting
Statement: Eli Lilly has publicly committed to an ethical and scientific obligation to
ensure the appropriate treatment of animals used in research, to minimize the number of animals
involved, and to pursue the development of alternative test systems.5 However, many of
the countries to which the Company is re-locating its animal research and testing are known for
having no or poor animal welfare standards and negligible oversight.
In January 2006, Business Week reported that Increasingly, Lilly is moving its research and
development...to China, India, and the former Soviet bloc.6 The November 13, 2006, issue
of Forbes magazine also reported that Eli Lilly had announced plans recently to set up research
units in China. The Forbes article noted that the rationale for shifting animal testing to China
is that scientists are cheap, lab animals plentiful and pesky protesters held at bay and quoted a
pharmaceutical industry executive who admits that Chinese testing companies lack quality control
and high standards on treatment.7
Our Company now conducts a significant portion of its research in foreign laboratories, with
20% of its scientists based in China (its largest non-U.S.-based Research & Development
team)8. Purposely re-locating research to regions with lower animal costs, easy animal
availability, and lower welfare standards is in direct conflict with Lillys stated commitment to
reducing, refining, and replacing animal use.
Shareholders deserve to know whether animal testing is being moved to foreign countries in
order to circumvent American animal welfare laws and reduce oversight and other protections for
animals, and whether research conducted at Lilly facilities in other countries is held to at least
the same standards as animal testing conducted at its U.S. facilities.
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http://www.lilly. com/about/policies/#animal |
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Lillys Labs Go Global"; Business Week (Jan. 30, 2006) |
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Comparative Advantage"; Forbes, p. 76 Vol. 178 No. 10 (Nov. 13, 2006) |
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Lilly Eyes R&D for Sales Rise"; China Daily, p.10 (Aug. 18, 2005) |
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Statement in Opposition to Animal Care and Use Proposal and International Outsourcing of Animal Research Proposal
Please see the Statement in Opposition following Item 5 above.
The board recommends that you vote AGAINST this proposal.
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Item 7. |
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Shareholder Proposal Regarding Separating the Roles of Chairman and Chief Executive Officer |
The Adrian Dominican Sisters, 1257 East Siena Heights Drive, Adrian, Michigan, 49221-1793,
beneficial owner of approximately 50 shares, has submitted the following proposal.
Resolved,
The shareholders of Eli Lilly & Company request the Board of Directors establish a policy
of whenever possible, separating the roles of Chairman and Chief Executive Officer, so that an
independent director who has not served as an executive officer of the Company serves as Chair of
the Board of Directors.
This proposal shall not apply to the extent that complying would necessarily breach any
contractual obligations in effect at the time of the 2007 shareholder meeting.
Supporting Statement:
We believe in the principle of the separation of the roles of Chairman and
Chief Executive Officer. This is a basic element of sound corporate governance practice.
We believe
an Independent Board Chair separated from the CEO is the preferable form of
corporate governance. This primary purpose of the Board of Directors is to protect shareholders
interests by providing independent oversight of management and the CEO. The Board gives strategic
direction and guidance to our Company.
The Board will likely accomplish both roles more effectively by separating the roles of Chair
and CEO. An Independent Chair will enhance Investor confidence in our Company and strengthen the
Integrity of the Board of Directors.
A Number of respected Institutions recommend such separation. CalPERs Corporate Core
Principles and Guidelines state: the Independence of a majority of the Board is not enough and
that the leadership of the board must embrace independence, and it must ultimately change the way
in which directors interact with management.
An independent board structure will also help the board address complex policy issues facing
our company, foremost among them the crisis in access to pharmaceutical products.
Millions of Americans and others around the world have limited or no access to our companys
life-saving medicines. We believe an independent Chair and vigorous Board will bring greater focus
to this ethical imperative, and be better able to forge solutions to address the crisis.
The current business model of the pharmaceutical sector is undergoing significant challenges.
