Eli Lilly 2013 Annual Report Download - page 153

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55
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.
Certain legal matters
In 2011, the company received a letter sent on behalf of shareholder Kim Barovic demanding that the board of
directors cause the company to take (1) legal action against certain of its current and former officers and
board members for allegedly causing damage to the company by failing to exercise proper oversight over the
company’s compliance with the Foreign Corrupt Practices Act, and (2) all necessary actions to reform and
improve certain corporate governance and internal procedures.The board established a committee of
disinterested directors to consider the demands and determine what action, if any, the company should take
in response. In February 2013, following its investigation, the committee determined, among other things, that
it would not be in the best interests of the company to take any of the actions demanded by Ms. Barovic.
In August 2013, Ms. Barovic brought a shareholder derivative suit (Barovic v. Lechleiter, et al.), filed in Marion
County (Indiana) Superior Court. The suit seeks to maintain the action purportedly on behalf of the company
against certain current and former directors and officers of the company and alleges breach of fiduciary duty,
waste of corporate assets, and unjust enrichment. The company is named in the suit as a nominal defendant.
The suit does not seek damages from the company, but instead requests damages in an unspecified amount
and certain equitable relief on the company’s behalf. The company believes the suit is without merit and all of
the individual defendants intend to defend themselves vigorously against the allegations in the complaint.
By order of the Board of Directors,
James B. Lootens
Secretary
March 24, 2014
Appendix A - Summary of Adjustments to EPS Related to the
Annual Bonus and PA
Consistent with past practice, the Compensation Committee adjusted the results on which 2012-2013 PAs
and the 2013 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 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 Compensation 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, i.e., discretion to reduce compensation below the amounts that
are yielded by the adjustment guidelines.