SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 Commission File Number 1-6351
ELI LILLY AND COMPANY
(Exact name of Registrant as specified in its charter)
LILLY CORPORATE CENTER
INDIANA 35-0470950 INDIANAPOLIS, INDIANA 46285
(State or other (IRS Employer (Address of principal (Zip Code)
jurisdiction of incor- Identification No.) executive offices)
poration or organization)
Registrant's telephone number, including area code: 317-276-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock New York Stock Exchange
Pacific Stock Exchange
Contingent Payment Obligation Units American Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy statement incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-
K.[]
The aggregate market value of voting stock of the Registrant held by non-
affiliates as of February 21, 1994 (Common Stock): $13,447,757,840.
The number of shares of common stock outstanding as of February 21, 1994:
CLASS NUMBER OF SHARES OUTSTANDING
Common 292,665,649
Portions of the following documents have been incorporated by reference into
this report:
DOCUMENT PARTS INTO WHICH INCORPORATED
Registrant's Annual Report to Shareholders Parts I, II, and IV
for fiscal year ended December 31, 1993
Registrant's Proxy Statement dated March
14, 1994 Part III
PART I
Item 1. BUSINESS
Eli Lilly and Company was incorporated in 1901 under the laws of Indiana
to succeed to the drug manufacturing business founded in Indianapolis,
Indiana, in 1876 by Colonel Eli Lilly. The Company*, including its
subsidiaries, is engaged in the discovery, development, manufacture, and sale
of products in one industry segment - Life Sciences. Products are
manufactured or distributed through owned or leased facilities in the United
States, Puerto Rico, and 27 other countries, in 19 of which the Company owns
or has an interest in manufacturing facilities. Its products are sold in
approximately 120 countries.
Most of the Company's products were discovered or developed through the
Company's research and development activities, and the success of the
Company's business depends to a great extent on the introduction of new
products resulting from these research and development activities. Research
efforts are primarily directed toward the discovery of products to diagnose
and treat diseases in human beings and animals and to increase the efficiency
of animal food production. Research efforts are also directed toward
developing medical devices.
FINANCIAL INFORMATION RELATING TO INDUSTRY
SEGMENTS AND CLASSES OF PRODUCTS
Financial information relating to industry segments and classes of
products, set forth in the Company's 1993 Annual Report at pages 18-19 under
"Review of Operations - Segment Information" (pages 12-13 of Exhibit 13 to
this Form 10-K), is incorporated herein by reference.
Due to several factors, including the introduction of new products by the
Company and other manufacturers, the relative contribution of any particular
Company product to consolidated net sales is not necessarily constant from
year to year, and its contribution to net income is not necessarily the same
as its contribution to consolidated net sales.
PRODUCTS
Pharmaceutical Products
Pharmaceutical products include
Anti-infectives, including the oral cephalosporin antibiotics Ceclor
(Registered), Keflex(Registered), and Keftab(Registered), used in
the treatment of a wide range of bacterial infections; the oral
carbacephem antibiotic Lorabid(Trademark), used to treat a variety of
infections; the injectable cephalosporin antibiotics Mandol(Registered),
Tazidime(Registered), Kefurox(Registered), and Kefzol(Registered), used
to treat a wide range of infections in the hospital setting;
Nebcin(Registered), an injectable aminoglycoside antibiotic used in
hospitals to treat a broad range of infections caused by staphylococci
and Gram-negative bacteria; and Vancocin(Registered) HCl, an antibiotic
used primarily to treat staphylococcal infections;
Central-nervous-system agents, including the antidepressant agent
Prozac(Registered), a highly specific serotonin uptake inhibitor,
indicated for the treatment of depression and, in certain countries, for
bulimia and obsessive-compulsive disorder; and the analgesic Darvocet-
N(Registered) 100, which is indicated for the relief of mild-to-moderate
pain;
* The terms "Company" and "Registrant" are used interchangeably
herein to refer to Eli Lilly and Company or to Eli Lilly and Company
and its consolidated subsidiaries, as the context requires.
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Diabetic care products, including Iletin(Registered) (insulin) in its
various pharmaceutical forms; and Humulin(Registered), human insulin
produced through recombinant DNA technology;
Oncolytic agents, including Oncovin(Registered), indicated for
treatment of acute leukemia and, in combination with other oncolytic
agents, for treatment of several different types of advanced cancers;
Velban(Registered), used in a variety of malignant neoplastic
conditions; and Eldisine(Registered), indicated for treatment of acute
childhood leukemia resistant to other drugs;
An antiulcer agent, Axid(Registered), an H2 antagonist, indicated for
the treatment of active duodenal ulcer, for maintenance therapy for
duodenal ulcer patients after healing of an active duodenal ulcer, and
for reflux esophagitis; and
Additional pharmaceuticals, including cardiovascular therapy
products, principally Dobutrex(Registered); hormones, including
Humatrope(Registered), human growth hormone produced by recombinant DNA
technology; and sedatives.
Medical Devices and Diagnostic Products
Medical devices include patient vital-signs measurement and
electrocardiography systems, intravenous fluid-delivery and control systems,
implantable cardiac pacemakers and implantable cardioverter/defibrillators,
cardiac defibrillators and monitors, coronary angioplasty catheter systems,
peripheral and coronary atherectomy catheter systems, and devices for use
during minimally-invasive surgery procedures.
Diagnostic products include monoclonal-antibody-based diagnostic tests for
colon, prostate, and testicular cancer, as well as for infertility,
pregnancy, heart attack, thyroid deficiencies, allergies, anemia, dwarfism,
and infectious diseases.
Animal Health Products
Animal health products include Tylan(Registered), an antibiotic used to
control certain diseases in cattle, swine, and poultry and to improve feed
efficiency and growth; Rumensin(Registered), a cattle feed additive that
improves feed efficiency and growth; Compudose(Registered), a controlled-
release implant that improves feed efficiency and growth in cattle;
Coban(Registered), Monteban(Registered) and Maxiban(Registered),
anticoccidial agents for use in poultry; Apralan(Registered), an antibiotic
used to control enteric infections in calves and swine; Micotil(Registered),
an antibiotic used to treat bovine respiratory disease; and other products
for livestock and poultry.
MARKETING
Most of the Company's major products are marketed worldwide.
In the United States, the Company's Pharmaceutical Division distributes
pharmaceutical products principally through approximately 225 wholesale
distributing outlets. Marketing policy is designed to assure immediate
availability of these products to physicians, pharmacies, hospitals, and
appropriate health care professionals throughout the country. Four wholesale
distributing companies in the United States accounted for approximately 11%,
9%, 6%, and 5% respectively, of consolidated net sales in 1993. No other
distributor accounted for as much as 5% of consolidated net sales. The
Company also makes direct sales of its pharmaceutical products to the United
States government and to other manufacturers, but those direct sales do not
constitute a material portion of consolidated net sales.
The Company's pharmaceutical products are promoted in the United States
under the Lilly and Dista trade names by one hospital and three retail
sales forces employing salaried sales representatives. These sales
representatives, approximately half of whom are registered pharmacists,
call upon physicians, wholesalers, hospitals, managed-care organizations,
retail pharmacists, and other health care professionals. Their efforts
are supported by the Company through advertising in medical and drug
journals, distribution of literature and samples of certain products
to physicians, and exhibits for use at medical meetings. In the past
few years, large purchasers of pharmaceuticals, such
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as managed-care groups and government and long-term care institutions,
have begun to account for an increasing portion of total pharmaceutical
purchases in the United States. In 1992, reflecting these changes, the
Company created special sales groups to service government and long-term
care institutions, and expanded its managed-care sales organization. In
response to competitive pressures, the Company has entered into arrangements
with a number of these organizations providing for discounts or rebates on
one or more Company products.
Pharmaceutical products are promoted outside the United States by salaried
sales representatives. While the products marketed vary from country to
country, anti-infectives constitute the largest single group in total volume.
Distribution patterns vary from country to country.
IVAC Corporation markets its patient temperature-measuring and vital-signs
products and intravenous fluid-infusion systems principally to hospitals in
the United States. Sales in the United States are conducted by a direct
sales force. Sales outside the United States are conducted by both direct
sales representatives and independent distributors.
Cardiac Pacemakers, Inc. markets pacemaker products and automatic
implantable cardioverter/defibrillators to physicians and hospitals. Sales
are conducted by direct sales representatives and by independent distributors
both inside and outside the United States.
Physio-Control Corporation markets cardiac defibrillators and monitors,
electrocardiography systems, and vital-signs-measurement equipment to
hospitals and emergency care units. In the United States, sales are
conducted by direct sales representatives. Sales outside the United States
are conducted by both direct sales representatives and independent
distributors. Physio-Control suspended production in May 1992 following an
inspection of its operations by the U.S. Food and Drug Administration
("FDA"). During 1993, Physio-Control received FDA authorization to resume
shipments of the majority of its product line. Physio-Control is seeking FDA
authorization to resume shipments of its remaining products.
Advanced Cardiovascular Systems, Inc. primarily markets coronary
dilatation balloon catheter systems to cardiologists to open obstructed
coronary arteries. In the United States, sales are conducted by a direct
sales force. Sales outside the United States are conducted by both direct
sales representatives and independent distributors.
Devices for Vascular Intervention, Inc. markets atherectomy catheter
systems for the treatment of coronary vascular disease by the removal of
atherosclerotic plaque. In the United States, sales are conducted by direct
sales representatives. Sales outside the United States are conducted by
independent distributors.
Origin Medsystems, Inc., acquired by the Company in 1992, markets devices
for use in minimally invasive surgical procedures. Sales in the United
States are conducted by direct sales representatives. Sales outside the
United States are conducted by independent distributors and a direct sales
force.
Heart Rhythm Technologies, Inc. is developing catheter-based ablation
systems to correct faulty signals at the heart, using a less-invasive
approach than current therapy. Heart Rhythm Technologies has no products
currently approved for marketing.
Hybritech Incorporated and Pacific Biotech, Inc. market their
immunodiagnostic products to hospitals, commercial laboratories, clinics, and
physicians. Sales are conducted by direct sales representatives and by
independent distributors both inside and outside the United States.
Elanco Animal Health, a division of the Company, employs field salespeople
throughout the United States to market animal health products. Sales are
made to wholesale distributors, retailers, feed manufacturers, or producers
in conformance with varying distribution patterns applicable to the various
types of products. The Company also has an extensive sales force outside the
United States to market its animal health products.
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RAW MATERIALS
Most of the principal materials used by the Company in manufacturing
operations are chemical, plant, and animal products that are available from
more than one source. Certain raw materials are available or are purchased
principally from only one source. Unavailability of certain materials from
present sources could cause an interruption in production pending
establishment of new sources or, in some cases, implementation of alternative
processes.
Although the major portion of the Company's sales abroad are of products
manufactured wholly or in part abroad, a principal source of active
ingredients for these manufactured products continues to be the Company's
facilities in the United States.
PATENTS AND LICENSES
The Company owns, has applications pending for, or is licensed under, a
substantial number of patents, both in the United States and in other
countries, relating to products, product uses, and manufacturing processes.
There can be no assurance that patents will result from the Company's pending
applications. Moreover, patents relating to particular products, uses, or
processes do not preclude other manufacturers from employing alternative
processes or from successfully marketing substitute products to compete with
the patented products or uses.