The industry has generated substantial revenue from American purchasers, who pay higher prices for
medicines than those in other developed countries. Pressure on drug pricing and dependence on this
business model may impact our companys long-term value. We believe Independent Board leadership
will better position our company to respond to these enduring challenges.
A similar resolution voted on in 2006 was supported by 27.15 percent of shareholders.
In order to ensure that our Board can provide the proper strategic direction for our Company
with Independence and accountability, we urge a vote FOR this resolution.
Statement in Opposition to the Proposal Regarding Separating the Roles of Chairman and Chief Executive Officer
The board of directors, the directors and corporate governance committee, and the public
policy and compliance committee of the board have reviewed this proposal and recommend a vote
against it. We believe that Lilly already has a strong, independent board operating under sound
principles of corporate governance. (See pages 11-15 for a description of the boards governance
principles.) These principles are designed to ensure board independence, whether or not the
chairman and chief executive officer (CEO) roles are separated, through a counterbalancing
governance structure.
The board is composed of a majority of independent board members, currently 10 out of 12
directors; under our governance principles, 75 percent of the board must be independent,
non-employee members. Additionally, the presiding director, an
independent director who is appointed
by the board, presides at all meetings of the board at which the chairman is not present (unless
another independent director is chosen based on the subject matter), including an executive session
after each regular board meeting and an annual review of the CEOs performance. In addition, the
presiding director:
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leads the board process for selecting and evaluating the CEO |
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serves as a liaison between the chairman and the independent directors |
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generally approves information sent to the board and meeting agendas and schedules, and |
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has authority to call meetings of the independent directors. |
A recent Wharton School of Business article entitled Splitting Up the Roles of CEO and
Chairman: Reform or Red Herring?,9 points out that there is a lack of hard evidence to
show that separating the roles boosts returns for shareholders. A majority (315) of the top 500
Standard & Poors 500 index maintain a CEO/Chairman role. As the article points out, most companies
that separate these roles do so because they are troubled or facing a major executive succession
challenge. Lilly neither expects, nor is facing, either of these problems. Additionally, the
article points out that by dividing roles a company may weaken its ability to develop and implement
strategy. We agree, and believe that combining the roles of board chair and CEO generally provides
the most efficient and effective leadership model for the company.
We agree that the current business model of the pharmaceutical sector is undergoing
significant challenges. The company has adopted a strategy, approved by the board, to transform the
cost structure through a variety of productivity initiatives and to provide customers with a
significantly enhanced value proposition that improves patient outcomes through tailoring drug,
dose, timing of treatment, and relevant information.
We also agree that access to medicine continues to be a serious concern; however, the boards
corporate governance principles ensure effective independent oversight of the companys responses
to this problem. The public policy and compliance committee of the board, composed solely of
independent directors, provides independent oversight of public policy issues for the board,
including access to medicines.
Guided by the active oversight of our independent directors, our company will continue to be a
strong advocate for reforms that improve access to needed medicines and reduce the cost structure
for health care while protecting the industrys ability to invest in innovation for the next
generation of breakthrough medicines. At the same time, we will help to address the immediate needs
of those without access to health care through patient assistance programs. In 2006 alone, we
distributed products with a retail value of more than $300 million free of charge through these
programs.
The board recommends that you vote AGAINST this proposal.
Item 8. Shareholder Proposal Regarding Amending the Companys Bylaws
California Public Employees Retirement System (CalPERS), P.O. Box 942707, Sacramento, California
94229-2707, beneficial owner of approximately 5.4 million shares, has submitted the following
proposal.
Resolved, that the shareowners of Eli Lilly & Company (Company) urge the Company to take all
steps necessary, in compliance with applicable law, to allow its shareowners to amend the Companys
bylaws by a majority vote. Currently, the Company does not allow shareowners to amend the Companys
bylaws.
