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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x Definitive Proxy Statement

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¨ Soliciting Material Pursuant to §240.14a-12

ELI LILLY AND COMPANY

(Name of Registrant as Specified In Its Charter)

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ELI LILLY AND COMPANY
(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)




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2012Note: Due to a filing error, we are refiling the Definitive Proxy Statement for our 2013 annual meeting of shareholders to clarify that it is the Definitive Proxy Statement and not Additional Soliciting Materials. This filing does not update, amend or restate items in the proxy statement for the 2013 annual meeting of shareholders, which continue to speak as of the date of original filing, March 25, 2013.
2013 Annual Meeting and Proxy Statement

March 5, 2012

25, 2013

Dear Shareholder:

You are cordially invited to attend our annual meeting of shareholders on Monday, April 16, 2012.

May 6, 2013.

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 to be certain your shares are represented at the meeting, even if you plan to attend.

Please note the ticket at the back of this proxy statement and our procedures for admission to the meeting described under “Meeting“Meeting and Voting Logistics”Logistics” below.

I look forward to seeing you at the meeting.


John C. Lechleiter, Ph.D.

Chairman, President, and Chief Executive Officer

Important notice regarding the availability of proxy materials for the shareholder meeting to be held April 16, 2012: May 6, 2013:
The annual report and proxy statement are available at http://www.lilly.com/pdf/lillyar2011.pdflillyar2012.pdf

Notice of Annual Meeting of Shareholders

April 16, 2012

May 6, 2013
The annual meeting of shareholders of Eli Lilly and Company will be held at the Lilly Center Auditorium, Lilly Corporate Center, Indianapolis, Indiana, 46285 on Monday, April 16, 2012,May 6, 2013, at 11:00 a.m. EDT for the following purposes:

to elect fourfive directors of the company to serve three-year terms

to ratify the appointment by the audit committee of Ernst & Young LLP as principal independent auditor for the year 2012

2013

to approve, by non-binding vote, compensation paid to the company’s named executive officers

to approve amendments toreapprove the articlesmaterial terms of incorporation to providethe performance goals for annual election of all directors

the 2002 Lilly Stock Plan.

to approve amendments to the articles of incorporation to eliminate all supermajority voting requirements

to consider shareholder proposals on establishing a majority vote committee and transparency in animal research.

Shareholders of record at the close of business on February 15, 2012,March 1, 2013, 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 report 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 is being posted online and mailed on or about March 5, 2012.

25, 2013.

By order of the board of directors,

James B. Lootens

Secretary

March 5, 2012

25, 2013

Indianapolis, Indiana


1


1

Proxy Statement Overview


Annual Meeting of Shareholders

The annual meeting of shareholders will be held at 11:00 a.m. EDT on Monday, April 16, 2012May 6, 2013 at:


The Lilly Center Auditorium

Lilly Corporate Center

Indianapolis, Indiana 46285


The board of directors of Eli Lilly and Company, "we," "Lilly," or "the company," is soliciting proxies to be voted at the annual meeting and at any adjournment of the annual meeting. The record date for voting is February 15, 2012.

March 1, 2013.


Meeting Agenda

Shareholders will vote on the following items at the annual meeting:

Agenda

Item

              Management
recommendation		 Vote required to
pass

Item 1

 Elect the following nominees for director to serve a three-year term that will expire in 2015: Vote FOR all Majority of
votes cast

Name and principal occupation

 Joined the board  Age   Public boards  

Katherine Baicker, Ph.D.

Professor of Health Economics,

Harvard University

 2011  40   — Vote FOR 

J. Erik Fyrwald

President, Ecolab Inc.

 2005  52   — Vote FOR 

Ellen R. Marram

President, The Barnegat Group LLC

 2002  65   Ford Motor Company

The New York Times
Company

 Vote FOR 

Douglas R. Oberhelman

Chairman and Chief Executive Officer,

Caterpillar Inc.

 2008  59   Caterpillar Inc. Vote FOR  

Item 2

 Ratify the appointment of Ernst & Young as the company’s principal independent auditor. Vote FOR Majority of
votes cast

Item 3

 Approve, by non-binding vote, compensation paid to the company’s named executive officers. Vote FOR Majority of
votes cast

Item 4

 Approve amendments to the articles of incorporation to provide for annual election of all directors. Vote FOR 80% of out-
standing shares

Item 5

 Approve amendments to the articles of incorporation to eliminate all supermajority voting requirements. Vote FOR 80% of out-

standing shares

Item 6

 Consider a shareholder proposal on establishing a majority vote committee. Vote AGAINST Majority of
votes cast

Item 7

 Consider a shareholder proposal on transparency in animal research. Vote AGAINST Majority of
votes cast

Agenda
Item



Management
recommendation		Vote required to pass
Item 1Elect the following nominees for director to serve a three-year term that will expire in 2016:Vote FOR allMajority of
votes cast

Name and principal occupationJoined the boardAgePublic boards








Ralph Alvarez
200957Lowe's Companies, Inc.; Dunkin' Brands Group, Inc.Vote FOR

Executive Chairman,
Skylark Co., Ltd.








Sir Winfried Bischoff
200071The McGraw-Hill Companies, Inc.Vote FOR

Chairman, Lloyds Banking Group plc








R. David Hoover
200967Ball Corporation;
Energizer Holdings, Inc.; Steelcase, Inc.		Vote FOR

Chairman, Ball Corporation








Franklyn G. Prendergast, M.D., Ph.D.
199568__Vote FOR

Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and Professor of Molecular Pharmacology and Experimental Therapeutics, Mayo Medical School; and Director Emeritus, Mayo Clinic Center for Individualized Medicine








Kathi P. Seifert199563Supervalu Inc.; Revlon Consumer Products Corporation; Lexmark International, Inc.Vote FOR

Retired Executive Vice President, Kimberly-Clark Corporation
Item 2Ratify the appointment of Ernst & Young LLP as the company’s principal independent auditor.Vote FORMajority of
votes cast
Item 3Approve, by non-binding vote, compensation paid to the company’s named executive officers.Vote FORMajority of
votes cast
Item 4Reapprove the material terms of the performance goals for the 2002 Lilly Stock Plan.Vote FORMajority of
votes cast

Additional information about these agenda items can be found under “Items“Items of Business” and informationBusiness” below. Information on voting and attending the annual meeting can be found under “Meeting“Meeting and Voting Logistics”Logistics” below.


Board of Directors

The company’s board is comprised of our chairman, president, and CEO, John Lechleiter, Ph.D., and 13 independent directors. Their biographies and qualifications can be found under “Director Biographies”“Director Biographies” below.


Committees of the board of directors

The board has six committees, all of which are staffed by independent directors. Additional information on the functioning of the board and its committees, including director independence, can be found beginning in the section titled “Highlights“Highlights of the Company’s Corporate Governance GuidelinesGuidelines” below.

2
” below.




Director compensation

Our independent directors receive cash compensation in the form of an annual retainer ($100,000), with additional annual amounts for the lead director ($30,000), committee chairs ($12,000 to $18,000, depending on the committee), and directors who serve on the audit committee or the science and technology committee ($3,000). In addition, each independent director receives $145,000 in shares of company stock each year, payable after service on the board has ended. Additional information about director compensation can be found under “Director Compensation”“Director Compensation” below.

2


Contacting the board of directors

You may send written communications to one or more members of the board, addressed to:

Board of Directors

Eli Lilly and Company

c/o Corporate Secretary

Lilly Corporate Center

Indianapolis, Indiana 46285


All such communications (from shareholders or other interested parties) will be forwarded to the relevant
director(s), except for solicitations or other matters unrelated to the company.


Executive Compensation

Our compensation philosophy is designed to attract and retain highly-talented individuals and motivate them to create long-term shareholder value by achieving top-tier corporate performance while embracing the company’s values of integrity, excellence, and respect for people. Our programs seek to:

closely link compensation with company performance and individual performance

foster a long-term focus

reflectprovide compensation consistent with the level of job responsibility and the market for pharmaceutical talent

be efficient and egalitarian

appropriately mitigate risk.

risk

consider shareholder input.

For a detailed discussion of our executive compensation programs and how they reflect our philosophy and are linked to company performance, please read the “Compensationsee “Compensation Discussion and AnalysisAnalysis” below.



3
” section of this proxy statement.

3



Board of Directors

LOGO


Katherine
Baicker,
Ph.D.		Michael L.
Eskew		Katherine Baicker, Ph.D.Sir Winfried
Bischoff

Alfred G.
Gilman,

M.D., Ph.D.

Karen N.
Horn,
Ph.D.		Franklyn G.
Prendergast,
M.D., Ph.D.		J. Erik
Fyrwald

Professor

of Health

Economics,

Department of

Health Policy and

Management,

Harvard

University School

of Public Health;

and Research

Associate,

National Bureau

of Economic

Research

Former Chairman

and Chief

Executive Officer,

United Parcel

Service, Inc.

Chairman,
Lloyds Banking
Group plc		Chief Scientific
Officer, Cancer
Prevention and
Research
Institute of Texas		Retired

President,
Private Client
Services, and
Managing
Director,
Marsh, Inc.

Edmond and Marion

Guggenheim

Professor of

Biochemistry and
Molecular Biology
and Professor

of Molecular

Pharmacology
and Experimental

Therapeutics, Mayo
Medical School;

and Director, Mayo
Clinic Center for
Individualized
Medicine

President,
Ecolab Inc.

Director

since 2011

Director
since 2008		Director

since 2000

Director
since 1995		Director

since 1987

Director

since 1995

Director
since 2005

Board

committee:

public policy

and compliance

Board

committees:
audit [chair];
compensation

Board

committees:
directors and
corporate
governance;
finance

[chair]

Board

committees:
public policy
and compliance;
science

and technology
[chair]

Board

committees:
compensation
[chair];

directors and
corporate
governance

Board

committees:

public policy

and compliance;
science and

technology

Board

committees:
public

policy and
compliance;
science
and technology

R. David Hoover

4

LOGO

R. David

Hoover

John C.

Lechleiter,

Ph.D.

Douglas R.

Oberhelman

Ellen R.

Marram

Martin S.

Feldstein,

Ph.D.

Kathi P.

Seifert

Ralph

Alvarez

Chairman,

Ball Corporation

Chairman,

President, and
Chief Executive

Officer

Chairman and

Chief Executive

Officer,

Caterpillar Inc.

President,

The Barnegat

Group LLC

George F. Baker

Professor of

Economics,

Harvard

University

Retired Executive

Vice President,

Kimberly-Clark
Corporation

Retired President

and Chief

Operating Officer,

McDonald’s

Corporation

Director

since 2009

Director

since 2005

Director

since 2008

Director

since 2002

Director

since 2002

Director

since 1995

Director

since 2009

Board

committees:

audit;

compensation

Board

committees:

none

Board

committees:

audit; finance

Board

committees:

compensation;

directors

and corporate

governance

[chair]

Board

committees:
audit; finance;

public policy
and compliance
[chair]

Board

committees:

audit;

compensation

Board

committees:

finance; public
policy and

compliance;

science and

technology

5


Director Biographies


Each of our directors is elected to serve until his or her successor is duly elected and qualified. If a nominee is unavailable for election, proxy holders may vote for another nominee proposed by the board of directors or, as an alternative, the board of directors may reduce the number of directors to be elected at the annual meeting. Each nominee has agreed to serve on the board of directors if elected.

Set forth below is the information as of March 13, 2013, regarding the nominees for election, which has been confirmed by each of them for inclusion in this proxy statement. Under the heading "Qualifications," we list the specific experiences, qualifications, attributes, or skills that led to the conclusion that each director or director nominee should serve as one of our directors in light of our business and structure.

No family relationship exists among any of our director nominees or executive officers. To the best of our knowledge, there are no pending material legal proceedings to which any of our directors or nominees for director, or any of their associates, is a party adverse to us or any of our affiliates, or has a material interest adverse to us or any of our affiliates. Additionally, to the best of our knowledge, there have been no events under any bankruptcy act, no criminal proceedings and no

judgments, sanctions, or injunctions that are material to the evaluation of the ability or integrity of any of our directors or nominees for director during the past
10 years.

Class of 20122013

The following five directors’ terms will expire at this year’s annual meeting. Dr. Feldstein will retire from the board at the end of his current term. Each of the other directors in this class has been nominated and is standing for election to serve a term that will expire in 2015. See “Item“Item 1. Election of Directors”Directors” below for more information.

Ralph Alvarez,

Age 57, Director since 2009
Executive Chairman, Skylark Co., Ltd.
Mr. Alvarez is executive chairman of Skylark Co., Ltd., a leading restaurant operator in Japan, a position he has held since January 2013. Previously, Mr. Alvarez served as president and chief operating officer of McDonald's Corporation from August 2006 until his retirement in December 2009. He also served as president of McDonald's North America, with responsibility for all the McDonald's restaurants in the U.S. and Canada. Prior to that, he was president of McDonald's USA.
Mr. Alvarez joined McDonald's in 1994 and held a variety of leadership roles throughout his career, including chief operations officer and president of the central division, both with McDonald's USA and president of McDonald's Mexico. Prior to joining McDonald's, he held leadership positions at Burger King Corporation and Wendy's International, Inc. Mr. Alvarez serves on the board of directors of Skylark Co., Ltd., Lowe's


4




Katherine Baicker,John C. Lechleiter, Ph.D.Douglas R. OberhelmanAge 40Director since 2011

Professor of Health Economics at the Harvard University School of Public Health, Department of Health Policy and Management; and Research Associate at the National Bureau of Economic Research

Dr. Baicker has been a professor of health economics at the Department of Health Policy and Management, School of Public Health, since 2007. From 2005 to 2007, she served as a Senate-confirmed member of the Council of Economic Advisers. From 1998 to 2005, Dr. Baicker was assistant professor and associate professor of economics at Dartmouth College. In 2001 and 2002 she also served as an economist to the Council of Economic Advisers, Executive Office of the President, and in 2003 was a visiting assistant professor at the University of Chicago Harris School of Public Policy. Dr. Baicker is a commissioner of the Medicare Payment Advisory Board and serves on the Panel of Health Advisers to the Congressional Budget Office. She is a member of the editorial boards ofHealth Affairs and theJournal of Health Economics, chair of the board of directors of AcademyHealth, editor of theForum for Health Economics and Policy, and associate editor of theJournal of Economic Perspectives. She is an elected member of the Institute of Medicine. Dr. Baicker has been serving under interim election since December 2011.

Qualifications: Dr. Baicker is a leading researcher in the fields of health economics, public economics, and labor economics. As a valued advisor to numerous health care-related commissions and committees, her expertise in health care policy and health care delivery is recognized by both academia and government.

Board committee: public policy and compliance

Martin S. Feldstein, Ph.D.Age 72Director since 2002

George F. Baker Professor of Economics, Harvard University

Dr. Feldstein is the George F. Baker Professor of Economics at Harvard University and president emeritus of the National Bureau of Economic Research. From 1982 through 1984, he served as chairman of the Council of Economic Advisers and President Ronald Reagan’s chief economic adviser. Dr. Feldstein served as president and chief executive officer of the National Bureau of Economic Research from 1977 to 1982 and 1984 to 2008. In 2009, President Obama appointed him to the President’s Economic Recovery Advisory Board. 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 trustee of the Council on Foreign Relations and a member of the Trilateral Commission, the Group of 30, the American Academy of Arts and Sciences, and the Council of Academic Advisors of the American Enterprise Institute, as well as past president of the American Economic Association. He previously served on the boards of American International Group, Inc., TRW, Phoenix Life Insurance, and HCA Inc.

Qualifications: Dr. Feldstein is a renowned economist, academic, and adviser to U.S. presidents of both political parties. He has deep economic and public policy expertise, financial acumen, and a global perspective. His background as an academic brings a diversity of experience and perspective to the board’s deliberations. He has also served on the boards of several major public companies.

Board committees: audit; finance; public policy and compliance (chair)

6

J. Erik FyrwaldAge 52Director since 2005

President of Ecolab Inc.

J. Erik Fyrwald is president of Ecolab Inc. Prior to the merger of Ecolab and Nalco Company in December 2011, Mr. Fyrwald was chairman and chief executive officer of Nalco from 2008 to 2011. He joined Nalco following a 27-year career at DuPont. From 2003 to 2008, Mr. Fyrwald served as group vice president of the agriculture and nutrition division at DuPont. From 2000 until 2003, he was vice president and general manager of DuPont’s nutrition and health business. At DuPont, he held a broad variety of assignments in a number of divisions covering many industries. He has worked in several locations throughout North America and Asia. Mr. Fyrwald serves as a director of the Society of Chemical Industry, the American Chemistry Council, and the Chicago Public Education Fund, and is a trustee of the Field Museum of Chicago.

Qualifications: Mr. Fyrwald has a strong record of operational and strategy leadership in two complex worldwide businesses with a focus on technology and innovation. An engineer by training, he has extensive senior executive experience at DuPont, a multinational chemical company, where he led the agriculture and nutrition division, which used chemical and biotechnology solutions to enhance plant health. He served for three years as chairman of the board and CEO of Nalco, a global technology-based water products and services company.

Board committees: public policy and compliance; science and technology

Ellen R. MarramSir Winfried BischoffAge 65William G. Kaelin, Jr., M.D.Kathi P. SeifertDirector since 2002

President, The Barnegat Group LLC

Ms. Marram will serve as the board’s lead director beginning April 2012. Ms. Marram is the 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 served as an advisor to the firm from 2006 to 2010. From 1993 to 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, the largest operating unit of Nabisco, Inc.; from 1987 to 1988, she was president of Nabisco’s 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 previously served on the board of Cadbury plc. She also serves on the boards of Wellesley College, Institute for the Future, New York-Presbyterian Hospital, Lincoln Center Theater, and Families and Work Institute.

Qualifications: Ms. Marram is a former CEO with a strong marketing and consumer-brand background. Through her nonprofit and private company activities, she has a special focus and expertise in wellness and consumer health. Ms. Marram has extensive corporate governance experience through service on other public company boards in a variety of industries.

Board committees: compensation; directors and corporate governance (chair)

Douglas R. OberhelmanAge 59Director since 2008

Chairman and Chief Executive Officer, Caterpillar Inc.

Mr. Oberhelman has been chairman of the board of Caterpillar Inc. since November 2010 and chief executive officer since July 2010. He previously served as vice chairman and chief executive officer-elect of Caterpillar. He joined Caterpillar in 1975 and has held a variety of positions, including senior finance representative based in South America for Caterpillar Americas Co., region finance manager and district manager for the company’s North American commercial division, and managing director and vice general manager for strategic planning at Caterpillar Japan Ltd. Mr. Oberhelman was elected a vice president in 1995, serving as Caterpillar’s chief financial officer from 1995 to November 1998. In 1998, he became vice president with responsibility for the engine products division and he was elected a group president and member of Caterpillar’s executive office in 2002. Mr. Oberhelman serves on the boards of Caterpillar, the National Association of Manufacturers, and the Wetlands America Trust. He previously served on the board of Ameren Corporation. He is a member of the Executive Committee of the Business Roundtable and a member of the Business Council.

Qualifications: Mr. Oberhelman has a strong strategic and operational background as a senior executive (and currently as chairman and CEO) of Caterpillar, a leading manufacturing company with worldwide operations and a special focus on emerging markets. He is an audit committee financial expert as a result of his prior experience as CFO of Caterpillar and as a member and chairman of the audit committee of another U.S. public company.

Board committees: audit; finance

Ralph Alvarez


Companies, Inc., and Dunkin' Brands Group, Inc. Mr. Alvarez also serves on the President's Council, the School of Business Administration Board of Overseers, and the International Advisory Board of the University of Miami. He was previously a member of the boards of McDonald's Corporation and KeyCorp.

7Qualifications

:Through his senior executive positions at Skylark Co., Ltd. and McDonald’s Corporation, as well as with other global restaurant businesses, Mr. Alvarez has extensive experience in consumer marketing, global operations, international business, and strategic planning. His international experience includes a special focus on emerging markets.


Board committees:finance; public policy and compliance; science and technology

Sir Winfried Bischoff,Age 71, Directorsince 2000
Chairman, Lloyds Banking Group plc
Sir Winfried Bischoff has been chairman of the board of Lloyds Banking Group plc since September 2009. He served as chairman of Citigroup Inc. from December 2007 until February 2009 and as interim chief executive officer for a portion of 2007. He served as chairman of Citigroup Europe from 2000 to 2009. 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 also a
director of The McGraw-Hill Companies, Inc. He previously served on the boards of Citigroup Inc.,
Prudential plc, Land Securities plc, and Akbank T.A.S.

Qualifications:Sir Winfried Bischoff has a distinguished career in banking and finance, including commercial banking, corporate finance, and investment banking. He has CEO experience both in Europe and the U.S. He is a globalist, with particular expertise in European matters but with extensive experience overseeing worldwide operations. He has broad corporate governance experience from his service on public company boards in the U.S., UK, and other European and Asian countries.

Board committees:directors and corporate governance; finance (chair)

R. David Hoover,Age 67, Director since 2009
Chairman, Ball Corporation
Mr. Hoover is chairman of Ball Corporation, which provides metal packaging for beverages, foods and household products, as well as aerospace and other technologies and services to commercial and governmental customers. Mr. Hoover joined Ball Corporation in 1970 and has held a variety of leadership roles throughout his career, including vice president and treasurer; executive vice president and chief financial officer; vice chairman, president, and chief operating


5



officer; and chairman, president, and chief executive officer. He is a member of the boards of Ball Corporation, Energizer Holdings, Inc., and Steelcase, Inc. Mr. Hoover is also a director of Boulder Community Hospital, Children's Hospital Colorado, and a member of the Colorado Forum, and is a member and past chair of the board of trustees of DePauw Universityand on the Indiana University Kelley School of Business Dean's Council. Mr. Hoover previously served on the boards of Irwin Financial Corporation and Qwest International, Inc.

Qualifications:Mr. Hoover has extensive CEO experience at Ball Corporation, with a strong record of leadership in operations and strategy. He is an audit committee financial expert as a result of his experience as CEO and CFO of Ball. He also has extensive corporate governance experience through his service on other public company boards.

Board committees: audit; compensation

Franklyn G. Prendergast, M.D., Ph.D.,Age 68, Director since 1995
Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and Professor of Molecular Pharmacology and Experimental Therapeutics, Mayo Medical School; and Director Emeritus, Mayo Clinic Center for Individualized Medicine
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 emeritus of the Mayo Clinic Center for Individualized Medicine. He is an emeritus member of the Mayo Clinic board of governors and board of trustees and has held severalteaching positions at the Mayo Medical School since 1975.

Qualifications:Dr. Prendergast is a prominent medical clinician, researcher, and academician. He has extensive experience in senior-most administration at Mayo Clinic, a major medical institution, and as director of its renowned cancer center. He has special expertise in two critical areas for Lilly—oncology and personalized medicine. As a medical doctor, he brings an important practicing-physician perspective to the board’s deliberations.

Board committees: public policy and compliance; science and technology

Kathi P. Seifert,Age 63, Director since 1995
Retired Executive Vice President, Kimberly-Clark Corporation
Ms. Seifert served as executive vice president for Kimberly-Clark Corporation, a global consumer products company, 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. Prior to joining Kimberly-Clark, Ms. Seifert held management positions at Procter & Gamble, Beatrice Foods, and Fort Howard Paper Company. She is chairman of Katapult, LLC, a provider of pro bono mentoring and consulting services to other nonprofits. Ms. Seifert serves on the boards of Supervalu Inc.; Revlon Consumer Products Corporation; Lexmark International, Inc.; Appleton Papers Inc.; Fox Cities Performing Arts Center; and the Community Foundation for the Fox Valley Region.

Qualifications:Ms. Seifert is a retired senior executive of Kimberly-Clark. She has strong expertise in consumer marketing and brand management, having led sales and marketing for several worldwide brands, with a special focus on consumer health. She has extensive corporate governance experience through her other board positions.

Board committees:audit; compensation

Class of 20132014

The following five directors will continue in office until 2013.

Ralph AlvarezAge 56Director since 2009

Retired President and Chief Operating Officer, McDonald’s Corporation

Mr. Alvarez served as president and chief operating officer of McDonald’s Corporation from August 2006 until December 2009. Previously, he served as president of McDonald’s North America, with responsibility for all the McDonald’s restaurants in the U.S. and Canada. Prior to that, he was president of McDonald’s USA. Mr. Alvarez joined McDonald’s in 1994 and held a variety of leadership roles throughout his career, including chief operations officer and president of the central division, both with McDonald’s USA, and president of McDonald’s Mexico. Prior to joining McDonald’s, he held leadership positions at Burger King Corporation and Wendy’s International, Inc. Mr. Alvarez serves on the board of directors of Lowe’s Companies, Inc. He also serves on the President’s Council, the School of Business Administration Board of Overseers, and the International Advisory Board of the University of Miami. He was previously a member of the boards of McDonald’s Corporation and KeyCorp.

Qualifications: Through his senior executive positions at McDonald’s Corporation and other global restaurant businesses, Mr. Alvarez has extensive experience in consumer marketing, global operations, international business, and strategic planning. His international experience includes a special focus on emerging markets.

Board committees: finance; public policy and compliance; science and technology

Sir Winfried BischoffAge 70Director since 2000

Chairman, Lloyds Banking Group plc

Sir Winfried Bischoff has been chairman of the board of Lloyds Banking Group plc since September 2009. He served as chairman of Citigroup Inc. from December 2007 until February 2009 and as interim chief executive officer for a portion of 2007. He served as chairman of Citigroup Europe from 2000 to 2009. 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 also a director of The McGraw-Hill Companies, Inc. He previously served on the boards of Citigroup Inc., Prudential plc, Land Securities plc, and Akbank T.A.S.

Qualifications: Sir Winfried Bischoff has a distinguished career in banking and finance, including commercial banking, corporate finance, and investment banking. He has CEO experience both in Europe and the U.S. He is a globalist, with particular expertise in European matters but with extensive experience overseeing worldwide operations. He has broad corporate governance experience from his service on public company boards in the U.S., UK, and other European and Asian countries.

Board committees: directors and corporate governance; finance (chair)

R. David HooverAge 66Director since 2009

Chairman, Ball Corporation

Mr. Hoover is chairman of Ball Corporation. Mr. Hoover joined Ball Corporation in 1970 and has held a variety of leadership roles throughout his career, including vice president and treasurer; executive vice president and chief financial officer; vice chairman, president, and chief operating officer; and chairman, president, and chief executive officer. He is a member of the boards of Ball Corporation and Energizer Holdings, Inc. Mr. Hoover previously served on the board of Irwin Financial Corporation. He is a member and past chair of the board of trustees of DePauw University and on the Indiana University Kelley School of Business Dean’s Council. He is also a director of Boulder Community Hospital and a member of the Colorado Forum.

Qualifications: Mr. Hoover has extensive CEO experience at Ball Corporation, with a strong record of leadership in operations and strategy. He is an audit committee financial expert as a result of his experience as CEO and CFO of Ball. He also has extensive corporate governance experience through his service on other public company boards.

Board committees: audit; compensation

2014.


8Michael L. Eskew,

Age 63, Director since 2008

Former Chairman and Chief Executive Officer, United Parcel Service, Inc.
Mr. Eskew served as chairman and chief executive officer of United Parcel Service, Inc., from January 2002 until December 2007. He has served on the UPS board of directors since 1998. Mr. Eskew began his UPS career in 1972 as an industrial engineering manager and held various positions of increasing responsibility, including time with UPS's operations in Germany and with UPS Airlines. In 1993, Mr. Eskew was named corporate vice president for industrial engineering. Two years later he became group vice president for engineering. In 1998, he was elected to the UPS board of directors. In 1999, Mr. Eskew was named executive vice president and a year later was given the additional title of vice chairman. He serves as chairman of the board of trustees of The Annie E. Casey Foundation. Mr. Eskew also serves on the boards of 3M Corporation and IBM Corporation.

Qualifications:Mr. Eskew has CEO experience with UPS, where he established a record of success in managing complex worldwide operations, strategic planning, and building a strong consumer-brand focus. He is an audit committee financial expert, based on his CEO experience and his service on other U.S. company audit committees. He has extensive corporate governance experience through his service on the boards of other companies.

Board committees:audit (chair); finance


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Franklyn G. Prendergast, M.D., Ph.D.Age 66Director since 1995

Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and Professor of Molecular Pharmacology and Experimental Therapeutics, Mayo Medical School; and Director, Mayo Clinic Center for Individualized Medicine

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 Mayo Clinic Center for Individualized Medicine. He has held several other teaching positions at the Mayo Medical School since 1975.

Qualifications: Dr. Prendergast is a prominent medical clinician, researcher, and academician. He has extensive experience in senior-most administration at Mayo Clinic, a major medical institution, and as director of its renowned cancer center. He has special expertise in two critical areas for Lilly—oncology and personalized medicine. As a medical doctor, he brings an important practicing-physician perspective to the board’s deliberations.

Board committees: public policy and compliance; science and technology

Kathi P. SeifertAge 62Director since 1995

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. Prior to joining Kimberly-Clark, Ms. Seifert held management positions at Procter & Gamble, Beatrice Foods, and Fort Howard Paper Company. She is chairman of Katapult, 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.

Qualifications: Ms. Seifert is a retired senior executive of Kimberly-Clark, a global consumer products company. She has strong expertise in consumer marketing and brand management, having led sales and marketing for several worldwide brands, with a special focus on consumer health. She has extensive corporate governance experience through her other board positions.

Board committees: audit; compensation



Alfred G. Gilman, M.D., Ph.D., Age 71, Director since 1995
Regental Professor of Pharmacology Emeritus, University of Texas Southwestern Medical Center at Dallas
Dr. Gilman is the regental professor of pharmacology emeritus at the University of Texas Southwestern Medical Center at Dallas. Dr. Gilman was on the faculty of the University of Virginia School of Medicine from1971 to 1981 and was named a professor of pharmacology there in 1977. He previously served as executive vice president for academic affairs and provost of the University of Texas Southwestern Medical Center at Dallas, dean of the University of Texas Southwestern Medical School, and professor of pharmacology at the University of Texas Southwestern Medical Center. He held the Raymond and Ellen Willie Distinguished Chair of 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. Between 2009 and 2012, Dr. Gilman was the chief scientific officer of the Cancer Prevention and Research Institute of Texas. He is a director of Regeneron Pharmaceuticals, Inc. Dr. Gilman was a recipient of the Nobel Prize in Physiology or Medicine in 1994.

Qualifications:Dr. Gilman is a Nobel Prize-winning pharmacologist, researcher, and professor. He has deep expertise in basic science, including mechanisms of drug action, and experience with pharmaceutical discovery research. As the former dean of a major medical school, he brings to the board important perspectives of both the academic and practicing medical communities.

Board committees:public policy and compliance; science and technology (chair)

Karen N. Horn, Ph.D.,Age 69, Director since 1987
Retired President, Private Client Services; Managing Director, Marsh, Inc.
Ms. Horn served as president of private client services and managing director of Marsh, Inc., a global provider of risk and insurance services, 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, chairman and chief executive officer of Bank One, Cleveland, N.A., president of the Federal Reserve Bank of Cleveland, treasurer of Bell Telephone Company of Pennsylvania, and vice president of First National Bank of Boston. Ms. Horn serves as director of T. Rowe Price Mutual Funds, Simon Property Group, Inc., and Norfolk Southern Corporation. She previously served on the boards of Fannie Mae and Georgia-Pacific Corporation. Ms. Horn has been senior managing director of Brock Capital Group, a provider of financial advising and consulting services, since 2004.
Qualifications: Ms. Horn is a former CEO with extensive experience in various segments of the financial industry, including banking and financial services. Through her for-profit and her public-private partnership work, she has significant experience in international economics and finance. Ms. Horn has extensive corporate governance experience through service on other public company boards in a variety of industries.

Board committees:compensation (chair); directors and corporate governance

William G. Kaelin, Jr., M.D.,Age 55, Director since 2012
Professor, Department of Medicine and Associate Director, Basic Science; Dana-Farber/Harvard Cancer Center
Dr. Kaelin, who is currently serving under interim election, joined the board in June 2012 and was referred to the directors and corporate governance committee by an incumbent independent director. Dr. Kaelin is a professor in the Department of Medicine at the
Dana-Farber Cancer Institute and at the Brigham and Women's Hospital, Harvard Medical School, where he began his career as an independent investigator in 1992. He currently serves as associate director, Basic Science, for the Dana-Farber/Harvard Cancer Center. Dr. Kaelin is a prominent member of themedical research community and has received broad recognition forhiswork in oncology research, including the Canada Gairdner International Award and the Lefoulon-Delalande Prize from the Institute of France. Dr. Kaelin is a member of the Institute of Medicine, the National Academy of Sciences, and the Association of American Physicians.

Qualifications:Dr. Kaelin is a prominent medical researcher and academician. He has extensive experience at Harvard Medical School, a major medical institution, as well as special expertise in oncology—a key component of Lilly's business. He also has deep expertise in basic science, including mechanisms of drug action, and experience with pharmaceutical discovery research.