Patent protection of certain products, processes, and uses - particularly
that relating to Ceclor, Dobutrex, Humulin, Prozac, Axid, and Lorabid - is
considered to be important to the operations of the Company. The United
States product patent covering Ceclor, the Company's second largest selling
product, expired in December 1992. The Company holds a U.S. patent on a key
intermediate material that remains in force until December 1994. It has been
reported that several abbreviated new drug applications for generic
formulations of cefaclor (the active ingredient in Ceclor) have been filed in
the U.S. and regulatory submissions have been made in other countries. Small
quantities of a generic formulation are currently being marketed in India.
Although the Company cannot predict the ultimate effect on the sales of
Ceclor or the Company's results of operations, the Company believes that the
expiration of the U.S. product and intermediate patents will not have a
material adverse effect on the Company's near-term consolidated financial
position. The United States patent covering Dobutrex expired in October
1993. Prior to the expiration, U.S. sales of Dobutrex accounted for
approximately 2% of the Company's worldwide sales. The patent expiration
has resulted in a significant decline in U.S. Dobutrex sales, and the
Company expects this decline to continue. During the first two months of
1994, U.S. sales of the product declined approximately 75%. The
contribution of Dobutrex to the Company's net income is greater than its
contribution to net sales. The Company is unable to predict the effect
of the expiration on the Company's consolidated results of operations;
however, the Company believes the expiration will not have a material
adverse effect on its consolidated financial position. The United States
patent covering Humulin expires in 2000, the Prozac patent expires in
2001, the Axid patent expires in 2002, and the Lorabid patent expires in 2004.
The Company also grants licenses under patents and know-how developed by
the Company and manufactures and sells products and uses technology and know-
how under licenses from others. Royalties received by the Company in
relation to licensed pharmaceuticals, medical devices, and diagnostic
products amounted to approximately $56.7 million in 1993, and royalties paid
by it in relation to pharmaceuticals, medical devices, and diagnostic
products amounted to approximately $92.5 million in 1993.
COMPETITION
The Company's pharmaceutical products compete with products manufactured
by numerous other companies in highly competitive markets in the United
States and throughout the world. Its medical devices compete with
numerous domestic and foreign manufacturers of conventional mercury-glass
thermometers, implantable cardiac pacemakers, cardiac defibrillators and
monitors, electronic temperature-measuring systems, vital-signs measuring
systems, intravenous systems, angioplasty catheter systems, and minimally-
invasive surgery devices. The Company's diagnostic products
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compete with conventional immunodiagnostic assays as well as with
monoclonal-antibody-based products marketed by numerous foreign and domestic
manufacturers. Its animal health products compete on a worldwide basis
with products of pharmaceutical, chemical, and other companies that operate
animal health divisions or subsidiaries.
Important competitive factors include price and cost-effectiveness,
product characteristics and dependability, service, and research and
development of new products and processes. The introduction of new products
and the development of new processes by domestic and foreign companies can
result in progressive price reductions or decreased volume of sales of
competing products, or both. New products introduced with patent protection
usually must compete with other products already on the market at the time of
introduction or products developed by competitors after introduction. The
Company believes its competitive position in these markets is dependent upon
its research and development endeavors in the discovery and development of
new products, together with increased productivity resulting from improved
manufacturing methods, marketing efforts, and customer service. There can be
no assurance that products manufactured or processes used by the Company will
not become outmoded from time to time as a result of products or processes
developed by its competitors.
GOVERNMENTAL REGULATION
The Company's operations have for many years been subject to extensive
regulation by the federal government, to some extent by state governments,
and in varying degrees by foreign governments. The Federal Food, Drug, and
Cosmetic Act, other federal statutes and regulations, various state statutes
and regulations, and laws and regulations of foreign governments govern
testing, approval, production, labeling, distribution, post-market
surveillance, advertising, promotion, and in some instances, pricing, of most
of the Company's products. In addition, the Company's operations are subject
to complex federal, state, local, and foreign environmental laws and
regulations. It is anticipated that compliance with regulations affecting
the manufacture and sale of current products and the introduction of new
products will continue to require substantial scientific and technical
effort, time, and expense and significant capital investment.
In the United States, the federal administration has identified health
care reform as a priority and introduced legislation that, if enacted, would
make fundamental changes in the health care delivery system. In addition, a
number of reform measures have been proposed by members of Congress. Many
state legislatures are also considering health care reform measures. The
nature of the changes that may ultimately be enacted and their impact on the
Company and the pharmaceutical industry are unknown. However, several of the
measures currently under discussion, if enacted, could affect the industry
and the Company by, among other things, increasing pressures on pricing,
restricting physicians' choice of therapies, raising effective tax rates, and
reducing incentives to invest in research and development. Outside the
United States, governments in several countries, including Germany, Italy,
and the United Kingdom, are implementing health care cost-control measures
that may adversely affect pharmaceutical industry revenues. The Company is
unable to predict the extent to which its business may be affected by these
or other future legislative and regulatory developments.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are responsible for the
discovery or development of most of the products offered by the Company
today. Its commitment to research and development dates back more than 100
years. The growth in research and development expenditures and personnel
over the past several years demonstrates both the continued vitality of the
Company's commitment and the increasing costs and complexity of bringing new
products to the market. At the end of 1993, approximately 5,600 people,
including a substantial number who are physicians or scientists holding
graduate or postgraduate degrees or highly skilled technical personnel, were
engaged in research and development activities. The Company expended $766.9
million on research and development activities in 1991, $924.9 million in
1992, and $954.6 million in 1993.
The Company's research is concerned primarily with the effects of
synthetic chemicals and natural products on biological systems. The
results of that research are applied to the development of
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products for use by or on humans and animals, and for other uses. Major
effort is devoted to pharmaceutical products. In late 1993, the Company
decided to concentrate its pharmaceutical research and development efforts
on the search for compounds that will cure or treat diseases in five
categories: central nervous system and related diseases; endocrine diseases,
including diabetes and osteoporosis; infectious diseases; cancer; and
cardiovascular diseases. The Company is engaged in biotechnology research
programs involving recombinant DNA and monoclonal antibodies. The Company's
biotechnology research is supplemented through its Hybritech and Pacific
Biotech subsidiaries, which conduct research using monoclonal-antibody-based
product technology for diagnosis of certain diseases or medical conditions.
In addition to the research activities carried on in the Company's own
laboratories, the Company sponsors and underwrites the cost of research and
development by independent organizations, including educational institutions
and research-based human health care companies, and contracts with others for
the performance of research in their facilities. It utilizes the services of
physicians, hospitals, medical schools, and other research organizations in
the United States and numerous other countries to establish through clinical
evidence the safety and effectiveness of new products.
IVAC, Cardiac Pacemakers, Advanced Cardiovascular Systems, Physio-Control,
Devices for Vascular Intervention, Origin Medsystems, and Heart Rhythm
Technologies conduct research and development in the area of medical devices.
Extensive work is also conducted in the animal sciences, including animal
nutrition and physiology and veterinary medicine. Certain of the Company's
research and development activities relating to pharmaceutical products may
be applicable to animal health products. An example is the search for agents
that will cure infectious disease.
QUALITY ASSURANCE
The Company's success depends in great measure upon customer confidence in
the quality of the Company's products and in the integrity of the data that
support their safety and effectiveness. The quality of the Company's
products arises from the total commitment to quality in all parts of the
Company, including research and development, purchasing, facilities planning,
manufacturing, and distribution. Quality-assurance procedures have been
developed relating to the quality and integrity of the Company's scientific
information and production processes.
With respect to pharmaceutical, diagnostic, and animal health products,
control of production processes involves rigid specifications for
ingredients, equipment, facilities, manufacturing methods, packaging
materials, and labeling. Control tests are made at various stages of
production processes and on the final product to assure that the product
meets the Company's standards. These tests may involve chemical and physical
chemical analyses, microbiological testing, testing in animals, or a
combination of these tests. Additional assurance of quality is provided by a
corporate quality-assurance group that monitors existing pharmaceutical and
animal health manufacturing procedures and systems in the parent company,
subsidiaries, and affiliates.
The quality of medical devices is assured through specifications of
components and finished products, inspection of certain components,
certification of certain vendors, control of the manufacturing environment,
and use of statistical process controls. Final products are tested to assure
conformance with specifications.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company. All but three of the executive officers have been
employed by the Company in executive or managerial positions during the last
five years.
Randall L. Tobias became Chairman of the Board and Chief Executive Officer
in June 1993. He had served as Vice Chairman of the Board of American
Telephone and Telegraph Company from 1986 until he assumed his present
position. He has been a member of the Board of Directors of the Company
since 1986. August M. Watanabe joined the Company in 1990 as Vice
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President of Lilly Research Laboratories. Previously he had served as
Chairman of the Department of Medicine at Indiana University School of
Medicine from 1983 through 1990. From 1987 until he joined the Company in
August 1990, Mitchell E. Daniels, Jr., President, North American
Pharmaceutical Operations, Pharmaceutical Division, served as President
and Chief Executive Officer of the Hudson Institute and was of counsel to
Baker & Daniels. From 1985 to 1987 he served on former President Reagan's
staff as Assistant to the President for Political and Intergovernmental
Affairs.
Except as indicated in the table below, the term of office for each
executive officer indicated herein expires on the date of the annual meeting
of the Board of Directors, to be held on April 18, 1994, or on the date his
successor is chosen and qualified. No director or executive officer of the
Company has a "family relationship" with any other director or executive
officer of the Company, as that term is defined for purposes of this
disclosure requirement. There is no understanding between any executive
officer of the Company and any other person pursuant to which the executive
officer was selected.
NAME AGE OFFICES
Randall L. Tobias 52 Chairman of the Board and Chief Executive
Officer (since June 1993) and a Director
Mel Perelman, Ph.D. 63 Executive Vice President (since December
1986) and a Director(1)
Sidney Taurel 45 Executive Vice President (since January
1993) and a Director
Joseph C. Cook, Jr. 52 Group Vice President, Manufacturing,
Engineering, and Corporate Quality
(since June 1992)(2)
James M. Cornelius 50 Vice President, Finance and Chief
Financial Officer (since January 1983)
and a Director
Mitchell E. Daniels, Jr. 44 President, North American Pharmaceutical
Operations, Pharmaceutical Division
(since April 1993)(3)
Ronald W. Dollens 47 President, Medical Devices and
Diagnostics Division (since July 1991)(3)
Michael L. Eagle 46 Vice President, Manufacturing (since
January 1994)(4)
Brendan P. Fox 50 President, Elanco Animal Health Division
(since January 1991)(3)
Pedro P. Granadillo 46 Vice President, Human Resources (since
April 1993)
J. B. King 64 Vice President and General Counsel
(since October 1987)
Stephen A. Stitle 48 Vice President, Corporate Affairs (since
April 1993) and a Director
W. Leigh Thompson, Ph.D., M.D. 55 Chief Scientific Officer (since January
1993)(3)
August M. Watanabe, M.D. 52 Vice President (since January 1994) and
a Director(4)
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1 Retired as an officer and director effective December 31, 1993
2 Retired as an officer effective December 31, 1993
3 Serves in office until his successor is appointed
4 Became executive officer January 1994
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EMPLOYEES
At the end of 1993, the Company had approximately 32,700 employees,
including approximately 11,000 employees outside the United States. A
substantial number of the Company's employees have long records of continuous
service. Approximately 2,600 employees, including 1,900 U.S. employees, are
retiring under voluntary early retirement programs announced in the fourth
quarter of 1993.
FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS
Financial information relating to foreign and domestic operations, set
forth in the Company's 1993 Annual Report at pages 18-19 under "Review of
Operations - Segment Information" (pages 12-13 of Exhibit 13), is incorporated
herein by reference.
Eli Lilly International Corporation, a subsidiary, coordinates the
Company's manufacture and sale of products outside the United States.
Local restrictions on the transfer of funds from branches and subsidiaries
located abroad (including the availability of dollar exchange) have not to
date been a significant deterrent in the Company's overall operations abroad.
The Company cannot predict what effect these restrictions or the other risks
inherent in foreign operations, including possible nationalization, might
have on its future operations or what other restrictions may be imposed in
the future.
RECENT DEVELOPMENTS
On January 18, 1994, the Company announced its intent to divest itself of
its medical device and diagnostics ("MDD") businesses. The final form of
the divestiture has not been resolved. It will depend on tax, market, and
other considerations, including the nature of any offers the Company may
receive from prospective purchasers of one or more of the businesses. Current
plans call for the creation of a new holding company comprising six of the
businesses and the divestiture of the new company through a spin-off to
Company shareholders, one or more public offerings of the holding
company's shares, or a combination of these methods. These six
businesses are Advanced Cardiovascular Systems, Cardiac Pacemakers, Devices
for Vascular Intervention, Heart Rhythm Technologies, IVAC, and Origin
Medsystems. The Company currently intends to sell separately the three other
businesses in the MDD division - Hybritech, Pacific Biotech, and Physio-
Control. The agreements under which the Company acquired Hybritech, Pacific
Biotech, and Origin Medsystems include provisions that could affect the
timing of these transactions.
On March 8, 1994, the Company announced that it had signed a letter of
intent with Sphinx Pharmaceuticals Corporation for the acquisition of Sphinx
by the Company. Sphinx is engaged in drug discovery and development by
generating combinatorial chemistry libraries of small organic molecules and
by high-throughput screening of compounds for biological activity. The
transaction is subject to the signing of a definitive agreement, applicable
government approval, and approval by Sphinx shareholders. Three purported
class actions have been filed by shareholders of Sphinx seeking, among other
things, to enjoin the transaction.
Item 2. PROPERTIES
The Company's principal domestic and international executive offices are
located in Indianapolis. At December 31, 1993, the Company owned 14
production plants and facilities in the United States and Puerto Rico.
These plants and facilities contain an aggregate of approximately 12 million
square feet of floor area. Most of the plants and facilities involve
production of both pharmaceutical and animal health products. The Company
owns manufacturing, research, and administrative facilities for medical
devices and diagnostic products, containing an aggregate of approximately
1.9 million square feet, in seven cities in the United States and Puerto
Rico. The Company's Medical Devices and Diagnostics Division leases
manufacturing, research, and administrative facilities in the United
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States containing an aggregate of approximately 800,000 square feet. The
Company also leases sales offices in a number of cities located in the
United States.
The Company has 25 production plants and facilities in 19 countries
outside the United States, containing an aggregate of approximately 3.9
million square feet of floor space. Leased production and warehouse
facilities are utilized in some of these countries as well as in nine other
countries including Puerto Rico.
The Company's main research and development laboratories in Indianapolis
and Greenfield, Indiana, consist of approximately 2.8 million square feet.
Its major research and development facilities abroad are located in
Belgium and the United Kingdom and contain approximately 435,000 square feet.
The Company also owns two tracts of land, containing an aggregate of
approximately 1,700 acres, a portion of which is used for field studies
of products.
The Company believes that none of its properties is subject to any
encumbrance, easement, or other restriction that would detract materially
from its value or impair its use in the operation of the business of the
Company. The buildings owned by the Company are of varying ages and in good
condition.
Item 3. LEGAL PROCEEDINGS
The Company is currently a defendant in a variety of product and patent
litigation matters. In approximately 205 actions, plaintiffs seek to recover
damages on behalf of children or grandchildren of women who ingested
diethylstilbestrol during pregnancy. In another approximately 170 actions,
plaintiffs seek to recover damages as a result of the ingestion of Prozac.
In the patent suits, it is asserted that one or more Company products or
processes infringe issued patents. The holders of those patents seek
monetary damages and injunctions against further infringement. Products
involved include Humulin, Humatrope, bovine somatotropin and certain medical
devices.
A federal grand jury in Baltimore, Maryland is conducting an inquiry into
the Company's compliance with the Food and Drug Administration's regulatory
requirements affecting the Company's pharmaceutical manufacturing operations.
The Company is cooperating fully with the inquiry.
The Company has been named in approximately ten of more than 40 lawsuits
filed in various federal courts against a number of U.S. pharmaceutical
manufacturers and in some cases wholesalers. Most of the suits in which the
Company is a defendant purport to be class actions on behalf of all retail
pharmacies in the United States and allege an industry-wide agreement to deny
favorable pricing on sales to certain retail pharmacies. At least one also
alleges price discrimination. The suits are in an early procedural stage.
The Company is also a defendant in other litigation, including product
liability suits, of a character regarded as normal to its business.
While it is not possible to predict or determine the outcome of the legal
actions pending against the Company, in the opinion of the Company such
actions will not ultimately result in any liability that would have a
material adverse effect on its consolidated financial position.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1993, no matters were submitted to a vote of
security holders.
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PART II
Item 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Information relating to the principal market for the Company's common
stock and related stockholder matters, set forth in the Company's 1993 Annual
Report under "Review of Operations - Selected Quarterly Data (unaudited)," at
page 20 (page 14 of Exhibit 13), is incorporated herein by reference.
Item 6. SELECTED FINANCIAL DATA
Selected financial data for each of the Company's five most recent fiscal
years, set forth in the Company's 1993 Annual Report under "Review of
Operations - Selected Financial Data (unaudited)," at page 21 (page 15 of
Exhibit 13), are incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Management's discussion and analysis of results of operations and
financial condition, set forth in the Company's 1993 Annual Report under
"Review of Operations - Operating Results" (pages 9-13), "Review of
Operations - Financial Condition" (pages 13 and 16), and "Review of
Operations - Environmental and Legal Matters" (page 16) (together, pages
1-7 of Exhibit 13), is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its subsidiaries,
listed in Item 14(a)1 and included in the Company's 1993 Annual Report at
pages 12, 14, 15, and 17 (Consolidated Statements of Income, Consolidated
Balance Sheets, and Consolidated Statements of Cash Flows), pages 18-19
(Segment Information), and pages 22-33 (Notes to Consolidated Financial
Statements) (together, pages 8-13 and 16-30 of Exhibit 13), and the Report of
Independent Auditors set forth in the Company's 1993 Annual Report at page 34
(page 31 of Exhibit 13), are incorporated herein by reference.
Information on quarterly results of operations, set forth in the Company's
1993 Annual Report under "Review of Operations - Selected Quarterly Data
(unaudited)," at page 20 (page 14 of Exhibit 13), is incorporated herein by
reference.
Item 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to the Company's directors, set forth in the
Company's Proxy Statement dated March 14, 1994, under "Election of
Directors - Nominees for Election," at pages 2-5, is incorporated herein by
reference. Information relating to the Company's executive officers is set
forth at pages 6-7 of this Form 10-K under "Executive Officers of the
Company." Additional information with respect to the Company's directors
and certain of its officers, set forth in the Company's Proxy Statement
dated March 14, 1994, under "Other Matters," at page 25, is incorporated
herein by reference.
-10-
Item 11. EXECUTIVE COMPENSATION
Information relating to executive compensation, set forth in the Company's
Proxy Statement dated March 14, 1994, under "Election of Directors -
Executive Compensation," at pages 9-20, is incorporated herein by reference,
except that the Compensation and Management Development Committee Report and
Performance Graph are not so incorporated.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to ownership of the Company's common stock by persons
known by the Company to be the beneficial owners of more than 5% of the
outstanding shares of common stock and by management, set forth in the
Company's Proxy Statement dated March 14, 1994, under "Election of
Directors - Common Stock Ownership by Directors and Executive Officers,"
at pages 6-7, and "Election of Directors - Principal Holders of Common
Stock," at page 8, is incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries, included in the Company's 1993 Annual Report at the pages
indicated in parentheses, are incorporated by reference in Item 8:
Consolidated Statements of Income - Years Ended December 31, 1993, 1992,
and 1991 (page 12) (page 8 of Exhibit 13)
Consolidated Balance Sheets - December 31, 1993 and 1992 (pages 14-15)
(pages 9-10 of Exhibit 13)
Consolidated Statements of Cash Flows - Years Ended December 31, 1993,
1992, and 1991 (page 17) (page 11 of Exhibit 13)
Segment Information (pages 18-19) (pages 12-13 of Exhibit 13)
Notes to Consolidated Financial Statements (pages 22-33) (pages 16-30 of
Exhibit 13)
(a)2. Financial Statement Schedules
The following consolidated financial statement schedules of the Company
and its subsidiaries are included in this Form 10-K:
Schedule I Marketable Securities - Other Investments (page F-1)
Schedule V Property, Plant, and Equipment (page F-2)
Schedule VI Accumulated Depreciation, Depletion, and Amortization of
Property, Plant, and Equipment (page F-3)
-11-
Schedule VII Guarantees of Securities of Other Issuers (page F-4)
Schedule VIII Valuation and Qualifying Accounts (page F-5)
Schedule IX Short-Term Borrowings (page F-6)
Schedule X Supplementary Income Statement Information (page F-7)
All other schedules (Nos. II, III, IV, XI, XII, XIII, and XIV) for which
provision is made in the applicable accounting regulation of the Securities
and Exchange Commission are not required under the related instructions, are
inapplicable, or are adequately explained in the financial statements and,
therefore, have been omitted.
Financial statements of interests of 50% or less, which are accounted for
by the equity method, have been omitted because they do not, considered in
the aggregate as a single subsidiary, constitute a significant subsidiary.
The report of the Company's independent auditors with respect to the
schedules listed above is contained herein as a part of Exhibit 23, Consent
of Independent Auditors.
(a)3. Exhibits
3.1 Amended Articles of Incorporation
3.2 By-laws
4.1 Form of 7% Bond 1984-1994/96 of Eli Lilly Overseas Finance N.V.
4.2 Form of Guarantee dated as of January 9, 1984, by Eli Lilly and
Company to Holders of 7% Bonds 1984-1994/96 of Eli Lilly
Overseas Finance N.V.
4.3 Form of Letter Agreement dated as of January 9, 1984, between
Eli Lilly and Company, Eli Lilly Overseas Finance N.V., and
Swiss Bank Corporation
4.4 Form of Bond Purchase Agreement dated as of December 3, 1984,
including form of Bond, between City of Clinton, Indiana, Eli
Lilly and Company, and Chemical Bank*
4.5 Form of Loan Agreement dated as of December 3, 1984, between Eli
Lilly and Company and City of Clinton, Indiana*
4.6 Form of Bond Purchase Agreement dated as of December 3, 1984,
including form of Bond, between Tippecanoe County, Indiana, Eli
Lilly and Company, and Chemical Bank*
4.7 Form of Loan Agreement dated as of December 3, 1984, between Eli
Lilly and Company and Tippecanoe County, Indiana*
4.8 Form of Indenture dated as of May 15, 1985, between Eli Lilly
and Company and Merchants National Bank & Trust Company of
Indianapolis, as Trustee
4.9 Form of Eli Lilly and Company Convertible Debenture due 1994
4.10 Form of Indenture with respect to Contingent Payment Obligation
Units dated March 18, 1986, between Eli Lilly and Company and
Harris Trust and Savings Bank, as Trustee
- ---------------------
* Exhibits 4.4-4.7 are not filed with this report. Copies of these
exhibits will be furnished to the Securities and Exchange Commission
upon request.