Supporting
Statement: The Company is one of the very few companies in the S&P 500 that does not
allow shareowners to amend the Companys bylaws. Approximately 96% of companies in the S&P 500 and
the Russell 1000 allow shareowners to amend the bylaws. Though the default under Indiana state law
is to only allow the board of directors to amend the bylaws, Indiana state law does allow Indiana
corporations to amend the articles of incorporation to allow for shareowners to amend the bylaws.
The company, however, has chosen not to allow shareowners to amend the bylaws even though
approximately 96 percent of corporations do so, as noted above.
The primary tool for directly impacting the Companys governance practice is by amending the
Companys bylaws. This is why we are sponsoring this proposal which, if passed and implemented,
would make the Company more accountable to shareowners by allowing shareowners to amend the bylaws by majority vote.
As a trust fund with more than 1.4 million participants, and as the owner of approximately 5.4
million shares of the Companys common stock, the California Public Employees Retirement System
(CalPERS) thinks shareowners should have the ability to impact the corporate governance of any
company we own via a bylaw amendment.
This proposal asks for a majority vote standard to amend the bylaws since a supermajority vote
can be almost impossible to obtain because of abstentions and broker non-votes. For example, a
proposal to declassify the board of directors filed at Goodyear Tire & Rubber Company failed to
passes even though approximately 90 percent of votes cast were in favor of the proposal. While it
is often stated by corporations that the purpose of supermajority requirements is to provide
corporations the ability to protect minority shareholders, supermajority requirements are most
often used, in CalPERS opinion, to block initiatives opposed by management and the board of
directors but supported by most shareowners. The Goodyear Tire & Rubber Company vote is a perfect
illustration.
CalPERS believes that corporate governance procedures and practices, and the level of accountability they
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Splitting up the Roles of CEO and Chairman: Reform or Red Herring?, June 2, 2004, Knowledge @Wharton, http://knowledge.wharton.upenn.edu |
48
impose, are closely related to financial performance. CalPERS also believes that shareholders
are willing to pay a premium for shares of corporations that have excellent corporate governance,
as illustrated by a recent study by McKinsey & Co. If the Company were to take steps to implement
this proposal, it would be a strong statement that this Company is committed to good corporate
governance and its long-term financial performance. Considering the Companys five, three, and one
year stock performances were -16%, -13%, and 2%, respectively, action is warranted.
We urge your support FOR this proposal.
Statement in Opposition to the Proposal Regarding Amending the Companys Bylaws
The board of directors believes that this proposal is not in the best long-term interests of
the shareholders and recommends that you vote against it.
The companys bylaws establish a number of fundamental corporate governance operating
principles, including rules for meetings of directors and shareholders, election and duties of
directors and officers, authority to approve transactions, and procedures for stock issuance. Like
many other Indiana corporations, Lilly has adopted the default provision under Indiana law, which
states that unless the articles of incorporation provide otherwise, the bylaws may be amended only
by the directors.
The board of directors has fiduciary obligations to the company and all its shareholders,
including large institutions, small institutions, and individual investors. The board believes that
allowing the bylaws to be amended by a majority shareholder vote would expose the shareholders to
the risk that a few large shareholders who wish to advance their own
special interests and who
have no duties to the other shareholders could adopt changes in these operating principles that
could be detrimental to minority shareholders. Under the majority vote standard endorsed by the
proponent (requiring only a majority of shares voted at the meeting), shareholders holding
significantly less than half of the outstanding shares could adopt bylaw amendments to further
their own special interests. The board, on the other hand, has fiduciary duties to consider and
balance the interests of all shareholders when considering bylaw provisions, and is better
positioned to ensure that any bylaw amendments are prudent and are designed to protect and maximize
long-term value for all shareholders.