Board Committees:finance; science and technology

John C. Lechleiter, Ph.D.,Age 59, Director since 2005
Chairman, President, and Chief Executive Officer
Dr. Lechleiter has served as president and chief executive officer of Lilly since April 1, 2008. He became the chairman of the board of directors on January 1, 2009. He began work at Lilly in 1979 as a senior organic chemist in process research and development. Prior to joining Lilly, Dr. Lechleiter attended Xavier University (Cincinnati, Ohio), where he earned a bachelor of science degree in chemistry in 1975, and Harvard University, where he earned master's and doctoral degrees in organic chemistry in 1980. Dr. Lechleiter has received honorary doctorates from Marian University


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(Indianapolis, Indiana), the University of Indianapolis, and the National University of Ireland. Dr. Lechleiter is a member of the American Chemical Society and Business Roundtable. Dr. Lechleiter serves as chairman of the Pharmaceutical Research and Manufacturers of America (PhRMA), as president of the International Federation of Pharmaceutical Manufacturers & Associations (IFPMA), and on the boards of United Way Worldwide, Xavier University, the Life Sciences Foundation, and the Central Indiana Corporate Partnership. He also serves on the board of Nike, Inc.

Qualifications: Dr. Lechleiter is our chairman, president, and chief executive officer. A Ph.D. chemist,
Dr. Lechleiter has over 30 years of experience with the company in a variety of roles of increasing responsibility in research and development, sales and marketing, and corporate administration. As a result, he has a deep understanding of pharmaceutical research and development, sales and marketing, strategy, and operations. He also has significant corporate governance experience through service on other public company boards.

Board committees:none

Class of 2014

2015

The following four directors will continue in office until 2014.

2015.

Katherine Baicker, Ph.D., Age 41, Director since 2011
Professor of Health Economics at the Harvard University School of Public Health, Department of Health Policy and Management; and Research Associate at the National Bureau of Economic Research
Dr. Baicker has been a professor of health economics at the Department of Health Policy and Management, School of Public Health, since 2007. From 2005 to 2007, she served as a Senate-confirmed member of the Council of Economic Advisers. From 1998 to 2005,
Dr. Baicker was assistant professor and associate professor ofeconomics at Dartmouth College. In 2001 and 2002 she also served as an economist to the Council ofEconomic Advisers, Executive Office of the President, and in 2003 was a visiting assistant professor at the University of Chicago Harris School of Public Policy.
Dr. Baicker is a commissioner of the Medicare Payment Advisory Commission and serves on the Panel of Health Advisers to the Congressional Budget Office. She is a member of the editorial boards of Health Affairs and the Journal of Health Economics, chair of the board of directors of AcademyHealth, editor of the Forum for Health Economics and Policy, and associate editor of the Journal of Economic Perspectives. She is an elected member of the Institute of Medicine.

Qualifications:Dr. Baicker is a leading researcher in the fields of health economics, public economics, and labor
economics. As a valued advisor to numerous health care-related commissions and committees, her expertise in health care policy and health care delivery is recognized by both academia and government.

Board committees:audit, public policy and compliance

J. Erik Fyrwald, Age 53, Director since 2005
President and Chief Executive Officer, Univar, Inc.
J. Erik Fyrwald joined Univar Inc., a leading distributor of industrial and specialty chemicals and provider of related services, in May 2012 as its president and chief executive officer. In 2008, following a 27-year career at E.I. duPont de Nemours and Company (DuPont), he joined Nalco Company, serving as chairman and chief executive officer until 2011, when Nalco merged with Ecolab Inc. Following the merger, Mr. Fyrwald served as president of Ecolab. From 2003 to 2008, Mr. Fyrwald served as group vice president of the agriculture and nutrition division at DuPont. From 2000 until 2003, he was vice president and general manager of DuPont's nutrition and health business. At DuPont, he held a broad variety of assignments in a number of divisions covering many industries. He has worked in several locations throughout North America and Asia.
Mr. Fyrwald serves as a director of the Society of Chemical Industry, Amsted Industries, and the Chicago Public Education Fund, and he is a trustee of the Field Museum of Chicago.

Qualifications:Mr. Fyrwald has a strong record of operational and strategy leadership in two complex worldwide businesses with a focus on technology and innovation. An engineer by training, he has extensive senior executive experience at DuPont, a multinational chemical company, where he led the agriculture and nutrition division, which used chemical and biotechnology solutions to enhance plant health. He also has experience serving as the CEO of Univar and Nalco.

Board committees:public policy and compliance (chair); science and technology

Ellen R. Marram, Age 66, Director since 2002
President, The Barnegat Group LLC
Ms. Marram began serving as the board's lead director in April 2012. Ms. Marram is the 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 served as an advisor to the firm from 2006 to 2010. From 1993 to 1998, Ms. Marram was president and chief executive officer of Pepsico's Tropicana and the Tropicana Beverage Group. From 1988 to 1993, she was president and chief executive officer of the Nabisco Biscuit Company, the largest operating unit of Nabisco, Inc.; from 1987 to 1988, she was president of Nabisco's grocery division; and from 1970 to 1986, she held a


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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 previously served on the board of Cadbury plc. She also serves on the boards of Wellesley College, Institute for the Future, New York-Presbyterian Hospital, Lincoln Center Theater, and Families and Work Institute.

Qualifications:Ms. Marram is a former CEO with a strong marketing and consumer-brand background. Through her nonprofit and private company activities, she has a special focus and expertise in wellness and consumer health. Ms. Marram has extensive corporate governance experience through service on other public company boards in a variety of industries.

Board committees:compensation; directors and corporate governance (chair)

Douglas R. Oberhelman,Age 60, Director since 2008
Chairman and Chief Executive Officer, Caterpillar Inc.
Mr. Oberhelman has been chairman of the board of Caterpillar Inc. since November 2010 and chief executive officer since July 2010. He previously served as vice chairman and chief executive officer-elect of Caterpillar. He joined Caterpillar in 1975 and has held a variety of positions, including senior finance representative based in South America for Caterpillar Americas Co., regional finance manager and district
manager for the company's North American commercial division, and managing director and vice general manager for strategic planning at Caterpillar Japan Ltd. Mr. Oberhelman was elected a vice president in 1995, serving as Caterpillar's chief financial officer from 1995 to November 1998. In 1998, he became vice president with responsibility for the engine products division and he was elected a group president and member of Caterpillar's executive office in 2002.
Mr. Oberhelman serves on the boards of Caterpillar, the Wetlands America Trust, and is chairman of the National Association of Manufacturers. He previously served on the board of Ameren Corporation. He is a memberof the Executive Committee of the Business Roundtable and a member of the Business Council.

Qualifications: Mr. Oberhelman has a strong strategic and operational background as a senior executive (and currently as chairman and CEO) of Caterpillar, a leading manufacturing company with worldwide operations and a special focus on emerging markets. He is an audit committee financial expert as a result of his prior experience as CFO of Caterpillar and as a member and chairman of the audit committee of another U.S. public company.

Board committees:audit; finance
Director Compensation

Director compensation is reviewed and approved annually by the board, on the recommendation of the directors and corporate governance committee. Directors who are employees receive no additional compensation for serving on the board.

Cash Compensation
In 2012, the company provided nonemployee directors with an annual retainer of $100,000 (payable in monthly installments). In addition, certain board roles receive additional annual retainers:
$3,000 for audit committee and science and technology committee members
$12,000 for committee chairs ($18,000 for audit committee chair and $15,000 for science and technology committee chair)
$30,000 for the lead director.
Directors are reimbursed for customary and usual travel expenses. Directors may also receive additional retainer amounts for serving on ad hoc committees that may be assembled from time-to-time.

Stock Compensation
Stock compensation for nonemployee directors consists of shares of company 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 nonemployee directors to defer receipt of all or part of their cash compensation until after their service on the board has ended. Each director can choose to invest the funds in one or both of two accounts:
Deferred Stock Account. This account allows the director, in effect, to invest his or her deferred cash compensation in company stock. In addition, the annual award of shares to each director noted above (3,083 shares in 2012) is credited to this account on a pre-set annual date. The number of shares credited is calculated by dividing the $145,000 annual compensation figure by the closing stock price on that date. Funds in this account are credited as hypothetical shares of company 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. Actual shares are issued or transferred after 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


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preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal Revenue Code of 1986, as amended (the Internal Revenue Code). The aggregate amount of interest that accrued in 2012 for the participating directors was $138,129, at a rate of 3.3 percent. The rate for 2013 is 2.9 percent.
Both accounts may be paid in a lump sum or in annual installments for up to 10 years, beginning the second January following the director’s departure from board service. Amounts in the deferred stock account are paid in shares of company stock.



Director Compensation
In 2012, we provided the following compensation to directors who are not employees:
NameFees Earned
or Paid in Cash ($)
Stock Awards ($) 1
All Other
Compensation and Payments ($) 2
Total ($) 3
Mr. Alvarez$106,000 $145,000 $0 $251,000 
Dr. Baicker$102,250 $145,000 $0 $247,250 
Sir Winfried Bischoff$112,000 $145,000 $0 $257,000 
Mr. Eskew$121,000 $145,000 $1,500 $267,500 
Mr. Fyrwald$112,000 $145,000 $35,000 $292,000 
Dr. Gilman$118,000 $145,000 $14,500 $277,500 
Mr. Hoover$106,000 $145,000 $30,000 $281,000 
Ms. Horn$119,500 $145,000 $5,250 $269,750 
Dr. Kaelin$60,083 $84,583 $11,200 $155,867 
Ms. Marram$134,500 $145,000 $30,000 $309,500 
Mr. Oberhelman$106,000 $145,000 $33,750 $284,750 
Dr. Prendergast$103,000 $145,000 $0 $248,000 
Ms. Seifert$103,000 $145,000 $13,650 $261,650 

Michael L. Eskew1
Age 62Director since 2008

Former ChairmanEach nonemployee director received an award of stock valued at $145,000 (3,083 shares), except Dr. Kaelin, who received shares proportionately for a partial year of service. This stock award and Chief Executive Officer, United Parcel Service, Inc.

Mr. Eskew served as chairman and chief executive officer of United Parcel Service, Inc., from January 2002all prior stock awards are fully vested in that they are not subject to forfeiture; however, the shares are not issued until December 2007. He continues to serve on the UPS board of directors. Mr. Eskew begandirector ends his UPS career in 1972 as an industrial engineering manager and held various positions of increasing responsibility, including time with UPS’s operations in Germany and with UPS Airlines. In 1993, Mr. Eskew was named corporate vice president for industrial engineering. Two years later he became group vice president for engineering. In 1998, he was elected to the UPS board of directors. In 1999, Mr. Eskew was named executive vice president and a year later was given the additional title of vice chairman. He serves as chairman of the board of trustees of The Annie E. Casey Foundation. Mr. Eskew also serves on the boards of 3M Corporation and IBM Corporation.

Qualifications: Mr. Eskew has CEO experience with UPS, where he established a record of success in managing complex worldwide operations, strategic planning, and building a strong consumer-brand focus. He is an audit committee financial expert, based on his CEO experience and his service on other U.S. company audit committees. He has extensive corporate governance experience through hisor her service on the boardsboard, as described above under “Lilly Directors’ Deferral Plan.” The column shows the grant date fair value for each director’s stock award. Aggregate outstanding stock awards are shown in the “Common Stock Ownership by Directors and Executive Officers” table in the “Directors’ Deferral Plan Shares” column. Aggregate outstanding stock options as of other companies.

Board committees: audit (chair); compensation

December 31, 2012 are shown in the table below. Nonemployee directors received no stock options in 2012. The company discontinued granting stock options to nonemployee directors in 2005. A discussion of methodology used in calculating the award values can be found above under the heading "Lilly Directors' Deferral Plan."

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NameOutstanding Stock Options (Exercisable)Weighted Average Exercise Price
Sir Winfried Bischoff5,600$65.48
Dr. Gilman5,600$65.48
Ms. Horn5,600$65.48
Ms. Marram5,600$65.48
Dr. Prendergast5,600$65.48
Ms. Seifert5,600$65.48
Alfred G. Gilman, M.D., Ph.D.2
Age 70Director since 1995

Chief Scientific Officer, Cancer PreventionThis column consists of amounts donated by the Eli Lilly and Research InstituteCompany Foundation, Inc. under its matching gift program, which is generally available to U.S. employees as well as the outside directors. Under this program, the foundation matched 100 percent of Texas

Dr. Gilman ischaritable donations over $25 made to eligible charities, up to a maximum of $30,000 per year for each individual. The foundation matched these donations via payments made directly to the chief scientific officer of the Cancer Preventionrecipient charity.The amounts for Mr. Fyrwald and Research Institute of Texas and regental professor of pharmacology emeritusMr. Oberhelman include matching contributions for donations made at the Universityend of Texas Southwestern Medical Center at Dallas. Dr. Gilman2011 (Mr. Fyrwald – $15,000; Mr. Oberhelman – $5,000), for which the matching contribution 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 previously served as executive vice president for academic affairs and provost of the University of Texas Southwestern Medical Center at Dallas, dean of the University of Texas Southwestern Medical School, and professor of pharmacology at the University of Texas Southwestern Medical Center. He held the Raymond and Ellen Willie Distinguished Chair of 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. He is a director of Regeneron Pharmaceuticals, Inc. Dr. Gilman was a recipient of the Nobel Prize in Physiology or Medicine in 1994.

Qualifications: Dr. Gilman is a Nobel Prize-winning pharmacologist, researcher, and professor. He has deep expertise in basic science, including mechanisms of drug action, and experience with pharmaceutical discovery research. As the former dean of a major medical school, he brings to the board important perspectives of both the academic and practicing medical communities.not paid until 2012.

Board committees: public policy and compliance; science and technology (chair)


Karen N. Horn, Ph.D.3
Age 68Director since 1987

Retired President, Private Client Services, and Managing Director, Marsh, Inc.

Ms. Horn will serve as the board’s lead director until April 2012. She served as president of private client services and managing director of Marsh, Inc. 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; chairman and chief executive officer of Bank One, Cleveland, N.A.; president of the Federal Reserve Bank of Cleveland; treasurer of Bell Telephone Company of Pennsylvania; and vice president of First National Bank of Boston. Ms. Horn serves as director of T. Rowe Price Mutual Funds; Simon Property Group, Inc.; and Norfolk Southern Corporation and vice chairman of the U.S. Russia Foundation. She previously served on the board of Fannie Mae and Georgia-Pacific Corporation. Ms. Horn has been senior managing director of Brock Capital Group since 2004.

Qualifications: Ms. Horn is a former CEO with extensive experience in various segments of the financial industry, including banking and financial services. Through her for-profit and her public-private partnership work, she has significant experience in international economics and finance. Ms. Horn has extensive corporate governance experience through service on other public company boardsDirectors do not participate in a variety of industries.

Board committees: compensation (chair); directors and corporate governance

John C. Lechleiter, Ph.D.Age 58Director since 2005

Chairman, President, and Chief Executive Officer

Dr. Lechleiter is chairman, president, and chief executive officer of Eli Lilly and Company. He served as president and chief operating officer from 2005 to 2008. 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 for pharmaceutical products and corporate development in 2001. He was named executive vice president for pharmaceutical operations in 2004. He is a member of the American Chemical Society and the Business Roundtable. Dr. Lechleiter serves as chairman-elect of Pharmaceutical Research and Manufacturers of America (PhRMA), and on the boards of United Way Worldwide, Xavier University (Cincinnati, Ohio), Life Sciences Foundation, and the Central Indiana Corporate Partnership. He also serves on the board of Nike, Inc.

Qualifications: Dr. Lechleiter is our chairman, president, and chief executive officer. Under our corporate governance guidelines, the CEO is expected to serve on the board of directors. Dr. Lechleiter, a Ph.D. chemist, has over 30 years of experience with the company in a variety of roles of increasing responsibility in research and development, sales and marketing, and corporate administration. As a result, he has a deep understanding of pharmaceutical research and development, sales and marketing, strategy, and operations. He also has significant corporate governance experience through service on other public company boards.

Board committees: none

pension plan or non-equity incentive plan.


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Highlights of the Company’s Corporate Governance Guidelines

The following summary provides highlights of the company’s guidelines established by the board of directors. A complete copy of the corporate governance guidelines is available online athttp://investor.lilly.com/governance.cfm or in paper form upon request to the company’s corporate secretary.

I. Role of the Board

The directors are elected by the shareholders to oversee the actions and results of the company’s management. Their responsibilities include:

providing general oversight of the business

approving corporate strategy

approving major management initiatives

providing oversight of legal and ethical conduct

overseeing the company’s management of significant business risks

selecting, compensating, and evaluating directors

evaluating board processes and performance

selecting, compensating, evaluating, and, when necessary, replacing the chief executive officer, and compensating other senior executives

ensuring that aan effective 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 position in the company.

Selection of Director Candidates

The board selects candidates for board membership and establishes 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“Directors and Corporate Governance Committee Matters.”

Matters” below.

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, significant 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 (NYSE) listing standards, except that the “look-back period” for determining whether a director’s prior relationshiprelationship(s) with the company impairs independence is extended from three to four years.

Specifically, a director is not considered independent if (i) the director or an immediate family member is a current partner of the company’s 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 firm’s audit, assurance, or tax compliance (but not tax planning) practice; or (iv) the director or an immediate family member was within the last four years (but is no longer) a partner or employee of such firm and personally worked on our audit within that time.

In addition, a director is not considered independent if any of the following relationships existed within the previous four years:

aA director who is an employee of the company, or whose immediate family member is an executive officer of the company. 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.

aA director who receives any direct compensation from the company other than the director’s normal director compensation, or whose immediate family member receives more than $120,000 per year in direct compensation from the company other than for service as a nonexecutive employee.

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aA director who is employed (or whose immediate family member is currently employed as an executive officer) by another company where any Lilly executive officer serves on the compensation committee of that company’s board.

aA director who is currently employed by, who is a 10 percent shareholder of, or whose immediate family member is currently employed as 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 company’s consolidated gross revenue in a single fiscal year.

aA director who is a current executive officer of a nonprofit organization that receives grants or contributions from the company exceeding the greater of $1 million or 2 percent of that organization’s consolidated gross revenue in a single fiscal year.



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Members of board committees must meet all applicable independence tests of the NYSE, Securities and Exchange Commission (SEC), and Internal Revenue Service (IRS).

The directors and corporate governance committee determined that all 13 nonemployee directors listed below are independent, and that the members of each committee also meet the independence standards referenced above. The directors and corporate governance committee recommended this conclusion to the board and explained the basis for its decision, and this conclusion was adopted by the board. TheThis committee and the board determined that none of the 13 directors has had during the last four years (i) any of the relationships listed above or (ii) any other material relationship with the company that would compromise
his or her independence. In reaching thisconclusion, the directors and corporate governance committee reviewed directors’ responses to a questionnaire asking about their relationships with the company and other potential conflicts of interest, as well as information provided by management related to transactions, relationships, or arrangements between the company and the directors or parties related to the directors. The table below includes a description of categories or types of transactions, relationships, or arrangements considered by the board in reaching its determinations. All of these transactions were entered into at arm’s length in the normal course of business and, to the extent they are commercial relationships, have standard commercial terms. None of these transactions exceeded the thresholds described above or otherwise compromises the independence of the named directors.


NameIndependentIndependent    Transactions/Relationships/Arrangements

Mr. Alvarez

YesNone

Dr. Baicker

YesPayments to Harvard University totallingtotaling approximately $2.3$3.1 million (less than 0.1 percent of Harvard’s consolidated grossHarvard's total revenue), primarily for medical research

Sir Winfried Bischoff

YesNone

Mr. Eskew

YesNone

Dr. Feldstein

Mr. FyrwaldYesPayments to Harvard University totalling approximately $2.3 million (less than 0.1 percent of Harvard’s consolidated gross revenue), primarily for medical research

Mr. Fyrwald

YesPurchases of products and services from Ecolab totallingtotaling approximately $1.0$0.7 million (less than 0.1 percent of Ecolab’s consolidated grossEcolab's total revenue)
Purchases of products from Univar, Inc. totaling $1.9 million (less than 0.1 percent of Univar's total revenue)

Dr. Gilman

YesNone

Mr. Hoover

YesNone

Ms. Horn

YesNone

Ms. Marram

Dr. KaelinYesPayments to Harvard University totaling approximately $3.1 million (less than 0.1 percent of Harvard's total revenue), primarily for medical research
Payments to Brigham and Women's Hospital totaling approximately $0.7 million (less than 0.1 percent of Brigham's total revenue), primarily for medical research
Payments to Dana-Farber Cancer Institute totaling approximately $1.7 million (less than 0.1 percent of Dana-Farber's total revenue), primarily for medical research
Ms. MarramYesNone

Mr. Oberhelman

YesNone

Dr. Prendergast

YesPayments to the Mayo Clinic and the Mayo Foundation totallingtotaling approximately $2.2$4.4 million (less than 0.1 percent of Mayo’s consolidated grossMayo's total revenue), primarily for medical research

Ms. Seifert

YesNone


Director Tenure

Subject to the company’s charter documents, the following are the board’s expectations for director tenure:

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.

Nonemployee directors will retire from the board not later than the annual meeting of shareholders that follows their seventy-second birthday.

Directors may stand for reelection even though the board’s retirement policy would prevent them from completing a full three-year term.

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.

The directors and corporate governance committee, with input from all board members, 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.

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Other Board Service

Effective November 1, 2009, no

No new director may serve on more than three other public company boards, and no incumbent director may


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accept new positions on public company boards that would result in service on more than three other public company boards. The directors and corporate governance committee or the chair of that committee may approve exceptions to this limit upon a determination that such additional service will not impair the director’s effectiveness on the board.


Voting for Directors

In an uncontested election, directors are elected by a majority of the votes cast. Under the bylaws, any incumbent nominee for director who fails to receive a majority of the votes cast 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 committee’s 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.


The company will disclose the board’s decision on a Form 8-K 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 director’s 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 directors and corporate governance committee or board deliberations regarding the resignation offer. If all members of the directors and corporate governance committee fail to receive a majority of the votes cast at the same election, the independent directors who did receive a majority of the votes cast 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 forcompensation and recommends any changes are made to the board by the committee.

board.


Directors should hold meaningful equity ownership positions in the company; accordingly, a significant portion of director compensation is in the form of Lilly stock. Directors are required to hold Lilly stock, directly or through company plans, valued at not less than five times their annual cash retainer; new directors are allowed five years to reach this ownership level.


IV. Key Board Responsibilities

Selection of Chairman and Chief Executive Officer; Succession Planning

The board currently combines the role of chairman of the board with the role of chief executive officer, coupled with a lead director position to further strengthen the governance structure. The board believes this provides an efficient and effective leadership model for the company. Combining the chairman and CEO roles
fosters clear accountability, effective decision-making, and alignment on corporate strategy. To assure effective independent oversight, the board has adopted a number of governance practices, including:

a strong, independent, clearly-defined lead director role (see below for a full description of the role)

executive sessions of the independent directors after every regular board meeting

annual performance evaluations of the chairman and CEO by the independent directors.


However, no single leadership model is right for all companies and at all times. Depending on the circumstances, other leadership models, such as a separate independent chairman of the board, might be appropriate. Accordingly, the board periodically reviews its leadership structure.


The lead director recommends to the board an appropriate process by which a new chairman and CEO will be selected. The board has no required procedure for executing this responsibility because it believes that the most appropriate process will depend on the circumstances surrounding each such decision.


A key responsibility of the CEO and the board is ensuring that an effective process is in place to provide continuity of leadership over the long term. Each year, succession-planning reviews culminate in a detailed review of top leadership talent by the compensation committee and a summary review by the independent directors as a whole. During this review,these reviews, the CEO and the independent directors discuss future candidates for the CEO and other senior leadership positions, succession timing for those positions, and development plans for the highest-potential candidates.

In addition, During the year, the directors have multiple opportunities to interact with the company's top leadership talent in formal and informal settings.


The CEO maintains in place at all times, and reviews with the independent directors, a confidential plan for the timely and efficient transfer of his or her responsibilities in the event of an emergency or his or her sudden departure, incapacitation, or death.


Evaluation of Chief Executive Officer

The lead director is responsible for leading the independent directors in executive session to assess the performance of the chief executive officer at least annually. The results of this assessment are reviewed with the chief

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executive officer and considered by the compensation committee in establishing the chief executive officer’s compensation for the next year.


Corporate Strategy

Once each year, the board devotes an extended meeting with senior management to discuss the strategic issues and opportunities facing the company, allowing the


13


board an opportunity to provide direction for the corporate strategic plan. These strategy sessions also provide the board an opportunity to interact extensively with the company’s senior leadership team. This assists the board in its succession-management responsibilities.


Throughout the year, significant corporate strategy decisions are brought to the board in a timely way for its consideration.


Code of Ethics

The board approves the company’s code of ethics. This code is set out in:

•

The Red Book, a comprehensive code of ethical and legal business conduct applicable to all employees worldwide and to our board of directors

•

Code of Ethical Conduct for Lilly Financial Management, a supplemental code for our chief executive 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.

The Red Book, a comprehensive code of ethical and legal business conduct applicable to all employees worldwide and to our board of directors
Code of Ethical Conduct for Lilly Financial Management, a supplemental code for our chief executive 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 athttp://www.lilly.com/about/compliance/conduct/business-practices/ethics-compliance, or in paper form upon request to the company’s corporate secretary.


The audit committee and public policy and compliance committee assist in the board’s oversight of compliance programs with respect to matters covered in the code of ethics.


Risk Oversight

The company has an enterprise risk management program overseen by its chief ethics and compliance officer and senior vice president of enterprise risk management, who reports directly to the CEO and is a member of the company’s top leadership committee. Enterprise risks are identified and prioritized by management, and the top prioritized risks are assigned to a board committee or the full board for oversight. For example, strategic risks are typically overseen by the full board; financial risks are overseen by the audit or finance committee; compliance and reputational risks are typically overseen by the public policy and compliance committee; and scientific risks are overseen by the science and technology committee. Management periodically reports on each such risk to the relevant committee or the board. The enterprise risk management program as a whole is reviewed annually at a joint meeting of the audit and public policy and compliance committees, and enterprise risks are also addressed at the annual board strategy session. Additional review or reporting on enterprise risks is conducted as needed or as requested by the board or relevant committee. Also, the compensation committee periodically reviews the most important enterprise risks to ensure that compensation programs do not
encourage excessive risk-taking. The board’s role in the oversight of risk had no effect on the board’s leadership structure.


V. Functioning of the Board

Executive Sessions of Directors

The independent directors meet alone in executive session and in private session with the CEO at every regularly scheduled board meeting.

Lead Director

The board annually appoints a lead director from among the independent directors. Currently the lead director is Ms. Horn, but effective in April 2012, Ms. Marram will become lead director.Marram. The board has no set policy for rotation of the lead director role but believes that periodic rotation is appropriate. The lead director:

leads the board’s processes for selecting and evaluating the CEO;

CEO

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;

preside

serves as a liaison between the chairman and the independent directors;

directors

approves meeting agendas and schedules and generally approves information sent to the board;

has the authority to call meetings of the independent directors; and

directors

has the authority to retain advisorsadvisers to the independent directors.

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Conflicts of Interest

Occasionally a director’s 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 identify actual or apparent conflicts and ensure that all directors voting on an issue are disinterested. A director will be excused from discussions on the issue, as appropriate.

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 CEO.


Review and Approval of Transactions with Related Persons

The board has adopted a written policy and written procedures for review, approval, and monitoring of transactions involving the company and related persons (directors and executive officers, their immediate family members, or shareholders of 5 percent or greater of the company’s 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. 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:

—

the company’s business rationale for entering into the transaction;

—

the alternatives to entering into a related-person transaction;

—

whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally;

—

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

—

the overall fairness of the transaction to the company.




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Policy: Related-person transactions must be approved by the board or by a committee of the board consisting solely of independent directors, whowill approve the transaction only if they determine that it is in the best interests of the company. In considering thetransaction, the board or committee will consider all relevant factors, including:
the company’s business rationale for entering into the transaction;
the alternatives to entering into a related-person transaction;
whether the transaction is on terms comparable to those available to third parties, or in the case of employment relationships, to employees generally;
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
the overall fairness of the transaction to the company.

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.

—

Management or the affected director or executive officer will bring the matter to the attention of the chairman, the lead director, the chair of the directors and corporate governance committee, or the secretary.

—

The chairman and the lead 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.

—

If a director is involved in the transaction, he or she will be recused from all discussions and decisions about the transaction.

—

The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable.

—

The board or relevant committee will review the transaction annually to determine whether it continues to be in the company’s best interests.


Procedures:
Management or the affected director or executive officer will bring the matter to the attention of the chairman, the lead director, the chair of the directors and corporate governance committee, or the secretary.
The chairman and the lead 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.
If a director is involved in the transaction, he or she will be recused from all discussions and decisions about the transaction.
The transaction must be approved in advance whenever practicable, and if not practicable, must be ratified as promptly as practicable.
The board or relevant committee will review the transaction annually to determine whether it continues to be in the company’s best interests.

The directors and corporate governance committee has approved only the following related-party transactions.
Dr. John Bamforth, senior director, global cardiovascular and urology,chief marketing officer, Lilly Bio-Medicines, is the spouse of Dr. Susan Mahony, senior vice president and president, Lilly Oncology, and has been employed by the company for over 20 years. In 2011,2012, he was paid approximately $390,000$362,000 in cash compensation, and he received grants under the company’s performance-based equity
program valued at approximately $56,000$49,000 based upon the fair value computed in accordance with stock-based compensation accounting rules (FASB ASC Topic 718). Similarly, Mr. Myles O’Neill, senior vice president, global drug products, is the spouse of Dr. Fionnuala Walsh, senior vice president, global quality, and has been employed by the company for approximatelyover 10 years. His cash compensation in 20112012 was approximately $450,000$684,000 and his equity grants were valued at approximately $130,000.$141,000. Both Dr. Bamforth and Mr. O’Neill participate in the company’s benefit programs generally available to U.S. employees, and their compensation was established in accordance with the company’s compensation practices applicable to employees with equivalent qualifications and responsibilities and holding similar positions.

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Orientation of New Directors; Director 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 communications 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 Advisors

Independent directors have direct access to members of management whenever they deem it necessary. The company’s executive officers attend at least part of each regularly scheduled board meeting. The independent directors and committees are also free to retain their own independent advisors, at company expense, whenever they feel it would be desirable to do so. In accordance with NYSE listing standards, theThe audit, compensation, and directors and corporate governance committees have sole authority to retain independent advisors 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.



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Committees of the Board of Directors

Number, Structure, and Independence

The duties and membership of the six board-appointed committees are described below. Only independent directors may serve on the committees.


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 backgrounds, skills, and desires of the board members. The board has no set policy for rotation of committee members or chairs but annually reviews committee memberships and chair positions, seeking the best blend of continuity and fresh perspectives on the committees.

perspectives.


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 chair of each committee determines the frequency and agenda of committee meetings. In addition, theThe audit, compensation, and public policy and compliance 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 athttp://investor.lilly.com/governance.cfm,. or upon request to the company's corporate secretary.


Audit Committee

The duties of the audit committee are described in the “Audit“Audit Committee Report”Matters” below.


Compensation Committee

The duties of the compensation committee are described in the “Compensation“Compensation Committee Matters” section, and the “Compensation Committee Report”Matters” below.


Directors and Corporate Governance Committee

The duties of the directors and corporate governance
committee are described in the “Directors“Directors and Corporate Governance Committee Matters” sectionMatters” below.


Finance Committee

The finance committee reviews and makes recommendations regarding capital structure and strategies, including dividends, stock repurchases, capital expenditures, investments, financings and borrowings, financial risk management, and significant business-development projects.


Public Policy and Compliance Committee

The public policy and compliance committee:

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

integrity; and

reviews and makes recommendations regarding policies, practices, and procedures of the company that relate to public policy and social, political, and economic issues.

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Science and Technology Committee

The science and technology committee:

reviews and makes recommendations regarding the company’s strategic research goals and objectives

objectives;

reviews new developments, technologies, and trends in pharmaceutical research and development

development;

reviews the progress of the company's new product pipeline; and

oversees matters of scientific and medical integrity and risk management.


Membership and Meetings of the Board and Its Committees

In 2011,2012, each director attended more than 8285 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 meeting of shareholders, and all the directors attended in 2011.2012. Current committee membership and the number of meetings of the board and each committee in 20112012 are shown in the table below.

Name    Board    Audit    Compensation    Directors and
Corporate
Governance		    Finance    Public
Policy and
Compliance		    Science and
Technology

Mr. Alvarez

   Member               Member   Member   Member

Dr. Baicker

   Member                   Member    

Sir Winfried Bischoff

   Member           Member   Chair        

Mr. Eskew

   Member   Chair   Member                

Dr. Feldstein

   Member   Member           Member   Chair    

Mr. Fyrwald

   Member                   Member   Member

Dr. Gilman

   Member                   Member   Chair

Mr. Hoover

   Member   Member   Member                

Ms. Horn

   Lead Director       Chair   Member            

Dr. Lechleiter

   Chair                        

Ms. Marram 1

   Member       Member   Chair            

Mr. Oberhelman

   Member   Member           Member        

Dr. Prendergast

   Member                   Member   Member

Ms. Seifert

   Member   Member   Member                

Number of 2011 Meetings

   10   11   7   6   7   8   7

1

Ms. Marram will take over as lead director in April 2012.