-12-
4.11 Rights Agreement dated as of July 18, 1988, between Eli Lilly
and Company and Bank One, Indianapolis, NA
4.12 Form of Indenture dated as of February 21, 1989, between Eli
Lilly and Company and Merchants National Bank & Trust Company of
Indianapolis, as Trustee
4.13 Form of Eli Lilly and Company Five Year Convertible Note
4.14 Form of Indenture with respect to Debt Securities dated as of
February 1, 1991, between Eli Lilly and Company and Citibank,
N.A., as Trustee
4.15 Form of Standard Multiple-Series Indenture Provisions dated,
and filed with the Securities and Exchange Commission on,
February 1, 1991
4.16 Form of Indenture dated as of September 5, 1991, among the Lilly
Savings Plan Master Trust Fund C, as Issuer; Eli Lilly and
Company, as Guarantor; and Chemical Bank, as Trustee*
10.1 1984 Lilly Stock Plan, as amended
10.2 1989 Lilly Stock Plan, as amended
10.3 The Lilly Deferred Compensation Plan, as amended
10.4 The Lilly Directors' Deferred Compensation Plan, as amended
10.5 The Lilly Non-Employee Directors' Deferred Stock Plan, as
amended
10.6 Eli Lilly and Company Senior Executive Bonus Plan, as amended
10.7 The Lilly Non-Employee Directors' Retirement Plan
10.8 Letter Agreement dated September 3, 1993, between the Company and
Vaughn D. Bryson
11. Computation of Earnings Per Share on Primary and Fully Diluted
Bases
12. Computation of Ratio of Earnings to Fixed Charges
13. Annual Report to Shareholders for the Year Ended December 31,
1993 (portions incorporated by reference into this Form 10-K)
21. List of Subsidiaries
23. Consent of Independent Auditors
99. Report to Holders of Eli Lilly and Company Contingent Payment
Obligation Units
(b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the fourth quarter of
1993.
- -----------------
* Exhibit 4.16 is not filed with this report. Copies of this exhibit
will be furnished to the Securities and Exchange Commission upon
request.
-13-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ELI LILLY AND COMPANY
By s/Randall L. Tobias
(Randall L. Tobias, Chairman of the
Board and Chief Executive Officer)
March 21, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
s/Randall L. Tobias Chairman of the Board, March 21, 1994
(RANDALL L. TOBIAS) Chief Executive
Officer, and a Director
(principal executive officer)
s/James M. Cornelius Vice President, Finance, March 21, 1994
(JAMES M. CORNELIUS) Chief Financial Officer,
and a Director (principal
financial officer)
s/Keith E. Brauer Chief Accounting Officer March 21, 1994
(KEITH E. BRAUER) (principal accounting officer)
s/Steven C. Beering, M.D. Director March 21, 1994
(STEVEN C. BEERING, M.D.)
s/James W. Cozad Director March 21, 1994
(JAMES W. COZAD)
Director March 21, 1994
(KAREN N. HORN, Ph.D.)
s/J. Clayburn La Force, Jr., Ph.D. Director March 21, 1994
(J. CLAYBURN LA FORCE, JR., Ph.D.)
s/Kenneth L. Lay, Ph.D. Director March 21, 1994
(KENNETH L. LAY, Ph.D.)
-14-
s/Ben F. Love Director March 21, 1994
(BEN F. LOVE)
s/Stephen A. Stitle Director March 21, 1994
(STEPHEN A. STITLE)
s/Sidney Taurel Director March 21, 1994
(SIDNEY TAUREL)
s/August M. Watanabe, M.D. Director March 21, 1994
(AUGUST M. WATANABE, M.D.)
s/Alva O. Way Director March 21, 1994
(ALVA O. WAY)
s/Richard D. Wood Director March 21, 1994
(RICHARD D. WOOD)
-15-
TRADEMARKS
Apralan(Registered) (apramycin sulfate, Elanco)
Axid(Registered) (nizatidine, Lilly)
Ceclor(Registered) (cefaclor, Lilly)
Coban(Registered) (monensin sodium, Elanco)
Compudose(Registered) (estradiol controlled-release implant,
Elanco)
Darvocet-N(Registered) (propoxyphene napsylate with
acetaminophen, Lilly)
Dobutrex(Registered) (dobutamine hydrochloride, Lilly)
Eldisine(Registered) (vindesine sulfate, Lilly)
Humatrope(Registered) (somatropin of recombinant DNA origin,
Lilly)
Humulin(Registered) (human insulin of recombinant DNA origin,
Lilly)
lletin(Registered) (insulin, Lilly)
Keflex(Registered) (cephalexin, Dista)
Keftab(Registered) (cephalexin hydrochloride, Dista)
Kefurox(Registered) (cefuroxime sodium, Lilly)
Kefzol(Registered) (cefazolin sodium, Lilly)
Lorabid(Trademark) (loracarbef, Lilly)
Mandol(Registered) (cefamandole nafate, Lilly)
Maxiban(Registered) (narasin and nicarbazine, Elanco)
Micotil(Registered) (tilmicosin phosphate, Elanco)
Monteban(Registered) (narasin, Elanco)
Nebcin(Registered) (tobramycin sulfate, Lilly)
Oncovin(Registered) (vincristine sulfate, Lilly)
Prozac(Registered) (fluoxetine hydrochloride, Dista)
Rumensin(Registered) (monensin sodium, Elanco)
Tazidime(Registered) (ceftazidime, Lilly)
Tylan(Registered) (tylosin, Elanco)
Vancocin(Registered) (vancomycin hydrochloride, Lilly)
Velban(Registered) (vinblastine sulfate, Lilly)
ELI LILLY AND COMPANY AND SUBSIDIARIES
SCHEDULE I. MARKETABLE SECURITIES - OTHER INVESTMENTS
DECEMBER 31, 1993
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ---------
Amount at
Which Each
Number Portfolio of
of Shares Equity
or Units- Market Security Issues
Principal Value of and Each Other
Amount of Cost of Issue at Security Issue
Name of Issuer Bonds Each Balance Carried in the
and Title of Issue and Notes Issue Sheet Date Balance Sheet
- ------------------------------------------------------------------------
(Dollars in millions)
CERTIFICATES OF DEPOSIT, TIME
DEPOSITS, AND
INTEREST-BEARING DEMAND
DEPOSITS $ 491.8 $ 491.8 $ 492.1 $ 491.8
REPURCHASE AGREEMENTS
Collateralized by U.S.
government or U.S.
government agency
securities 28.0 28.0 28.0 28.0
Collateralized by other
investments 42.3 42.3 42.3 42.3
EQUITY INVESTMENTS AND
LIMITED PARTNERSHIPS 216.5 216.5 221.3 204.0
EURO COMMERCIAL PAPER
AND BONDS 390.4 390.4 388.5 386.0
TOTALS $1,169.0 $1,169.0 $1,172.2 $1,152.1
======= ======= ======= =======
Classified as:
Current asset - Cash equivalent $ 482.9
- Short-term investments 447.5
Noncurrent asset 221.7
-----
TOTAL $1,152.1
=======
Securities classified as cash equivalents $ 482.9
Cash 56.7
-----
Cash and cash equivalents $ 539.6
=====
F-1
ELI LILLY AND COMPANY AND SUBSIDIARIES
SCHEDULE V. PROPERTY, PLANT, AND EQUIPMENT
Col. A Col. B Col. C Col. D Col E Col. F
------ ------ ------ ------ ------------------- -------
Other
Balance at Changes
Beginning (A) Add (Deduct) Add Balance
of Additions Translation (Deduct) At End
Classification Period At Cost Retirements Adjustments Describe of Period
(Dollars in millions)
Year Ended
Dec 31, 1991
Land $ 102.1 $ 8.8 $ - $ .6 $ - $ 111.5
Buildings 1,141.3 228.0 9.2 (2.3) - 1,357.8
Equipment 2,376.9 500.2 76.2 (5.6) - 2,795.3
Construction-
in-progress 895.5 405.4 - 3.1 - 1,304.0
------ ----- ----- ----- -------
TOTALS $4,515.8 $1, 142.4 $ 85.4 $ (4.2) $ - $ 5,568.6
======= ======== ==== ==== =======
Year Ended
Dec 31, 1992
Land $ 111.5 $ 3.1 $ 0.3 $ (0.4) $ (1.1)(B) $ 112.8
Buildings 1,357.8 371.6 30.8 (30.4) (12.8)(B) 1,655.4
Equipment 2,795.3 756.5 126.6 (83.6) 2.7 (B) 3,344.3
Construction-
in-progress 1,304.0 (218.3) - (16.9) (33.2)(B) 1,035.6
------- ------ ----- ------- ------ -------
TOTALS $5,568.6 $ 912.9 $157.7 $(131.3) $(44.4)(B) $ 6,148.1
======= ===== ===== ======= ===== =======
Year Ended
Dec 31, 1993
Land $ 112.8 $ 15.4 $ 0.1 $ 0.2 $ 1.9 (B) $ 130.2
Buildings 1,655.4 312.3 10.4 (14.7) 14.7 (B) 1,957.3
Equipment 3,344.3 563.3 60.9 (39.6) (35.4)(B) 3,771.7
Construction-
in-progress 1,035.6 (257.5) - (14.5) (56.3)(B) 707.3
------- ----- ---- ------ ------ -------
TOTALS $6,148.1 $633.5 $ 71.4 $ (68.6) $(75.1)(B) $6,566.5
======= ===== ==== ====== ====== =======
- -----------------
NOTE A Additions represent cash expenditures for projects in numerous
locations both inside and outside the United States. In 1992 and 1993
there were no major projects for which cash expenditures exceeded 2% of
total assets at either the beginning or the end of the year. In 1991
the 2% threshold was exceeded by one major project relating to an anticipated
new product launch. Expenditures for this project were primarily for
additions at Indiana locations.
NOTE B Amounts shown are attributable to corporate restructuring,
acquisitions, divestitures and miscellaneous reclassifications.
The range of annual rates used in computing provisions for depreciation was 2
percent to 10 percent for buildings and generally 4 percent to 25 percent for
equipment.