The proponent suggests this proposal is necessary to foster good governance principles at the
company and make the directors more accountable to the shareholders. On the contrary, the board has
been for many years, and intends to remain, a leader in corporate governance. The company has
adopted comprehensive corporate governance principles, consistent with best practices, that ensure
the company remains fully transparent and accountable to shareholders. Last year, our leadership in
this area was recognized when we were named the most shareholder-friendly company in our industry
in a survey of institutional investors.10 Further, in 2007, the board has taken two
major steps to demonstrate its continuing leadership in corporate governance and accountability to
shareholders: (1) seeking shareholder approval to eliminate the classified board (see Item 3), and
(2) agreeing to seek shareholder approval to adopt a majority voting standard for directors
beginning in 2008.
The proponent also suggests that adopting this proposal will enhance company performance
because companies with good corporate governance are more highly valued. We certainly agree that
strong corporate governance practices benefit shareholders, but we do not believe that this
particular proposal will improve the companys corporate governance or lead to better performance.
In fact, a 2004 study by Lawrence D. Brown and Marcus L. Caylor of Georgia State
University11 found that companies that permit shareholders to amend the bylaws performed
no better or worse than those who reserve that power to the directors. This is consistent with our
view that adopting this proposal would not enhance our already strong corporate governance
practices and instead would expose minority shareholders to actions detrimental to their best
interests.
The Board of Directors recommends that you vote AGAINST this proposal.
Item 9. Shareholder Proposal Regarding Adopting a Simple Majority Vote Standard
William Steiner, 112 Abbottsford Gate, Piermont, NY 10968, beneficial owner of approximately
1,400 shares, has submitted the following proposal.
9
Adopt Simple Majority Vote
Resolved,
Shareholders recommend that our Board take each step necessary to adopt a simple
majority vote to apply to the greatest extent possible.
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Institutional Investor, February 2006 |
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Corporate Governance and Firm Performance, Georgia State University, December 7, 2004 |
49
This proposal is not intended to unnecessarily limit our Boards judgment in crafting the
requested change to the fullest extent feasible in accordance with applicable laws and existing
governance documents.
This topic won a 66% yes-vote average at 20 major companies in 2006. The Council of
Institutional Investors www.cii.org formally recommends adoption of this proposal topic.
Our current rule allows a small minority to frustrate the will of our shareholder majority.
For example, in requiring an 80%-vote on a number of key governance issues, if our vote is an
overwhelming 79%-yes and only 1%-no only 1% could force their will on our 79%-majority.
When one considers abstentions and broker non-votes, a supermajority vote can be almost
impossible to obtain. For example, a proposal for annual election of each director at Goodyear (GT)
failed to pass even though 90% of votes cast were in favor of the proposal. While companies often
state that the purpose of supermajority requirements is to provide companies with the ability to
protect minority shareholders, supermajority requirements are arguable most often used to block
initiatives opposed by management but supported by most shareholders. The Goodyear Tire & Rubber
Company vote is a perfect illustration.
Corporate governance procedures and practices, and the level of accountability they impose,
are arguable closely related to financial performance. It is intuitive that, when directors are
accountable for their actions, they perform better. Shareholders are willing to pay a premium for
shares of corporations that have excellent corporate governance, as illustrated by a recent study
by McKinsey & Co. If our Company were to remove its supermajority requirements, it would be a
strong statement that our Company is committed to good corporate governance and its long-term
financial performance.
Adopt Simple Majority Vote
Yes on 9
Statement in Opposition to the Proposal Regarding Adopting a Simple Majority Vote Standard
This proposal, which does not pertain to the election of directors, calls for the elimination
of provisions in the companys articles of incorporation that require more than a simple majority
vote for certain actions to be approved. The board of directors believes that this would not be in
the best long-term interest of the shareholders and recommends that you vote against it.
Most proposals submitted to a vote of the companys shareholders can already be adopted by a
simple majority vote. However, in 1985 the companys shareholders voted to increase the approval
requirement for certain important actions. These actions, which require the approval of at least 80
percent of the outstanding shares of stock entitled to vote, relate to:
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Removal of directors |
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The amendment of the articles of incorporations provisions relating to the terms of office and
removal of directors12 |
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Merger, consolidation, recapitalization or certain other business combinations involving
the company that are not approved by the board of directors |
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The amendment of the articles of incorporations provisions relating to such
mergers and other business combinations. |
The board believes that in adopting these supermajority voting provisions, shareholders
intended to preserve and maximize the value of Lilly stock for all shareholders by protecting
against self-interested actions by one or a few large shareholders, as well as to help ensure that
important corporate governance rules are not changed without the clear consensus of a substantial
majority of stockholders that such change is prudent and in the best interests of the company.