17



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Director Compensation

Director compensation is reviewed and approved annually by the board, on the recommendation of the directors and corporate governance committee. Directors who are employees receive no additional compensation for serving on the board or its committees.

Cash Compensation

In 2011, the company provided nonemployee directors with an annual retainer of $100,000 (payable in monthly installments). In addition, certain board roles receive additional annual retainers:

$3,000 for audit committee and science and technology committee members



$12,000 for committee chairs ($18,000 for audit committee chair and $15,000 for science and technology committee chair)

NameBoardAuditCompensationDirectors and
Corporate Governance		FinancePublic Policy and
Compliance		Science and
Technology
Mr. AlvarezMember


MemberMemberMember
Dr. BaickerMemberMember


Member
Sir Winfried BischoffMember

MemberChair

Mr. EskewMemberChair

Member

Mr. FyrwaldMember



ChairMember
Dr. GilmanMember



MemberChair
Mr. HooverMemberMemberMember



Ms. HornMember
ChairMember


Dr. KaelinMember


Member
Member
Dr. LechleiterChair





Ms. MarramLead Director
MemberChair


Mr. OberhelmanMemberMember

Member

Dr. PrendergastMember



MemberMember
Ms. SeifertMemberMemberMember



Number of 2012 Meetings81075685

$30,000 for the lead director.

Directors are reimbursed for customary and usual travel expenses.

Stock Compensation

Stock compensation for nonemployee directors consists of shares of company 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 nonemployee directors to defer receipt of all or part of their cash compensation until after their service on the board has ended. Each director can choose to invest the funds in one or both of two accounts:

•

Deferred Stock Account. This account allows the director, in effect, to invest his or her deferred cash compensation in company stock. In addition, the annual award of shares to each director noted above (3,990 shares in 2011) is credited to this account on a pre-set annual date. Funds in this account are credited as hypothetical shares of company 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. Actual shares are issued or transferred after 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 aggregate amount of interest that accrued in 2011 for the participating directors was $155,178, at a rate of 4.2 percent. The rate for 2012 is 3.3 percent.

Both accounts may be paid in a lump sum or in annual installments for up to 10 years, beginning the second January following the director’s departure from the board. Amounts in the deferred stock account are paid in shares of company stock.

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Director Compensation

In 2011, we provided the following compensation to directors who are not employees:

Name  Fees Earned
or Paid in Cash ($) 1  		  Stock Awards ($) 2    All Other
Compensation and  
Payments ($) 3		     Total ($) 4  

Mr. Alvarez

  $107,500  $145,000           $0    $252,500

Dr. Baicker

      $8,333              —           $0        $8,333

Sir Winfried Bischoff  

  $112,000  $145,000           $0    $257,000

Mr. Eskew

  $121,000  $145,000           $0    $266,000

Dr. Feldstein

  $115,000  $145,000  $18,000    $278,000

Mr. Fyrwald

  $103,000  $145,000  $15,000    $263,000

Dr. Gilman

  $118,000  $145,000  $12,000    $275,000

Mr. Hoover

  $107,500  $145,000  $30,000    $282,500

Ms. Horn

  $142,000  $145,000    $6,575    $293,575

Ms. Marram

  $112,000  $145,000  $30,000    $287,000

Mr. Oberhelman

  $107,500  $145,000  $25,000    $277,500

Dr. Prendergast

  $103,000  $145,000           $0    $248,000

Ms. Seifert

  $103,000  $145,000    $4,150    $252,150

1

In 2011, Mr. Hoover deferred $107,500 in cash compensation into his deferred stock account (2,921 shares) under the “Lilly Directors’ Deferral Plan” (further described above).

2

Each nonemployee director received an award of stock valued at $145,000 (3,990 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 above under “Lilly Directors’ Deferral Plan.” The column shows the grant date fair value for each director’s stock award. Aggregate outstanding stock awards are shown in the “Common Stock Ownership by Directors and Executive Officers” table in the “Directors’ Deferral Plan Shares” column. Aggregate outstanding stock options as of December 31, 2011 are shown in the table below. Nonemployee directors received no stock options in 2011. The company discontinued granting stock options to nonemployee directors in 2005. All outstanding stock options are currently under water, meaning they have no realizable value.

Name                                              Outstanding Stock Options
(Exercisable)		        Weighted Average
Exercise Price		 

Mr. Alvarez

     —         —  

Dr. Baicker

     —         —  

Sir Winfried Bischoff

     8,400         $68.96  

Mr. Eskew

     —         —  

Dr. Feldstein

     8,400         $68.96  

Mr. Fyrwald

     —         —  

Dr. Gilman

     8,400         $68.96  

Mr. Hoover

     —         —  

Ms. Horn

     8,400         $68.96  

Ms. Marram

     5,600         $65.48  

Mr. Oberhelman

     —         —  

Dr. Prendergast

     8,400         $68.96  

Ms. Seifert

     8,400         $68.96  

3

This column consists of amounts donated by the Eli Lilly and Company Foundation, Inc. under its matching gift program, which is generally available to U.S. employees as well as the outside directors. Under this program, the foundation matched 100 percent of charitable donations over $25 made to eligible charities, up to a maximum of $30,000 per year for each individual. The foundation matched these donations via payments made directly to the recipient charity.

4

Directors do not participate in a company pension plan or non-equity incentive plan.

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Directors and Corporate Governance Committee Matters

Overview

The directors and corporate governance committee recommends to the board candidates for membership on the board and board committees and for lead director. The committee also oversees matters of corporate governance, including board performance, director independence and compensation, and the corporate governance guidelines. The committee’s charter is available online athttp://investor.lilly.com/governance.cfm or in paper form upon request to the company’s corporate secretary.

All committee members are independent as defined in the NYSE listing requirements.

Director Qualifications

The board seeks independent directors who represent a mix of backgrounds and experiences that will enhance the quality of the board’s 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, accounting, banking, marketing, and sales

sales;

international business

business;

medicine and science

science;

government and public policy

policy; and

health care system (public or private).



Finally, board members should display the personal attributes necessary to be an effective director: unquestioned integrity; sound judgment; independence in fact and mindset; ability to operate collaboratively; and commitment to the company, its shareholders, and other constituencies.


Our board members represent a desirable mix of backgrounds, skills, and experiences, and they all share the personal attributes of effective directors described above. The board monitors the effectiveness of this approach via an annual internal board assessment as well as ongoing director succession planning discussions by the directors and corporate governance committee. Specific experiences and skills of our independent directors are included in”Director ”Director Biographies” above.


Director Nomination Process

The board delegates the director screening process to the directors and corporate governance committee, which receives direct input from other board members.

Potential candidates are identified through recommendations from several sources, including:

incumbent directors

directors;

management

management;

shareholders

shareholders; and

independent executive search firms that may be retained by the committee to assist in locating and screening candidates meeting the board’s selection criteria.


The committee employs the same process for evaluating all candidates, including those submitted by shareholders. The committee initially evaluates a


17


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 committee’s initial evaluation is favorable, the committee, assisted by management or the search firm, gathers additional data on the candidate’s qualifications, availability, probable level of interest, and any potential conflicts of interest. If the committee’s 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). Dr. Baicker, who is standing for election, was referred to the committee by an independent incumbent director.

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Process for Submitting Recommendations and Nominations

A shareholder who wishes to recommend a director candidate for evaluation by the committee should forward the candidate’s name and information about the candidate’s qualifications to the chair 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 company’s bylaws, a shareholder who wishes to directly nominate a director candidate at the 20132014 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 5, 201225, 2013 and no earlierthan
September 6, 2012.22, 2013. 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 athttp://investor.lilly.com/governance.cfm.governance.cfm. The bylaws will also be provided by mail without charge upon request to the corporate secretary.


Prior Management Proposals to Eliminate Classified Board and Supermajority Voting Requirements
In each of the past six years, we submitted management proposals to eliminate the company's classified board structure. The proposals did not pass because they failed to receive a “supermajority vote” of
80 percent of the outstanding shares, as required in the company's bylaws. In addition, in each of the past three years, we submitted management proposals to eliminate the supermajority voting requirements themselves. Those proposals also fell short of the required 80 percent vote.   
 Prior to 2012, these proposals received support ranging from 72 to 77 percent of the outstanding shares. In 2012, the vote was even lower, approximately 63 percent of the outstanding shares, driven in part by a 2012 NYSE rule revision prohibiting brokers from voting their clients' shares on corporate governance matters absent specific instructions from such clients. In preparation for 2013, we discussed these matters with our proxy solicitor and our major shareholders, including those who have supported and opposed these proposals in the past. We have concluded that the proposals would not be successful in 2013 and therefore we are not resubmitting them. We will continue to monitor this situation and engage in dialogue with our shareholders on these and other governance topics to ensure that Lilly continues to demonstrate strong corporate governance and accountability to shareholders.
Audit Committee Matters


Audit Committee Membership

All members of the audit committee are independent as defined in the SEC regulations and NYSE listing standards applicable to audit committee members. The board of directors has determined that Mr. Eskew, Mr. Hoover, and Mr. Oberhelman are audit committee financial experts, as defined in the rules of the SEC.


Audit Committee Report

The audit committee (“we” or “the committee”) reviews the company’s 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 havethe committee has met and held discussions with management and the independent auditor. Management represented to usthe committee that the company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles (GAAP), and we havethe committee has reviewed and discussed the audited financial statements and related disclosures with management and the independent auditor, including a review of the significant management judgments underlying the financial statements and disclosures.


The independent auditor reports to us. We havethe committee, which has sole authority to appoint and to replace the independent auditor.

We have


The committee has discussed with the independent auditor matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees), as amended and as adopted by the Public Company Accounting Oversight Board (PCAOB) in Rule 3200T, including the quality, not just the acceptability, of the accounting principles, the


18


reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. In addition, we havethe committee has received the written disclosures and the letter from the independent auditor required by applicable requirements of the PCAOB regarding communications with the audit committee concerning independence, and havehas discussed with the independent auditor the auditor’s independence from the company and its management. In concluding that the auditor is independent, wethe committee determined, among other things, that the nonaudit services provided by Ernst & Young LLP (as described below) were compatible with its independence. Consistent with the requirements of the Sarbanes-Oxley Act of 2002 we have(the Sarbanes-Oxley Act), the committee has adopted policies toavoid compromising the independence of the independent auditor, such as prior committee approval of nonaudit services and required audit partner rotation.

We


The committee discussed with the company’s 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. WeThe committee periodically meetmeets 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 and the chief accounting officer) to discuss the results of their examinations, their evaluations of the company’s internal controls, and the overall quality of the company’s financial reporting. WeThe committee also periodically meetmeets in executive session.


In reliance on the reviews and discussions referred to above, wethe committee recommended to the board (and the board subsequently approved the recommendation) that the audited financial statements be included in the company’s annual report on Form 10-K for the year ended December 31, 2011,2012, for filing with the SEC. We haveThe committee has also appointed the company’s independent auditor, subject to shareholder ratification, for 2012.

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2013.


Audit Committee

Michael L. Eskew, Chair

Martin S. Feldstein,

Katherine Baicker, Ph.D.

R. David Hoover

Douglas R. Oberhelman

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 auditor’s independence. The committee’s policy and procedures are as follows:

The committee approves the annualaudit services engagement and, if necessary, any changes in terms, conditions, and fees resulting from changes in audit scope, company structure, or other matters. Audit services include internal controls attestation work under Section 404 of the Sarbanes-Oxley Act. The committee may also preapprove other audit services, which are those services that only the independent auditor reasonably can provide.

Audit-related servicesare 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 auditor’s independence.

The committee may approveother services to be provided by the independent auditor if (i) the services are permissible under SEC and PCAOB 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 services.

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.





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Independent Auditor Fees

The following table shows the fees incurred for services rendered on a worldwide basis by the company’s independent auditor in 20112012 and 2010.2011. All such services were preapproved by the committee in accordance with the preapproval policy.

  2011
(millions)		  2010
(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

  $9.1    $8.7  

Audit-Related Fees

•Assurance and related services reasonably related to the performance of the audit or reviews of the financial statements

— 2011 and 2010: primarily related to employee benefit plan and other ancillary audits, and due diligence services on potential and completed acquisitions

  $1.3    $0.8  

Tax Fees

•2011 and 2010: primarily related to consulting and compliance services

  $2.9    $0.9  

All Other Fees

•2011: primarily related to integration services for an acquisition

•2010: primarily related to compliance services outside the U.S.

  $0.9    $0.1  

Total

  $14.2    $10.5  

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2012
(millions)		2011
(millions)
Audit Fees

$8.8$8.8
•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

Audit-Related Fees
$0.7$1.5
•Assurance and related services reasonably related to the performance of the audit or reviews of the financial statements


–
2012 and 2011: primarily related to employee benefit plan and other ancillary audits, and due diligence services on potential acquisitions

Tax Fees

$2.2$3.4
•2012 and 2011: primarily related to consulting and compliance services

All Other Fees

$0.4$0.5
•2012 and 2011: primarily related to compliance services outside the U.S.

Total

$12.1$14.2

Compensation Committee Matters


Scope of Authority

The compensation committee oversees the company’s global compensation philosophy and policies, as well as establishes the compensation of executive officers. The committee also acts as the oversight committee with respect to the company’s deferred compensation plans, management stock plans, and other management incentive compensation programs. The committee may delegatedelegates authority to the appropriate company officersmanagement for day-to-day plan administration and interpretation, including selecting participants, determining award levels within plan parameters, and approving award documents. However, the committee may not delegate any authority for matters affecting the executive officers.


The Committee’s Processes and Procedures

The committee’s primary processes for establishing and overseeing executive compensation can be found in the “Compensation Discussion and Analysis” section under “and in the summary below.

The Committee’s Processes and Analyses” below. Additionalcommittee's key processes and procedures for setting and overseeing executive compensation include:

Meetings

•

Meetings. The committee meets several times each year (7 times in 2011). Committee agendas are approved by the committee chair in consultation with the committee’s independent compensation consultant. The committee meets in executive session after each meeting.

•

Role of independent consultant. The committee has retained Cimi B. Silverberg of Frederic W. Cook & Co., Inc., as its independent compensation consultant to assist the committee. Ms. Silverberg reports directly to the committee, and neither she nor her firm is permitted to perform any services for management. The consultant’s duties include the following:

—

review committee agendas and supporting materials in advance of each meeting and raise questions with the company’s global compensation group and the committee chair as appropriate

—

review the company’s total compensation philosophy, peer group, and target competitive positioning for reasonableness and appropriateness

—

review the company’s executive compensation program and advise the committee of plans or practices that might be changed in light of evolving best practices

—

provide independent analyses and recommendations to the committee on the CEO’s pay

—

review draft “Compensation Discussion and Analysis” and related tables for the proxy statement

—

proactively advise the committee on best practices for board governance of executive compensation

—

undertake special projects at the request of the committee chair.

. The committee meets several times each year (7 times in 2012). Committee agendas are approved by the committee chair in consultation with the committee’s independent compensation consultant. The committee meets in executive session after each regular meeting.


Retention of independent consultant. The committee has retained Cimi B. Silverberg of Frederic W. Cook &
Co., Inc., as its independent compensation consultant to assist the committee. Ms. Silverberg reports directly to the committee. Neither she nor her firm is permitted to have any business or personal relationship with management or the members of the compensation committee. The consultant’s duties include the following:
reviewing committee agendas and supporting materials in advance of each meeting and raising questions with the company’s global compensation group and the committee chair as appropriate
reviewing the company’s total compensation philosophy, peer group, and target competitive positioning for reasonableness and appropriateness
reviewing the company’s executive compensation program and advising the committee of evolving best practices
providing independent analyses and recommendations to the committee on the CEO’s pay
reviewing draft “Compensation Discussion and Analysis” and related tables for the proxy statement
proactively advising the committee on best practices for board governance of executive compensation
undertaking special projects at the request of the committee chair.

The consultant interacts directly with members of company management only on matters under the committee’s oversight and with the knowledge and permission of the committee chair.

•


Role of executive officers and management. With the oversight of the CEO and the senior vice president of executive officers and management. With the oversight of the CEO and the senior vice president of


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human resources and diversity, the company’s global compensation group formulates recommendations on compensation philosophy, plan design, and the specific compensation recommendations for executive officers (other than the CEO, as noted below). The CEO gives the committee a performance assessment and compensation recommendation for each of the other executive officers. The committee considers those recommendations with the assistance of its compensation consultant. The CEO and the senior vice president of human resources attend committee meetings but are not present for executive sessions or for any discussion of their own compensation. (Only nonemployee directors and the committee’s consultant attend executive sessions.)

The CEO normallygives the committee a performance assessment and compensation recommendation for each of the other executive officers. The committee considers those recommendations with the assistance of its consultant. The CEO and the senior vice president of human resources and diversity attend committee meetings but are not present for executive sessions or for any discussion of their own compensation. (Only nonemployee directors and the committee’s consultant attend executive sessions.)


The CEO does not participate in the formulation or discussion of his pay recommendations; however, as he did for the past two years, Dr. Lechleiter requested that no increases be made to his base salary or incentive targets for 2012. The CEOrecommendations and has no prior knowledge of the recommendations that the consultant makes to the committee.

•

Risk assessment. With the help of its compensation consultant, in 2011


Risk assessment. With the help of its consultant, in 2012 the committee reviewed the company’s compensation policies and practices for all employees, including executive officers. The committee concluded that the company’s compensation programs will not have a material adverse effect on the company, after reviewing the business risks identified in the annual enterprise risk management assessment process. The committee noted several design features of the company’s cash and equity incentive programs that reduce the likelihood of inappropriate risk-taking:

—

cash and equity and short-term and long-term incentive compensation are balanced

—

incentive plans include a range of payout opportunities below and above target

—

incentive payouts are capped at appropriate levels

—

multiple measures/goals and different measurement periods are used across our incentive plans

—

company performance targets and individual incentive payment targets are set using multiple inputs

23

—

a blend of internal and external measures is used across multiple incentive plans

—

the cost of incentive program payouts is included when determining payout results

—

performance objectives are appropriately difficult

—

the bonus program has a continuum of payout levels for individual performance

—

meaningful share ownership requirements exist for all members of senior management.

The committee concluded that the company’s compensation programs are not reasonably likely to have a material adverse effect on the company, after reviewing the business risks identified in the annual enterprise risk management assessment process. The committee noted several design features of the company’s cash and equity incentive programs that reduce the likelihood of inappropriate risk-taking:

independent compensation committee oversight
compensation committee engages independent compensation consultant
compensation committee has downward discretion to lower compensation plan payouts
threshold levels below target that provide for payouts and maximums that cap payouts
different measures and metrics used across multiple incentive plans; appropriate balance of cash/stock, fixed/variable pay, short-term/long-term incentive
compensation committee approval process for adjustments to financial results for compensation purposes
programs are self-funded; the cost of incentive program payouts is included when determining payout results
performance objectives are appropriately challenging yet achievable
target setting includes multiple inputs
appropriate levels of leverage exist within the programs
limited stock option usage
continuum of payout multiples for individual performance
review of top talent and retention plans
policy prohibiting hedging of company shares
negative compensation consequences for serious compliance violations and compensation recovery policy in place for executives
meaningful share ownership requirements for all employees,members of senior management.
The committee concluded the company’s compensation programs do not encourage excessive risk among executive officers and instead encourage behaviors that support sustainable value creation.


Compensation Committee Interlocks and Insider Participation

None of the compensation committee members:

has ever been an officer orof the company

has been an employee of the company

since prior to 1980
•

is or was a participant in a related-person transaction in 2011 (see “Review and Approval of Transactions with Related Persons” for a description of our policy on related-person transactions)

is or was a participant in a related-person transaction in 2012 (see “Review and Approval of Transactions with Related Persons” for a description of our policy on related-person transactions).


None of our board members or compensation committee members is an executive officer of another entity at which one of our executive officers serves on the board of directors.

24



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Compensation Discussion and Analysis


Summary

Executive compensation for 20112012 aligned well with the objectives of our compensation philosophy and with our performance, driven by these factors:

• The company exceeded internal corporate goals for revenue and earnings per share (EPS) as well as pipeline progress.Strong revenues of $24.3 billion against a goal of $23.2 billion and adjusted non-GAAP earnings per share (EPS) of $4.36 against a goal of $4.31 demonstrated good operational performance,, as the company enteredcontinued to navigate through a challenging eraperiod of significant patent expirations. The pipeline also progressed well, with approvals of Tradjenta®Amyvid, Alimta® continuation maintenance in the U.S., Bydureon®, and Cialis®Cymbalta® for the treatment ofgeneralized anxiety disorder in China, Cialis® for benign prostatic hyperplasia in the EU, and Exenatide Once Weekly® as well as severalsix other milestones, fiveapprovals. Two new molecular entities (NMEs) entered Phase III, and 6175 percent of project milestones for molecules in development were met or accelerated. As a result, the annual cash incentive bonus paid out at 125142 percent of target.

• Two-year adjusted non-GAAP EPS growth fell into the middle rangebottom of our peer companies.Three-year stock price growth to $38.64 was under our targetgroup, an expected consequence of $39.50. For the 2010-2011 Performance Award (PA), the annual cumulative compounded EPS growth rate was 9.0 percent,Zyprexa patent expiration, resulting in a payout of 10950 percent of target to all participants. The company’s 2009-2011for the 2011-2012 Performance Award (PA). Three-year stock price growth of 35 percent resulted in the 2010-2012 Shareholder Value Award (SVA) fell short of its target payout price of $39.50; as a result, awards granted to executive officers and all other participants paidpaying out at 80140 percent of target.

Highlights:

• No changes to compensation and benefit design in 2012
•  With theRevenue and EPS decline due to Zyprexa® patent expiration, of the Zyprexa® patent, the company enters a period of patent expirationsbut both exceed internal targets

•  Very strongAbove-target performance in advancing the pipeline

• S  New bonus metrics include a pipeline progress metric and sales and EPS growth measured against corporate goalstrong stock price performance in 2012

•No increase to CEO salary or incentive targets for 2010, 2011, or 2012

LOGO

•

  A balanced program fosters employee achievement, retention, and engagement. We delivered a total compensation package composed of salary, performance-based cash and equity incentives, and a competitive employee benefits program. We implemented new bonus-plan metrics to drive innovation and retain and motivate employees during the next few years of patent expirations and business challenges. The new bonus metrics measure our revenue, EPS, and pipeline performance against internal goals. At the same time, we retained the external metrics of EPS growth versus our peers and stock price performance versus expected large-cap returns for our equity program. Together these elements reinforced pay-for-performance, provided balance between short- and long-term performance and between internal and external metrics, and encouraged employee retention and engagement.

25A balanced program fosters employee achievement, retention, and engagement

. We delivered a total compensation package composed of salary, performance-based cash and equity incentives, and a competitive employee benefits program. The Eli Lilly and Company Bonus Plan (the bonus plan) metrics of revenue, EPS, and pipeline performance against internal goals are designed to drive solid operational performance, promote innovation, and motivate employees during the next few years of patent expirations and business challenges. By contrast, for our long-term equity programs, we use the external metrics of EPS growth versus our peers and


22

In addition:

•

No increase in CEO target compensation since 2009. As he did for the past two years, and in light of the business challenges the company currently faces, Dr. Lechleiter requested, and the compensation committee approved, no increases to his 2012 salary or incentive targets.

•

The compensation committee reviewed the connection between compensation and risk. The committee reviewed our compensation programs and policies for features that may encourage excessive risk taking and found the overall program to be sound.



stock price performance versus expected large-cap returns. Together these elements reinforce pay-for-performance, provide balance (between short- and long-term performance, internal and external metrics, cash and stock compensation, fixed and variable pay), and encourage employee retention and engagement.

The Compensation Committee’s Processes and Analyses

Linking Business Strategy and Compensation Program Design

At Lilly, we aim to discover, develop, and acquire innovative new therapies—medicines that make a real difference for patients and deliver clear value for payers. In addition,order to accomplish this goal, we must continually improve productivity in all that we do. To achieve these challenging goals, we must attract, engage, and retain highly-talented individuals who are committed to the company’s core values of integrity, excellence, and respect for people. Our compensation and benefits programs are based on thesethe following objectives:

Executive Compensation Philosophy:

•Individual and company performance

•Long-term focus

•Consideration of both internal relativity and competitive pay

•Efficient and egalitarian

• Appropriate risk mitigation

•Reflect individual and company performance.performance. We link employees’ pay to individual and company performance.

— As employees assume greater responsibilities, morea greater portion of their pay is linked to company performance and shareholder returns through increased participation in equity programs.

— We seek to deliver above-market compensation given top-tier individual and company performance, but below-market compensation where individual performance falls short of expectations or company performance lags the industry.

 
—

Our 20112012 incentive programs used a combination of internal corporate financial goals and a pipeline metric (annual bonus), relative EPS growth as measured against the expected performance of our peer companies (PA), and TSR growth astotal shareholder return (TSR) (defined to include appreciation plus dividends) measured byagainst stock price goals (SVA). We design our programs to be simple andwith clear targets, so that employees can understand how their efforts affect their pay.

—

We seek to balance the objectives of pay-for-performance and employee retention. Even during downturns in company performance, the program should continue to motivate and engage successful, high-achieving employees.

•

Foster a long-term focus.

Foster a long-term focus. In our industry, long-term focus is critical to success and is consistent with our goal of retaining highly-talented employees as they build their careers. A competitive benefits program including a defined benefit pension aids retention. As employees progress to higher levels of the organization, a greater portion of compensation is tied to long-term performance through our equity programs.
Provide compensation consistent with the level of job responsibility and the market for pharmaceutical talent. We seek internal pay relativity, meaning that pay differences among jobs should be commensurate with differences in job responsibility and impact. In addition, the compensation committee compares the company’s programs with a peer group of global pharmaceutical and biopharmaceutical companies with whom we compete for talent.
Provide efficient and egalitarian compensation. We seek to deliver superior long-term shareholder returns and to share with employees the value created in a cost-effective manner. While the amount of compensation reflects differences in job responsibilities, geographies, and marketplace considerations, the overall structure of compensation and benefits programs is broadly similar across the organization.
Appropriately mitigate risk. In our industry, long-term focus is critical to success and is consistent with our goal of retaining highly-talented employees as they build their careers. A competitive benefits program aids retention. As employees progress to higher levels of the organization, a greater portion of compensation is tied to long-term performance through our equity programs.

•

Provide compensation consistent with the level of job responsibility and reflective of the market. We seek internal pay relativity, meaning that pay differences among jobs should be commensurate with differences in job responsibility and impact. In addition, the committee compares the company’s programs with a peer group of global pharmaceutical companies. Pharmaceutical companies’ needs for scientific and sales and marketing talent are unique to the industry and we compete with these companies for talent.

•

Provide efficient and egalitarian compensation. We seek to deliver superior long-term shareholder returns and to share value created with employees in a cost-effective manner. While the amount of compensation reflects differences in job responsibilities, geographies, and marketplace considerations, the overall structure of compensation and benefits programs should be broadly similar across the organization.

•

Appropriately mitigate risk. The compensation committee reviews the company’s compensation policies and practices annually and works with management to ensure that program design does not inadvertently create inappropriate incentives.

•

Shareholder input. In establishing 2012 compensation, the committee considered the shareholder vote in 2011 on the compensation paid to named executive officers—more than 88 percent in favor. The committee viewed this vote as supportive of the company’s overall approach to executive compensation.

Setting Compensation

The compensation committee usesreviews the company’s compensation policies and practices annually and works with management to ensure that program design does not inadvertently create inappropriate incentives.

Consider shareholder input. In establishing 2012 compensation, the committee considered the shareholder vote in 2011 on the compensation paid to named executive officers—more than 88 percent in favor. The committee viewed this vote as supportive of the company’s overall approach to executive compensation. The shareholder vote in 2012 also confirmed this view with an overall approval of greater than 93 percent. We communicate directly with shareholders on executive compensation matters.

Setting Compensation
The compensation committee considers several toolsfactors to set compensation targets that meetmeets company objectives. Among those considerations are:

Assessment of individual performance. Individual performance is a major factor in determining compensation.

23


—The independent directors, under the direction of the lead director, meet with the CEO at the beginning of the year to agree upon the CEO’s performance objectives for the year. At the end of the year, the independent directors meet with the CEO and also in executive session to assess the CEO’s performance based on his achievement of the objectives, contribution to the company’s performance, ethics and integrity, and other leadership accomplishments. This evaluation is shared with the CEO by the lead director and is used by the compensation committee in setting the CEO’s compensation for the following year.
—For the other executive officers, the committee receives individual performance assessments and compensation recommendations from the CEO and also exercises its judgment based on the board’s knowledge and its interactions with the executive officers. As with the CEO, an executive officer’s performance assessment is based on his or her achievement of objectives established between the executive officer and the CEO, contribution to the company’s performance, ethics and integrity, and other leadership attributes and accomplishments.
Assessment of company performance. The committee considers company performance measures in two ways:
•

Assessment of individual performance. Individual performance has a strong impact on compensation.

—

The independent directors, under the direction of the lead director, meet with the CEO at the beginning of the year to agree upon the CEO’s performance objectives for the year. At the end of the year, the independent directors meet with the CEO and in executive session to assess the CEO’s performance based on his achievement of the objectives, contribution to the company’s performance, ethics and integrity, and

26

other leadership accomplishments. This evaluation is shared with the CEO by the lead director and is used by the compensation committee in setting the CEO’s compensation for the following year.
—

For the other executive officers, the committee receives performance assessments and compensation recommendations from the CEO and also exercises its judgment based on the board’s interactions with the executive officers. As with the CEO, an executive officer’s performance assessment is based on his or her achievement of objectives established between the executive officer and the CEO, contribution to the company’s performance, ethics and integrity, and other leadership attributes and accomplishments.

•

Assessment of company performance. The committee considers company performance measures in two ways:

—

In establishing total compensation ranges, the committee uses as a reference the performance of the company and the public companies in its peer group with respect to revenue, EPS, return on assets, and 1-one- and 5-yearfive-year TSR.

—

The committee establishes specific company performance goals that determine payouts under the company’s cash and equity incentive programs.

•

Peer-group analysis. The committee reviews peer-group data as a market check for compensation decisions, but does not base compensation targets on peer-group data only.

Peer-group analysis. The committee reviews peer-group data as a market check for compensation decisions, but does not base compensation targets on peer-group data only.

— Overall competitiveness.competitiveness. The committee uses aggregated market data as a
 reference point to ensure that executive compensation is competitive meaning
 within the broad middle range of comparative pay at peer companies when the
company achieves the targeted performance levels. The committee does not target
a specific position within the range.

range of market data.

— Individual competitiveness.competitiveness. The committee compares the overall pay of individual executives is
Compensation
  executivesConsiderations:
• Individual performance
• Company performance
• Peer-group analysis
• Internal relativity
      compared with market pay if the jobs are sufficiently similar to make the comparison meaningful.
The individual’s pay is driven primarily by individual and company performance and
 internal relativity; the peer-group data is used as a market check to ensure that
 individual pay remains within the broad middle range of peer-group pay. The
committee does not target a specific position within the range.

Compensation
Considerations:

•    Individual metrics

•    Company metrics

•    Peer-group analysis

•    External advisor

•    Internal relativity

The peer group consists offor 2012 compensation decisions included Abbott Laboratories; Amgen Inc.; AstraZeneca plc; Baxter International, Inc.; Bristol-Myers Squibb Company; Genzyme Corporation (prior to its acquisition by Sanofi-Aventis); GlaxoSmithKline plc; Hoffmann-La Roche Inc.; Johnson & Johnson; Merck & Co., Inc.; Novartis AG; Pfizer Inc.; Sanofi-Aventis; and Takeda Pharmaceuticals Company. The committee reviews the peer group for appropriateness at least every three years, and the committee consideredapproved the current peer group at the end of 2010 when considering 2011 compensation opportunities.in 2010. The peer companies are direct competitors for our products, operate in a similar business model, and employ people with the unique skills required to operate an established biopharmaceutical company. The committee also considers market cap and revenue as measures of size. With the exception of Johnson & Johnson and Pfizer, peer companies were no greater than three times our size with regard to both measures. The committee included Johnson & Johnson and Pfizer despite their size because both compete directly with Lilly for management and scientific talent.

•

CEO compensation. To provide further assurance of independence, the compensation recommendation for the CEO is developed by the committee’s independent consultant with limited support from company staff. The consultant prepares analyses showing competitive CEO compensation among the peer group for the individual elements of compensation and total direct compensation. Normally, the consultant develops a range of recommendations for any change in the CEO’s base salary, annual cash incentive target, equity grant value, and equity mix. The CEO has no prior knowledge of the recommendations and normally takes no part in the recommendations, committee discussions, or decisions. For 2011, no such recommendation was prepared, since Dr. Lechleiter requested that no increases be made to his base salary or incentive targets. He made the same request for 2012, as he had for 2010 and 2011, and the committee granted this request for all three years.