F-2
ELI LILLY AND COMPANY AND SUBSIDIARIES
SCHEDULE VI. ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION
OF PROPERTY, PLANT, AND EQUIPMENT
Col. A Col. B Col. C Col. D Col E Col. F
------ ------ ------ ------ -------------------- ------
Other
Balance at Additions Changes
Beginning Charged to Add (Deduct) Add Balance
of Costs and Translation (Deduct) At End
Description Period Expenses Retirements Adjustments Describe of Period
- ----------------------------------------------------------------------------
(Dollars in millions)
Year Ended
Dec 31, 1991
Buildings $ 377.1 $ 48.9 $ 6.3 $. 1 $ - $ 419.8
Equipment 1,202.0 218.5 52.5 (1.7) - 1,366.3
------- ----- ---- ------ ----- -------
TOTALS $1,579.1 $267.4 $58.8 $( 1.6) $ - $1,786.1
======= ====== ==== ===== ===== =======
Year Ended
Dec 31, 1992
Buildings $ 419.8 $ 62.3 $ 21.3 $ (8.4) $ 32.2(A) $ 484.6
Equipment 1,366.3 268.3 97.6 (40.4) 94.8(A) 1,591.4
------- ----- ----- ----- ----- -------
TOTALS $1,786.1 $330.6 $118.9 $(48.8) $127.0(A) $2,076.0
======= ===== ===== ====== ===== =======
Year Ended
Dec 31, 1993
Buildings $ 484.6 $ 74.1 $ 4.9 $ (4.6) $ 9.2(A) $ 558.4
Equipment 1,591.4 294.5 58.9 (20.1) 1.0(A) 1,807.9
------- ----- ----- ------ ---- -------
TOTALS $2,076.0 $368.6 $63.8 $(24.7) $ 10.2(A) $2,366.3
======= ===== ==== ====== ==== =======
NOTE A - Amounts shown are primarily attributable to corporate
restructuring, divestitures and transfers between accounts.
F-3
ELI LILLY AND COMPANY AND SUBSIDIARIES
SCHEDULE VII. GUARANTEES OF SECURITIES OF OTHER ISSUERS
Col. A Col. B Col. C Col. D Col. E Col. F Col. G
------ ------ ------ ------ ------ ------ -----------
Nature of
any default
by issuer of
securities
guaranteed
in principal
Name of interest,
Issuer of sinking fund
securities Title of Amount owned or
guaranteed Issue Total by person Amount in redemption
by person of each amount or persons treasury of provisions,
for which class of guaranteed for which issuer of or
statement securities and statement securities Nature of payments of
is filed guaranteed outstanding is filed guaranteed guarantee dividends
- ----------------------------------------------------------------------------
The Harding St.
Indianapolis Project Debt
Local Public Bonds $35,451,123 -0- Service None
Improvement
Bond Bank
F-4
ELI LILLY AND COMPANY AND SUBSIDIARIES
SCHEDULE VIII. VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col.E
------ ------ ------ ------- ------
Additions
(1) (2)
Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts-Deductions- at End
Description of Period Expenses Describe Describe of Period
- ----------------------------------------------------------------------------
(Dollars in millions)
(A) (A) (A)
Year Ended
December 31, 1991
Allowance for
cash discounts
and returns $ 6.2 $ 6.6
Allowance for
doubtful accounts 17.1 21.0
---- ----
TOTALS $23.3 $27.6
==== ====
Year Ended
December 31, 1992
Allowance for
cash discounts
and returns $ 6.6 $ 8.1
Allowance for
doubtful accounts 21.0 26.9
---- ----
TOTALS $27.6 $35.0
==== ====
Year Ended
December 31, 1993
Allowance for
cash discounts
and returns $ 8.1 $ 8.6
Allowance for
doubtful accounts 26.9 23.7
---- ----
TOTALS $35.0 $32.3
==== ====
NOTE A - The information called for under columns C and D is not
given, as the additions, deductions, and balances are not
individually significant.
F-5
ELI LILLY AND COMPANY AND SUBSIDIARIES
SCHEDULE IX. SHORT-TERM BORROWINGS
Col. A Col. B Col. C Col. D Col. E Col.F
------ ------ ------ ------ ------ --------
Weighted
Average Average
Maximum Amount Interest
Balance Weighted Amount Outstanding Rate
at Average Outstanding During During
Category of Aggregate End of Interest During the the the
Short-Term Borrowings Period Rate Period Period(C) Period(D)
- ---------------------------------------------------------------------------
(Dollars in millions)
Year Ended
December 31, 1991
Payable to banks (A) $315.0 6% $ 324.4 $ 188.5 7%
Commercial paper (B) 375.2 5% 1,160.6 482.7 6%
-----
Short-term
borrowings $690.2 6%
Year Ended
December 31, 1992
Payable to banks (A) $174.9 6% $350.4 $ 287.3 7%
Commercial paper (B) 416.3 3% 837.2 541.6 4%
-----
Short-term
borrowings $591.2 4%
Year Ended
December 31, 1993
Payable to banks (A) $178.4 7% $195.2 $114.7 9%
Commercial paper (B) 346.4 3% 877.6 434.7 3%
-----
Short-term
borrowings $524.8 4%
- -----------------------
NOTE A - Amounts payable to banks represent worldwide borrowings
under lines-of-credit and the current portion of long-
term debt.
NOTE B - Commercial paper is issued in the United States for
periods up to 270 days.
NOTE C - Average of daily balances.
NOTE D - Total interest divided by average borrowings
outstanding.
F-6
ELI LILLY AND COMPANY AND SUBSIDIARIES
SCHEDULE X. SUPPLEMENTARY INCOME STATEMENT INFORMATION
- ---------------------------------------------------------------------------
Col. A Col. B
------- --------------------------------
Item Charged to Costs and Expenses
Year Ended December 31
-------------------------------
1993 1992 1991
-------------------------------
(Dollars in millions)
Maintenance and repairs $178.8 $193.4 $178.7
Taxes, other than payroll and income 77.7 77.4 57.3
Advertising costs 29.6 24.3 21.0
Royalty expense 107.2 87.0 79.4
Amounts for depreciation and amortization of intangible assets
are presented in the Statements of Cash Flows.
F-7
INDEX TO EXHIBITS
The following documents are filed as part of this report:
Exhibit Location
- ------- --------
3.1 Amended Articles of Incorporated by reference
Incorporation from Exhibit 3(i) to the
Company's Registration
Statement on Form S-8,
Registration No. 33-50783
3.2 By-laws Filed herewith
4.1 Form of 7% Bond 1984-1994/96 Incorporated by reference
of Eli Lily Overseas Finance from Exhibit 4.1 to the
N.V. Company's Report on Form
10-K for the fiscal year
ended December 31, 1990
4.2 Form of Guarantee dated as Incorporated by reference
of January 9, 1984, by Eli from Exhibit 4.2 to the
Lilly and Company to Holders Company's Report on Form
of 7% Bonds 1984-1994/96 of 10-K for the fiscal year
Eli Lilly Overseas Finance ended December 31, 1990
N.V.
4.3 Form of Letter Agreement Incorporated by reference
dated as of January 9, 1984, from Exhibit 4.3 to the
between Eli Lilly and Company's Report on Form
Company, Eli Lilly Overseas 10-K for the fiscal year
Finance N.V., and Swiss Bank ended December 31, 1990
Corporation
4.4 Form of Bond Purchase *
Agreement dated as of
December 3, 1984, including
form of Bond, between City
of Clinton, Indiana, Eli
Lilly and Company, and
Chemical Bank
4.5 Form of Loan Agreement dated *
as of December 3, 1984,
between Eli Lilly and
Company and City of Clinton,
Indiana
4.6 Form of Bond Purchase *
Agreement dated as of
December 3, 1984, including
form of Bond, between
Tippecanoe County, Indiana,
Eli Lilly and Company, and
Chemical Bank
4.7 Form of Loan Agreement dated *
as of December 3, 1984,
between Eli Lilly and
Company and Tippecanoe
County, Indiana
- ------------------
* Exhibits 4.4-4.7 are not filed with this report. Copies of these exhibits
will be furnished to the Securities and Exchange Commission upon request.
4.8 Form of Indenture dated as Incorporated by reference
of May 15, 1985, between Eli from Exhibit 4(a) to the
Lilly and Company and Company's Registration
Merchants National Bank & Statement on Form S-15,
Trust Company of Registration No. 2-96799
Indianapolis, as Trustee
4.9 Form of Eli Lilly and Incorporated by reference
Company Convertible from Exhibit 4(b) to the
Debenture due 1994 Company's Registration
Statement on Form S-15,
Registration No. 2-96799
4.10 Form of Indenture with Incorporated by reference
respect to Contingent from Exhibit 4.3 to the
Payment Obligation Units Company's Registration
dated March 18, 1986, Statement on Form S-4,
between Eli Lilly and Registration No. 33-3330
Company and Harris Trust and
Savings Bank, as Trustee
4.11 Rights Agreement dated as of Filed herewith
July 18, 1988, between Eli
Lilly and Company and Bank
One, Indianapolis, N.A.
4.12 Form of Indenture dated as Incorporated by reference
of February 21, 1989, from Exhibit 4.16 to the
between Eli Lilly and Company's Report on Form
Company and Merchants 10-K for the fiscal year
National Bank & Trust ended December 31, 1988
Company of Indianapolis, as
Trustee
4.13 Form of Eli Lilly and Incorporated by reference
Company Five Year from Exhibit 4.17 to the
Convertible Note Company's Report on Form
10-K for the fiscal year
ended December 31, 1988
4.14 Form of Indenture with Incorporated by reference
respect to Debt Securities from Exhibit 4.1 to the
dated as of February 1, Company's Registration
1991, between Eli Lilly and Statement on Form S-3,
Company and Citibank, N.A., Registration No. 33-38347
as Trustee
4.15 Form of Standard Multiple- Incorporated by reference
Series Indenture Provisions from Exhibit 4.2 to the
dated, and filed with the Company's Registration
Securities and Exchange Statement on Form S-3,
Commission on, February 1, Registration No. 33-38347
1991
4.16 Form of Indenture dated as *
of September 5, 1991, among
the Lilly Savings Plan
Master Trust Fund C, as
Issuer; Eli Lilly and
Company, as Guarantor; and
Chemical Bank, as Trustee
- ---------------------
* Exhibit 4.16 is not filed with this report. Copies of this exhibit
will be furnished to the Securities and Exchange Commission upon request.
10.1 1984 Lilly Stock Plan, as Incorporated by reference
amended from Exhibit 10.2 to the
Company's Report on Form
10-K for the fiscal year
ended December 31, 1988
10.2 1989 Lilly Stock Plan, as Filed herewith
amended
10.3 The Lilly Deferred Incorporated by reference
Compensation Plan, as from Exhibit 10.4 to the
amended Company's Report on Form
10-K for the fiscal year
ended December 31, 1991
10.4 The Lilly Directors' Incorporated by reference
Deferred Compensation Plan, from Exhibit 10.5 to the
as amended Company's Report on Form
10-K for the fiscal year
ended December 31, 1991
10.5 The Lilly Non-Employee Incorporated by reference
Directors' Deferred Stock from Exhibit 10.6 to the
Plan, as amended Company's Report on Form
10-K for the fiscal year
ended December 31, 1991
10.6 Eli Lilly and Company Senior Filed herewith
Executive Bonus Plan, as
amended
10.7 The Lilly Non-Employee Incorporated by reference
Directors' Retirement Plan from Exhibit 10.7 to the
Company's Report on Form
10-K for the fiscal year
ended December 31, 1988
10.8 Letter Agreement dated Filed herewith
September 3, 1993, between
the Company and Vaughn D.