The board has a fiduciary duty under the law to act in a manner it believes to be in the best
interests of the company and its shareholders. The board believes that in the event of an unfriendly or
unsolicited bid from one or a few large shareholders to take over or restructure the company, these
supermajority voting provisions encourage bidders to negotiate with the board on behalf of all
shareholders. In addition, they allow the board time and bargaining leverage to consider
alternative proposals that maximize the value of the company for all shareholders, including large
institutional investors as well as smaller institutions and individual shareholders.
The board believes that these supermajority voting provisions protect all shareholders by
making it more difficult for one or a few large shareholders to replace important corporate
governance rules of the company to further a special interest or to take control of the company
without negotiating with the board to assure that the best results are achieved for all of the
companys shareholders.
While the supermajority provision does require a clear mandate by shareholders, it is by no
means an insur-
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Under Item 3, the board is recommending that shareholders approve amendments to
these provisions establishing annual election of directors. |
50
mountable hurdle. The company commonly obtains favorable votes of well over 80 percent of the
outstanding shares for management proposals. Looking beyond Lilly, the proponent cites Goodyears
failure to achieve the necessary 80 percent vote in 2005 for a management proposal to declassify
the board. However, he fails to point out that Goodyear successfully adopted the same proposal in
2006 with an 86.2 percent vote. Further, according to Georgeson Shareholder Communications Co.
survey of the 2006 proxy season, of the 12 management proposals for board declassification
requiring an 80 percent vote, 11 were approved by the requisite vote. This reinforces the boards
view that supermajority provisions do not serve to nullify shareholder will, but instead help
ensure that crucial decisions are supported by the vast majority of shareholders.
The board recommends that you vote AGAINST this proposal.
Other Matters
Section 16(a) Beneficial Ownership Reporting Compliance
Under Securities and Exchange Commission rules, our directors and executive officers are
required to file with the Securities and Exchange Commission reports of holdings and changes in
beneficial ownership of company stock. We have reviewed copies of reports provided to the company,
as well as other records and information. Based on that review, we concluded that all reports were
timely filed except that, due to administrative error, Dr. John Lechleiter was late in reporting a
sale of stock under his 10b5-1 trading plan, Mr. Gino Santini was late in reporting charitable
donations and transfers of shares to his wife and minor children, and Mr. Derica Rice incorrectly
reported the total number of shares he held at the time he became an officer. Upon discovery, these
matters were promptly reported.
Other Information Regarding the Companys Proxy Solicitation
We will pay all expenses in connection with our solicitation of proxies. We 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. We expect to
solicit proxies primarily by mail, but directors, officers, and other employees of the company may
also solicit in person or by telephone, telefax, or electronic mail. We have retained Georgeson
Shareholder Communications Inc. to assist in the distribution and solicitation of proxies.
Georgeson may solicit proxies by personal interview, telephone, telefax, mail, and electronic mail.
We expect that the fee for those services will not exceed $17,000 plus reimbursement of customary
out-of-pocket expenses.
By order of the board of directors,
James B. Lootens
Secretary
March 5, 2007
51
Appendix A
Amendments to Article 9 of the Companys Articles of Incorporation
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 Prior to the 2008 annual meeting of shareholders, the Board of Directors
(exclusive of Preferred Stock Directors) shall be is divided into three classes, with the term of office of one class
expiring each year. At Commencing with the annual meeting of shareholders in 1985, five 2008, each class
of directors of the first class whose term shall then or thereafter expire shall be elected to hold office for a
one-year term expiring at the 1986 next annual meeting of, 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 shareholders. In the case of any vacancy on the Board of Directors occurring
after the 1988 2007 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 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. until the next annual meeting of shareholders. 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.