27CEO compensation

. To provide further assurance of independence, the compensation for the CEO is developed based upon a recommendation from the committee’s independent consultant, with limited support from company staff. The consultant prepares analyses showing competitive CEO compensation among the peer group for the individual elements of compensation and total direct compensation. Typically, the consultant develops a range of recommendations for any change in the CEO’s base salary, annual cash incentive target, equity grant value, and equity mix. The CEO has no prior knowledge of the recommendations and takes no part in the recommendations, committee discussions, or decisions.


Executive Compensation for 2011

2012

Overview

In setting target compensation for 2011,2012, the committee reviewed 20102011 individual and company performance and peer-group data as discussed above, and also considered expected competitive trends in executive pay. That review included:


24


Company performance. In 2011, the company performed in the upper tier of the peer group in one-year TSR, in the middle tier in revenue growth, and in the lower tier in adjusted non-GAAP EPS and five-year TSR. Company performance against corporate operating goals was slightly above target for adjusted non-GAAP EPS growth and slightly below target for return on assets. Growth in adjusted revenue, adjusted non-GAAP EPS, net cash flow, operating income per employee, and pipeline progress exceeded corporate goals.
Individual performance. In assessing the 2011 performance of executive officers, the independent directors (for the CEO) and the compensation committee (with regard to all executive officers) considered the company’s and the executive officer’s accomplishment of objectives established at the beginning of the year and their own subjective assessment of the executive officer’s performance.
•

Company performance. In 2010, the company performed in the upper tier of the peer group in revenue growth, in the middle tier in non-GAAP EPS growth and one-year TSR, and in the lower tier in five-year TSR. Company performance against corporate operating goals was at target for revenue growth, net cash flow, and pipeline progress. Growth in EPS, return on assets, and operating income per employee exceeded corporate goals.

•

Individual performance. As described above under “Setting Compensation,” base salary increases were driven largely by individual performance assessments. In assessing the 2010 performance of executive officers, the independent directors (for the CEO) and the compensation committee (with regard to all executive officers) considered the company’s and the executive officer’s accomplishment of objectives established at the beginning of the year and their own subjective assessment of the executive officer’s performance.

—

In assessing Dr. Lechleiter’sLechleiter's performance, the independent directors noted that under Dr. Lechleiter’sLechleiter's leadership in 2010,2011, the company:

delivered strongDelivered above-plan growth in revenue, growth (6 percent actual vs. 2.5 percent expected industry growth)EPS, and earnings growth that exceeded analysts’ expectations forcash flow.

Achieved the company

effectively reorganized into four pharmaceutical business areas plus Elanco Animal Health, supported by a new global services organization

made measurable progress toward theinfrastructure reduction goals set in 2009 of eliminatingelimination of 5,500 positions and reduction of $1 billion in costs byfrom the end of 2011

2009 plan, excluding acquisitions and strategic additions in Japan and key emerging markets.

continuedContinued to demonstrate progress inadvance the development ofproduct pipeline, with 11 molecules in its late-stage pipeline, with 8 potential medicines in Phase III testing by the end of the year.

development.


The committeedirectors also noted Dr. Lechleiter’s continuedLechleiter's strong leadership in establishing and executing the implementationcompany's strategy to weather the period of the company’s Corporate Integrity Agreement with the Office of Inspector General of the U.S. Department of Healthpatent expirations through 2014 and Human Services and his effortsreturn to reinforce ethics and compliance across the company.long-term growth following 2014. Dr. Lechleiter was an active public advocate forcontinued to set a clear tone throughout the companyorganization emphasizing integrity, ethics, compliance, and the industry.quality. In addition, he strengthened key practices withincontinued his effective public advocacy on behalf of the company, for talent developmentespecially in the areas of FDA and succession management.

Despite patent reform, and oversaw smooth transitions of two critical  leadership roles in the organization.


Dr. Lechleiter’s strong performance, the committee agreed with Dr. Lechleiter’s requestLechleiter requested that his base salary and incentive plan targets not be increased for 2012, as most employees worldwide did not receive increases. Despite his strong performance, the committee agreed to Dr. Lechleiter’s request and his 2012 target compensation remained the same as 2011.


—

Dr. Lundberg had a strong first full year in his position.Mr. Rice assumed expanded operational responsibilities. He demonstrated decisiveeffective leadership in movingduring the pipeline forward, simplifying LRL governance, prioritizing research projects, and closing or repurposing underutilized facilities, and he collaborated very effectively with the business units.

—

Mr. Rice’s responsibilities expanded in 2010 to include IT and Six Sigma®. He led the transformation of the financial component and the creation and implementation of the global financial shared services organization. He provided important contributionscenters, which will enable the company to the company’s strategic decision makingstreamline and served effectively as CFO.

standardize key global financial operations. Mr. Rice also showed continued strong financial stewardship and oversight of investor relations.

—Dr. Lundberg's leadership was a key factor in very strong pipeline progress in 2011. He enhanced Lilly Research Laboratories' focus on achieving key pipeline milestones, made strong gains in employee engagement scores, and recruited key scientific talent.

—Mr. Carmine reorganizedArmitage is broadly recognized for his critical role in helping to reform the sales and marketing functions and collaborated effectively with other business unit leaders. Lilly Biomedicines operatingU.S. patent laws to better protect innovators, culminating in the America Invents Act of 2011. He also led the company to excellent results exceeded target.across a broad spectrum of Hatch-Waxman litigation. Mr. CarmineArmitage retired from the company on December 31, 2011.

2012.

—

Mr. ArmitageConterno provided outstanding supportkey leadership to his internal clients and continued industry leadershipimprove the company’s competitive position in external influence regarding intellectual property matters. The legal organization helped achieve positive outcomes in key patent litigation (winsmarkets for Alimta, Strattera, and Evista; a loss for Gemzar).

•

Pay relative to peer group. The company’s total compensation to executive officers, inour diabetes business products with the aggregate, for 2010 was in the broad middle rangesuccessful consummation of the peer group.

Boehringer-Ingelheim partnership and the termination of the Amylin commercial partnership and settlement of related issues. He collaborated effectively with manufacturing personnel to improve gross margins on these products. His organization reported high employee-engagement scores and strong commitment to ethics and compliance.

Pay relative to peer group. The company’s total compensation to executive officers, in the aggregate, for 2011 was in the broad middle range of the peer group.


25


The committee determined the following:

Program elements. The 2012 program consisted of base salary, a cash incentive bonus, and two forms of performance-based equity grants: PAs and SVAs. Executives also received the company employee benefits package. This total compensation program balances the mix of cash and equity compensation, the mix of current and longer-term compensation, the mix of internally and externally focused goals, and the security of foundational benefits in a way that furthers the compensation objectives discussed above.
Targets. The company generally maintained pay ranges and a balance of pay elements similar to 2011. The committee believes this overall program continues to provide cost-effective delivery of total compensation that:
•

Program elements.The 2011 program consisted of base salary, a cash incentive bonus, and two forms of performance-based equity grants: PAs and SVAs. Executives also received the company employee benefits package. This total compensation program balances the mix of cash and equity compensation, the mix of current and longer-term compensation, the mix of financial and market goals, and the security of foundational benefits in a way that furthers the compensation objectives discussed above.

•

Targets.The company generally maintained pay ranges and a balance of pay elements similar to 2010. The committee believes this overall program continues to provide cost-effective delivery of total compensation that:

—

encourages employee retention and engagement by delivering competitive cash and equity components

—

maintains a strong link to company performance and shareholder returns through a balanced equity incentive program without encouraging excessive risk-taking

—maintains appropriate internal pay relativity
—

 maintains appropriate internal pay relativity

—

provides opportunity for total pay within the broad middle range of expected peer-group pay givenwhen company performance is comparable to that of our peers.

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The graph below shows the balance of fixed and performance-based target compensation determined by the committee and actual compensation received for 2011.2012 bonus. The target compensation reflects decisions made by the compensation committee for 2011.2012. This includes the 2011-20122012-2013 PA and the 2011-20132012-2014 SVA. For comparison purposes, actualActual compensation includes base salary and cash incentive bonus earned in 20112012 and the equity awards that completed their performance periods in 2011:2012, namely, the 2010-20112011-2012 PA and the 2009-20112010-2012 SVA.

2011


2012 Target and Actual Compensation (millions)

LOGO

LOGO

FixedPerformance basedOne-time
Base salaryBonusPASVARSU upon Hire
CashLong-term equity

Actual base salary and bonus amounts are shown in the “Summary“Summary Compensation Table.Table.” The PA payout for 2010-20112011-2012 performance period paid out at 10950 percent of target, as shown in the “Outstanding“Outstanding Equity Awards at December 31, 2011”2012” table. The SVA payout for 2009-20112010-2012 performance was 80140 percent of target, for all participants as shown in the “Options“Options Exercised and Stock Vested in 2011”2012” table. Since Dr. Lundberg joinedAdditionally, the company after the SVA award was granted, he was not eligible for the payout. The graph above includes the vesting of one-third of the awarda portion of restricted stock units (RSUs) that Dr. Lundberg received upon joining the company.

Base Salary

In setting base salaries for 2011, in addition to the considerations described above,
the committee considered the corporate budget for salary increases, which was
established at 3 percent based on company performance for 2010, expected per
formance for 2011, and general external trends. The objective of the budget is to
allow salary increases to retain, motivate, and reward successful performers while
maintaining affordability within the company’s business plan. Individual pay
increases can be more or less than the budget amount depending on individual
performance, but aggregate increases must stay within the budget. The aggregate
increases for the named executive officers and the other executive officers were		 Annualized Base Salary
(thousands)
    Name  2010    2011   Percentage Increase
 

   Dr. Lechleiter

 $1,500   $1,500   0%
 

   Mr. Rice

  $955    $990   4%
 

   Mr. Carmine

  $952    $952   0%
 

   Dr. Lundberg

  $950    $979   3%
 

   Mr. Armitage

  $841    $841   0%

within this budget. Mr. Rice’s base salary reflects his increased responsibilities. In setting 2011 compensation, peer-group data confirmed that the proposed salaries were within the broad middle range of competitive pay.

 

Cash Incentive Bonuses          

The company’s annual cash bonus program aligns employees’ goals with the company’s financial plans and pipeline delivery objectives for the current year. For executive officers, cash incentive bonuses are made under the Executive Officer Incentive Plan (EOIP), which operates by establishing a maximum annual incentive bonus and granting the committee discretion to reduce the bonus from the maximum. Under the EOIP, the maximum bonuses are based on non-GAAP net income (as defined under “Non-GAAP Results” below) for the year. For the chief executive officer, chief operating officer (if any), and executive chairman (if any), the maximum

 

Bonus Weighting:

• 25% revenue goals

 

• 50% non-GAAP EPS goals

 

• 25% pipeline progress

 

2011 Targets:

• $23.2 billion revenue

• $4.31 adjusted non-GAAP EPS

• achievement of pipeline milestones

 

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26

is 0.3 percent of non-GAAP net income. For other executive officers, the maximum is 0.15 percent of non-GAAP net income. No payments can be made unless the company has a positive non-GAAP net income for the year. The committee has discretion to reduce, but not increase, the annual incentive bonus.



Base Salary                                                                                                     
Most employees around the globe did not receive base salary increases for 2012 as part of the company's efforts to manage costs during this period of patent expirations. As a result, executive officers' 2012 salaries remained unchanged from 2011.
Annualized Base Salary (thousands)
Name20112012Percentage Increase
Dr. Lechleiter$1,500
$1,500
0%
Mr. Rice$990
$990
0%
Dr. Lundberg$979
$979
0%
Mr. Armitage$841
$841
0%
Mr. Conterno$670
$670
0%
Cash Incentive Bonuses
The company’s annual cash bonus program is designed to align employees’ individual goals with the company’s financial plans and pipeline delivery objectives for the current year. For executive officers, cash incentive bonuses are made under the Executive Officer Incentive Plan (EOIP), which establishes a maximum annual incentive bonus and grants the committee discretion to reduce the bonus from the maximum. Under the EOIP, the maximum bonuses are based on non-GAAP net income (as defined under “Adjustments to Reported Results” below) for the year. For the chief executive officer, chief operating officer (if any), and executive chairman (if any), the maximum is 0.3 percent of non-GAAP net income. For other executive officers, the maximum is 0.15 percent of non-GAAP net income. No payments can be made unless the company has a positive non-GAAP net income for the year. The committee has discretion to reduce, but not increase, the annual incentive bonus.
Bonus Weighting:
• 25% adjusted revenue goals
• 50% adjusted non-GAAP EPS goals
• 25% pipeline progress
2012 Targets:
• $22.3 billion adjusted revenue
• $3.18 adjusted non-GAAP EPS
• Achievement of pipeline milestones
In exercising this discretion, the committee intends generally to award executive officers the lesser of (i) the bonuses they would have received under the Eli Lilly and Company Bonus Plan (the bonus plan)plan or (ii) the EOIP maximum amounts. Each year the committee establishes target bonuses for the executive officers based on a percentage of salary. At the end of the year, the committee will reduce the bonuses from the EOIP maximum based on the company’s achievement relative to performance-based goals (as described below) set by the committee in a manner consistent with the committee’s administration of the bonus plan. Accordingly, actual payouts under the EOIP are expected to be less than the EOIP maximum amounts. The committee retains further discretion to reduce the bonuses below the results that would have been yielded under the bonus plan.


All other management employees worldwide, as well as a substantial number of nonmanagement employees in the U.S., participate in the bonus plan. Under the plan, participants’ targets and pre-established company goals are set at the beginning of each year. Bonus-payoutsBonus payouts range from zero to 200 percent of target amounts depending on the company’s performance in regard to these goals. At the end of the performance period, the committee has discretion to adjust a bonus-payoutbonus payout downward (but not upward) from the amount yielded by the formula.


The committee considered the following when establishing the 2012 awards:
•
Bonus targets. Consistent with our compensation objectives, as employees assume greater responsibilities, more of their pay is linked to company performance. Bonus targets (expressed as a percentage of base salary) were based on job responsibilities, internal relativity, individual performance, and peer-group data. For each named executive officer, the committee maintained the same bonus targets as 2011.
Bonus Targets (as a percentage of base salary)
 Name20112012
 Dr. Lechleiter140%
140%
 Mr. Rice90%
90%
 Dr. Lundberg90%
90%
 Mr. Armitage80%
80%
 Mr. Conterno75%
75%
  
Company performance measures. A bonus program’s goals should be challenging, yet achievable, in order to motivate and retain employees. Since 2011, awards:

•Bonus targets. Consistent with our compensation objectives, as employees assume greater responsibilities, more of their pay is linked to company performance. Bonus targets (expressed as a percentage of base salary) were based on job responsibilities, internal relativity, individual performance, and peer-group data. For each named executive officer, the committee maintained the same bonus targets as 2010.

 

 

Bonus Targets (as a percentage of base salary)

   Name 2010  2011 
 

  Dr. Lechleiter

 140%   140%  
 

  Mr. Rice

 90% 90%
 

  Mr. Carmine

 90% 90%
 

  Dr. Lundberg

 90% 90%
 

  Mr. Armitage

 80% 80%
•

Company performance measures. A bonus program’s goals should be challenging, yet achievable, in order to motivate and retain employees. Beginning in 2011, performance goals under our bonus plan are tied directly to our internal annual operating goals. The committee established 2011 corporate goals with a 25 percent weighting on revenue growth, 50 percent weighting on non-GAAP EPS growth, and 25 percent weighting on our pipeline progress. These goals replace the prior years’ goals of 25 percent revenue growth versus peer expectations and 75 percent non-GAAP EPS growth versus peer expectations. Revenue and non-GAAP EPS goals that reflect anticipated median peer group year-on-year growth would likely not be achievable in years with patent losses, such as 2011, and would likely result in artificially-inflated payouts in subsequent near-term growth years. The new performance measures were designed to be achievable yet challenging, focusing employees appropriately on achieving or exceeding the company’s top-line sales and bottom-line earnings objectives in a difficult period for the company while delivering a robust pipeline of medicines at all stages of development, which is critical to our long-term success.

performance goals under our bonus plan are tied directly to our internal annual operating goals. The committee established 2012 corporate goals with a 25 percent weighting on adjusted revenue goals, 50 percent weighting on adjusted non-GAAP EPS goals, and 25 percent weighting on our pipeline progress.

In establishing the 20112012 goals, the committee used the company’s 20112012 annual operating plan to set goals of $23.2$22.3 billion in adjusted revenue, and $4.31$3.18 in adjusted non-GAAP EPS, and measures of both the output and sustainability of the pipeline. Payouts were determined by this formula:


27



(0.25 x adjusted revenue multiple) + (0.50 x adjusted non-GAAP EPS multiple) + (0.25 x pipeline multiple)
= bonus multiple


bonus multiple x bonus target x base salary earnings = payout

30

2011


The committee can always lower (but not increase) payouts to individual executive officers when individual performance goals are not achieved.

2012 adjusted revenue, adjusted non-GAAP EPS, and pipeline multiples are illustrated by this chart:

LOGO

2011

              1.10        
            Target        
                        
Adjusted Revenue
Multiple
                       
 0.0   0.5   1.0   1.5   2.0
Adjusted Revenue $19,818   $21,033   $22,252   $23,461   $24,676
                   1.68   
                      
                        
                        
Adjusted Non-GAAP EPS Multiple 0.0   0.5   1.0   1.5   2.0
Adjusted Non-GAAP EPS $2.74   $2.96   $3.18   $3.40   $3.62
               1.20       
                      
                        
Pipeline
multiple
                       
 0.0   0.5   1.0   1.5   2.0
Pipeline
score
 1.0   2.0   3.0   4.0   5.0


2012 adjusted revenue of $24.3$22.5 billion represented 5.1 percent growth over 2010, exceedingexceeded the goal of $23.2$22.3 billion, and resulted in aan adjusted revenue multiple of 1.41. 20111.10. 2012 adjusted non-GAAP EPS of $4.36 represented a reduction of 8 percent from 2010, exceeding$3.48 exceeded the 2011 goal of $4.31 and$3.18, resulting in an adjusted non-GAAP EPS multiple of 1.10.

1.68.


The pipeline output and sustainability metrics were set consistent with corporate goals. The science and technology committee of the board of directors assessed the company’s progress toward achieving these goals at 3.83.4 (on a scale of 1 to 5), noting 3 major11 product approvals (plus 4 other approvals) versus a goal of 3,10, and 5 new molecular entities (NMEs) movedtwo NMEs entering into Phase III versus a goal of 3 NMEs.1 NME. Additionally, 6175 percent of pipeline projects met their milestone goals, which was belowin the target range of 70 to 80 percent. The science and technology committee also performed a subjective assessment of the quality of the pipeline. Based on the recommendation of the science and technology committee, the compensation committee certified a pipeline score of 3.83.4, resulting in a pipeline multiple of 1.40.

1.20.


Combined, the sales,revenue, EPS, and pipeline progress multiples yielded a bonus multiple of 1.25.

1.42.

(0.25 x 1.41)1.10) + (0.50 x 1.10)1.68) + (0.25 x 1.40)1.20) = 1.251.42 bonus multiple


Equity Incentives—Total Equity Program

We employ two forms of equity incentives granted under the 2002 Lilly Stock Plan: performance awards (PAs)PAs and shareholder value awards (SVAs).SVAs. These incentives are designed to focus company leaders on multi-year operational performance as well as long-term shareholder value. In 2012, the company granted equity incentives to approximately 15 percent of our employee population. For executive officers, SVAs pay out in shares that have a three-year performance period followed by a one-year holding requirement; PAs have a two-year performance period and pay out in restricted stock units (RSUs)RSUs that vest one year after the performance period. The following chart shows the performance and holding periods for PA and SVA grants over time:


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LOGO

31



Performance and Holding Periods for PAs and SVAs
2010201120122013201420152016  
         
2010-2011 PA       
 2011-2012 PA    Performance Period
  2012-2013 PA   Restricted Stock Units
   2013-2014 PA    
         
2010-2012 SVA    Performance Period
 2011-2013 SVA   Required Holding Period
  2012-2014 SVA    
   2013-2015 SVA   

Target grant values.values. For 2011,2012, the committee set the aggregate target grant values for the named executive officers based on internal relativity, individual performance, and aggregated peer-group data. Mr. Rice and Dr. Lundberg’sLundberg's target grant values werevalue was increased, reflecting Mr. Rice’s increased responsibilities and implementation ofhis leadership in helping the global services organization and Dr. Lundberg’s successful first year.company achieve key pipeline milestones. The target grant values for the remaining named executive officers were maintained. Consistent with the company’scompany's compensation objectives, individuals at higher levels received a greater proportion of total compensation in the form of equity. The committee determined that for members of senior management, a 50/50 split between PAs and SVAs appropriately balances the company financial performance and shareholder equity return metrics of the two programs. Target values for 2010 and 2011 equity grants for the named executive officers were as follows:

Equity Compensation:

• Performance metrics of growth in non-GAAP EPS and share price are objective and align with shareholder interests

• Target grant values set based on internal relativity, performance, and peer data

performance and shareholder equity return metrics of the two programs. Target Grant Values (thousands)values for the 2011 and 2012 equity grants for the named executive officers were as follows:

Name 2010-2011 PA  2011-2012 PA  2010-2012 SVA  2011-2013 SVA  Percentage
Increase  (total)

Dr. Lechleiter

  $3,750    $3,750    $3,750    $3,750   0%

Mr. Rice

  $1,500    $1,900    $1,500    $1,900   27%

Mr. Carmine

  $1,500    $1,500    $1,500    $1,500   0%

Dr. Lundberg

  $1,250    $1,375    $1,250    $1,375   10%

Mr. Armitage

  $1,000    $1,000    $1,000    $1,000   0%

Target Grant Values (thousands)
Name2011-2012 PA2012-2013 PA2011-2013 SVA2012-2014 SVAPercentage Increase (total)
Dr. Lechleiter$3,750$3,750$3,750$3,7500%
Mr. Rice$1,900$1,900$1,900$1,9000%
Dr. Lundberg$1,375$1,500$1,375$1,5009%
Mr. Armitage$1,000$1,000$1,000$1,0000%
Mr. Conterno$1,000$1,000$1,000$1,0000%
Equity Incentives—Performance Awards
PAs provide employees with shares of company stock if certain company performance goals are achieved. The awards are structured as a schedule of potential shares of company stock earned based on cumulative, compounded annual growth in adjusted non-GAAP EPS over a two-year period. In 2011,The growth rates are based on expected peer group adjusted non-GAAP EPS growth for the company granted a two-year award to global management (approximately 15 percent of our employee population).period. Possible payouts for the 2011-20122012-2013 PA range from 0 to 150 percent of the target depending on adjusted non-GAAP EPS growth over the performance period. No dividends are accrued or paid on the awards during the performance period.

Performance Awards:

• Target 2-yeartwo-year ajdusted non-GAAP EPS growth was 4.6%,for 2012-2013 PA is 3.3% annually, slightly above median expected peer-group performance

• Payout in restricted stockRSUs for executive officers

vests after one year

Company performance measure. For the 20112012 grants, the committee once again established the performance measure as adjusted non-GAAP EPS growth. The committee believes adjusted non-GAAP EPS growth is an effective motivator because it is closely linked to shareholder value, is broadly communicated to the public, is easily understood by employees, and allows for objective comparisons to peer-group performance. The target compounded growth percentage of 4.63.3 percent per year slightly exceeded the median expected adjusted non-GAAP EPS growth of companies in our peer group, based on investment analysts’ published estimates. Accordingly, consistent with our compensation objectives, company performance exceeding the expected peer-group median will result in above-target payouts, while company performance lagging the expected peer-group median will result in below-target payouts. The measure of adjusted non-GAAP EPS used in the PA program differs from the adjusted non-GAAP EPS measure used in our annual bonus program in two ways. First, the annual bonus program measures adjusted non-GAAP EPS over a one-year period, while the PA program measures adjusted non-GAAP EPS over a

29


two-year period. Second, the target adjusted non-GAAP EPS goal in the annual bonus program is set with reference to our internal operating plan for the year, while the target adjusted non-GAAP EPS goal in the PA program is set relative to expected growth rates for other companies in our industry.

Payoutspeer group.


Potential payouts for 2011-20122012-2013 PAs are illustrated by the chart below:

2011-2012 PA

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32

2012-2013 PA
    50% payout                  
   
                 
         Target       
                       
                       
Payout Multiple 0.00 0.50  0.75  1.00  1.25  1.50
Cumulative 2-Year Adjusted Non-GAAP EPS $4.41 $8.46  $8.86  $9.26  $9.67  $10.09+
Equity Incentives—Shareholder Value Awards

In 2007, the company replaced its stock option program with the SVA program. SVAs are structured as a schedule of potential shares of company stock that may be earned based on the company’s share price performance over a three-year period. No dividends are accrued or paid on the awards during the performance period. Payouts range from 0 to 140 percent of the target amount, depending on stock performance over the period. 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 SVA program delivers equity compensation that is strongly linked to 3-year TSR. It is more cost-effective than the stock option program it replaced because the SVA program delivers, at a lower cost to the company, an equity incentive that is equally or more effective in aligningthree-year total shareholder return, which aligns employee interests with long-term shareholder returns.

those of shareholders.

Shareholder Value Awards:

•Three-year performance period

•Target is determined by applying an expected three-year rate of return for large-cappeer group companies

•Shares earned by executive officers must be held one year

Company performance measure. For the 20112012 grants, the SVA will pay above target if company stock outperforms an expected compounded annual rate of return for large-cappeer group companies and below target if company stock underperforms that rate of return. The expected rate of return was determined consideringis based on the total return that a reasonable investor would consider appropriate for investing in a basket of large-cap U.S. companycompanies (based on input from external money managers). The resulting share price payout schedule was developed using this expected rate of return (ten percent) , less the company’s dividend yield applied to the starting share price. Executive officers receive no payout if the stock price, less three years of dividends at the current rate, does not grow over the three-year performance period—in other words, if total shareholder returnTSR for the three-year period is zero or negative.

The starting price for the 2011-20132012-2014 SVAs is $34.81was $38.64 per share, representing the average of the closing prices of company stock for all trading days in November and December 2010, and2011. The future share price that would pay out the target number of shares was established based on the expected rate of return for large-cap companies, less an assumed dividend yield of 5.65.1 percent. The ending price to determine payouts will be the average of the closing prices of company stock for all trading days in November and December 2013.

2014.


The 2011-20132012-2014 SVA will be paid out to executive officers according to the grid below in early 2014:

2011-2013 SVA

Ending Stock Price

  Less than $28.94   $28.94-$33.02   $33.03-$37.09   $37.10-$39.59   $39.60-$42.09   $42.10-$44.59   Greater than $44.59 
Compounded Annual Growth Rate (excluding dividends) Less than (6.0%) (6.0%)-(1.7%) (1.7%)-2.1% 2.1%-4.4% 4.4%-6.5% 6.5% -8.6% Greater than 8.6%
Percent of Target 0% 40% 60% 80% 100% 120% 140%

2015:

2012-2014 SVA
Ending Stock PriceLess than $32.77 $32.77-$37.46 $37.47-$42.14 $42.15-$44.64$44.65-$47.14$47.15-$49.64 Greater than $49.64
Compounded Annual Share Price Growth Rate (excluding dividends)Less than (5.3%)(5.3%)-(1.0%)(1.0%)-2.9%2.9%-4.9%4.9%-6.9%6.9% -8.7%Greater than 8.7%
Percent of Target0%40%60%80%100%120%140%

Restricted Stock Units

No one-time restricted stock unitsRSUs were awarded to any of the named executive officers in 2011.

2012.


Stock Options

The company stopped granting stock options in 2007. All outstanding stock options are currently under water. The stock options granted in 20012002 expired in 2011,2012, and the

30


named executive officers who held them forfeited the awardawards having realized no value. These awards (and other expired stock options) were not replaced.

Non-GAAP


Adjustments to Reported Results

Consistent with past practice, the committee adjusted the results on which 2010-20112011-2012 PAs and the 20112012 bonus were determined to eliminate the distorting effect of certain unusual income or expense items on year-over-year growth percentages. The adjustments are intended to:

align award payments with the underlying performance of the core business

avoid volatile, artificial inflation or deflation of awards due to the unusual items in either the award year or the previous (comparator) year

eliminate certain counterproductive short-term incentives—for example, incentives to refrain from acquiring new technologies, to defer disposing of underutilized assets, or to defer settling legacy legal proceedings to protect current bonus payments.


To assure the integrity of the adjustments, the committee establishes adjustment guidelines at the beginning of the year. These guidelines are generally consistent with the company guidelines for reporting non-GAAP earnings to the investment community, which are reviewed by the audit committee of the board. The adjustments apply equally to income and expense items. The compensation committee reviews all adjustments and retains downward discretion—discretion, i.e., discretion to reduce compensation below the amounts that are yielded by the adjustment guidelines.


33Adjustments for 2012 Bonus Plan

. For the 2012 bonus calculations, the committee made the following adjustments to reported revenue and EPS: 

Neutralized the impact of the early payment by Bristol-Myers Squibb of Amylin's exenatide revenue-sharing obligations by (i) eliminating the income recognized on the early payment and (ii) adjusting planned revenue and EPS for exenatide to include the planned amounts for the portion of the year after the early payment.
Eliminated the EPS impact of significant asset impairments and restructuring charges.
Made additional reductions to "as reported" revenue and non-GAAP EPS in connection with the timing of certain pricing actions that occurred earlier than anticipated. Because the increases had occurred at the time the targets were being established, management recommended, and the committee agreed, to adjust the incremental revenue and EPS out of the 2012 results for bonus purposes.
Neutralized the impact of the delayed enactment of the American Taxpayer Relief Act of 2012, by adding the expected amount of the delayed 2012 tax benefits to 2012 EPS, and increasing the 2013 bonus EPS goal by the same amount to offset the benefit to be received in 2013.

Reconciliations of these adjustments to our reported revenue and EPS are below.

2012
Revenue as reported ($ millions)$22,603.4
   Impact of certain pricing actions$(106.0)
   Impact of Amylin pro-rata revenue$(9.0)
Revenue—adjusted$22,488.4
EPS as reported$3.66
    Eliminate IPR&D charges for acquisitions and in-licensing transactions$0.00
    Eliminate asset impairments, restructuring, and other special charges (including Xigris® withdrawal)$0.16
    Eliminate impact of the early payment of Amylin financial obligation$(0.43)
Non-GAAP EPS$3.39
    Xigris withdrawal adjustment$(0.01)
    EPS impact of the timing of pricing actions$(0.06)
    Pro-rata portion of Amylin net income$0.09
    2012 R&D Tax Credit$0.07
Non-GAAP EPS—adjusted$3.48*
*Numbers may not add due to rounding

Adjustments for 2011-2012 PA. When the committee set 2010-2011EPS growth goals for the 2011-2012 PA, the termination of our exenatide alliance with Amylin and the associated revenue-sharing obligation was not contemplated and therefore, the 2011-2012 PA goals for two-year EPS growth in 2010, U.S. health care reform legislation had not yet passed. Given the scope and uncertaintyassumed ongoing net income from sales of the legislation, theexenatide. The committee decided not to includeneutralize the potential impact of U.S. health care reform when the targets were set, and to adjust results based on the actual impact of U.S. health care reform in 2010 and 2011. The committee also adjusted 2011 EPS to eliminate the first-year impact of the company’s collaboration with Boehringer Ingelheim (BI) and the acquisition of Avid Radiopharmaceuticals (Avid), which were not contemplated when performance targets were set. These costs were not adjusted for the 2011 bonus.early payment. In addition, although the company excluded the impact of the Xigris®Xigris®

31


product withdrawal that occurred in 2011 in its published non-GAAP earnings, the committee chose to include the negative impact on sales and EPS for both 2011 and 2012 when determining EPS for purposes of paying the 2010-2011 PA and the 2011 bonus.

2011-2012 PA.


For the 2010-20112011-2012 PA payout calculations, the committee made the following adjustments to reported EPS:

For 2011:2012: (i) Eliminated the first-year impactincome received from the early payment of the BI collaboration andexenatide revenue-sharing obligation; (ii) Added back the Avid acquisition; (ii) includedplanned income from exenatide for the negative impactportion of the Xigris product withdrawal

year after the early payment;

For 2010 and 2011: Eliminated one-time accounting charges for acquired in-process research and development;

For 2010: Eliminated the impact of U.S. health care reform

For 2009, 2010, 2011, and 2011:2012: Eliminated the impact of (i) significant asset impairmentsimpairment and restructuring charges and (ii) one-time accounting charges for the acquisition of in-process research and development

charges.

For 2009: Eliminated the impact of special charges related to Zyprexa litigation.