Bryson
11. Computation of Earnings Per Filed herewith
Share on Primary and Fully
Diluted Bases
12. Computation of Ratio of Filed herewith
Earnings to Fixed Charges
13. Annual Report to Filed herewith
Shareholders for the Year
Ended December 31, 1993
(portions incorporated by
reference in this Form 10-K)
21. List of Subsidiaries Filed herewith
23. Consent of Independent Filed herewith
Auditors
99. Report to Holders of Eli Filed herewith
Lilly and Company Contingent
Payment Obligation Units
ELI LILLY AND COMPANY
BY-LAWS
As Amended through
December 20, 1993
ELI LILLY AND COMPANY
BY-LAWS
INDEX
ARTICLE I
The Shareholders
Page
Section 1.0. Annual Meetings..............................1
Section 1.1. Special Meetings.............................1
Section 1.2. Time and Place of Meetings...................1
Section 1.3. Notice of Meetings...........................1
Section 1.4. Quorum.......................................1
Section 1.5. Voting.......................................1
Section 1.6. Voting Lists.................................2
Section 1.7. Fixing of Record Date........................2
ARTICLE II
Board of Directors
Section 2.0. General Powers...............................2
Section 2.1. Number and Qualifications....................2
Section 2.2. Classes of Directors and Terms...............3
Section 2.3. Election of Directors........................3
Section 2.4. Meetings of Directors........................3
a. Annual Meetings...........................3
b. Regular Meetings..........................3
c. Special Meetings..........................3
Section 2.5. Quorum and Manner of Acting..................4
Section 2.6 Resignations.................................4
Section 2.7. Removal of Directors ........................4
Section 2.8. Action without a Meeting ....................4
Section 2.9. Attendance and Failure to Object.............4
Section 2.10.Special Standing Committees..................5
Section 2.11.Appointment of Auditors......................5
Section 2.12.Transactions with Corporation................5
Section 2.13.Compensation of Directors....................5
ARTICLE III
Officers
Section 3.0. Officers, General Authority and Duties.......6
Section 3.1. Election, Term of Office, Qualifications ..6
Section 3.2. Other Officers, Election or Appointment......6
Section 3.3. Resignation..................................6
Section 3.4. Removal......................................7
Section 3.5. Vacancies....................................7
Section 3.6. Honorary Chairman of the Board of Directors..7
Section 3.7. Chairman of the Board of Directors...........7
Section 3.8. President....................................7
Section 3.9 Executive Vice Presidents....................7
Section 3.10 Group Vice Presidents........................7
Section 3.11 Vice Presidents..............................7
Section 3.12 Secretary....................................7
Section 3.13.Assistant Secretaries........................8
Section 3.14.Chief Financial Officer......................8
Section 3.15.Treasurer....................................8
Section 3.16.Assistant Treasurers.........................9
Section 3.17.Chief Accounting Officer.....................9
Section 3.18.General Counsel..............................9
Section 3.19.Other Officers or Agents.....................9
Section 3.20.Compensation.................................9
Section 3.21.Surety Bonds.................................10
ARTICLE IV
Execution of Instruments and Deposit
of Corporate Funds
Section 4.0. Execution of Instruments Generally...........10
Section 4.1. Notes, Checks, Other Instruments ............10
Section 4.2. Proxies......................................10
ARTICLE V
Shares
Section 5.0. Certificates for Shares .....................10
Section 5.1. Transfer of Shares ..........................11
Section 5.2. Regulations..................................11
Section 5.3. Transfer Agents and Registrars...............11
Section 5.4. Lost or Destroyed Certificates...............11
Section 5.5. Redemption of Shares Acquired in Control Share
Acquisitions.........................................11
ARTICLE VI
Miscellaneous
Section 6.0. Corporate Seal...............................12
Section 6.1. Fiscal Year..................................12
Section 6.2. Amendment of By-laws.........................12
BY-LAWS
of
ELI LILLY AND COMPANY
(An Indiana Corporation)
ARTICLE I
The Shareholders
SECTION 1.0. Annual Meetings. The annual meeting of the
shareholders of the Corporation for the election of directors and
for the transaction of such other business as properly may come
before the meeting shall be held on the third Monday in April in
each year, if not a legal holiday, or, if a legal holiday, then
on the next succeeding day not a legal holiday.
SECTION 1.1. Special Meetings. Special meetings of the
shareholders may be called at any time by the Board of Directors,
the Chairman of the Board of Directors, or the President.
SECTION 1.2. Time and Place of Meetings. Each meeting of
the shareholders shall be held at such time of day and place,
either within or without the State of Indiana, as shall be
determined by the Board of Directors. Each adjourned meeting of
the shareholders shall be held at such time and place as may be
provided in the motion for adjournment.
SECTION 1.3. Notice of Meetings. The Secretary shall cause
a written or printed notice of the place, day and hour and the
purpose or purposes of each meeting of the shareholders to be
delivered or mailed at least ten (10) but not more than sixty
(60) days prior to the meeting, to each shareholder of record
entitled to vote at the meeting, at the shareholder's post office
address as the same appears on the records maintained by the
Corporation. Notice of any such shareholders meeting may be
waived by any shareholder by delivering a written waiver to the
Secretary before or after such meeting. Attendance at any meeting
in person or by proxy when the instrument of proxy sets forth in
reasonable detail the purpose or purposes for which the meeting
is called, shall constitute a waiver of notice thereof. Notice
of any adjourned meeting of the shareholders of the Corporation
shall not be required to be given unless otherwise required by
statute.
SECTION 1.4. Quorum. At any meeting of the shareholders a
majority of the outstanding shares entitled to vote on a matter
at such meeting, represented in person or by proxy, shall
constitute a quorum for action on that matter. In the absence of
a quorum, the holders of a majority of the shares entitled to
vote present in person or by proxy, or, if no shareholder
entitled to vote is present in person or by proxy, any officer
entitled to preside at or act as Secretary of such meeting, may
adjourn such meeting from time to time, until a quorum shall be
present. At any such adjourned meeting at which a quorum may be
present any business may be transacted which might have been
transacted at the meeting as originally called.
SECTION 1.5. Voting. Except as otherwise provided by
statute or by the Articles of Incorporation, at each meeting of
the shareholders each holder of shares entitled to vote shall
have the right to one vote for each share standing in the
shareholder's name on the books of the Corporation on the record
date fixed for the meeting under Section 1.7. Each shareholder
entitled to vote shall be entitled to vote in person or by proxy
executed in writing (which shall include telegraphing, cabling,
or facsimile transmission) by the shareholder or a duly
authorized attorney in fact. The vote of shareholders approving
any matter to which the provisions of Article 9(c) or 9(d) or
Article 13 of the Articles of Incorporation or of a statute are
applicable shall require the percentage of affirmative vote
therein specified. All other matters, except the election of
directors, shall require that the votes cast in favor of the matter
exceed the votes cast opposing the matter at a meeting at which
a quorum is present. In the event that more than one group of
shares is entitled to vote as a separate voting group, the vote of
each group shall be considered and decided separately.
SECTION 1.6. Voting Lists. The Secretary shall make or cause
to be made, after a record date for a meeting of shareholders has
been fixed under Section 1.7 and at least five (5) days before
such meeting, a complete list of the shareholders entitled to
vote at such meeting, arranged in alphabetical order, with the
address of each such shareholder and the number of shares so
entitled to vote held by each which list shall be on file at the
principal office of the Corporation and subject to inspection by
any shareholder entitled to vote at the meeting. Such list shall
be produced and kept open at the time and place of the meeting
and subject to the inspection of any such shareholder during the
holding of such meeting or any adjournment. Except as otherwise
required by law, such list shall be the only evidence as to who
are the shareholders entitled to vote at any meeting of the
shareholders. In the event that more than one group of shares is
entitled to vote as a separate voting group at the meeting, there
shall be a separate listing of the shareholders of each group.
SECTION 1.7. Fixing of Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled
to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the
Board of Directors shall fix in advance a date as the record date
for any such determination of shareholders, not more than seventy
(70) days prior to the date on which the particular action
requiring this determination of shareholders is to be taken. When
a determination of shareholders entitled to vote at any meeting
of shareholders has been made as provided in this section, the
determination shall, to the extent permitted by law, apply to any
adjournment thereof.
ARTICLE II
Board of Directors
SECTION 2.0. General Powers. The property, affairs and
business of the Corporation shall be managed under the direction
of the Board of Directors.
SECTION 2.1. Number and Qualifications. The number of
directors which shall constitute the whole Board of Directors
shall be sixteen (16), which number may be either increased or
diminished by resolution adopted by not less than a majority of
the directors then in office; provided that the number may not be
diminished below nine (9) and no reduction in number shall have
the effect of shortening the term of any incumbent director. In
the event that the holders of shares of preferred stock become
entitled to elect two directors, the number of directors and the
minimum number of directors shall be increased by two. Neither
ownership of stock of the Corporation nor residence in the State
of Indiana shall be required as a qualification for a director.
SECTION 2.2. Classes of Directors and Terms. The directors
shall be divided into three classes as nearly equal in number as
possible. Except as provided in Article 9 of the Articles of
Incorporation fixing one, two, and three year terms for the
initial classified board, each class of directors shall be
elected for a term of three (3) years. In the event of vacancy,
either by death, resignation, or removal of a director, or by
reason of an increase in the number of directors, each
replacement or new director shall serve for the balance of the
term of the class of the director he or she succeeds or, in the
event of an increase in the number of directors, of the class to
which he or she is assigned. All directors elected for a term
shall continue in office until the election and qualification of
their respective successors, their death, their resignation in
accordance with Section 2.6, their removal in accordance with
Section 2.7, or if there has been a reduction in the number of
directors and no successor is to be elected, until the end of the
term.
Directors elected by preferred shareholders voting as a
class shall not be members of any of the foregoing classes and
shall hold office until the next annual meeting of shareholders.
SECTION 2.3. Election of Directors. At each annual meeting
of shareholders, the class of directors to be elected at the
meeting shall be chosen by a plurality of the votes cast by the
holders of shares entitled to vote in the election at the
meeting, provided a quorum is present. The election of directors
by the shareholders shall be by written ballot if directed by the
chairman of the meeting or if the number of nominees exceeds the
number of directors to be elected.
Any vacancy on the Board of Directors shall be filled by the
affirmative vote of a majority of the remaining directors.
If the holders of preferred stock are entitled to elect two
directors, those directors shall be elected by a plurality of the
votes cast by the holders of shares of preferred stock entitled
to vote in the election at the meeting, provided a quorum is
present, voting separately as a class.
SECTION 2.4. Meetings of Directors.
a. Annual Meeting. Unless otherwise provided by resolution
of the Board of Directors, the annual meeting of the Board of
Directors shall be held at the place of and immediately following
the annual meeting of shareholders, for the purpose of
organization, the election of officers and the transaction of
such other business as properly may come before the meeting. No
notice of the meeting need be given, except in the case an
amendment to the By-laws is to be considered.
b. Regular Meetings. The Board of Directors by resolution
may provide for the holding of regular meetings and may fix the
times and places (within or outside the State of Indiana) at
which those meetings shall be held. Notice of regular meetings
need not be given except when an amendment to the By-laws is to
be considered. Whenever the time or place of regular meetings
shall be fixed or changed, notice of this action shall be mailed
promptly to each director not present when the action was taken,
addressed to the director at his or her residence or usual place
of business.
c. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the
President and shall be called by the Secretary at the request of
any three (3) directors. Except as otherwise required by statute,
notice of each special meeting shall be mailed to each director
at his or her residence or usual place of business at least three
(3) days before the day on which the meeting is to be held, or
shall be sent to the director at such place by telegram,
facsimile transmission, or cable, or telephoned or personally
delivered, not later than the day before the day on which the
meeting is to be held. The notice shall state the time and place
(which may be within or outside the State of Indiana) of the
meeting but, unless otherwise required by statute, the Articles
of Incorporation or the By-laws, need not state the purposes
thereof.