52
Annual Meeting Admission Ticket
Eli Lilly and Company 2007 Annual Meeting of Shareholders
Monday, April 16, 2007
11 a.m. EDT
Lilly Center Auditorium
Lilly Corporate Center
Indianapolis, Indiana 46285
The top portion of this page will be required for admission to the meeting.
Please write your name and address in the space provided below and present this ticket when
you enter the Lilly Center.
A reception (beverages only) will be held from 10:00 a.m. to 10:45 a.m. in the Lilly Center.
Name
Address
City, State, and Zip Code
Detach here
Directions and Parking
From I-70 take Exit 79B; follow signs to McCarty Street. Turn right (east) on McCarty Street;
go straight into Lilly Corporate Center. You will be directed to parking. Be sure to take the admission ticket
(the top portion of this page) with you to the meeting and leave this parking pass on your dashboard.
53
Eli Lilly and Company Annual Meeting of Shareholders April 16, 2007
Complimentary Parking
Lilly Corporate Center
Please place this identifier on the dashboard of your car as you enter Lilly Corporate Center so it can be clearly seen by security and parking personnel. |
54
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VOTE BY INTERNET -
www.proxyvote.com Use the Internet to transmit your voting instructions
and for electronic delivery of information up until
11:59 p.m. EDT on Sunday, April 15,
2007. Have your proxy card in hand
when you access the web site and follow
the instructions to obtain your records
and create an electronic voting
instruction form. |
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VOTE BY PHONE - (1-800-690-6903)
Use any touch-tone telephone to
transmit your voting instructions up
until 11:59 p.m. EDT on Sunday, April
15, 2007. Have your proxy card in hand
when you call and follow the
instructions. |
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VOTE BY MAIL - |
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Mark, sign and date your proxy card and
return it in the postage-paid envelope
we have provided or return to Eli Lilly
and Company, c/o IVS Associates, Inc.,
P.O. Box 17149, Wilmington, DE 19885. |
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THANK YOU FOR VOTING |
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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ELILI1 |
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KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN
SIGNED AND DATED.
ELI LILLY AND COMPANY
The board of directors recommends a vote
FOR
the following items (1, 2, 3, and 4):
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(1 |
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Election of Directors, each for a three-year term.
(01) W. Bischoff
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For
All
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Withhold
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For All
Except |
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To withhold authority to vote for any individual nominee(s),
mark For All Except and write the number(s) of the nominee(s)
on the line below. |
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(02) J. M. Cook |
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(03) F. G. Prendergast
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o
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(04) K. P. Seifert |
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For
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Against
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Abstain
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For
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Against
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Abstain |
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(2 |
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Ratification of the appointment by the audit committee of the board of directors of Ernst &
Young LLP as principal independent auditors
for 2007. |
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(4 |
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Reapprove performance goals for the
companys stock plans. |
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(3 |
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Approve amendments to the articles of
incorporation to provide for annual election
of directors.
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o
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The board of directors recommends to shareholders a vote AGAINST the following items (5, 6, 7, 8, and 9): |
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For
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Against
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Abstain
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For
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Against
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Abstain |
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(5 |
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Proposal by shareholders on extending the
companys animal care and use policy to
contract labs. |
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(8) |
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Proposal by shareholders on amending the
articles of incorporation to allow shareholders
to amend the bylaws. |
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(6 |
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Proposal by shareholders on international
outsourcing of animal research. |
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(9) |
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Proposal by shareholders on adopting a simple
majority vote standard. |
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(7 |
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Proposal by shareholders on separating the
roles of chairman and chief executive officer.
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Please sign exactly as name appears hereon. One joint owner may sign on behalf of the others.
When signing in a representative capacity, please clearly state your capacity. |
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