The adjustments were intended to align award payments more closely with underlying business growth trends and eliminate volatile swings (up or down) caused by the unusual items. This is demonstrated by the 2009, 2010, 2011, and 20112012 adjustments:

LOGO

EPS Percent Growth vs. Prior Years 
20%             
             
15%             
            
10%            
           
5%           
           
0%           
            EPS growth - as reported
-5%         
         EPS growth - adjusted non-GAAP
-10%         
          
-15%           
            
-20%            
             
-25%             
             
  2010 2011 2012    

Reconciliations of these adjustments to our reported earnings per shareEPS and our published non-GAAP EPS are below. The shaded numbers are the growth percentages used to calculate the 2010-2011 PA payout.

   2011  2010  % Growth
2011 vs. 2010		  2009  % Growth
2010 vs. 2009		 

EPS as reported

 $3.90   $4.58    -14.8%  $3.94    16.2% 

Eliminate IPR&D charges for acquisitions and in-licensing transactions

 $0.23   $0.03     $0.05    

Eliminate asset impairments, restructuring and other special charges (including Xigris withdrawal)

 $0.29   $0.13     $0.42    

Non-GAAP EPS*

 $4.41   $4.74    -7.0%  $4.42    7.2% 

Health care reform adjustment

 $0.45   $0.24      —    

Acquisitions and collaboration first year impact adjustment

 $0.28    —      —    

Xigris withdrawal adjustment

 ($0.05)   —      —    

EPS—adjusted

 $5.09   $4.98    2.2%  $4.42    12.7% 

*Numbers may not add due to rounding.

Similarly, for the 2011 bonus-payout calculations, the committee adjusted EPS to (i) eliminate the impact of significant asset impairments and restructuring charges, (ii) eliminate the impact of one-time accounting charges for the acquisition of in-process research and development, and (iii) include the negative impact of the Xigris product withdrawal.

34

Reconciliations of these adjustments to our reported earnings per share are below. The shaded numbers are the growth percentages used to calculate the 2011 bonus payout.

   2011  2010  % Growth
2011		 

Revenue as reported ($ millions)

  $24,286.5    $23,076.0    5.2% 

Impact of Xigris withdrawal

  ($32.9)   —    

Revenue—adjusted

  $24,253.6    $23,076.0    5.1% 

EPS as reported

  $3.90    $4.58    -14.8% 

Eliminate IPR&D charges for acquisitions and in-licensing transactions

  $0.23    $0.03    

Eliminate asset impairments, restructuring and other special charges (including Xigris withdrawal in 2011)

  $0.29    $0.13    

Non-GAAP EPS*

  $4.41    $4.74    -7.0% 

Xigris withdrawal adjustment

  ($0.05)   —    

EPS—adjusted

  $4.36    $4.74    -8.0% 

*Numbers may not add due to rounding.


20122011% Growth
2012 vs. 2011		2010% Growth
2011 vs. 2010
EPS as reported$3.66$3.90(6.2)%$4.58(14.8)%
Eliminate IPR&D charges for acquisitions and in-licensing transactions—$0.23
$0.03
Eliminate asset impairments, restructuring and other special charges (including Xigris withdrawal)$0.16$0.29
$0.13
Eliminate income from early payment of Amylin financial obligation$(0.43)



Non-GAAP EPS$3.39$4.41(23.1)%$4.74(7.0)%
Health care reform adjustment—

$0.24
Xigris withdrawal adjustment$(0.01)$(0.05)
—
Pro-rata portion of Amylin Net Income$0.09—
—
Non-GAAP EPS—adjusted$3.47$4.36(20.4)%$4.98(12.4)%






Numbers reflected may not add due to rounding




Equity Incentive Grant Mechanics and Timing

The committee approves target grant values for equity incentives prior to the grant date. On the grant date, those values are converted to shares based on:

theThe closing price of company stock on the grant date

date.

the

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The same valuation methodology the company uses to determine the accounting expense of the grants under Financial Accounting Standards Board Accounting Standards Codification (FASB ASC)FASB ASC Topic 718.

The committee’scommittee's procedure for the timing of equity grants assures that grant timing is not being manipulated for employee gain. The annual equity grant date for all eligible employees is in the first half of February. The committee establishes this date in October. The February grant date timing is driven by these considerations:

It coincides with the company’scompany's 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.

It follows the annual earnings release, so that the stock price at that time can reasonably be expected to fairly represent the market’smarket's collective view of our then-current results and prospects.

Grants to new hires and other off-cycle grants are effective on the first trading day of the following month.


Employee and Post-Employment Benefits

The company offers core employee benefits coverage to:

provide our global workforce with a reasonable level of financial support in the event of illness, injury, and retirement

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 include medical and dental coverage, disability insurance, and life insurance.


In addition, theThe Lilly Employee 401(k) plan (the 401(k) plan) and The Lilly Retirement Plan (the retirement plan) provide U.S. employees a reasonable level of retirement income reflecting employees’ careers with the company. To the extent that any employee’s retirement benefit exceeds IRS limits for amounts that can be paid through a qualified plan, the company also offers a nonqualified pension plan and a nonqualified savings plan. These plans provide only the difference between the calculated benefits and the IRS limits, and the formula is the same for all U.S. employees.


The cost of both employee and post-employment benefits is partially borne by the employee, including each executive officer.


Perquisites

The company provides very limited perquisites to executive officers. Executive officers generally doThe company does not have access toallow personal use of the corporate aircraft for personal use; however,except the aircraft is made available for the personal use of Dr. Lechleiter when the security and efficiency benefits to the company outweigh the expense. Dr. Lechleiter did not use the corporate aircraft for personal flights during 2011,2012, nor did he receive any other perquisites. Until March 2009, the company aircraft was made available to other executive officers for the limited purpose of travel to outside board meetings. However, the company no longer allows this use. Depending on seat availability, family members and personal guests 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.

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The Lilly Deferred Compensation Plan

Executives may defer receipt of part or all of their cash compensation under The Lilly Deferred Compensation Plan (the deferred compensation plan), which allows executives to save for retirement in a tax-effective way at minimal cost to the company. Under this unfunded plan, 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 “Nonqualified“Nonqualified Deferred Compensation in 2011”2012��� table.


Severance Benefits

Except in the case of a change in control of the company, the company is not obligated to pay severance to named executive officers upon termination of their employment; any such payments are at the discretion of the compensation committee.


33


Change in Control

Severance:

•  All regular employees 
covered

• Double trigger

• Two-year cash pay  protection for

executives

• 18-month benefit continuation

• Tax gross-up eliminated

  effective October in 2012

The company has adopted a change-in-control severance pay plan for nearly all employees, of the company, including the executive officers. The plan 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. In addition, for executives, the plan 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 benefit levels may differ depending on the employee’s job level and seniority, the basic elements of the plan are comparable for all regular employees:

•  Double trigger. Unlike “single trigger” plans that pay out immediately upon a change

in control, the company plan generally 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 plan, which is to provide employees with financial protection upon loss of employment. A partial exception is made for outstanding PAs, a portion of which would be paid out upon a change in control on a pro-rated basis for time worked based on the 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 company EPS targets into an award based on the surviving company’s EPS. Likewise, if Lilly is not the surviving entity, a portion of outstanding SVAs is paid out on a pro-rated basis for time worked up to the change in control based on the merger price for company stock.

•  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 plan. See “Potential Payments Upon Termination or Change in Control” for a more detailed discussion, including a discussion of what constitutes a change in control.

•  Employees who suffer a covered termination receive up to two years of pay and 18 months of benefits protection. These provisions assure employees a reasonable period of protection of their income and core employee benefits upon which they depend for financial security.

—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 two times the then-current year’s target bonus.

—Benefit continuation. Basic employee benefits such as health and life insurance would be continued for 18 months following termination of employment, unless the individual becomes eligible for coverage with a new employer. All employees would receive an additional 2 years of both age and years-of-service credit for purposes of determining eligibility for retiree medical and dental benefits.

•  Accelerated vesting of equity awards. Any unvested equity awards at the time of termination of employment would vest.

•  Excise tax. In some circumstances, the payments or other benefits received by the employee in connection with a change in control could exceed limits established under Section 280G of the Internal Revenue Code. The employee would then be subject to an excise tax on top of normal federal income tax. Because of the way the excise tax is calculated, it can impose a large burden on some employees while similarly compensated employees will not be subject to the tax. The costs of this excise tax and associated gross-ups would be borne by the company. (Employees would pay income tax resulting from severance payments.) To avoid triggering the excise tax, payments that would otherwise be due under the plan that are up to 5 percent over the IRS limit will be cut back to the limit. Effective October 2012, this tax gross-up will be eliminated.

36Double trigger

. Unlike “single trigger” plans that pay out immediately upon a change in control, the company plan generally requires a “double trigger”—a change in control followed by an involuntary loss of employment within two years thereafter. This is consistent with the plan's intent to provide employees with financial protection upon loss of employment. A partial exception is made for outstanding PAs, a portion of which would be paid out upon a change in control on a pro-rated basis for time worked based on the forecasted payout level at the time of the change in control. This partial payment is appropriate because of the difficulties in converting the company EPS targets into an award based on the surviving company’s EPS. Likewise, if Lilly is not the surviving entity, a portion of outstanding SVAs would be paid out on a pro-rated basis for time worked up to the change in control based on the merger price for company stock.


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 plan. See “Potential Payments Upon Termination or Change in Control” for a more detailed discussion, including a discussion of what constitutes a change in control.

Employees who suffer a covered termination receive up to two years of pay and 18 months of benefits protection. These provisions assure employees a reasonable period of protection of their income and core employee benefits.
—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 two times the then-current year’s target bonus.
—Benefit continuation. Basic employee benefits such as health and life insurance would be continued for 18 months following termination of employment, unless the individual becomes eligible for coverage with a new employer. All employees would receive an additional two years of both age and years-of-service credit for purposes of determining eligibility for retiree medical and dental benefits.

Accelerated vesting of equity awards. Any unvested equity awards at the time of termination of employment would vest.

Excise tax. In some circumstances, the payments or other benefits received by the employee in connection with a change in control could exceed limits established under Section 280G of the Internal Revenue Code. The employee would then be subject to an excise tax on top of normal federal income tax. The company does not reimburse employees for any excise or income taxes paid or other severance benefits related to change in control severance. However, the amount of change in control-related benefits will be reduced to the 280G limit if the employee would receive a greater after-tax benefit when compared to the payment net of all income and excise taxes that would be owed as a result of all change in control payments.

Share Ownership and Retention Guidelines; Hedging Prohibition

and Pledging Shares

Share ownership and retention guidelines help to foster a focus on long-term growth. The committee has adopted a guideline requiring the CEO is required to own company stock valued at least six times his or her annual base salary. Other executive officers are required to own a fixed number of shares based on their position. The fixed number of shares eliminates volatility in the share ownership requirements that can occur with sharp movements in share price. Until the guideline level is reached, the executive officer must retain all existing holdings as well as 50 percent of net shares resulting from new equity payouts. Our executives have a long history of maintaining extensive holdings in company stock, and all named executive officers already meet or exceed the guideline. All new executive officers are on track to meet or exceed

34


the guideline within the next few years. As of February 1, 2012,22, 2013, Dr. Lechleiter held shares valued at approximately 1726 times his salary. The following table shows the required share levels for the named executive officers:

Name Revised Share RequirementMeets
Requirement

Executive officers are also required to retain all shares received from the company equity programs, net of acquisition costs and taxes, for at least one year, even once share ownership requirements have been met. For PAs, this requirement is met by paying the award in the form of restricted stock units.RSUs with a one-year vesting period. Employees are not permitted to hedge their economic exposures to company stock through short sales or derivative transactions.

transactions, and our executive officers do not hold any pledged shares.
NameShare RequirementMeets Requirement
Dr. Lechleitersix times base salaryYes
Mr. Rice75,000Yes
Mr. CarmineRetired—
Dr. Lundberg75,000Yes
Mr. ArmitageRetired60,000--
Mr. Conterno50,000Yes
 

Tax Deductibility Cap on Executive Compensation

U.S. federal income tax law prohibits the company from taking a tax deduction for non-performance based compensation paid in excess of $1,000,000 to named executive officers. However, performance-based compensation 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 objectives.


We have taken steps to qualify all incentive awards (bonuses, PAs, and SVAs) 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 company’scompany's compensation objectives and to protect shareholder interests. For 2011,2012, the non-deductible compensation was approximately $400,000$440,000 for Dr. Lechleiter, less than the portion of his base salary that exceeded $1,000,000, and approximately $1,140,000$1.36 million for Dr. Lundberg, primarily attributable to the vesting of restricted stock unitsRSUs received when he joined the company.


Executive Compensation Recovery Policy and Other Risk Mitigation Tools

All incentive awards are subject to forfeiture upon termination of employment prior to the end of the performance period or for disciplinary reasons. In addition, under the company’s executive officer compensation recovery policy is administered by the compensation committee, which has broad discretion to determine appropriate implementation. Pursuant to the executive compensation recovery policy in place for 2012, the company canis empowered to recover incentive compensation (cash or equity) that was based on achievement of financial results that were subsequently the subject of a restatement if the 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. The committee does not believe it is practical to apply a specific claw-back policy to SVAs in the event of misstated financial results since it is very difficult to isolate the amount, if any, by which the stock price might benefit from misstated financial results over a three-year performance period. As set forth in the "Looking Ahead to 2013 Compensation" section below, the recovery policy for misconduct will be broadened in future years.

The company can also recover or “claw back” all or a portion of any incentive compensation in the case of materially inaccurate financial statements or material errors in the performance calculation, whether or not they result in a restatement and whether or not the executive officer has engaged in wrongful conduct. Recoveries under this “no-fault” provision cannot extend back more than two years.


The recovery policy applies to any incentive compensation awarded or paid to an employee at a time when he or she is an executive officer. Subsequent changes in status, including retirement or termination of employment, do not affect the company’s rights to recover compensation under the policy.


In addition to the executive compensation recovery policy, the committee and management have implemented compensation-program design features to mitigate the risk of compensation programs encouraging misconduct or imprudent risk-taking. First, incentive programs are designed using a diversity of meaningful financial metrics (growth in stock price measured over three years, net revenue, EPS (measured[measured over one and two years)years], and pipeline progress), providing a balance between short- and long-term performance. The committee reviews incentive programs each year against the objectives of the programs, assesses any features that could encourage excessive risk-taking, and makes changes as necessary. Second, management has implemented effective controls that minimize unintended and willful reporting errors.

The committee does not believe it is practical to apply a specific claw-back policy to SVAs in the event of misstated financial results since it is very difficult to isolate the amount, if any, by which the stock price might benefit from misstated financial results over a three-year performance period.

37


35




Looking Ahead to 20122013 Compensation

Several changes

Changes to the company’s executive compensation program will take effecteffective in 2012:

2013:

In lightFollowing dialogue with shareholders, we have broadened our executive compensation recovery policy in two ways:

◦We removed the requirement that there be a financial restatement in order to recover compensation from an executive who has engaged in misconduct. The policy now allows recovery from an executive whose misconduct results in a material violation of law or company policy that causes significant harm to the company, or who fails in his or her supervisory responsibility to prevent such misconduct by others; and
◦We expanded the policy to apply to all members of senior management.

For our 2013 compensation decisions, we expanded our peer group to include six smaller biopharmaceutical and medical device companies: Allergan, Inc., Biogen IDEC Inc., Celgene Corporation, Covidien PLC, Gilead Sciences, Inc., and Medtronic, Inc. Lilly's size in terms of revenue is in the business challenges the company faces, Dr. Lechleiter requested that he receive no increase in base salary or incentive targets in 2012. The committee agreed to maintain his 2011 compensation package for 2012.

middle of our new peer group.

Similarly, employees in most countries worldwide, including the named executive officers, will not receive base pay increases in 2012.


Amendments to the change-in-control severance pay plans to eliminate tax gross-ups are effective October 2012.

All members of senior management (approximately 150 employees) are subject to share ownership requirements, correlated to their level of responsibility.

Compensation Committee Report

The compensation committee (“we” or “the committee”) evaluates and establishes compensation for executive officers and oversees the deferred compensation plan, the company’s management stock plans, and other management incentive, benefit, and perquisite programs. Management has the primary responsibility for the company’s financial statements and reporting process, including the disclosure of executive compensation. With this in mind, we havethe compensation committee has reviewed and discussed with management the “Compensation Discussion and Analysis” above. 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. WeThe committee recommended to the board of directors that the “Compensation Discussion and Analysis” be included in this proxy statement for filing with the SEC.


Compensation Committee

Karen N. Horn, Ph.D., Chair

Michael L. Eskew

R. David Hoover

Ellen R. Marram

Kathi P. Seifert



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38

Executive Compensation

Summary Compensation Table

Name and Principal Position Year  Salary
($)		  Bonus
($)		  Stock
Awards
($)3		  Option
Awards
($)		  Non-Equity
Incentive Plan
Compensation
($)4		  

Change

in Pension
Value
($)5

  All Other  
Compensation
   ($)6  		    Total
Compensation
($)		 

John C. Lechleiter, Ph.D.1

 2011  $1,500,000   $0   $5,625,000    $0    $2,625,000   $6,530,094   $90,000      $16,370,094  

Chairman, President, and

Chief Executive Officer

 2010  $1,500,000   $0   $8,175,000    $0    $2,982,000   $3,757,545   $90,000      $16,504,545  
 2009  $1,483,333   $0   $11,250,000    $0    $3,551,100   $4,553,125   $90,091      $20,927,649  

Derica W. Rice

 2011  $984,167   $0   $2,850,000    $0    $1,107,188   $940,589   $59,050      $5,940,993  

Executive Vice President,

 2010  $955,000   $0   $3,270,000    $0    $1,220,490   $996,723   $57,300      $6,499,513  
Global Services and 2009  $892,500   $0   $4,500,000    $0    $1,220,940   $977,741   $54,838      $7,646,019  

Chief Financial Officer

                                  
Bryce D. Carmine 2011  $951,700   $0   $2,250,000    $0    $1,070,663   $2,243,789   $57,102      $6,573,254  

Retired Executive

 2010  $947,083   $0   $3,270,000    $0    $1,210,373   $2,252,560   $56,825      $7,736,841  

Vice President and President,

Lilly Bio-Medicines

 2009  $916,667   $0   $4,500,000    $0    $1,410,750   $1,776,537   $57,001      $8,660,955  
                                  
Jan M. Lundberg, Ph.D. 2011  $973,750   $0   $2,062,500    $0    $1,095,469   $232,128   $58,425      $4,422,272  

Executive Vice President,

Science and Technology and

President, Lilly Research
Laboratories

 2010  $946,401   $1,000,0002  $6,225,0002   $0    $1,209,501   $83,150   $87,833      $9,551,885  

Robert A. Armitage

 2011  $840,900   $0   $1,500,000    $0    $840,900   $595,293   $50,454      $3,827,547  
Senior Vice President and General Counsel 2010  $836,817   $0   $2,180,000    $0    $950,624   $521,237   $50,209      $4,538,886  
 2009  $811,167   $0   $3,000,000    $0    $1,109,676   $775,287   $49,902      $5,746,032  

Summary Compensation Table
Name and
Principal Position		 YearSalary
($)		Bonus
($)		 
Stock
Awards
($) 3
 Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($) 4
Change
in Pension
Value
($) 5
All Other
Compensation
($) 6
Total
Compensation
($)
John C. Lechleiter, Ph.D.
1 
2012$1,500,000$0
$5,625,000
$0$2,982,000$4,423,633$90,000$14,620,633
Chairman, President, and
Chief Executive Officer
2011$1,500,000$0
$5,625,000
$0$2,625,000$6,530,094$90,000$16,370,094

2010$1,500,000$0
$8,175,000
$0$2,982,000$3,757,545$90,000$16,504,545
Derica W. Rice
2012$990,000$0
$2,850,000
$0$1,265,220$1,770,767$59,400$6,935,387
Executive Vice President,
Global Services and
Chief Financial Officer
2011$984,167$0
$2,850,000
$0$1,107,188$940,589$59,050$5,940,993

2010$955,000$0
$3,270,000
$0$1,220,490$996,723$57,300$6,499,513
Jan M. Lundberg, Ph.D.
2012$978,500$0
$2,250,000
$0$1,250,523$307,275$58,710$4,845,008
Executive Vice President,
Science and Technology and President, Lilly Research Laboratories
2011$973,750$0
$2,062,500
$0$1,095,469$232,128$58,425$4,422,272

2010$946,401$1,000,000
2 
$6,225,000
2 
$0$1,209,501$83,150$87,833$9,551,885












Robert A. Armitage
2012$840,900$0
$1,500,000
$0$955,262$629,012$50,454$3,975,628
Senior Vice President and
General Counsel
2011$840,900$0
$1,500,000
$0$840,900$595,293$50,454$3,827,547

2010$836,817$0
$2,180,000
$0$950,624$521,237$50,209$4,538,886
Enrique A. Conterno
2012$669,500$0
$1,500,000
$0$713,018$992,187$40,170$3,914,875
Senior Vice President and
President, Lilly Diabetes
2011$666,250$0
$1,500,000
$0$624,609$887,380$39,975$3,718,214

2010$650,000$0
$1,962,000
$0$692,250$275,998$39,000$3,619,248

1

Supplement to the Summary"Summary Compensation Table." In 2009, we granted both a one-year and a two-year PA as part of our transition to a two-year award, which was implemented in response to shareholder feedback. The two grants in 2009 provided the opportunity for participants to receiveone and only one PA payout each year—without skipping a year. In 2010, we returned to our regular grant cycle and granted a single two-year PA. As a result, the amount in the “Stock Awards” column decreased. The 2010-2011 PA and the 2011-2012 PA grant values shown respectivelyincluded in 2010 and 2011 in thisthe "Stock Awards" column are based on the probable payout outcome anticipated at the time of grant.grant, which was different from the target value in each year. For purposes of comparison, the supplemental table below shows Dr. Lechleiter's target compensation, which has remained the same for Dr. Lechleiter (with one rather than two PA grants in 2009), approved by the compensation committee, given targetpast three years as the company performance.entered the current period of patent expirations.

Name  Year   Annualized
Salary		   Target Stock
Awards		   Target Cash
Incentive Bonus		      Total 

John C. Lechleiter, Ph.D.

   2011    $1,500,000     $7,500,000     $2,100,000     $11,100,000  
    2010    $1,500,000     $7,500,000     $2,100,000     $11,100,000  
    2009    $1,500,000     $7,500,000     $2,100,000      $11,100,000  

NameYearAnnualized SalaryTarget Stock AwardsTarget Cash Incentive BonusTotal
John C. Lechleiter, Ph.D.2012$1,500,000$7,500,000$2,100,000$11,100,000

2011$1,500,000$7,500,000$2,100,000$11,100,000

2010$1,500,000$7,500,000$2,100,000$11,100,000
2

The one-time bonus compensation Dr. Lundberg received a signing bonus and a one-time RSU award upon joining the company in January 2010 included a signing bonus and an award of restricted stock units.

2010.
3

This column shows the grant date fair value of awardsPAs and SVAs computed in accordance with stock-based compensation accounting rules (FASBFASB ASC Topic 718).718. Values for awards subject to performance conditions (PAs) are computed based upon the probable outcome of the performance condition as of the grant date. (See the “Target Grant Values” table above for target grant values for the 2010 and 2011 equity awards.) A discussion of assumptions used in calculating award values may be found in Note 9 to our 20112012 audited financial statements in our Form 10-K.


The table below shows the minimum, target, and maximum payouts for the 2011-20122012-2013 PA grant included in this column of the Summary Compensation Table.

Name  Payout Date   Minimum Payout   Target Payout   Maximum Payout 

Dr. Lechleiter

   January 2013     $0     $3,750,000     $5,625,000  

Mr. Rice

   January 2013     $0     $1,900,000     $2,850,000  

Mr. Carmine

   January 2013     $0     $1,500,000     $2,250,000  

Dr. Lundberg

   January 2013     $0     $1,375,000     $2,062,500  

Mr. Armitage

   January 2013     $0     $1,000,000     $1,500,000  

39

NamePayout DateMinimum PayoutTarget PayoutMaximum Payout
Dr. LechleiterJanuary 2014$0$3,750,000$5,625,000
Mr. RiceJanuary 2014$0$1,900,000$2,850,000
Dr. LundbergJanuary 2014$0$1,500,000$2,250,000
Mr. ArmitageJanuary 2014$0$1,000,000$1,500,000
Mr. ConternoJanuary 2014$0$1,000,000$1,500,000

4

Payments for 20112012 performance were made in March 20122013 under the bonus plan. All bonuses paid to named executive officers were part of a non-equity incentive plan.

5

The amounts in this column are the change in pension value for each individual, calculated by our actuary. No named executive officer received preferential or above-market earnings on deferred compensation.

6

The table below shows the components of the “All Other Compensation” column for 20092010 through 2011,2012, which includes the company match for each individual’s savings plan contributions, tax reimbursements, and perquisites.

Name Year  Savings Plan
Match		  Tax
Reimbursements 1		  Perquisites  Other  Total “All Other
Compensation”		 

Dr. Lechleiter

  2011    $90,000    $0    $0    $0    $90,000  
   2010    $90,000    $0    $0    $0    $90,000  
   2009    $89,000    $1,091    $0    $0    $90,091  

Mr. Rice

  2011    $59,050    $0    $0    $0    $59,050  
   2010    $57,300    $0    $0    $0    $57,300  
   2009    $53,550    $1,288    $0    $0    $54,838  

Mr. Carmine

  2011    $57,102    $0    $0    $0    $57,102  
   2010    $56,825    $0    $0    $0    $56,825  
   2009    $55,000    $2,001    $0    $0    $57,001  

Dr. Lundberg

  2011    $58,425    $0    $0    $0    $58,425  
   2010    $56,784    $12,876    $0    $18,173 2   $87,833  

Mr. Armitage

  2011    $50,454    $0    $0    $0    $50,454  
   2010    $50,209    $0    $0    $0    $50,209  
   2009    $48,670    $1,232    $0    $0    $49,902  


37


includes the company match for each individual’s 401(k) plan contributions, tax reimbursements, andperquisites.  
NameYearSavings Plan
Match		Tax
Reimbursements		PerquisitesOtherTotal "All Other
Compensation"
Dr. Lechleiter2012$90,000$0
$0$0
$90,000

2011$90,000$0
$0$0
$90,000

2010$90,000$0
$0$0
$90,000
Mr. Rice2012$59,400$0
$0$0
$59,400

2011$59,050$0
$0$0
$59,050

2010$57,300$0
$0$0
$57,300
Dr. Lundberg2012$58,710$0
$0$0
$58,710

2011$58,425$0
$0$0
$58,425

2010$56,784$12,876
1 
$0$18,173
2 
$87,833
Mr. Armitage2012$50,454$0
$0$0
$50,454

2011$50,454$0
$0$0
$50,454

2010$50,209$0
$0$0
$50,209
Mr. Conterno2012$40,170$0
$0$0
$40,170

2011$39,975$0
$0$0
$39,975

2010$39,000$0
$0$0
$39,000
1

These amounts reflect tax reimbursements for expenses for each executive’s spouse to attend certainThe company functions involving spouse participation. Beginning in 2010, the company no longer reimbursesdoes not reimburse executive officers for these taxes. For Mr. Rice, these amounts include taxes on income imputed for useoutside of the corporate aircraftlimited circumstance of taxes related to attend outside board meetings in 2009. Foremployee relocation. The 2010 amount for Dr. Lundberg these amounts include taxes on income imputed foris related to such relocation-related tax reimbursements, which were made pursuant to our relocation expenses.

policy that applies to any employee asked by the company to relocate.
2

Relocation expenses reimbursed under athe company policy available to any employee asked to relocate by the company.

relocation policy.

We have no employment agreements with our named executive officers.

40



38



Grants of Plan-Based Awards During 2011

2012

The compensation plans under which the grants in the following table were made are described in the “Compensation“Compensation Discussion and Analysis”Analysis” and include the bonus plan (a non-equity incentive plan) and the 2002 Lilly Stock Plan (which provides for PAs, SVAs, stock options, restricted stock grants, and stock units)RSUs).

               

Estimated Possible Payouts
Under Non-Equity

Incentive Plan Awards1

  

Estimated Possible and Future
Payouts Under Equity

Incentive Plan Awards

  All Other
Stock or
Option
Awards:
Number
of
Shares
of Stock,
Options,
or Units		  Grant
Date Fair
Value of
Equity
Awards		 
Name Award  Grant Date  Compensation
Committee
Action Date		  

Threshold

($)

  

Target

($)

  

Maximum

($)

  

Threshold

(# shares)

  Target
(# shares)		  Maximum
(# shares)		   
Dr. Lechleiter      —     —    $52,500    $2,100,000    $4,200,000                      
   2011-2012 PA    02/07/2011 2   12/13/2010          58,778    117,555    176,333      $1,875,000  
   2011-2013 SVA    02/07/2011 3   12/13/2010          59,809    149,522    209,331      $3,750,000  
                    0     
Mr. Rice      —     —    $22,144    $885,750    $1,771,500                      
   2011-2012 PA    02/07/2011 2   12/13/2010          29,781    59,561    89,342      $950,000  
   2011-2013 SVA    02/07/2011 3   12/13/2010          30,303    75,758    106,061      $1,900,000  
                    0    
Mr. Carmine      —     —    $21,413    $856,530    $1,713,060                      
   2011-2012 PA    02/07/2011 2   12/13/2010          23,511    47,022    70,533      $750,000  
   2011-2013 SVA    02/07/2011 3   12/13/2010          23,924    59,809    83,733      $1,500,000  
                    0    
Dr. Lundberg      —     —     $21,909    $876,375    $1,752,750                      
   2011-2012 PA    02/07/2011 2��  12/13/2010          21,552    43,103    64,655      $687,500  
   2011-2013 SVA    02/07/2011 3   12/13/2010          21,930    54,825    76,755      $1,375,000  
                    0    
Mr. Armitage      —     —    $16,818    $672,720    $1,345,440                      
   2011-2012 PA    02/07/2011 2   12/13/2010          15,674    31,348    47,022      $500,000  
   2011-2013 SVA    02/07/2011 3   12/13/2010          15,949    39,872    55,821      $1,000,000  
                                       0      

     
Estimated Possible Payouts Under
Non-Equity
Incentive Plan Awards 1
Estimated Future
Payouts Under Equity
Incentive Plan Awards		All Other
Stock or
Option
Awards:
Number
of
Shares
of Stock,
Options,
or Units		Grant
Date Fair
Value of
Equity
Awards
NameAwardGrant
Date		Compensation
Committee
Action Date		Threshold
($)		Target
($)		Maximum
($)		Threshold
(# shares)		Target
(# shares)		Maximum (# shares)
Dr. Lechleiter
—
—$52,500$2,100,000$4,200,000





2012-2013 PA2/6/2012
2 
12/12/2011


52,462104,924157,386
$1,875,000

2012-2014 SVA2/6/2012
3 
12/12/2011


56,775141,938198,713
$3,750,000











—
Mr. Rice
—
—$22,275$891,000$1,782,000





2012-2013 PA2/6/2012
2 
12/12/2011


26,58153,16279,743
$950,000

2012-2014 SVA2/6/2012
3 
12/12/2011


28,76671,915100,681
$1,900,000











—
Dr. Lundberg
—
—$22,016$880,650$1,761,300





2012-2013 PA2/6/2012
2 
12/12/2011


20,98541,97062,955
$750,000

2012-2014 SVA2/6/2012
3 
12/12/2011


22,71056,77579,485
$1,500,000











—
Mr. Armitage
—
—$16,818$672,720$1,345,440





2012-2013 PA2/6/2012
2 
12/12/2011


13,99027,98041,970
$500,000

2012-2014 SVA2/6/2012
3 
12/12/2011


15,14037,85052,990
$1,000,000











—
Mr. Conterno
—
—$12,553$502,125$1,004,250





2012-2013 PA2/6/2012
2 
12/12/2011


13,99027,98041,970
$500,000

2012-2014 SVA2/6/2012
3 
12/12/2011


15,14037,85052,990
$1,000,000











—
1

These columns show the threshold, target, and maximum payouts for performance under the bonus plan. As described in the section titled “Cash“Cash Incentive Bonuses”Bonuses” in the “Compensation Discussion and Analysis,” bonus-payouts range from 0 to 200 percent of target. The bonus payment for 20112012 performance was based on the metrics described, at 125142 percent of target, and is included in the “Summary“Summary Compensation Table”Table” in the column titled “Non-Equity Incentive Plan Compensation.”

2

This row shows the range of payouts for 2011-20122012-2013 PA grants as described in the section titled “Equity“Equity Incentives—Performance Awards”Awards” in the “Compensation Discussion and Analysis.” The 2011-20122012-2013 PA will pay out in January 20132014 based on cumulative adjusted non-GAAP EPS for 20112012 and 2012.2013. Payouts will range from 0 to 150 percent of target and will be in the form of restricted stock units,RSUs, vesting in February 2014.

2015. The grant-date fair value of the PA reflects the probable payout outcome anticipated at the time of grant, which was less than the target value.
3

This row shows the range of payouts for 2011-20132012-2014 SVA grants as described in the section titled “Equity“Equity Incentives—Shareholder Value Awards”Awards” in the “Compensation Discussion and Analysis.” The 2011-20132012-2014 SVA payout will be determined in January 2014.2015. SVA payouts range from 0 to 140 percent of target.