Notice of any meeting need not be given to any director,
however, who shall attend the meeting, or who shall waive notice
thereof, before, at the time of, or after the meeting, in a
writing signed by the director and delivered to the Corporation.
No notice need be given of any meeting at which every member of
the Board of Directors shall be present.
SECTION 2.5. Quorum and Manner of Acting. A majority of the
actual number of directors established pursuant to Section 2.1,
from time to time, shall be necessary to constitute a quorum for
the transaction of any business except the filling of vacancies
on the Board of Directors under Section 2.3 or voting on a
conflict of interest transaction under Section 2.12. The act of
a majority of the directors present at a meeting at which a
quorum is present, shall be the act of the Board of Directors,
unless the act of a greater number is required by statute, by the
Articles of Incorporation, or by the By-laws. Under the
provisions of Article 13 of the Articles of Incorporation,
certain actions by the Board of Directors therein specified
require not only approval by the Board of Directors, but also
approval by a majority of the Continuing Directors, as therein
defined. Any or all directors may participate in a meeting of the
Board of Directors by means of a conference telephone or similar
communications equipment by which all persons participating in
the meeting may simultaneously hear each other, and participation
in this manner shall constitute presence in person at the
meeting. In the absence of a quorum, a majority of the directors
present may adjourn the meeting from time to time until a quorum
shall be present. No notice of any adjourned meeting need be
given.
SECTION 2.6. Resignations. Any director may resign at any
time by giving written notice of resignation to the Board of
Directors, the Chairman of the Board, the President, or the
Secretary. Unless otherwise specified in the written notice, the
resignation shall take effect upon receipt thereof.
SECTION 2.7. Removal of Directors. Any director, other than
a director elected by holders of preferred stock voting as a
class, may be removed from office at any time but only for cause
and only upon the affirmative vote of at least 80% of the votes
entitled to be cast by holders of all of the outstanding shares
of Voting Stock (as defined in Article 13 of the Articles of
Incorporation), voting together as a single class.
SECTION 2.8. Action without a Meeting. Any action required
or permitted to be taken at any meeting of the Board of Directors
or of any committee thereof may be taken without a meeting, if
taken by all members of the Board of Directors or such committee,
as the case may be, evidenced by a written consent signed by all
such members and effective on the date, either prior or
subsequent to the date of the consent, specified in the written
consent, or if no effective date is specified in the written
consent, the date on which the consent is filed with the minutes
of proceedings of the Board of Directors or committee.
SECTION 2.9. Attendance and Failure to Object. A director,
who is present at a meeting of the Board of Directors, at which
action on any corporate matter is taken, shall be presumed to
have assented to the action taken, unless (a) the director's
dissent shall be entered in the minutes of the meeting, (b) the
director shall file a written dissent to such action with the
Secretary of the meeting before adjournment thereof, or (c) the
director shall forward such dissent by registered mail to the
Secretary immediately after adjournment of the meeting. The right
of dissent provided for by the preceding sentence shall not be
available, in respect of any matter acted upon at any meeting, to
a director who voted in favor of such action.
SECTION 2.10. Special Standing Committees. The Board of
Directors, by resolution adopted by a majority of the actual
number of directors elected and qualified, may designate from
among its members one or more committees. Such committees shall
have those powers of the Board of Directors which may by law be
delegated to such committees and are specified by resolution of
the Board of Directors.
SECTION 2.11. Appointment of Auditors. The Board of
Directors, prior to each annual meeting of shareholders, shall
appoint a firm of independent public accountants as auditors of
the Corporation. Such appointment shall be submitted to the
shareholders for ratification at the annual meeting next
following such appointment. Should the holders of a majority of
the outstanding shares entitled to vote fail to ratify the
appointment of any firm as auditors of the Corporation, or should
the Board of Directors for any reason determine that any such
appointment be terminated, the Board of Directors shall appoint
another firm of independent public accountants to act as auditors
of the Corporation and such appointment shall be submitted to the
shareholders for ratification at the annual or special
shareholders meeting next following such appointment.
SECTION 2.12. Transactions with Corporation. No transaction
with the Corporation in which one or more of its directors has a
direct or indirect interest shall be either void or voidable
because of such interest or because such director or directors
are present at the meeting of the Board of Directors or a
committee thereof which authorizes, approves or ratifies such
transaction or because the votes of such director or directors
are counted for such purposes, if:
(a) the material facts of the transaction and the director's
interest are disclosed or known to the Board of Directors or
committee which authorizes, approves, or ratifies the transaction
by the affirmative vote or consent of a majority of the directors
(or committee members) who have no direct or indirect interest in
the transaction and in any event, of at least two directors (or
committee members);
(b) the material facts of the transaction and the director's
interest are disclosed or known to the shareholders entitled to
vote and they authorize, approve or ratify such transaction by
vote; or
(c) the transaction is fair to the Corporation.
If a majority of the directors or committee members who have
no direct or indirect interest in the transaction vote to
authorize, approve, or ratify the transaction, a quorum is
present for purposes of taking action under this section.
SECTION 2.13. Compensation of Directors. The Board of
Directors is empowered and authorized to fix and determine the
compensation of directors and additional compensation for such
additional services any of such directors may perform for the
Corporation.
ARTICLE III
Officers
SECTION 3.0. Officers, General Authority and Duties. The
officers of the Corporation shall be a Chairman of the Board, a
President, two (2) or more Vice Presidents, a Secretary, a
Chief Financial Officer, a Treasurer, a Chief Accounting Officer,
and such other officers as may be elected or appointed in accordance
with the provisions of Section 3.2. One or more of the Vice Presidents
may be designated by the Board to serve as Executive Vice Presidents
or Group Vice Presidents. Any two (2) or more offices may be held
by the same person. All officers and agents of the Corporation, as
between themselves and the Corporation, shall have such authority and
perform such duties in the management of the Corporation as may
be provided in the By-laws or as may be determined by resolution
of the Board of Directors not inconsistent with the Bylaws.
SECTION 3.1. Election, Term of Office, Qualifications. Each
officer (except such officers as may be appointed in accordance
with the provisions of Section 3.2. of this Article III) shall be
elected by the Board of Directors at each annual meeting. Each
such officer (whether elected at an annual meeting of the Board
of Directors or to fill a vacancy or otherwise) shall hold office
until the officer's successor is chosen and qualified, or until
death, or until the officer shall resign in the manner provided in
Section 3.3. or be removed in the manner provided in Section 3.4. The
Chairman of the Board and the President shall be chosen
from among the directors. Any other officer may but need not be a
director of the Corporation. Election or appointment of an
officer or agent shall not of itself create contract rights.
SECTION 3.2. Other Officers, Election or Appointment. The
Board of Directors from time to time may elect such other
officers or agents (including one or more Assistant Vice
Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, a Controller, and one or more Assistant
Controllers) as it may deem necessary or advisable. The Board of
Directors may delegate to any officer the power to appoint any
such officers or agents and to prescribe their respective terms
of office, powers and duties.
SECTION 3.3. Resignation. Any officer may resign at any time
by giving written notice of such resignation to the Board of
Directors, the Chairman of the Board, the President or the
Secretary of the Corporation. Unless otherwise specified in such
written notice, such resignation shall take effect upon receipt
thereof and unless otherwise specified in it, the acceptance of
the resignation shall not be necessary to make it effective.
SECTION 3.4. Removal. The officers specifically designated
in Section 3.0. may be removed, either for or without cause, at
any meeting of the Board of Directors called for the purpose, by
the vote of a majority of the actual number of directors elected and
qualified. The officers and agents elected or appointed in accordance
with the provisions of Section 3.2. may be removed, either for or
without cause, at any meeting of the Board of Directors at which
a quorum be present, by the vote of a majority of the directors
present at such meeting, by any superior officer upon whom such power
of removal shall have been conferred by the Board of Directors, or
by any officer to whom the power to appoint such officer has been
delegated by the Board of Directors pursuant to Section 3.2. Any
removal shall be without prejudice to the contract rights, if
any, of the person so removed.
SECTION 3.5. Vacancies. A vacancy in any office by reason of
death, resignation, removal, disqualification or any other cause,
may be filled by the Board of Directors or by an officer authorized
under Section 3.2. to appoint to such office.
SECTION 3.6. Honorary Chairman of the Board of Directors.
The Board of Directors may elect or appoint an Honorary Chairman
of the Board of Directors, who shall be vested with and shall
perform all such powers and duties as may be prescribed by the
Board.
SECTION 3.7. Chairman of the Board of Directors. The Chairman
of the Board shall be the chief executive officer of the Corporation
and, subject to the control of the Board of Diectors, shall have
general supervision over the management and direction of the business
of the Corporation. He or she shall see that all orders and
resolutions of the Board of Directors are carried into effect. The
Chairman of the Board shall preside at all meetings of the
shareholders and of the Board of Directors if present and shall have
such powers and perform such duties as are assigned to him by the By-laws
and by the Board of Directors. He or she shall, in the abence or
incapacity of the President, perform all the duties and the functions
and exercise the powers of the President. The Chairman shall be
chosen by the Board of Directors at each annual meeting from among the
directors and shall serve until a successor is chosen and qualified,
or until resignation or death.
SECTION 3.8. President. The President shall have such powers
and perform such duties as are assigned to him by the Board of
Directors. The President shall, in the absence or incapacity or
the Chairman of the Board, perform all the duties and functions
and exercise the powers of the Chairman of the Board.
SECTION 3.9. Executive Vice Presidents. Each Executive
Vice President shall have such powers and perform such duties as
may be assigned to him or her by the Chairman of the Board, the
President or the Board of Directors. In the case of the death
or incapacity of the Chairman of the Board and the President,
the Executive Vice Presidents, if one or more be designated,
shall, in the order of their seniority in office as Executive
Vice Presidents, perform the duties and exercise the powers
of the President.
SECTION 3.10. Group Vice Presidents. Each Group Vice
President shall perform such duties and have such powers as may
be assigned to him or her by the Chairman of the Board, the
President or the Board of Directors. In the case of the death
or incapacity of the Chairman of the Board, President and the
Executive Vice Presidents, the Group Vice Presidents shall,
in the order of their seniority in office as Group Vice Presidents,
perform the duties and exercise the powers of the President unless
otherwise ordered by the Board of Directors.
SECTION 3.11. Vice Presidents. Each Vice President shall
perform such duties and have such powers as may be assigned to
him or her by the Chairman of the Board, the President or the Board
of Directors.
SECTION 3.12. Secretary. The Secretary shall:
(a) record all the proceedings of the meetings of the
shareholders and Board of Directors in books to be kept for such
purposes;
(b) cause all notices to be duly given in accordance with
the provisions of these By-laws and as required by statute;
(c) be custodian of the Seal of the Corporation, and cause
such Seal to be affixed to all certificates representing shares
of the Corporation prior to the issuance thereof (subject,
however, to the provisions of Section 5.0) and to all instruments
the execution of which on behalf of the Corporation under its
Seal shall have been duly authorized in accordance with these
By-laws;
(d) subject to the provisions of Section 5.0, sign
certificates representing shares of the Corporation the issuance
of which shall have been authorized by the Board of Directors;
and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as are given to the Secretary by
these By-laws or as may be assigned to him or her by the
Chairman of the Board, the President or the Board of Directors.