We measure the fair value of the SVA unit on the grant date using a Monte Carlo simulation model.

To receive a payout under the PA or the SVA, a participant must remain employed with the company through the end of the relevant performance period (except in the case of death, disability, or retirement). In addition, an employee who was an executive officer at the time of the 2012-2013 PA grant will receive payment in restricted stock unitsRSUs according to the chart titled “Performance“Performance and Holding Periods for PAs and SVAs”SVAs” in the “Compensation Discussion and Analysis.” SVAs granted in 20112012 will pay out in common stock at the end of the three-year performance period according to the grid in the section of the “Compensation Discussion and Analysis” titled “Equity“Equity Incentives—Shareholder Value Awards,,” provided the participant is still employed with the company (except in the case of death, disability, or retirement). No dividends accrue on either PAs or SVAs during the performance period. Non-preferential dividends accrue onduring the earned PA’s one-year restriction period following(following the two-year performance periodperiod) and these accrued dividends are paid upon vesting.

41


39

Outstanding Equity Awards at December 31, 2011

   Option Awards  Stock Awards 
Name 

Number of

Securities

Underlying

Unexercised

Options (#)1

Exercisable

  Option
Exercise Price
($)		  Option
Expiration
Date		  Award  Number of
Shares or
Units of Stock
That Have Not
Vested (#)		  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)		  Equity Incentive
Plan Awards:
Number of
Unearned
Shares, Units,
or Other Rights
That Have Not
Vested (#)		  Equity Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units,
or Other Rights
That Have Not
Vested ($)		 

Dr. Lechleiter

        2011-2013 SVA        149,522 2   $6,214,134  
         2010-2012 SVA        170,145 3   $7,071,226  
         2011-2012 PA        117,555 4   $4,885,586  
         2010-2011 PA    132,367 5  $5,501,173      
         2009-2010 PA    219,812 6  $9,135,387      
   140,964    $56.18    02/09/2016            
   127,811    $55.65    02/10/2015            
   200,000    $73.11    02/14/2014            
   120,000    $57.85    02/15/2013            
   120,000 7   $75.92    02/17/2012                      

Mr. Rice

        2011-2013 SVA        75,758 2   $3,148,502  
         2010-2012 SVA        68,058 3   $2,828,490  
         2011-2012 PA        59,561 4   $2,475,355  
         2010-2011 PA    52,947 5  $2,200,477      
         2009-2010 PA    87,924 6  $3,654,121      
   30,000    $52.54    04/29/2016            
   27,108    $56.18    02/09/2016            
   23,077    $55.65    02/10/2015            
   25,000    $73.11    02/14/2014            
   11,200    $57.85    02/15/2013            
   10,000    $75.92    02/17/2012                      

Mr. Carmine

        2011-2013 SVA        59,809 2   $2,485,662  
         2010-2012 SVA        68,058 3   $2,828,490  
         2011-2012 PA        47,022 4   $1,954,234  
         2010-2011 PA    52,947 5  $2,200,477      
         2009-2010 PA    87,924 6  $3,654,121      
   37,651    $56.18    02/09/2016            
   42,604    $55.65    02/10/2015            
   55,000    $73.11    02/14/2014            
   57,000    $57.85    02/15/2013            
   50,000    $75.92    02/17/2012                      

Dr. Lundberg

        2011-2013 SVA        54,825 2   $2,278,527  
         2010-2012 SVA        56,715 3   $2,357,075  
         2011-2012 PA        43,103 4   $1,791,361  
         2010-2011 PA    44,122 5  $1,833,710      
               Grant upon hire    66,667 8  $2,770,681          

Mr. Armitage

        2011-2013 SVA        39,872 2   $1,657,080  
         2010-2012 SVA        45,372 3   $1,885,660  
         2011-2012 PA        31,348 4   $1,302,823  
         2010-2011 PA    35,297 5  $1,466,943      
         2009-2010 PA    58,616 6  $2,436,081      
   54,217    $56.18    02/09/2016            
   53,254    $55.65    02/10/2015            
   80,000    $73.11    02/14/2014            
   80,000    $57.85    02/15/2013            
   23,800    $75.92    02/17/2012                      


Outstanding Equity Awards at December 31, 2012

Option AwardsStock Awards
NameNumber of
Securities
Underlying
Unexercised
Options (#)
Exercisable
1
 
Option Exercise Price
($)		Option
Expiration
Date		AwardNumber of
Shares or
Units of Stock
That Have Not
Vested (#)		Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($)		Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#)Equity Incentive
Plan Awards:
Market or
Payout Value of Unearned
Shares, Units,
or Other Rights
That Have Not
Vested ($)
Dr. Lechleiter




2012-2014 SVA



198,713
2 
$9,800,525






2011-2013 SVA



209,331
3 
$10,324,205






2012-2013 PA



52,462
4 
$2,587,426






2011-2012 PA58,778
5 
$2,898,931









2010-2011 PA132,367
6 
$6,528,340




140,964


$56.1802/09/2016









127,811


$55.6502/10/2015









200,000


$73.1102/14/2014









120,000
7 

$57.8502/15/2013








Mr. Rice




2012-2014 SVA



100,681
2 
$4,965,587






2011-2013 SVA



106,061
3 
$5,230,929






2012-2013 PA



26,581
4 
$1,310,975






2011-2012 PA29,781
5 
$1,468,799









2010-2011 PA52,947
6 
$2,611,346




30,000


$52.5404/29/2016









27,108


$56.1802/09/2016









23,077


$55.6502/10/2015









25,000


$73.1102/14/2014









11,200
7 

$57.8502/15/2013








Dr. Lundberg





2012-2014 SVA



79,485
2 
$3,920,200







2011-2013 SVA



76,755
3 
$3,785,557







2012-2013 PA



20,985
4 
$1,034,980







2011-2012 PA21,552
5 
$1,062,945










2010-2011 PA44,122
6 
$2,176,097










Grant upon hire33,334
8 
$1,644,033



Mr. Armitage





2012-2014 SVA



52,990
2 
$2,613,467







2011-2013 SVA



55,821
3 
$2,753,092







2012-2013 PA



13,990
4 
$689,987







2011-2012 PA15,674
5 
$773,042










2010-2011 PA35,297
6 
$1,740,848




54,217


$56.1802/09/2016









53,254


$55.6502/10/2015









80,000


$73.1102/14/2014









80,000
7 

$57.8502/15/2013








Mr. Conterno





2012-2014 SVA



52,990
2 
$2,613,467







2011-2013 SVA



55,821
3 
$2,753,092







2012-2013 PA



13,990
4 
$689,987







2011-2012 PA15,674
5 
$773,042










2010-2011 PA31,768
6 
$1,566,798










RSU30,000
9 
$1,479,600




6,928


$56.1802/09/2016









7,101


$55.6502/10/2015









10,700


$73.1102/14/2014









10,700
7 
 $57.8502/15/2013








1

These options vested as listed in the table below by expiration date.

42


40


Expiration DateVesting Date
Expiration DateVesting Date

04/4/29/2016

5/1/200905/01/2009
2/14/20142/19/2007

02/09/2/9/2016

2/10/200902/10/2009
2/15/20132/17/2006

02/2/10/2015

2/11/200802/11/2008


Expiration Date2
SVAs granted for the 2012-2014 performance period that will end December 31, 2014. The number of shares reported in the table reflects the maximum payout, which will be made if the average closing stock price in November and December 2014 is over $49.64. Actual payouts may vary from 0 to 140 percent of target. Net shares from any payout must be held by executive officers for a minimum of one year. Had the performance period ended at year-end 2012, the payout would have been 120 percent of target.
Vesting Date

02/14/2014

3
02/19/2007

02/15/2013

02/17/2006

02/17/2012

02/18/2005

2

SVAs granted for the 2011-2013 performance period that will end December 31, 2013. The number of shares reported in the table reflects the targetmaximum payout, which will be made if the average closing stock price in November and December 2013 is between $39.60 and $42.09.over $44.59. Actual payouts may vary from 0 to 140 percent of target. Net shares from any payout must be held by executive officers for a minimum of one year. Had the performance period ended at year-end 2011,2012, the payout would have been 80 percent of target.

3

SVAs granted for the 2010-2012 performance period that will end December 31, 2012. The number of shares reported in the table reflects the target payout, which will be made if the average closing stock price in November and December 2012 is between $41.00 and $43.49. Actual payouts may vary from 0 to 140 percent of target. Had the performance period ended at year-end 2011, the payout would have been 80 percent of target.

4

TargetThis number represents the threshold value of PA shares that could pay out in January 20132014 for 2011-20122012-2013 performance, provided performance goals are met. Any shares resulting from this award will pay out in the form of restricted stock units,RSUs, vesting February 2014.2015. Actual payouts may vary from 0 to 150 percent of target.

The number of shares recorded in the table reflects the payout if the combined cumulative adjusted non-GAAP EPS for 2012 and 2013 falls between the range of $4.41 and $8.46.
5

The 2010-20112011-2012 PA paid out at 10950 percent of target in January 20122013 in the form of restricted stock units,RSUs, vesting February 2013.

2014.
6

PA shares paid out in January 20112012 for 2009-2010 performance.the 2010-2011 performance period. These shares vested in February 2012.

2013.
7

50,734 shares of this option are held in trust for the benefit of Dr. Lechleiter’s children.

8

Dr. Lundberg’s restricted stock unit

7These options expired with no value realized by the holder.
8 Dr. Lundberg’s RSU award was granted February 1, 2010; one third vested on February 1, 2011, one third vested February 1, 2012, and the remaining shares vested February 1, 2013.
9
This grant was made in 2008 outside of the normal annual cycle and will vest in two installments, one third on May 1, 2013, and the remaining shares will vest Februaryon May 1, 2013.

2018.

Options Exercised and Stock Vested in 2011

   Option Awards Stock Awards 
Name 

Number of Shares            

Acquired on Exercise (#)            

 

Value Realized            

on Exercise ($) 1             

 Number of Shares
Acquired on Vesting  (#)		  Value Realized
on Vesting ($) 2		 

Dr. Lechleiter    

 0              $0               

 

207,354

97,498

 3 

 4 

  
 		$    7,300,934
$    4,052,017		  
  

Mr. Rice

 0              $0               

 

82,942

38,999

 3 

 4 

  
 		$    2,920,388
$    1,620,798		  
  

Mr. Carmine

 0              $0               

 

82,942

38,999

 3 

 4 

  
 		$    2,920,388
$    1,620,798		  
  

Dr. Lundberg

 0              $0               

 

33,333

—

 5 

 6 

  
 		$    1,173,655
—		  
  

Mr. Armitage

 0              $0               

 

55,294

25,999

 3 

 4 

  
 		$    1,946,902
$    1,080,518		  
  

Options Exercised and Stock Vested in 2012
 Option Awards Stock Awards
NameNumber of Shares
Acquired on Exercise (#)		Value Realized
on Exercise ($)		 Number of  Shares
Acquired on Vesting (#)
Value Realized
on Vesting ($) 1
Dr. Lechleiter    0$0
219,812
2 
$8,735,329

238,203
3 
$12,674,782
Mr. Rice0$0
87,924
2 
$3,494,100

95,281
3 
$5,069,902
Dr. Lundberg0$0
33,333
4 
$1,324,653

79,401
3 
$4,224,927
Mr. Armitage0$0
58,616
2 
$2,329,400

63,521
3 
$3,379,952
Mr. Conterno0$0
—

—

57,169
3 
$3,041,962

1

All outstanding stock options are currently under water.

2

Amounts reflect the market value of the stock on the day the stock vested.

32

PAs issuedpaid out in January 20102011 (as restricted stock units)RSUs) for company performance in 2009during 2009-2010 and subject to forfeiture until they vestedvesting in February 2011.

2012.
43

Payout of the 2009-20112010-2012 SVA at 80140 percent of target.

54

One thirdThe second installment of a one-time RSU grant of restricted stock units awarded to Dr. Lundberg when he joined the company in 2010.


6

The 2009-2011 SVA was granted prior to Dr. Lundberg joining the company.

Retirement Benefits

We provide retirement income to U.S. employees, including executive officers, through the following plans:

•

The 401(k) plan, a defined contribution plan qualified under Sections 401(a) and 401(k) of the Internal Revenue Code. Participants may elect to contribute a portion of their salary to the plan, and the company provides matching contributions on employees’ contributions, in the form of company stock, up to 6  percent of base salary. The employee contributions, company contributions, and earnings thereon are paid out in accordance with elections made by the participant. See the footnotes to “Summary Compensation Table” for information about company contributions for the named executive officers.

•

The retirement plan, a tax-qualified defined benefit plan that provides monthly benefits to retirees. See the “Pension Benefits in 2011” table below for additional information about the value of these pension benefits.

The 401(k) plan, a defined contribution plan qualified under Sections 401(a) and 401(k) of the Internal Revenue Code. Participants may elect to contribute a portion of their salary to the plan, and the company provides matching contributions on employees’ contributions up to 6 percent of base salary. The employee contributions, company contributions, and earnings thereon are paid out in accordance with elections made by the participant. See the footnotes to “Summary Compensation Table” for information about company contributions for the named executive officers.
The retirement plan, a tax-qualified defined benefit plan that provides monthly benefits to retirees. See the “Pension Benefits in 2012” table below for additional information about the value of these pension benefits.

41



Sections 401 and 415 of the Internal Revenue Code generally limit the amount of annual pension that can be paid from a tax-qualified plan ($195,000200,000 in 2011)2012) as well as the amount of annual earnings that can be used to calculate a pension benefit ($245,000250,000 in 2011)2012). However, since 1975, the company has maintained a nonqualified pension plan that pays retirees the difference between the amount payable under the retirement plan and the amount they would have received without the Internal Revenue Code limits. The nonqualified pension plan is unfunded and subject to forfeiture in the event of bankruptcy.

43

The following table shows benefits that the named executive officers are entitled tohave accrued under the retirement plan and the nonqualified pension plan.

Pension Benefits in 2011

Name Plan  Number of Years of
Credited Service		 Present Value of
Accumulated Benefit ($) 1		  Payments During
Last Fiscal Year ($)

Dr. Lechleiter2

  retirement plan (pre-2010)   30  $1,381,238    
   retirement plan (post-2009)     2  $46,990    
   nonqualified plan (pre-2010)   30  $23,737,164    
   nonqualified plan (post-2009)     2  $737,386    
   total      $25,902,778   $0

Mr. Rice

  retirement plan (pre-2010)   20  $528,761    
   retirement plan (post-2009)     2  $27,159    
   nonqualified plan (pre-2010)   20  $3,963,000    
   nonqualified plan (post-2009)     2  $190,047    
   total      $4,708,967   $0

Mr. Carmine4

  retirement plan (pre-2010)   34  $1,509,446    
   retirement plan (post-2009)     2  $51,915    
   nonqualified plan (pre-2010)   34  $10,636,274    
   nonqualified plan (post-2009)     2  $335,084    
   total      $12,532,719   $0

Dr. Lundberg 3

  retirement plan (post-2009)     2  $50,844    
   nonqualified plan (post-2009)     2  $273,897    
   total      $324,741   $0

Mr. Armitage5

  retirement plan (pre-2010)   10  $385,046    
   retirement plan (post-2009)     2  $63,368    
   nonqualified plan (pre-2010)   10  $2,903,057    
   nonqualified plan (post-2009)     2  $404,168    
   total      $3,755,639   $0

Pension Benefits in 2012
Name PlanNumber of Years of
Credited Service
Present Value of
Accumulated Benefit ($) 1
Payments During
Last Fiscal Year ($)
Dr. Lechleiter
2 
retirement plan (pre-2010)30$1,488,325



retirement plan (post-2009)3$83,994



nonqualified plan (pre-2010)30$27,003,459



nonqualified plan (post-2009)3$1,391,941



total
$29,967,719
$0
Mr. Rice
retirement plan (pre-2010)20$656,354



retirement plan (post-2009)3$52,471



nonqualified plan (pre-2010)20$5,245,909



nonqualified plan (post-2009)3$391,742



total
$6,346,476
$0
Dr. Lundberg
3 
retirement plan (post-2009)3$88,987



nonqualified plan (post-2009)3$536,765



total
$625,752
$0
Mr. Armitage
4 
retirement plan (pre-2010)10$426,608



retirement plan (post-2009)3$106,939



nonqualified plan (pre-2010)10$3,107,546



nonqualified plan (post-2009)3$698,602



total
$4,339,695
$0
Mr. Conterno
retirement plan (pre-2010)17$559,272



retirement plan (post-2009)3$50,274



nonqualified plan (pre-2010)17$2,087,151



nonqualified plan (post-2009)3$177,429



total
$2,874,126
$0

1

The following standard actuarial assumptions were used to calculate the present value of each individual’s accumulated pension benefit:

Discount rate:

5.114.37 percent

Mortality (post-retirement decrement only):

RP 2000CH

Pre-2010 joint and survivor benefit (% of pension):

50% until age 62; 25% thereafter

Post-2009 benefit payment form:

life annuity


2

Dr. Lechleiter is currently eligible for full retirement benefits under the old plan formula (pre-2010 benefits) and qualifies for early retirement under the new plan formula (post-2009 benefits, as described below).

3

Dr. Lundberg joined the company in January 2010. He is covered under our retirement plans and has no special retirement arrangement or enhanced benefits.

4

Mr. CarmineArmitage retired December 31, 2011,2012, with full retirement benefits under the old plan formula and early retirement benefits under the new plan formula.

5

Mr. Armitage is currently eligible for full retirement benefits under the old plan formula and qualifiesqualified for early retirement under the new plan formula. His additional service credit, described below, applies only to benefits calculated under the old plan formula and increasesincreased the present value of his nonqualified pension benefit by $211,289.

$118,108.

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 and, if elected, any qualifying survivor. The annual benefit under the retirement plan is calculated using years of service and the average of the annual earnings (salary plus bonus) for the highest five out of the last 10 calendar years of service (final average earnings). Annual earnings covered by the retirement plan consist of salary and bonus paid in those calendar years. For calendar years prior to 2003, the calculation includes PA payouts.


42



44Post-2009 Plan Information

: Following amendment of our retirement plan formulae, employees hired on or after February 1, 2008 have accrued retirement benefits only under the new plan formula. Employees hired before that date have accrued benefits under both the old and new plan formulae. All eligible employees, including those hired on or after February 1, 2008, can retire at age 65 with at least five years of service and receive an unreduced benefit. The annual benefit under the new plan formula is equal to 1.2 percent of final average earnings multiplied by years of service. Early retirement benefits under this plan formula are reduced 6 percent for each year under age 65. Transition benefits were afforded to employees with 50 points (age plus service) or more as of December 31, 2009. These benefits were intended to ease the transition to the new retirement formula for those employees who are closer to retirement or have been with the company longer. For the transition group, early retirement benefits are reduced 3 percent for each year from age 65 to age 60 and 6 percent for each year under age 60. With the exception of Dr. Lundberg, all of theAll named executive officers except Dr. Lundberg are in this transition group.


Pre-2010 Plan Information: Employees hired prior to February 1, 2008 accrued benefits under both plan formulae. BenefitsFor these employees, benefits that accrued before January 1, 2010 were calculated under the old plan formula. The amount of the benefit is calculated using actual years of service through December 31, 2009, while total years of service is used to determine eligibility and early retirement reductions. The benefit amount is increased (but not decreased) proportionately, based on final average earnings at termination compared to final average earnings at December 31, 2009. Full retirement benefits are earned by employees with 90 or more points (the sum of his or her age plus years of service). Employees electing early retirement receive reduced benefits as described below:

The benefit for employees with between 80 and 90 points is reduced by 3 percent for each year under 90 points or age 62.

The benefit for employees who have less than 80 points, but who reached age 55 and have at least 10 years of service, is reduced as described above and is further reduced by 6 percent for each year under 80 points or age 65.

For retirees with spouses, domestic partners, or unmarried dependents, the plan will pay survivor annuity benefits upon the retiree’s death at 25, 50, or 75 percent of the retiree’s annuity benefit, depending on the employee’s elections. Election of the higher survivor benefit will result in a lower annuity payment during the retiree’s life. All U.S. retirees, or their eligible survivors, are entitled to medical insurance under the company’s plans.


When Mr. Armitage joined the company in 1999, he would not have been eligible to receive a retirement benefit prior to age 65. Therefore, the company agreed to provide him with aan early retirement benefit based on his actual years of service and earnings, provided he worked until at least age 60. Since Mr. Armitage reached age 60 with 8.759.75 years of service, for purposes of determining eligibility and calculating his early retirement reduction, he has been treated as though he has 20was credited with an additional 10.25 years of service. The additional service credit made him eligible to begin receiving reduced benefits 15 months early, but did not change the timing or amount of his unreduced benefits (shown in the “Pension“Pension Benefits in 2011”2012” table). 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 2011

Name Plan  Executive
Contributions in
Last Fiscal Year
($)1		  Registrant
Contributions in
Last Fiscal Year
($)2		  Aggregate
Earnings in
Last Fiscal Year
($)		  Aggregate
Withdrawals/
Distributions in
Last Fiscal  Year
($)		  Aggregate
Balance at Last
Fiscal Year End
($)3		 

Dr. Lechleiter  

  nonqualified savings    $75,300    $75,300    $84,287     $1,484,653  
   deferred compensation    $1,491,000    —    $344,797     $8,886,684  
   total    $1,566,300    $75,300    $429,083    $0    $10,371,337  

Mr. Rice

  nonqualified savings    $44,350    $44,350    $33,794     $553,967  
   deferred compensation    $0    —    $0     $0  
   total    $44,350    $44,350    $33,794    $0    $553,967  

Mr. Carmine

  nonqualified savings    $42,402    $42,402    $25,156     $607,956  
   deferred compensation    $0    —    $67,130     $1,680,836  
   total    $42,402    $42,402    $92,285    $0    $2,288,793  

Dr. Lundberg

  nonqualified savings    $43,725    $43,725    $13,931     $190,496  
   deferred compensation    $0    —    $0     $0  
   total    $43,725    $43,725    $13,931    $0    $190,496  

Mr. Armitage

  nonqualified savings    $35,754    $35,754    $33,292     $657,693  
   deferred compensation    $0    —    $254,676     $6,376,759  
   total    $35,754    $35,754    $287,969    $0    $7,034,451  

Nonqualified Deferred Compensation in 2012
NamePlan
Executive
Contributions in
Last Fiscal Year
($) 1
Registrant
Contributions in
Last Fiscal Year
($) 2
Aggregate
Earnings in
Last Fiscal Year
($)		Aggregate Withdrawals/ Distributions in Last Fiscal Year
($)
Aggregate
Balance at Last
Fiscal Year End
($) 3
Dr. Lechleiter  nonqualified savings
$75,000

$75,000
$279,334



$1,913,988


deferred compensation
$656,250



$312,787



$9,855,721


total
$731,250

$75,000
$592,121

$0
$11,769,709

Mr. Ricenonqualified savings
$44,400

$44,400
$106,737



$749,503


deferred compensation
$0



$0



$0


total
$44,400

$44,400
$106,737

$0
$749,503

Dr. Lundbergnonqualified savings
$43,710

$43,710
$26,875



$304,791


deferred compensation
$0



$0



$0


total
$43,710

$43,710
$26,875

$0
$304,791

Mr. Armitagenonqualified savings
$35,454

$35,454
$134,266



$862,867


deferred compensation
$0



$211,709



$6,588,468


total
$35,454

$35,454
$345,975

$0
$7,451,335

Mr. Conternononqualified savings
$25,170

$25,170
$49,213



$320,381


deferred compensation
$100,000



$19,708



$631,863


total
$125,170

$25,170
$68,921

$0
$952,244

1

The amounts in this column are also included in the“Summary “Summary Compensation Table,,” in the “Salary” column (nonqualified savings) or the “Non-Equity Incentive Plan Compensation” column (deferred compensation).

45


43


2

The amounts in this column are also included in the “Summary“Summary Compensation Table,,” in the “All Other Compensation” column as a portion of the savings plan match.

3

Of the totals in this column, the following amounts have previously been reported in the “Summary“Summary Compensation Table”Table” for this year and for previous years:

Name 2011 ($)  Previous Years ($)  Total ($) 

Dr. Lechleiter

  $1,641,600    $6,421,031    $8,062,631  

Mr. Rice

  $88,700    $345,504    $434,204  

Mr. Carmine

  $84,804    $1,078,713    $1,163,517  

Dr. Lundberg

  $87,450    $84,168    $171,618  

Mr. Armitage

  $71,508    $5,864,427    $5,935,935  

Name2012 ($)Previous Years ($)Total ($)
Dr. Lechleiter$806,250
$8,062,631
$8,868,881
Mr. Rice$88,800
$434,204
$523,004
Dr. Lundberg$87,420
$171,618
$259,038
Mr. Armitage$70,908
$5,935,935
$6,006,843
Mr. Conterno$150,340
N/A
$150,340

The Nonqualified"Nonqualified Deferred CompensationCompensation" in 20112012 table above shows information about two company programs: the nonqualified savings plan and the deferred compensation plan. The nonqualified savings plan is designed to allow each employee to contribute up to 6 percent 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 401(k) plan, with the same participation and investment elections. Executive officers and other U.S. executives may also defer receipt of all or part of their cash compensation under the deferred compensation plan. Amounts deferred by executives under this plan are credited with interest at 120 percent of the applicable federal long-term rate as established the preceding December by the U.S. Treasury Department under Section 1274(d) of the Internal Revenue Code with monthly compounding, which was 4.2 percent for 2011 and is 3.3 percent for 2012.2012 and is 2.9 percent for 2013. 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 company’s 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) the pension arrangement for Mr. Armitage described under “Retirement Benefits” above, there are no agreements, arrangements, or plans that entitle named 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 at the discretion of the compensation committee.

46


44

Potential Payments Upon Termination of Employment (as of December 31, 2011)

   

Cash

Severance
Payment

  

Incremental
Pension

Benefit
(present
value)

  

Continuation

of Medical /

Welfare
Benefits
(present
value)1

  

Value of

Acceleration

of Equity

Awards2

  Excise Tax
Gross-Up 3		  Total
Termination
Benefits		 

Dr. Lechleiter

       

Ÿ  Voluntary retirement

  $0    $0    $0    $0    $0    $0  

Ÿ  Involuntary retirement or termination

  $0    $0    $0    $0    $0    $0  

Ÿ  Involuntary or good reason termination after change in control

  $7,200,000    $0    $17,100    $5,800,170    $0    $13,017,270  

Mr. Rice

                        

Ÿ  Voluntary termination

  $0    $0    $0    $0    $0    $0  

Ÿ  Involuntary retirement or termination

  $0    $0    $0    $0    $0    $0  

Ÿ  Involuntary or good reason termination after change in control

  $3,762,000    $0    $33,300    $2,918,881    $0    $6,714,181  

Mr. Carmine4

                        

Ÿ  Voluntary retirement

  $0    $0    $0    $0    $0    $0  

Ÿ  Involuntary retirement or termination

  $0    $0    $0    $0    $0    $0  

Ÿ  Involuntary or good reason termination after change in control

  $0    $0    $0    $0    $0    $0  

Dr. Lundberg

                        

Ÿ  Voluntary termination

  $0    $0    $0    $0    $0    $0  

Ÿ  Involuntary retirement or termination

  $0    $0    $0    $0    $0    $0  

Ÿ  Involuntary or good reason termination after change in control

  $3,718,300    $0    $17,100    $2,439,245    $2,129,702    $8,304,348  

Mr. Armitage5

                        

Ÿ  Voluntary retirement

  $0    $0    $0    $0    $0    $0  

Ÿ  Involuntary retirement or termination

  $0    $0    $0    $0    $0    $0  

Ÿ  Involuntary or good reason termination after change in control

  $3,027,240    $0    $17,100    $1,546,706    $0    $4,591,046  



Potential Payments Upon Termination of Employment (as of December 31, 2012)  
   
Cash
Severance
Payment 1
Incremental
Pension
Benefit
(present
value)
Continuation
of Medical /
Welfare
Benefits
(present
value) 2
Value of
Acceleration
of Equity
Awards 3
Excise Tax
Gross-Up 4
Total
Termination
Benefits
Dr. Lechleiter 
•Voluntary retirement$0$0$0$0$0$0
•Involuntary retirement or termination$0$0$0$0$0$0
•Involuntary or good-reason termination after change in control$7,200,000$0$15,138$11,896,165$0$19,111,303
Mr. Rice
•Voluntary termination$0$0$0$0$0$0
•Involuntary retirement or termination$0$0$0$0$0$0
•Involuntary or good-reason termination after change in control$3,762,000$0$33,319$6,020,267$0$9,815,586
Dr. Lundberg
•Voluntary termination$0$0$0$0$0$0
•Involuntary retirement or termination$0$0$0$0$0$0
•Involuntary or good-reason termination after change in control$3,718,300$0$25,224$4,528,565$0$8,272,089
Mr. Armitage
5 






•Voluntary retirement$0$0$0$0$0$0
•Involuntary retirement or termination$0$0$0$0$0$0
•Involuntary or good-reason termination after change in control$0$0$0$0$0$0
Mr. Conterno
•Voluntary retirement$0$0$0$0$0$0
•Involuntary retirement or termination$0$0$0$0$0$0
•Involuntary or good-reason termination after change in control$2,343,250$0$29,436$3,880,163$0$6,252,849
1

See “Change-in-Control Severance Pay Plan” below.

2
See “Accrued“Accrued Pay and Regular Retirement Benefits”Benefits” and “Change-in-Control“Change-in-Control Severance Pay Plan—Continuation of medical and welfare benefits”benefits” below.

23

Beginning in 2010, equity grants included an individual performance criterion to vest. As a result, even retirement-eligible employees have the possibility of forfeiting their grants.

34

Beginning in October 2012, theThe company will eliminateeliminated excise tax gross-ups.

gross-ups in 2012.
45 

Mr. CarmineArmitage retired on December 31, 2011.

2012.

5

Mr. Armitage’s incremental pension benefit is described in the “Retirement Benefits” section.

Accrued Pay and Regular Retirement BenefitsBenefits.. The amounts shown in the table above do not include certain 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 retirement plan and the nonqualified pension plan. See “Retirement Benefits.”

Benefits” above.
•

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 401(k) plan and the nonqualified savings plan. See the narrative following the “Nonqualified Deferred Compensation in 2011” table for information about these plans.

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 401(k) plan and the nonqualified savings plan. See the narrative following the “Nonqualified Deferred Compensation in 2012” table for information about these plans.

Deferred Compensation.The amounts shown in the table do not include distributions of plan balances under the deferred compensation plan. Those amounts are shown in the “Nonqualified“Nonqualified Deferred Compensation in 2011”2012” table.


Death and Disability.A termination of employment due to death or disability does not entitle named executive officers to any payments or benefits that are not available to salaried employees generally.


45


Termination for Cause.Executives receive no severance or medicalenhanced benefits and forfeit any unvested equity grants. Mr. Armitage’s pension arrangement is described in the “Retirement Benefits” section; no other executive officer has an enhanced pension arrangement.


Change-in-Control Severance Pay Plan.As described in the “Compensation Discussion and Analysis” under “Severance“Severance Benefits,,” the company maintains a change-in-control severance pay plan (CIC plan) for nearly all employees, including the named executive officers. The CICchange-in-control plan defines a change in control very specifically, but

47

generally the terms include the occurrence of or entry into, an agreement to do one of the following: (i) acquisition of 20 percent or more of the company’s stock; (ii) replacement by the shareholders of one half or more of the board of directors; (iii) consummation of a merger, share exchange, or consolidation of the company; or (iv) liquidation of the company or sale or disposition of all or substantially all of its assets. The amounts shown in the table for “involuntary or good reasongood-reason termination after 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 plan, based on the named executive officer’s compensation, benefits, age, and service credit at December 31, 2012. Eligible terminations include an involuntary termination for reasons other than for cause or a voluntary termination by the executive for good reason, within two years following the change in control.
•

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 executive officer’s compensation, benefits, age, and service credit at December 31, 2011. Eligible terminations include an involuntary termination for reasons other than for 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 employee’s willful and continued refusal to perform, without legal cause, his or 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 ornolo 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 executive’s position, title, reporting relationship, duties, responsibilities, or authority, or the assignment to him or her of additional responsibilities that materially increase his or her workload; (ii) any reduction in the executive’s then-current base salary; (iii) a material reduction in the executive’s opportunities to earn incentive bonuses below those in effect for the year prior to the change in control; (iv) a material reduction in the executive’s 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 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 or her on an annualized average basis for the three-year period immediately prior to the change in control; or (vi) relocation of the executive by more than 50 miles.

•

Cash severance payment.Represents the CIC plan benefit of two times the employee’s 2011 annual base salary plus two times the employee’s bonus target for 2011 under the bonus plan.

•

Continuation of medical and welfare benefits.Represents the present value of the CIC plan’s guarantee, following a covered termination, for 18 months of continued coverage equivalent to the company’s current active employee medical, dental, life, and long-term disability insurance. Similar actuarial assumptions to those used to calculate incremental pension benefits apply to the calculation for continuation of medical and welfare benefits, with the addition of actual COBRA rates based on current benefit elections.

•

Acceleration of equity awards. Upon a covered termination, any unvested equity awards would vest. Payment of SVAs is accelerated in the case of a change in control in which Lilly is not the surviving entity. The amount in this column represents the value of the acceleration of unvested equity grants.

•

Excise tax reimbursement. 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 employee as a result of the reimbursement. The amounts in the table are based on a 280G excise tax rate of 20 percent and a 40 percent federal, state, and local income tax rate. To reduce the company’s exposure to these reimbursements, the employee’s severance will be cut back by up to 5 percent if the effect is to avoid triggering the excise tax under Section 280G. Beginning in October 2012, excise taxes will no longer be reimbursed.


Cash severance payment. The amount of cash severance payment pursuant to the change-in-control plan amounts to the benefit of two times the employee’s 2012 annual base salary plus two times the employee’s bonus target for 2012 under the bonus plan.
Continuation of medical and welfare benefits. This amount represents the present value of the change-in-control plan’s guarantee, following a covered termination, of 18 months of continued coverage equivalent to the company’s current active employee medical, dental, life, and long-term disability insurance. Similar actuarial assumptions to those used to calculate incremental pension benefits apply to the calculation for continuation of medical and welfare benefits, with the addition of actual COBRA rates based on current benefit elections.

Acceleration of equity awards. Upon a covered termination, any unvested equity awards would vest upon consummation of a change in control and a partial payment of outstanding PAs would be made, reduced to reflect the portion of the performance period worked prior to the change in control. Likewise, in the case of a change in control in which Lilly is not the surviving entity, SVAs would pay out based on the change-in-control stock price and be prorated for the portion of the three-year performance period elapsed. The amount in this column represents the value of the acceleration of unvested equity grants.

Excise tax reimbursement. Upon a change in control, employees may be subject to certain excise taxes under Section 280G of the Internal Revenue Code. The company does not reimburse the affected employees for those excise taxes or any income taxes payable by the employee. To reduce the employee's exposure to excise taxes, the employee’s change-in-control benefit may be decreased to maximize the after-tax benefit to the individual.

Payments Upon Change in Control Alone.In general, the CICchange-in-control plan is a “double trigger” plan, meaning payments are made only if the employee suffers a covered termination of employment within two years

46


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 PAs would be made, reduced to reflect the portion of the performance period worked prior to the change in control. Likewise, in the case of a change in control in which Lilly is not the surviving entity, SVAs willwould pay out based on the change-in-control stock price and be prorated for the portion of the three-year performance period elapsed.

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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 1, 2012.

The table shows shares held by named executive officers in the 401(k) plan, shares credited to the accounts of outside directors in the Lilly Directors’ Deferral Plan, and total shares beneficially owned by each individual, including the shares in these two plans. In addition, the table shows restricted stock units that will be issued as shares of common stock at the end of the restriction period and shares that may be purchased pursuant to stock options that are exercisable within 60 days of February 1, 2012. All22, 2013. None of the stock, stock options, shown are currently under water.

Name 401(k) Plan Shares  Directors’ Deferral
Plan Shares1		     Total Shares Owned
Beneficially2		     Restricted Stock
Units3		     

Stock Options
Exercisable Within
60 Days of

February 1, 2012

 

Ralph Alvarez

  —    12,897     12,897     —     —  

Robert A. Armitage

  3,583    —     134,132     35,297     291,271  

Katherine Baicker, Ph.D.

  —    0     0     —     —  

Sir Winfried Bischoff

  —    32,059     34,059     —     8,400  

Bryce D. Carmine4

  6,869    —     58,055     87,924     242,255  

Michael L. Eskew

  —    18,223     18,223     —     —  

Martin S. Feldstein, Ph.D.

  —    30,043     31,043     —     8,400  

J. Erik Fyrwald

  —    35,581     35,681     —     —  

Alfred G. Gilman, M.D., Ph.D.

  —    39,361     39,361     —     8,400  

R. David Hoover

  —    17,786     18,786     —     —  

Karen N. Horn, Ph.D.

  —    55,110     55,110     —     8,400  

John C. Lechleiter, Ph.D.

  17,989    —     503,939 5    132,367     708,775  

Jan M. Lundberg, Ph.D.

  904    —     34,251     77,456     —  

Ellen R. Marram

  —    30,043     31,043     —     5,600  

Douglas R. Oberhelman

  —    12,897     12,897     —     —  

Franklyn G. Prendergast, M.D., Ph.D.

  —    46,315     46,315     —     8,400  

Derica W. Rice

  7,872    —     176,512     52,947     126,385  

Kathi P. Seifert

  —    41,428      44,961      —      8,400  
                           

All directors and executive officers as a group [28 people]:

  

        1,554,851 6             

or stock units owned by any of the listed individuals has been pledged as collateral for a loan or other obligation.
Beneficial Owners
Common Stock 1
Stock Units Not Distributable Within 60 days 4
Shares Owned 2
Options Exercisable/Stock Units Distributable Within 60 Days 3
Ralph Alvarez—
 —
 16,723
 
Robert A. Armitage 5
182,906
 267,471
 —
 
Katherine Baicker, Ph.D.—
 —
 3,083
 
Sir Winfried Bischoff2,000
 2,800
 36,590
 
Enrique A. Conterno81,297
 24,729
 45,674
 
Michael L. Eskew—
 —
 22,129
 
J. Erik Fyrwald100
 —
 40,270
 
Alfred G. Gilman, M.D., Ph.D.—
 2,800
 44,221
 
R. David Hoover1,000
 —
 21,672
 
Karen N. Horn, Ph.D.—
 2,800
 60,681
 
William G. Kaelin, Jr., M.D.—
 —
 1,798
 
John C. Lechleiter, Ph.D.653,571
6 
468,775
 58,778
 
Jan M. Lundberg, Ph.D.120,205
 —
 21,552
 
Ellen R. Marram1,000
 2,800
 34,483
 
Douglas R. Oberhelman—
 —
 16,562
 
Franklyn G. Prendergast, M.D., Ph.D.—
 2,800
 51,489
 
Derica W. Rice229,533
 105,185
 29,781
 
Kathi P. Seifert3,533
 2,800
 46,382
 
All directors and executive officers as a group (27 people):1,459,504
 889,657
 722,697
 

1

See the descriptionThe sum of the “Lilly Directors’ Deferral Plan.”

2

"Shares Owned" and "Options Exercisable/Stock Units Distributable Within 60 Days" columns represents the shares considered "beneficially owned" for purposes of disclosure in the proxy statement. Unless otherwise indicated in a footnote, each person listed in the table possesses sole voting and sole investment power with respect to their shares. 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 0.280.21 percent of the outstanding common stock of the company.

2 This column includes the number of shares of common stock held individually as well as the number of 401(k) plan shares held by the beneficial owners.
3

Except for Mr. Carmine, thisThis column shows, the 2010-2011 PAs paid out in January 2012 in restrictedincludes stock units. These shares willoptions exercisable within 60 days and RSUs that vest in February 2013, and have no voting rights until they vest. Mr. Carmine’s restricted stock units are shown as of his retirement on December 31, 2011 and they vested on February 1, 2012. Dr. Lundberg’s restricted stock units include 33,334 shares from an award granted February 1, 2010 which will vest February 1, 2013. The company considers restricted stock units for purposes of determining whether executive share ownership guidelines are met.

within 60 days.
4

The shares shown for Mr. Carmine are presented as of his retirement on December 31, 2011.

5

The shares shown for Dr. Lechleiter include 24,405 shares that are owned by a family foundation for which he is a director. Dr. Lechleiter has shared voting power and shared investment power with respect to the shares held by the foundation.

6

Shares belonging to retired executive officers are shown as of their retirement date.

494

For the executive officers, this column includes the number of RSUs that will not vest within 60 days. For the independent directors, this column includes the number of stock units credited to the directors' accounts in the Lilly Directors' Deferral Plan.

5 Mr. Armitage retired on December 31, 2012.
6 The shares shown for Dr. Lechleiter include 40,396 shares that are owned by a family foundation for which he is a director. Dr. Lechleiter has shared voting power and shared investment power with respect to the shares held by the foundation.


47



Principal Holders of Stock

To the best of the company’s knowledge, the only beneficial owners of more than 5 percent of the outstanding shares of the company’s common stock, as of December 31, 2012, are the shareholders listed below:

Name and AddressNumber of Shares
Beneficially Owned		Percent of Class

Lilly Endowment, Inc. (the “Endowment”)

2801 North Meridian Street

Indianapolis, Indiana 46208


135,670,804

(as of 2/9/12)


11.7% 

BlackRock, Inc.

40 East 52nd Street

New York, New York 10022


62,397,499

(as of 12/31/11)


5.4% 

Name and AddressNumber of Shares
Beneficially Owned		Percent of Class
Lilly Endowment, Inc. (the Endowment)
2801 North Meridian Street
Indianapolis, Indiana 46208

135,670,80411.8%



BlackRock, Inc.
40 East 52nd Street
New York, New York 10022		63,874,9765.5%



The Endowment has sole voting and sole investment power with respect to its shares. The board of directors of the Endowment is composed of Thomas M. Lofton, chairman; N. Clay Robbins, president; Mary K. Lisher; Otis R. Bowen, emeritus director; William G. Enright; Daniel P. Carmichael; Charles E. Golden; Eli Lilly II; and David N. Shane.Shane; and Rev. Dr. Craig R. Dykstra. Each of the directorsEndowment board members, with the exception of Rev. Dykstra, is either directly or indirectly, a shareholder of the company.


BlackRock, Inc. provides investment management services for various clients. It has sole voting and sole investment power with respect to its shares.

50

Items of Business To Be Acted Upon at the Meeting

Item 1. Election of Directors


Under the company’s articles of incorporation, the board is divided into three classes with approximately one-third of the directors standing for election each year. The term for directors elected this year will expire at the annual meeting of shareholders held in 2015.2016. 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 proxy may be voted for a substitute director.

The board recommends that you vote FOR each of the following nominees:

Katherine Baicker, Ph.D.

J. Erik Fyrwald

Ralph Alvarez

Ellen Sir Winfried Bischoff

R. Marram

David Hoover

Douglas R. Oberhelman

Franklyn G. Prendergast, M.D., Ph.D.

Kathi P. Seifert

Biographical information about these nominees and a statement of their qualifications may be found in the ““Director Biographies” section.
Director Biographies” section.

Item 2. Proposal to Ratify the Appointment of Principal Independent Auditor


The audit committee believes that the continued retention of Ernst & Young LLP to serve as the company's independent external auditor is in the best interests of the company and its investors, and has therefore appointed the firm of Ernst & Young LLP as principal independent auditor for the company for the year 2012.2013. In accordance with the bylaws, this appointment is being submitted to the shareholders for ratification.
Ernst & Young LLP served as the principal independent auditor for the company in 2011.2012. Representatives of Ernst & Young LLP are expected to be present at the annual meeting and will be available to respond to 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 auditor for 2012.

2013.

Item 3. Advisory Vote on Compensation Paid to Named Executive Officers


Our compensation philosophy is designed to attract and retain highly-talented individuals and motivate them to

48


create long-term shareholder value by achieving top-tier corporate performance while embracing the company’s values of integrity, excellence, and respect for people. Our programs seek to:

closely link compensation with company performance and individual performance

foster a long-term focus

reflectprovide compensation consistent with the level of job responsibility and the market for pharmaceutical talent

be efficient and egalitarian

appropriately mitigate risk.

risk

consider shareholder input.

The compensation committee and the board of directors believe that our executive compensation aligns well with our philosophy and with corporate performance. We urge shareholders to read the “Compensation“Compensation Discussion and Analysis”Analysis” section of this proxy statement for a more detailed discussion of our executive compensation programs and how they reflect our philosophy and are linked to company performance.


Executive compensation is an important matter for our shareholders. We have a strong record of engagement with shareholders on compensation matters and have made a number of changes to our programs and disclosures in response to shareholder input, including several enhancements discussed in the “Compensation“Compensation Discussion and Analysis.Analysis.”


We request shareholder approval, on an advisory basis, of the compensation of the company’s named executive officers as disclosed in this proxy statement in the “Compensation Discussion and Analysis,” the compensation tables, and related narratives. As an advisory vote, this proposal is not binding on the company. However, the compensation committee values input from shareholders and will consider the outcome of the vote when making future executive compensation decisions.

51

The board recommends that you vote FOR the approval, on an advisory basis, of the compensation paid to the named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, the compensation tables, and related narratives in this proxy statement.

Item 4. Proposal to AmendReapproval of Material Terms of Performance Goals for the Company’s Articles2002 Lilly Stock Plan

Section 162(m) of Incorporation to Provide for Annual Electionthe Internal Revenue Code limits the amount of All Directors

The company’s articles of incorporation providecompensation expense that the boardcompany can deduct for income tax purposes. In general, a public corporation cannot deduct compensation in excess of directors is divided into three classes, with each class elected every three years. On the recommendation

$1 million paid to any of the directorsnamed 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 allows the grant of PAs and corporate governance committee,SVAs that qualify as performance-based compensation under Section 162(m). One of the board has approved, and recommendsconditions to qualify as performance-based is that the material terms of the performance goals must be approved by the shareholders approve, amendments to provideat least every five years. The last such approval for the annual election2002 Lilly Stock Plan occurred in 2008. To preserve our ability 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 compensation committee will continue to grant PAs and SVAs 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 all directors. This proposal was brought before shareholdersshares of Lilly stock that may be issued or transferred for grants under the 2002 Lilly Stock Plan is the sum of:
119,000,000 shares;
5,243,448 shares that were available under the previous shareholder-approved plan (the 1998 Lilly Stock Plan) at eachthe time that plan terminated in April 2002;
any shares subject to grants under the 2002 Lilly Stock 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 last five annual meetings, receivinggrant; and
any shares exchanged by grantees as payment to the votecompany of morethe exercise price of stock options granted under the 2002 Lilly Stock Plan or prior shareholder approved stock plans.

The maximum number is subject to adjustment for stock splits, stock dividends, spin-offs, reclassifications or other relevant changes affecting Lilly stock.

49



Grants Under the Plan
All employees of the company, including officers, are eligible to participate in the 2002 Lilly Stock Plan. Currently approximately 38,000 employees, including all 14 executive officers, are eligible to participate. The compensation 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 13 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 Internal Revenue Code. The committee establishes the option price, which may not be less than 73100 percent of the outstandingfair 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 at each meeting; however,of Lilly stock over a base price. If granted without a related stock option, the proposal requirescommittee establishes the votebase price of 80the SARs, which may not be less than 100 percent of the outstanding shares to pass.

fair market value of the stock on the date of grant, and the settlement or exercise date, which may not be more than

11 years after the grant date. If approved, this proposal would become effectivegranted in connection with a stock option, the holder of SARs may, upon exercise, surrender the filingrelated options and receive payment, in the form of amended and restated articles of incorporation with the Secretary of State of Indiana, which the company would do promptly after shareholder approval is obtained. Directors elected priorLilly stock, equal to the effectivenessexcess of the amendments would stand for election for one-year terms once their then-current terms expire. This means that directors whose terms expire atfair market value of Lilly stock over the 2013 and 2014 annual meetings of shareholders would be elected for one-year terms, and beginning with the 2015 annual meeting, all directors would be elected for one-year terms at each annual meeting. In the case of any vacancyexercise price on the board occurring after the 2012 annual meeting createddate of exercise multiplied by an increase in the number of directors,shares exercised. The price and term of the vacancy would be filled through an interim electionSARs 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 3,500,000 shares under the
2002 Plan in any period of three consecutive calendar years.

Performance Awards
The committee may grant PAs 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 boardcommittee meets certain performance goals during an award period.

Performance Goals. The committee establishes the performance goals at the beginning of the award period based on one or more performance goals specified in the 2002 Lilly Stock Plan. The material terms of those performance goals are:
earnings per share
net income
divisional income
corporate or divisional revenue
EVA® (after-tax operating profit less the annual total cost of capital)
Market Value Added (the difference between a company's fair market value, as reflected primarily in its stock price, and the economic book value of capital employed)
any of the foregoing goals before the effect of acquisitions, divestitures, accounting changes, and restructuring, special charges, or other unusual gains or losses (as determined according to criteria established by the committee)
total shareholder return
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. Pursuant to these provisions, the committee currently grants PAs based on EPS and SVAs based on stock price goals.
The maximum number of shares that may be received by an individual in payment of PAs in any calendar year is 600,000. The committee can elect to pay cash in lieu of part or all of the shares of Lilly stock payable under a PA, 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 new director600,000 share limit. In order to servereceive payment, a term ending atgrantee must generally remain employed by the next annual meeting. Vacancies created by resignation, removal, or death would be filled by interim election of the board for a termcompany until the end of the term ofaward period. The committee may impose additional conditions on a grantee's entitlement to receive payment under a PA.

50



At any time prior to payment, the director being replaced. This proposal would not changecommittee can adjust the present number of directors performance goals and/or the board’s authority to change that number and to fill any vacancies or newly-created directorships.

Background of Proposal

As part of its ongoing review of corporate governance matters, the board, assisted by the directors and corporate governance committee, considered the advantages and disadvantages of maintaining the classified board structure and eliminating the supermajority voting provisions of the articles of incorporation (see “Item 5” below). The board considered the view of some shareholders who believe that classified boards havepayment computation for the effect of reducingsignificant events or circumstances that have a substantial effect on the accountabilityperformance goals and would otherwise make application of directorsthe performance goals unfair. However, the committee may not increase the amount that would otherwise be payable to shareholders because shareholdersindividuals who are unablesubject to evaluateSection 162(m) of the Internal Revenue Code.


Restricted Stock Grants and elect all directorsStock Units
The committee may 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 grantee's 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 (but need not) include the right to receive the equivalent of dividends on the shares granted. Payment is made in the form of Lilly stock.

Authority of Committee
The 2002 Lilly Stock 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, as amended, and an annual basis.“outside director” within the meaning of section 162(m) of the Internal Revenue 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 Lilly Stock 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 Lilly Stock Plan remains effective until April 20, 2020, unless earlier terminated by the board. The board gave considerable weight tomay amend the 2002 Lilly Stock 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 2006 annual meetingdate of a shareholder proposal requesting thatgrant, (iii) increase the board take all necessary steps to elect the directors annually, and to the favorable votesnumber of over 73 percentshares authorized for issuance or transfer, or (iv) increase any of the outstanding sharesmaximum limits established for management’s proposalsstock options and PAs.

The committee may provide in eachthe grant agreement, or by subsequent action, that any or all of the following five years.

The board also considered benefits of retaining the classified board structure, which has a long history in corporate law. A classified structure may provide continuity and stabilityshall occur in the managementevent of a change in control (as defined in Article 12 of the business and affairs2002 Lilly Stock Plan), in order to preserve all of the company becausegrantee's 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 PAs and SVAs will be vested and paid out based on a majoritypayout level up to the maximum, prorated for the number of directors alwaysmonths elapsed and compared to the number of months in the award period.


The future amounts that will be received by grantees under the 2002 Plan are not determinable. In 2012, the named executive officers received PA and SVA grants as set forth on page 39 in the "Grants of Plan-Based Awards During 2012" table. The executive officers as a group (14 officers) received grants for approximately 776,000 shares (50/50 split between PAs and SVAs) and all other employees (approximately 6,650 employees) received grants for approximately 3,435,000 shares (comprised of approximately 1,388,000 RSUs, 1,175,500 SVAs, and 871,500 PAs).

Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information as of December 31, 2012, regarding our compensation plans under which shares of Lilly common stock have prior experience as directors ofbeen authorized for issuance.

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Plan category(a) Number of securities to be issued upon exercise of outstanding options, warrants, and rights(b) Weighted-average exercise
price of outstanding options,
warrants, and rights		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders27,229,455

$63.8991,863,392
Equity compensation plan not approved by security holders
1 
2,200

$74.39—
Total27,231,655

$63.8991,863,392

1Represents shares in the company. In some circumstances classified boards may enhance shareholder value by forcing an entity seeking control ofLilly GlobalShares Stock Plan, which permitted the company to initiate discussionsgrant 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 arm’s-length with the boardtime 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 company, becauseoptions in the entity cannot replaceevent of retirement, disability, and death. In the entire board in a single election. The board also considered that even without a classified board (and withoutevent of stock splits or other recapitalizations, the supermajority voting requirements, whichadministrator may adjust the board also recommends eliminating),number of shares available for grant, the company has defenses that work togethernumber of shares subject to discourage a would-be acquirer from proceeding with a proposal that undervaluesoutstanding grants, and the company and to assist the board in responding to such proposals. These defenses include other provisionsexercise price of the company’s articles of incorporation and bylaws as well as certain provisions of Indiana corporation law.

The board believes it is important to maintain appropriate defenses to inadequate takeover bids, but also important to retain shareholder confidence by demonstrating that it is accountable and responsive to shareholders. After balancing these interests, the board has decided to resubmit this proposal to eliminate the classified board structure.

Text of Amendments

Article  9(b) of the company’s 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 company’s bylaws, to be effective immediately upon the effectiveness of the amendments to the amended articles of incorporation.

Vote Required

The affirmative vote of at least 80 percent of the outstanding common shares is needed to pass this proposal.

52grants.


The board recommends that you vote FOR amending the company’s articles of incorporation to provide for annual election of all directors.

Item 5. Proposal to Amend the Company’s Articles of Incorporation to Eliminate All Supermajority Voting Requirements

Under the company’s articles of incorporation, nearly all matters submitted to a vote of shareholders can be adopted by a majorityreapproval of the votes cast. However, our articles require a few fundamental corporate actions to be approved by the holders of 80 percentmaterial terms of the outstanding shares of common stock (a “supermajority vote”). Those actions are:

amending certain provisions of the articles of incorporation that relate to the number and terms of office of directors:

—

the company’s classified board structure (as described under Item 4)

—

a provision that the number of directors shall be specified solely by resolution of the board of directors

removing directors prior to the end of their elected term

entering into mergers, consolidations, recapitalizations, or certain other business combinations with a “related person”—a party who has acquired at least five percent of the company’s stock (other than the Lilly Endowment or a company benefit plan) without the prior approval of the board of directors

modifying or eliminating any of the above supermajority voting requirements.

Background of Proposal

This proposal is the result of the board’s ongoing review of corporate governance matters. In 2007, 2008, and 2009, shareholder proposals requesting that the board take action to eliminate the supermajority voting provisions were supported by a majority of votes cast. In 2010 and 2011, the board responded by submitting proposals seeking shareholder approval to eliminate the provisions. In both years, the proposal received the votes of more than 72 percent of the outstanding shares, falling short of the required 80 percent.

Assisted by the directors and corporate governance committee, the board considered the advantages and disadvantages of maintaining the supermajority voting requirements. The board considered that under certain circumstances, supermajority voting provisions can provide benefits to the company. The provisions can make it more difficult for one or a few large shareholders to take over or restructure the company without negotiating with the board. In the event of an unsolicited bid to take over or restructure the company, supermajority voting provisions may encourage bidders to negotiate with the board and increase the board’s negotiating leverage on behalf of the shareholders. They can also give the board time to consider alternatives that might provide greater value for all shareholders.

The board also considered the potential adverse consequences of opposing elimination of the supermajority voting requirements. While it is important to the company’s long-term successperformance goals for the board to maintain appropriate defenses against inadequate takeover bids, it is also important for the board to maintain shareholder confidence by demonstrating that it is responsive and accountable to shareholders and committed to strong corporate governance. This requires the board to carefully balance sometimes competing interests. In this regard, the board gave considerable weight to the fact that a substantial majority of shares voted have supported eliminating the supermajority voting provisions. Many shareholders believe that supermajority voting provisions impede accountability to shareholders and contribute to board and management entrenchment.

The board also considered that even without the supermajority vote (and without the classified board, which the board also recommends eliminating), the company has defenses that work together to discourage a would-be acquirer from proceeding with a proposal that undervalues the company and to assist the board in responding to such proposals. These defenses include other provisions of the company’s articles of incorporation and bylaws as well as certain provisions of Indiana corporation law.

Therefore, the board believes the balance of interests is best served by recommending to shareholders that the articles of incorporation be amended to eliminate the supermajority voting provisions. By recommending these amendments, the board is demonstrating its accountability and willingness to take steps that address shareholder-expressed concerns.

Text of Amendments

Articles 9(c), 9(d), and 13 of the company’s amended articles of incorporation contain the provisions that will be affected if this proposal is adopted. These articles, set forth in “Appendix A” to this proxy statement, show the proposed changes with deletions indicated by strike-outs and additions indicated by underlining.

Vote Required

The affirmative vote of at least 80 percent of the outstanding common shares is needed to pass this proposal.

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The board recommends that you vote FOR amending the company’s articles of incorporation to eliminate all supermajority voting requirements.

2002 Lilly Stock Plan.

Item 6. Shareholder proposal on establishing a majority vote committee

Rebecca H. Brown, 3213 13th Avenue South, Seattle, Washington 98144, beneficial owner of approximately 100 shares, has submitted the following proposal:

Majority Vote Committee

RESOLVED, Shareholders request that our Board of Directors adopt a bylaw establishing an engagement process with proponents of shareholder proposals that are supported by a majority of the votes cast, excluding abstentions and broker non-votes, at any annual meeting.

This proposal requests our Board to take the following steps if a proposal, submitted by a shareholder for a vote according to Rule 14a-8 of the Securities and Exchange Commission, receives a majority of the votes cast:

Within four months after the annual meeting, an independent board committee will schedule a meeting (which may be held telephonically and which is coordinated with the timing of a regularly scheduled board meeting) with the proposal proponent, to obtain any additional information for our Board in its consideration of the proposal.

Following the proponent meeting, the independent board committee will present the proposal with the committee’s recommendation, and relevant information, to our full Board, for action consistent with the company’s charter and by-laws, which includes a consideration of the interest of shareholders.

This independent board committee would be able to recommend a budget of $25,000 or more to spend on special solicitations of shareholders to help adopt shareholder proposals that are supported by a majority of the votes cast.

In adopting such a policy, our Board can abolish the committee if our company adopts the proposal or the proponent agrees with abolishing the committee.

This proposal would address situations where we give overwhelming support to a proposal and the proposal is not adopted by our company.

Statement in Opposition to the Proposal

The directors and corporate governance committee of the board has reviewed this proposal and recommends that you vote against it because it is not in the best long-term interests of shareholders. It is unnecessary, is overly prescriptive, and could divert board members’ attention from other critical oversight duties.

Lilly is already responsive to shareholder majority votes. The shareholder proposal purports to address situations in which shareholders give overwhelming support to a proposal and the company thereafter fails to take the actions requested by shareholders. That is not the case at Lilly. In our history, we have received majority votes in favor of shareholder proposals concerning only two topics. In both cases, the Lilly board has responded by adopting the very actions requested by the shareholders:

•

Eliminate classified board. In 2006, a majority of shareholders recommended that the board take the necessary actions to seek shareholder approval of amendments to the articles of incorporation to eliminate the classified board and provide for annual election of directors. Beginning in 2007 and every year thereafter, the board has recommended shareholder approval of just such amendments. Despite the board’s recommendations, those proposals failed because they fell short of the necessary level of shareholder support (80 percent of the outstanding shares). The board is seeking shareholder approval again this year (see“Item 4”).

•

Eliminate supermajority voting provisions. In 2007, 2008, and 2009, a majority of shareholders recommended that the board take the necessary actions to seek shareholder approval of amendments to the articles of incorporation to eliminate the 80 percent supermajority voting provisions. In 2010 and 2011, after dialogue with shareholders, the board did exactly that, submitting management proposals to eliminate the provisions. As with the classified board proposal, the supermajority proposals fell short of the necessary 80 percent vote of the outstanding shares. And as with the classified board proposal, the board is seeking shareholder approval again this year (see“Item 5”).

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Lilly already actively engages with shareholders on important matters irrespective of voting results. We do not need the artifice of a special board committee to encourage us to talk with our shareholders. In addition to our extensive investor relations efforts, we actively engage with shareholders on matters of importance, including corporate governance, company operations, and social issues affecting the company. We have had extensive dialogue with shareholders on the two governance issues noted above, and that dialogue continues. We also engage in shareholder dialogue on many other important issues whether or not they would receive substantial voting support.

In addition, shareholders can communicate directly with the board of directors by writing to them in care of the corporate secretary.

The independent directors already exercise oversight over shareholder issues. We do not need a special board committee to inform the board of shareholder concerns. The independent directors are kept advised of shareholder views and concerns through regular reports by management to the board and relevant committees, particularly the directors and corporate governance committee and the compensation committee. The board and committees also periodically receive advice from outside advisors on shareholder relations issues.

The proposal is too prescriptive and could divert the board’s attention from other oversight issues. Maintaining relations with shareholders is primarily a management function, subject to board oversight. In appropriate but limited circumstances, it can be beneficial for independent board members to meet directly with shareholders to discuss important issues. In fact, this has occurred at Lilly. However, involving board members in direct interactions should not be mandated in a one-size-fits-all fashion. If adopted, the shareholder proposal would require directors to engage unnecessarily in management tasks that could distract them from their primary role of providing oversight over company operations and strategy.

The board recommends that you vote AGAINST this proposal.

Item 7. Shareholder proposal on transparency in animal research

People for the Ethical Treatment of Animals (PeTA), 501 N. Front Street, Norfolk, Virginia 23510, on behalf of Meridith Page, beneficial owner of approximately 100 shares, has submitted the following proposal:

RESOLVED, to promote transparency and minimize the use of animals, the Board should issue an annual report to shareholders disclosing procedures to ensure proper animal care, including measures to improve the living conditions of all animals used in-house and at contract laboratories, as well as plans to promote alternatives to animal use.

Supporting Statement

As shown below, our Company has not been in compliance with its animal welfare policy.

In 2008, our Company’s in-house laboratories used more than 3,000 animals, including 300 primates and almost 800 dogs. More than two-thirds of these animals were used in painful experiments. Vast numbers of others were used who are not required to be counted. The U.S. government cited our Company for the death of a dog who strangled in his cage.

A comparison of these figures to 2010 numbers shows that our Company is outsourcing much of its animal experimentation to U.S. and overseas laboratories, including to China, where there are few animal protection laws and enforcement is near non-existent.

In one U.S. contract laboratory used by our Company, Covance, Inc., an undercover investigator videotaped workers striking primates and throwing them against cages. Primates circled frantically in their cages, pulled out their hair, and chewed at their own flesh.

At other Covance facilities, a primate became trapped in his cage bars, unable to reach food or water for days, while others suffered frostbite from inadequate weather protection. The government has cited and fined Covance for improper care and failure to provide pain relief to suffering animals.

Documentation of abusive conditions at another contract laboratory used by our Company, Professional Laboratory and Research Services (PLRS), resulted this year in 14 felony cruelty charges against its employees. The government issued a report confirming the appalling conditions at the facility and PLRS is now out of business. The abuses included:

Sick and injured animals—including dogs with ear and eye infections, diseased gums, facial lacerations, and inflamed feet—were routinely denied veterinary care;

An untrained worker used pliers to pull a tooth from a struggling, under-sedated dog;

Dogs and cats were slammed into cages, thrown, kicked and dragged;

55

Dogs and cats were pressure-hosed with a bleach solution;

A worker attempted to rip out a cat’s nails by forcing the cat to clutch a chain-link fence and then violently pulling her away.

According to Food and Drug Administration documentation, our Company contracted PLRS to conduct experiments on more than 100 dogs.

Given that 92% of drugs deemed safe and effective when tested on animals fail in human clinical trials, there is a also a clear scientific imperative for improving testing methods.

Shareholders cannot monitor what goes on behind the closed doors of animal testing laboratories, so the Company must. The Board must ensure that animal welfare and replacement measures are an integral part of our Company’s corporate stewardship. We urge shareholders to vote in favor of this socially and ethically important proposal.

Statement in Opposition to the Proposal Regarding Transparency in Animal Research

We share the concerns raised in this shareholder proposal. We abhor mistreatment of animals and we are committed to the appropriate treatment of animals in research. However, the public policy and compliance committee of the board has reviewed this proposal and recommends a vote against it.

We are committed to quality research-animal care and use, the responsible use of animals in medical research, and the use of alternative methods whenever possible and appropriate. We do not condone, in any form, the mistreatment of research animals, and we recognize our fundamental ethical and scientific obligation to ensure the appropriate treatment of animals used in research. We have processes and procedures in place to ensure humane treatment of animals, including programs for oversight by an Institutional Animal Care and Use Committee, or an equivalent ethical review board, as well as veterinary oversight at every site—both ours and contract laboratories.

We have been accredited by the Association for Assessment and Accreditation of Laboratory Animal Care (AAALAC). AAALAC accreditation rules and standards can be found on the AAALAC website (www.aaalac.org). This accreditation is a voluntary process that includes a detailed, comprehensive review of our research animal program including animal care and use policies and procedures, animal environment, housing and management, veterinary medical care, and physical plant operations. We currently publish our animal care and use principles on our website (www.lilly.com).

For safe and effective medicines to be available to patients, U.S. and foreign regulatory agencies have mandated that a defined amount of research be performed in animals. Where animals must be used, we take every measure to assure that the lowest number of animals is used and that discomfort and distress are either eliminated or minimized.

As a global company, we develop contractual relationships with select laboratory-animal research and animal-supply companies inside and outside the U.S. We seek to do business only with those companies that share our commitment to animal welfare. We require these companies to maintain a quality animal care and use program. To ensure animal welfare, we assess third-party organization adherence to these expectations. If events suggest a laboratory has failed to meet our standards, we promptly investigate and act upon the allegations. These actions may include termination of a business relationship.

Given the information on animal care and use already published on our website, we believe an annual report is unnecessary.

The board recommends that you vote AGAINST this proposal.

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Meeting and Voting Logistics


Additional items of business

We do not expect any items of business other than those above because the deadline for shareholder proposals and nominations has already passed. Nonetheless, if necessary, 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.


Voting

Shareholders as of the close of business on February 15, 2012March 1, 2013 (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:

held directly in your name as the shareholder of record

held for you in an account with a broker, bank, or other nominee

attributed to your account in The Eli Lilly and Company Employeethe 401(k) Plan (the 401(k) plan).

plan.


If you are a shareholder of record, you may vote your shares in person at the meeting. However, we encourage you to vote by mail, by telephone, or on the Internet even if you plan to attend the meeting.


Required vote

There

Below are differingthe vote requirements for the various proposals.

The fourfive nominees for director will be elected if the votes cast for the nominee exceed the votes cast against the nominee. Abstentions will not count as votes cast either for or against a nominee.

The following items of business will be approved if the votes cast for the proposal exceed those cast against theproposal:

—

ratification of the appointment of principal independent auditor

auditor;
—

advisory approval of executive compensation

compensation; and
—

shareholder proposals.

reapproval of the material terms of the performance goals for the 2002 Lilly Stock Plan.


Abstentions will not be counted either for or against these proposals.

The proposals to amend the articles of incorporation to provide for annual election of all directors and to eliminate all supermajority voting requirements require the vote of 80 percent of the outstanding shares. For these items, abstentions and broker nonvotes have the same effect as a vote against the proposals.


Quorum

A majority of the outstanding shares, present or represented by proxy, constitutes a quorum for the annual meeting. As of the record date, 1,160,406,840date,1,129,678,645 shares of company common stock were issued and outstanding.


Voting by proxy

If you are a shareholder of record, you may vote your proxy by any one of the following methods:



52


On the Internet.Internet.You may vote online atwww.proxyvote.com. Follow the instructions on your proxy card or notice. If you received these materials electronically, follow 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, 2012.

You have the right to revoke your proxy at any time before the meeting by (i) notifying the company’s secretary in writing or (ii) delivering a later-dated proxy via the Internet, by mail, or by telephone. If you are a shareholder of record, you may also revoke your proxy by voting in person at the meeting.

By mail.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 with the board’s recommendations.

If you did not receive a proxy card in the materials you received from the company and you wish to vote by mail rather than by telephone or on the Internet, you may request a paper copy of these materials and a proxy card by calling 317-433-5112.317-433-5112. If you received a notice or an e-mail message notifying you of the electronic availability of these materials, please provide the control number, along with your name and mailing address.

57

By telephone.telephone. Shareholders in the U.S., Puerto Rico, and Canada may vote by telephone by following the instructions on your proxy card or notice. If you received these materials electronically, follow 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
You have the right to revoke your proxy at any time before the meeting by (i) notifying the company’s secretary in writing, or (ii) delivering a later-dated proxy via the Internet, by mail, or by telephone. If you are a shareholder of record, you may also revoke your proxy by voting will be available until 11:59 p.m. EDT, April 15, 2012.

in person at the meeting.


Voting shares held by a broker

If your shares are held by a broker, the broker will ask you how you want your shares to be voted. You may instruct your broker or other nominee to vote your shares by following instructions that the broker or nominee provides to you. Most brokers offer voting by mail, by telephone, and on the Internet.


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 ratification of the auditor, the broker may vote your shares in its discretion. For all other proposals, the broker may not vote your shares at all.

Voting shares held in the 401(k) plan

You may instruct the plan trustee on how to vote your shares in the 401(k) plan via the Internet, by mail, or by telephone 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.


In addition, unless you decline, your vote will apply to a proportionate number of other shares held by participants in the 401(k) plan for which voting directions are not received. These undirected shares include:

shares credited to the accounts of participants who do not return their voting instructionsreceived (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)

.

shares held in the plan that are not yet credited to individual participants’ accounts.


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 must so indicate when you vote. 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.


If you do not vote, 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.


Proxy cards and notices

If you received more than one proxy card, notice, or e-mail related to proxy materials, 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

53


telephone or on the Internet, you will need to vote once for each proxy card, notice, or e-mail you receive. If you do not receive a proxy card, you may have elected to receive your proxy statement electronically, in which case you should have received an e-mail with directions on how to access the proxy statement and how to vote your shares. If you wish to request a paper copy of these materials and a proxy card, please call 317-433-5112.

317-433-5112.


Vote tabulation

Votes are tabulated by an independent inspector of election, IVS Associates, Inc.


Attending 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 an usher at the meeting.


Parking will be available on a first-come, first-served basis in the garage indicated on the map at the end of this report. If you have questions about admittance or parking, you may call 317-433-5112.

317-433-5112 (prior to the annual meeting).


The 20132014 annual meeting

The company’s 20132014 annual meeting is currently scheduled for May 6, 2013.

58

5, 2014.


Shareholder proposals

If a shareholder wishes to have a proposal considered for inclusion in next year’s proxy statement, he or she must submit the proposal in writing so that we receive it by November 5, 2012.25, 2013. Proposals should be addressed to the company’s corporate secretary, Lilly Corporate Center, Indianapolis, Indiana 46285. In addition, the company’s bylaws provide that any shareholder wishing to propose any other business at the annual meeting must give the company written notice by November 5, 201225, 2013 and no earlier than September 6, 2012.22, 2013. That notice must provide certain other information as described in the bylaws. Copies of the bylaws are available online athttp://investor.lilly.com/governance.cfm or in paper form upon request to the company’s corporate secretary.

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Other Matters


Section 16(a) Beneficial Ownership Reporting Compliance

Under SEC rules, our directors and executive officers are required to file with the SEC 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 errors, Dr. Fionnuala Walsh was late in reporting the vesting of an equity award received by her husband; Ms. Anne NoblesSusan Mahony was late in reporting a stock sale;sale and Mr. HooverBryce Carmine (now retired) was late in reporting the deferral of one month’s compensationhis annual Form 5 information. Additionally, we recently discovered that, due to an administrative error, an RSU grant made to Dr. John Bamforth (Dr. Mahony's husband) in December 2009 had not been incorporated into the Lilly Directors’ Deferral Plan.Dr. Mahony's Section 16 holdings or related reports. Each filing was made promptly after the issue was discovered.


Other Information Regarding the Company’s 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, fax, or electronic mail. We have retained Georgeson Inc. to assist in the distribution and solicitation of proxies. Georgeson may solicit proxies by personal interview, telephone, fax, mail, and electronic mail. We expect that the fee for those services will not exceed $17,500 plus reimbursement of customary out-of-pocket expenses.

By order of the board of directors,


James B. Lootens

Secretary

March 5, 2012

60

25, 2013


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Appendix A

Proposed Amendments to the Company’s Articles of Incorporation

Proposed changes to the company’s articles of incorporation are shown below related to Items 4 and 5, “Items of Business To Be Acted Upon at the Meeting.” The changes shown to Article 9(b) will be effective if “Item 4. Proposal to Amend the Company’s Articles of Incorporation to Provide for Annual Election of All Directors” receives the vote of at least 80 percent of the outstanding shares. The changes to Articles 9(c), 9(d), and 13 will be effective if “Item  5. Proposal to Amend the Company’s Articles of Incorporation to Eliminate All Supermajority Voting Requirements” receives the vote of at least 80 percent of the outstanding shares. Additions are indicated by underlining and deletions are indicated by strike-outs.

. . . . .

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)ThePrior to the 2013 annual meeting of directors, the Board of Directors (exclusive of Preferred Stock Directors) shall be divided into three classes, with the term of office of one class expiring each year.At the annual meeting of shareholders in 1985, five directors of the first class shall be elected to hold office for a term expiring at the 1986 annual meeting, five directors of the second class shall be elected to hold office for a term expiring at the 1987 annual meeting, and six directors of the third class shall be elected to hold office for a term expiring at the 1988 annual meeting. Commencing with the annual meeting of shareholders in19862013, each class of directors whose term shall then expire shall be elected to hold office for athreeone-year term expiring at the next annual meeting of shareholders. In the case of any vacancy on the Board of Directors,including a vacancy created by an increase in the number of directors, the vacancy shall be filled by election of the Board of Directors with the director so elected to serve for the remainder of the term of the director being replaced or, in the case of an additional director,for the remainder of the term of the class to which the director has been assigned.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 ofat least 80%a majority ofthe votesentitled to be cast by the holdersof 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.

. . . . .

61

13. In addition to all other requirements imposed by law and these Amended Articlesand except as otherwise expressly provided in paragraph (c) of this Article 13, none of the actions or transactions listedin paragraph (a)below shall be effected by the Corporation, or approved by the Corporation as a shareholder of any majority-owned subsidiary of the Corporation if, as of the record date for the determination of the shareholders entitled to vote thereon, any Related Person (as hereinafter defined) exists, unless the applicable requirements of paragraphs (b), (c), (d),(e), and (fe) of this Article 13 are satisfied.

(a) The actions or transactions within the scope of this Article 13 are as follows:

(i) any merger or consolidation of the Corporation or any of its subsidiaries into or with such Related Person;

(ii) any sale, lease, exchange, or other disposition of all or any substantial part of the assets of the Corporation or any of its majority-owned subsidiaries to or with such Related Person;

(iii) the issuance or delivery of any Voting Stock (as hereinafter defined) or of voting securities of any of the Corporation’s majority-owned subsidiaries to such Related Person in exchange for cash, other assets or securities, or a combination thereof;

(iv) any voluntary dissolution or liquidation of the Corporation;

(v) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its subsidiaries, or any other transaction (whether or not with or otherwise involving a Related Person) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of capital stock of the Corporation, or any securities convertible into capital stock of the Corporation or into equity securities of any subsidiary, that is beneficially owned by any Related Person; or

(vi) any agreement, contract, or other arrangement providing for any one or more of the actions specified in the foregoing clauses (i) through (v).

(b) The actions and transactions described in paragraph (a) of this Article 13 shall have been authorized by the affirmative vote ofat least 80% of alla majorityof the votes entitled to be cast by holders of all the outstanding shares of Voting Stock, voting together as a single class.

(c) Notwithstanding paragraph (b) of this Article 13, the 80% voting requirement shall not be applicable if any action or transaction specified in paragraph (a) is approved by the Corporation’s Board of Directors and by a majority of the Continuing Directors (as hereinafter defined).

(dc) Unless approved by a majority of the Continuing Directors, after becoming a Related Person and prior to consummation of such action or transaction.:

(i) the Related Person shall not have acquired from the Corporation or any of its subsidiaries any newly issued or treasury shares of capital stock or any newly issued securities convertible into capital stock of the Corporation or any of its majority-owned subsidiaries, directly or indirectly (except upon conversion of convertible securities acquired by it prior to becoming a Related Person or as a result of a pro rata stock dividend or stock split or other distribution of stock to all shareholders pro rata);

(ii) such Related Person shall not have received the benefit directly or indirectly (except proportionately as a shareholder) of any loans, advances, guarantees, pledges, or other financial assistance or tax credits provided by the Corporation or any of its majority-owned subsidiaries, or made any major changes in the Corporation’s or any of its majority-owned subsidiaries’ businesses or capital structures or reduced the current rate of dividends payable on the Corporation’s capital stock below the rate in effect immediately prior to the time such Related Person became a Related Person; and

(iii) such Related Person shall have taken all required actions within its power to ensure that the Corporation’s Board of Directors included representation by Continuing Directors at least proportionate to the voting power of the shareholdings of Voting Stock of the Corporation’s Remaining Public Shareholders (as hereinafter defined), with a Continuing Director to occupy an additional Board position if a fractional right to a director results and, in any event, with at least one Continuing Director to serve on the Board so long as there are any Remaining Public Shareholders.

(ed) A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, as amended, whether or not the Corporation is then subject to such requirements, shall be mailed to the shareholders of the Corporation for the purpose of soliciting shareholder approval of such action or transaction and shall contain at the front thereof, in a prominent place, any recommendations as to the advisability or inadvisability of the action or transaction which the Continuing Directors may choose to state and, if deemed advisable by a majority of the Continuing Directors, the opinion of an investment banking firm selected by a majority of the Continuing Direc-

62

tors as to the fairness (or not) of the terms of the action or transaction from a financial point of view to the Remaining Public Shareholders, such investment banking firm to be paid a reasonable fee for its services by the Corporation. The requirements of this paragraph (ed) shall not apply to any such action or transaction which is approved by a majority of the Continuing Directors.

(fe) For the purpose of this Article 13

(i) the term “Related Person” shall mean any other corporation, person, or entity which beneficially owns or controls, directly or indirectly, 5% or more of the outstanding shares of Voting Stock, and any Affiliate or Associate (as those terms are defined in the General Rules and Regulations under the Securities Exchange Act of 1934) of a Related Person;provided, however, that the term Related Person shall not include (a) the Corporation or any of its subsidiaries, (b) any profit-sharing, employee stock ownership or other employee benefit plan of the Corporation or any subsidiary of the Corporation or any trustee of or fiduciary with respect to any such plan when acting in such capacity, or (c) Lilly Endowment, Inc.; andfurther provided, that no corporation, person, or entity shall be deemed to be a Related Person solely by reason of being an Affiliate or Associate of Lilly Endowment, Inc.;

(ii) a Related Person shall be deemed to own or control, directly or indirectly, any outstanding shares of Voting Stock owned by it or any Affiliate or Associate of record or beneficially, including without limitation shares

a. which it has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants, or options, or otherwise or

b. which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause a. above), by any other corporation, person, or other entity with which it or its Affiliate or Associate has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting, or disposing of Voting Stock, or which is its Affiliate (other than the Corporation) or Associate (other than the Corporation);

(iii) the term “Voting Stock” shall mean all shares of any class of capital stock of the Corporation which are entitled to vote generally in the election of directors;

(iv) the term “Continuing Director” shall mean a director who is not an Affiliate or Associate or representative of a Related Person and who was a member of the Board of Directors of the Corporation immediately prior to the time that any Related Person involved in the proposed action or transaction became a Related Person or a director who is not an Affiliate or Associate or representative of a Related Person and who was nominated by a majority of the remaining Continuing Directors; and

(v) the term “Remaining Public Shareholders” shall mean the holders of the Corporation’s capital stock other than the Related Person.

(gf) A majority of the Continuing Directors of the Corporation shall have the power and duty to determine for the purposes of this Article 13, on the basis of information then known to the Continuing Directors, whether (i) any Related Person exists or is an Affiliate or an Associate of another and (ii) any proposed sale, lease, exchange, or other disposition of part of the assets of the Corporation or any majority-owned subsidiary involves a substantial part of the assets of the Corporation or any of its subsidiaries. Any such determination by the Continuing Directors shall be conclusive and binding for all purposes.

(hg) Nothing contained in this Article 13 shall be construed to relieve any Related Person or any Affiliate or Associate of any Related Person from any fiduciary obligation imposed by law.

(ih) The fact that any action or transaction complies with the provisions of this Article 13 shall not be construed to waive or satisfy any other requirement of law or these Amended Articles of Incorporation or to impose any fiduciary duty, obligation, or responsibility on the Board of Directors or any member thereof, to approve such action or transaction or recommend its adoption or approval to the shareholders of the Corporation, nor shall such compliance limit, prohibit, or otherwise restrict in any manner the Board of Directors, or any member thereof, with respect to evaluations of or actions and responses taken with respect to such action or transaction. The Board of Directors of the Corporation, when evaluating any actions or transactions described in paragraph (a) of this Article 13, shall, in connection with the exercise of its judgment in determining what is in the best interests of the Corporation and its shareholders, give due consideration to all relevant factors, including without limitation the social and economic effects on the employees, customers, suppliers, and other constituents of the Corporation and its subsidiaries and on the communities in which the Corporation and its subsidiaries operate or are located.

63

(j) Notwithstanding any other provision of these Amended Articles of Incorporation or of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class of Voting Stock required by law or these Amended Articles of Incorporation, the affirmative vote of the holders of at least 80% of the votes entitled to be cast by holders of all the outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend, or repeal this Article 13.

64



Annual Meeting Admission Ticket

Eli Lilly and Company 20122013 Annual Meeting of Shareholders

Monday, April 16, 2012

May 6, 2013

11:00 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.

Doors open at 10:15 a.m.

Name

Address

City, State, and Zip Code


Name
Address
City, State, and Zip Code


Parking Pass

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.


55



Take the top portion of this page with you to the meeting.

Detach here
   

Eli Lilly and Company

Annual Meeting of Shareholders

April 16, 2012

May 6, 2013

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.


56



Important notice regarding the availability of proxy material for the shareholder meeting to be held April 16, 2012:

May 6, 2013:

The Annual Report and Proxy Statement are available at http://www.lilly.com/pdf/lillyar2011.pdf.

lillyar2012.pdf

- - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
M52722-P31749
The undersigned hereby appoints Messrs. M.J. Harrington, J.C. Lechleiter, and D.W. Rice, and each of them, as proxies, each with full power to act without the others and with full power of substitution, to vote as indicated on the reverse side of this card all the shares of common stock of ELI LILLY AND COMPANY in this account held in the name of the undersigned at the close of business on March 1, 2013, at the annual meeting of shareholders to be held on May 6, 2013, at 11:00 a.m. EDT, and at any adjournment thereof, with all the powers the undersigned would have if personally present.
If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly. If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.
This proxy is solicited on behalf of the board of directors.
PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD.

57


ELI LILLY AND COMPANY
C/O IVS, P.O. BOX 17149
WILMINGTON, DE 19885-9801
VOTE BY INTERNET – www.proxyvote.com
Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on Sunday, May 5, 2013. Have your proxy card in hand when you access the website and follow the instructions.
VOTE BY PHONE – (1-800-690-6903)
Transmit your voting instructions by telephone until 11:59 p.m. EDT on Sunday, May 5, 2013. Have your proxy card in hand when you call and follow the instructions.
VOTE BY MAIL
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 19885-9801.
Important notice regarding the availability of proxy material for the shareholder meeting to be held May 6, 2013: The annual report and proxy statement are available at http://www.lilly.com/pdf/lillyar2012.pdf.
THANK YOU FOR VOTING
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:M52721-P31749KEEP THIS PORTION FOR YOUR RECORDS
THIS CARD IS VALID ONLY WHEN SIGNED AND DATED.DETACH AND RETURN THIS PORTION ONLY

ELI LILLY AND COMPANY
The board of directors recommends you vote FOR items 1-4:
(1)Election of directors, each for a three-year term.ForAgainstAbstain
1a) R. Alvarezqqq
1b) W. Bischoffqqq
1c) R. D. Hooverqqq
1d) F. G. Prendergastqqq



1e) K. P. Seifertqqq
ForAgainstAbstain
(2)Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for 2013.qqq
(3)Approve, by non-binding vote, compensation paid to the company’s named executive officers.qqq
(4)Reapprove material terms of the performance goals for the 2002 Lilly Stock Plan.qqq
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.
    Signature (PLEASE SIGN WITHIN BOX)DateSignature (Joint Owners)Date

58


Important notice regarding the availability of proxy material for the shareholder meeting to be held May 6, 2013:
The Annual Report and Proxy Statement are available at http://www.lilly.com/pdf/lillyar2012.pdf
- - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - -  -  - - - -

M40836-P19243

LOGO

ESOP   M52724-P31749
The undersigned hereby appoints Messrs. R. A. Armitage, J. C. Lechleiter, and D. W. Rice, and each of them, as proxies, each with full power to act withoutLilly Employee 401(k) Plan
Confidential Voting Instructions
To Northern Trust, Trustee
By signing on the others and with full power of substitution,reverse side or by voting by phone or Internet, you direct the Trustee to vote (in person or in proxy) as indicated on the reverse side of this card, all the number of shares of common stock of ELI LILLY AND COMPANY inEli Lilly and Company Common Stock credited to this account held in the name of the undersignedunder The Lilly Employee 401(k) Plan or an affiliated plan at the close of business on February 15, 2012,March 1, 2013, at the annual meetingAnnual Meeting of shareholdersShareholders to be held on April 16, 2012,May 6, 2013 at 11:00 a.m. EDT, and at any adjournment thereof, with all the powers the undersigned would have if personally present.

thereof.

If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly.If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.

This proxy is solicited on behalfAlso, unless you decline by checking the box below, you direct the Trustee to apply this voting instruction pro rata (along with all other participants who provide voting instructions and do not decline as provided below) to all shares of Common Stock held in the plans for which the Trustee receives no voting instructions (the “undirected shares”), except that shares formerly held in The Lilly Employee Stock Ownership Plan (PAYSOP) may only be voted upon the express instruction of the boardparticipants to whose accounts the shares are credited. For more information on the voting of directors.the undirected shares,

see the Proxy Statement.

YesNo
Question 1: Check “no” only if you decline to have your vote applied pro rata to the undirected shares.
qq
These confidential voting instructions will be seen only by authorized representatives of the Trustee.
PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD.


59



ELI LILLY AND COMPANY

NORTHERN TRUST, TRUSTEE
C/O IVS, P.O. BOX 17149

WILMINGTON, DE 19885-9801

VOTE BY INTERNET – www.proxyvote.com

Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on Sunday,Tuesday, April 15, 2012.30, 2013. Have your proxy card in hand when you access the web sitewebsite and follow the instructions.

VOTE BY PHONE –(1-800-690-6903)

Transmit your voting instructions by telephone until 11:59 p.m. EDT on Sunday,Tuesday, April 15, 2012.30, 2013. Have your proxy card in hand when you call and follow the instructions.

VOTE BY MAIL

Mark, sign, and date your proxythis 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 19885-9801.

Card must be received by April 30, 2013.

Important notice regarding the availability of proxy material for the shareholder meeting to be held April 16, 2012:May 6, 2013: The annual report and proxy statement are available at http://www.lilly.com/pdf/lillyar2011.pdf.

lillyar2012.pdf.


THANK YOU FOR VOTING

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK,

RETURN BOTTOM HALF IN ACCOMPANYING RETURN ENVELOPE.                                    M40835-P19243             KEEP THIS PORTION FOR YOUR RECORDS

– – – – – – – – – – – –  – – – – – – – – – – – – – – – – – – – –  – – – – – – – – – – – – – – – – – – – –  – – – – – – – – – – – – – – – – – – – –

THIS CARD IS VALID ONLY WHEN SIGNED AND DATED.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:M52723-P31749KEEP THIS PORTION FOR YOUR RECORDS
                         - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - 
ESOP
THIS CARD IS VALID ONLY WHEN SIGNED AND DATED.DETACH AND RETURN THIS PORTION ONLY
ELI LILLY AND COMPANY

The board of directors recommends you vote FOR items 1-5:

1-4:
(1)Election of directors, each for a three-year term.For      For       AgainstAbstain Against   Abstain 
 

1a) K. Baicker

R. Alvarez		 qqq q
 

1b) J. E. Fyrwald

W. Bischoff		 qqq q
 

1c) E. R. Marram

D. Hoover		 qqq q
 

1d) D. R. Oberhelman

F. G. Prendergast		 qqq q
1e) K. P. SeifertqqqForAgainstAbstain
(2)Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for 2012.2013.qqq
(3)Approve, by non-binding vote, compensation paid to the company’s named executive officers.qqqq

      For       Against Abstain 
(4)  Approve amendments to the articles of incorporation to provide for annual election of all directors.qqq
(4)
(5)Approve amendments toReapprove material terms of the articles of incorporation to eliminate all supermajority voting requirements.performance goals for the 2002 Lilly Stock Plan.qqq
The board of directors recommends you vote AGAINST the following proposals (6 and 7):
(6)Proposal by shareholders requesting that the company establish a majority vote committee.qqq
(7)Proposal by shareholders on transparency in animal research.qqq

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. 

    
    

    Signature (PLEASE SIGN WITHIN BOX)

Date Date    

Signature (Joint Owners)

Date



60




Important notice regarding the availability of proxy material for the shareholder meeting to be held April 16, 2012:

May 6, 2013:

The Annual Report and Proxy Statement are available at http://www.lilly.com/pdf/lillyar2011.pdf.

lillyar2012.pdf

- - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - -  - - - - - - - -

ESOPPAYSOP   M40838-P19243M52726-P31749        

The Lilly Employee 401(K)401(k) Plan

Confidential Voting Instructions

To PNC Bank N.A., Indiana,Northern Trust, Trustee

By signing on the reverse side or by voting by phone or Internet, you direct the Trustee to vote (in person or in proxy) as indicated on the reverse side of this card, the number of shares of Eli Lilly and Company Common Stock credited to this account under The Lilly Employee Savings401(k) Plan or an affiliated plan at the close of business on February 15, 2012,March 1, 2013, at the Annual Meeting of Shareholders to be held on April 16, 2012May 6, 2013 at 11:00 a.m. EDT, and at any adjournment thereof.

If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly.If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.

Also, unless you decline by checking the box below, you direct the Trustee to apply this voting instructionpro rata(along with all other participants who provide voting instructions and do not decline as provided below) to all shares of Common Stock held in the plans for which the Trustee receives no voting instructions (the “undirected shares”), except that shares formerly held in The Lilly Employee Stock Ownership Plan (PAYSOP) may only be voted upon the express instruction of the participants to whose accounts the shares are credited. For more information on the voting of the undirected shares, see the Proxy Statement.

 YesNo
Question 1: Check “no” only if you declineto have your vote appliedpro rata to the undirected shares.
qqq

These confidential voting instructions will be seen only by authorized representatives of the Trustee.


PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD.


61



PNC BANK N.A., INDIANA,

NORTHERN TRUST, TRUSTEE

C/O IVS, P.O. BOX 17149

WILMINGTON, DE 19885-9801

VOTE BY INTERNET – www.proxyvote.com

Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on Sunday,Tuesday, April 15, 2012.30, 2013. Have your proxy card in hand when you access the web sitewebsite and follow the instructions.

VOTE BY PHONE –(1-800-690-6903)

Transmit your voting instructions by telephone until 11:59 p.m. EDT on Sunday,Tuesday, April 15, 2012.30, 2013. Have your proxy card in hand when you call and follow the instructions.

VOTE BY MAIL

Mark, sign, and date this card and return it in the postage-paid envelope we have provided or return to IVS Associates, Inc., P.O. Box 17149, Wilmington, DE 19885-9801.

Card must be received by April 30, 2013.

Important notice regarding the availability of proxy material for the shareholder meeting to be held April 16, 2012:May 6, 2013: The annual report and proxy statement are available at http://www.lilly.com/pdf/lillyar2011.pdf.

lillyar2012.pdf.



THANK YOU FOR VOTING

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK RETURN BOTTOM HALF IN ACCOMPANYING RETURN ENVELOPE.AS FOLLOWS:
        M40837-P19243M52725-P31749KEEP THIS PORTION FOR YOUR RECORDS

                - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - -

    ESOPPAYSOPTHIS CARD IS VALID ONLY WHEN SIGNED AND DATED.DETACH AND RETURN THIS PORTION ONLY

ELI LILLY AND COMPANY

The board of directors recommends you vote FOR items 1-5:

1-4:
(1)Election of directors, each for a three-year term.For    For    AgainstAbstain  Against   Abstain 
 1a) K. BaickerR. Alvarez qqq q
 1b) J. E. FyrwaldW. Bischoff qqq q
 1c) E. R. MarramD. Hoover qqq q
 1d) D. R. OberhelmanF. G. Prendergast qqq q
1e) K. P. SeifertqqqForAgainstAbstain
(2)Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for 2012.2013.qqq
(3)Approve, by non-binding vote, compensation paid to the company’s named executive officers.qqq
(4)Reapprove material terms of the performance goals for the 2002 Lilly Stock Plan.qqq

    For     Against  Abstain 
(4)  Approve amendments to the articles of incorporation to provide for annual election of all directors.qqq
(5)Approve amendments to the articles of incorporation to eliminate all supermajority voting requirements.qqq
The board of directors recommends you vote AGAINST the following proposals (6 and 7):
(6)Proposal by shareholders requesting that the company establish a majority vote committee.qqq
(7)Proposal by shareholders on transparency in animal research.qqq

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. 

Signature [PLEASE SIGN WITHIN BOX]Date    

Signature (Joint Owners)

Date    

Important notice regarding the availability of proxy material for the shareholder meeting to be held April 16, 2012:

The Annual Report and Proxy Statement are available at http://www.lilly.com/pdf/lillyar2011.pdf.

- - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -  - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

PAYSOPM40840-P19243        

Lilly Employee 401(K) Plan

Confidential Voting Instructions

To PNC Bank N.A., Indiana, Trustee

By signing on the reverse side or by voting by phone or Internet, you direct the Trustee to vote (in person or in proxy) as indicated on the reverse side of this card, the number of shares of Eli Lilly and Company Common Stock credited to this account under The Lilly Employee Savings Plan or an affiliated plan at the close of business on February 15, 2012, at the Annual Meeting of Shareholders to be held on April 16, 2012 at 11:00 a.m. EDT, and at any adjournment thereof.

If this card is properly executed and returned, the shares represented thereby will be voted. If a choice is specified by the shareholder, the shares will be voted accordingly.If not otherwise specified, the shares represented by this card will be voted with the recommendations of the board of directors and in the discretion of the proxy holders upon such other matters as may properly come before the meeting.

Also, unless you decline by checking the box below, you direct the Trustee to apply this voting instructionpro rata(along with all other participants who provide voting instructions and do not decline as provided below) to all shares of Common Stock held in the plans for which the Trustee receives no voting instructions (the “undirected shares”), except that shares formerly held in The Lilly Employee Stock Ownership Plan (PAYSOP) may only be voted upon the express instruction of the participants to whose accounts the shares are credited. For more information on the voting of the undirected shares, see the Proxy Statement.

YesNo
Question 1: Check “no” only if you declineto have your vote appliedpro rata to the undirected shares.qq

These confidential voting instructions will be seen only by authorized representatives of the Trustee.

    PLEASE MARK YOUR VOTES AND SIGN ON THE REVERSE SIDE OF THIS CARD.     

LOGO

PNC BANK N.A., INDIANA, TRUSTEE

C/O IVS, P.O. BOX 17149

WILMINGTON, DE 19885-9801

VOTE BY INTERNET – www.proxyvote.com

Use the Internet to transmit your voting instructions until 11:59 p.m. EDT on Sunday, April 15, 2012. Have your proxy card in hand when you access the web site and follow the instructions.

VOTE BY PHONE –(1-800-690-6903)

Transmit your voting instructions by telephone until 11:59 p.m. EDT on Sunday, April 15, 2012. Have your proxy card in hand when you call and follow the instructions.

VOTE BY MAIL

Mark, sign, and date this card and return it in the postage-paid envelope we have provided or return to IVS Associates, Inc., P.O. Box 17149, Wilmington, DE 19885-9801.

Important notice regarding the availability of proxy material for the shareholder meeting to be held April 16, 2012: The annual report and proxy statement are available at http://www.lilly.com/pdf/lillyar2011.pdf.

THANK YOU FOR VOTING

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK,

RETURN BOTTOM HALF IN ACCOMPANYING RETURN ENVELOPE.

        M40839-P19243KEEP THIS PORTION FOR YOUR RECORDS

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    PAYSOPTHIS CARD IS VALID ONLY WHEN SIGNED AND DATED.

ELI LILLY AND COMPANY

The board of directors recommends you vote FOR items 1-5:

(1)  Election of directors, each for a three-year term.    For     Against  Abstain 
1a)  K. Baickerqqq
1b)  J. E. Fyrwaldqqq
1c)  E. R. Marramqqq
1d)  D. R. Oberhelmanqqq
(2)Ratification of the appointment by the audit committee of the board of directors of Ernst & Young LLP as principal independent auditor for 2012.qqq
(3)Approve, by non-binding vote, compensation paid to the company’s named executive officers.qqq
    For     Against  Abstain 
(4)  Approve amendments to the articles of incorporation to provide for annual election of all directors.qqq
(5)Approve amendments to the articles of incorporation to eliminate all supermajority voting requirements.qqq
The board of directors recommends you vote AGAINST the following proposals (6 and 7):
(6)Proposal by shareholders requesting that the company establish a majority vote committee.qqq
(7)Proposal by shareholders on transparency in animal research.qqq

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.

   

     
    Signature (PLEASE SIGN WITHIN BOX)Date Signature [PLEASE SIGN WITHIN BOX](Joint Owners)Date

Signature (Joint Owners)

Date    


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