SECTION 3.13. Assistant Secretaries. Each Assistant
Secretary shall assist the Secretary in his or her duties, and
shall perform such other duties as the Board of Directors may
from time to time prescribe or the Chairman of the Board or the
President may from time to time delegate. At the request of
the Secretary, any Assistant Secretary may temporarily act in the
Secretary's place in the performing of part or all of the duties of
the Secretary. In the case of the death of the Secretary, or
in the case of the Secretary's absence or inability to act
without having designated an Assistant Secretary to act temporarily
in his or her place, the Assistant Secretary who is to perform the
duties of the Secretary shall be designated by the Chairman of the
Board, the President or the Board of Directors.
SECTION 3.14. Chief Financial Officer. The Chief Financial
Officer shall:
(a) have supervision over and be responsible for the funds,
securities, receipts, and disbursements of the Corporation;
(b) cause to be kept at the principal business office of the
Corporation and preserved for review as required by law or
regulation records of financial transactions and correct books of
account using appropriate accounting principles;
(c) be responsible for the establishment of adequate
internal control over the transactions and books of account of
the Corporation;
(d) be responsible for rendering to the proper officers and
the Board of Directors upon request, and to the shareholders and
other parties as required by law or regulation, financial
statements of the Corporation; and
(e) in general perform all duties incident to the office and
such other duties as are given by the By-laws or as may be
assigned by the Chairman of the Board, the President or the Board
of Directors.
SECTION 3.15. Treasurer. The Treasurer shall:
(a) have charge of the funds, securities, receipts and
disbursements of the Corporation;
(b) cause the moneys and other valuable effects of the
Corporation to be deposited in the name and to the credit of the
Corporation in such banks or trust companies or with such bankers
or other depositories as shall be selected in accordance with
resolutions adopted by the Board of Directors;
(c) cause the funds of the Corporation to be disbursed from
the authorized depositories of the Corporation, and cause to be
taken and preserved proper records of all moneys disbursed; and
(d) in general, perform all duties incident to the office of
Treasurer and such other duties as are given to the Treasurer by
the By-laws or as may be assigned to him or her by the Chairman
of the Board, the President, the Chief Financial Officer, or the
Board of Directors.
SECTION 3.16. Assistant Treasurers. Each Assistant Treasurer
shall assist the Treasurer in his or her duties, and shall
perform such other duties as the Board of Directors may from time
to time prescribe or the Chairman of the Board, the President or
the Chief Financial Officer may from time to time delegate. At
the request of the Treasurer, any Assistant Treasurer may temporarily
act in the Treasurer's place in performing part or all of the
duties of the Treasurer. In the case of the death of the Treasurer,
or in the case of the Treasurer's absence or inability to act without
having designated an Assistant Treasurer to act in his or her place,
the Assistant Treasurer who is to perform the duties of the Treasurer
shall be designated by the Chairman of the Board, the President or the
Board of Directors.
SECTION 3.17. Chief Accounting Officer. The Chief
Accounting Officer shall:
(a) keep full and accurate accounts of all assets,
liabilities, commitments, revenues, costs and expenses, and other
financial transactions of the Corporation in books belonging to
the Corporation, and conform them to sound accounting principles
with adequate internal control;
(b) cause regular audits of these books and records to be
made;
(c) see that all expenditures are made in accordance with
procedures duly established, from time to time, by the
Corporation;
(d) render financial statements upon the request of the
Board of Directors, and a full financial report prior to the
annual meeting of shareholders, as well as such other financial
statements as are required by law or regulation; and
(e) in general, perform all the duties ordinarily connected
with the office of Chief Accounting Officer and such other duties
as may be assigned to him or her by the Chairman of the Board,
the President, the Chief Financial Officer, or the Board of Directors.
SECTION 3.18. General Counsel. The Board of Directors may
appoint a general counsel who shall have general control of all
matters of legal import concerning the Corporation.
SECTION 3.19. Other Officers or Agents. Any other officers
or agents elected or appointed pursuant to Section 3.2 shall have
such duties and responsibilities as may be fixed from time to
time by the By-laws or as may be assigned to them by the
Chairman of the Board, the President or the Board of Directors.
SECTION 3.20. Compensation. The compensation of executive
officers of the Corporation shall be fixed from time to time by the
Compensation Committee established pursuant to Section 2.10.
Unless the Board of Directors by resolution shall direct
otherwise, the Salary Committee shall have the power to fix the
compensation of employees who are not executive officers of the
Corporation. No employee shall be prevented from receiving such
compensation by reason of being a director of the Corporation.
SECTION 3.21. Surety Bonds. In case the Board of Directors
shall so require, any officer or agent of the Corporation shall
execute to the Corporation a bond in such sum and with such
surety or sureties as the Board of Directors may direct,
conditioned upon the faithful performance of his or her duties to
the Corporation, including responsibility for negligence and for
the accounting of all property, funds or securities of the
Corporation which the officer or agent may handle.
ARTICLE IV
Execution of Instruments and Deposit of Corporate Funds
SECTION 4.0. Execution of Instruments Generally. All deeds,
contracts, and other instruments requiring execution by the
Corporation may be signed by the Chairman of the Board, the
President or any Vice President. Authority to sign any deed,
contract, or other instrument requiring execution by the
Corporation may be conferred by the Board of Directors upon any
person or persons whether or not such person or persons be officers
of the Corporation. Such person or persons may delegate, from
time to time, by instrument in writing, all or any part of
such authority to any other person or persons if authorized so to
do by the Board of Directors.
SECTION 4.1. Notes, Checks, Other Instruments. All notes,
drafts, acceptances, checks, endorsements, and all evidences of
indebtedness of the Corporation whatsoever, shall be signed by
such officer or officers or such agent or agents of the
Corporation and in such manner as the Board of Directors from
time to time may determine. Endorsements for deposit to the
credit of the Corporation in any of its duly authorized
depositories shall be made in such manner as the Board of
Directors from time to time may determine.
SECTION 4.2. Proxies. Proxies to vote with respect to shares
of other corporations owned by or standing in the name of the
Corporation may be executed and delivered from time to time on
behalf of the Corporation by the Chairman of the Board, the
President or a Vice President or by any other person or persons
thereunto authorized by the Board of Directors.
ARTICLE V
Shares
SECTION 5.0. Certificates for Shares. Every holder of
shares in the Corporation shall be entitled to have a certificate
evidencing the shares owned by the shareholder, signed in the
name of the Corporation by the Chairman of the Board, the President
or a Vice President and the Secretary or an Assistant Secretary,
certifying the number of shares owned by the shareholder in
the Corporation. The signatures of the Chairman of the Board,
the President, Vice President, Secretary, and Assistant Secretary,
the signature of the transfer agent and registrar, and the
Seal of the Corporation may be facsimiles. In case any officer or
employee who shall have signed, or whose facsimile signature or
signatures shall have been used on, any certificate shall cease to
be an officer or employee of the Corporation before the certificate
shall have been issued and delivered by the Corporation, the
certificate may nevertheless be adopted by the Corporation and be
issued and delivered as though the person or persons who signed
the certificate or whose facsimile signature or signatures shall
have been used thereon had not ceased to be such officer or employee
of the Corporation; and the issuance and delivery by the Corporation
of any such certificate shall constitute an adoption thereof.
Every certificate shall state on its face the name of the Corporation
and that it is organized under the laws of the State of Indiana,
the name of the person to whom it is issued, and the number and
class of shares and the designation of the series, if any, the
certificate represents, and shall state conspicuously on its
front or back that the Corporation will furnish the shareholder,
upon written request and without charge, a summary of the
designations, relative rights, preferences and limitations
applicable to each class and the variations in rights,
preferences and limitations determined for each series (and the
authority of the Board of Directors to determine variations for
future series). Every certificate shall state whether such shares
have been fully paid and are nonassessable. If any such shares
are not fully paid, the certificate shall be legibly stamped to
indicate the percentum which has been paid up, and as further
payments are made thereon, the certificate shall be stamped
accordingly. Subject to the foregoing provisions, certificates
representing shares in the Corporation shall be in such form as
shall be approved by the Board of Directors. There shall be
entered upon the stock books of the Corporation at the time of
the issuance or transfer of each share the number of the
certificates representing such share, the name of the person
owning the shares represented thereby, the class of such share
and the date of the issuance or transfer thereof.
SECTION 5.1. Transfer of Shares. Transfer of shares of the
Corporation shall be made on the books of the Corporation by the
holder of record thereof, or by the shareholder's attorney
thereunto duly authorized in writing and filed with the Secretary
of the Corporation or any of its transfer agents, and on
surrender of the certificate or certificates representing such
shares. The Corporation and its transfer agents and registrars,
shall be entitled to treat the holder of record of any share or
shares the absolute owner thereof for all purposes, and
accordingly shall not be bound to recognize any legal, equitable
or other claim to or interest in such share or shares on the part
of any other person whether or not it or they shall have express
or other notice thereof, except as otherwise expressly provided
by the statutes of the State of Indiana. Shareholders shall
notify the Corporation in writing of any changes in their
addresses from time to time.
SECTION 5.2. Regulations. Subject to the provisions of this
Article V the Board of Directors may make such rules and
regulations as it may deem expedient concerning the issuance,
transfer and regulation of certificates for shares of the
Corporation.
SECTION 5.3. Transfer Agents and Registrars. The Board of
Directors may appoint one or more transfer agents, one or more
registrars, and one or more agents to act in the dual capacity of
transfer agent and registrar with respect to the certificates
representing shares of the Corporation.
SECTION 5.4. Lost or Destroyed Certificates. The holders of
any shares of the Corporation shall immediately notify the
Corporation or one of its transfer agents and registrars of any
loss or destruction of the certificate representing the same. The
Corporation may issue a new certificate in the place of any
certificate theretofore issued by it alleged to have been lost or
destroyed upon such terms and under such regulations as may be
adopted by the Board of Directors, and the Board of Directors may
require the owner of the lost or destroyed certificate or the
owners legal representatives to give the Corporation a bond in
such form and for such amount as the Board of Directors may
direct, and with such surety or sureties as may be satisfactory
to the Board of Directors to indemnify the Corporation and its
transfer agents and registrars against any claim that may be made
against it or any such transfer agent or registrar on account of
the alleged loss or destruction of any such certificate or the
issuance of such new certificate. A new certificate may be issued
without requiring any bond when, in the judgment of the Board of
Directors, it is proper so to do.
SECTION 5.5. Redemption of Shares Acquired in Control Share
Acquisitions. Any or all control shares acquired in a control
share acquisition shall be subject to redemption by the
Corporation, if either:
(a) No acquiring person statement has been filed with the
Corporation with respect to the control share acquisition, or
(b) The control shares are not accorded full voting rights
by the Corporation's shareholders as provided in IC 23-1-42-9.
A redemption pursuant to Section 5.5(a) may be made at any
time during the period ending sixty (60) days after the date of
the last acquisition of control shares by the acquiring person.
A redemption pursuant to Section 5.5(b) may be made at any time
during the period ending two (2) years after the date of the
shareholder vote with respect to the voting rights of the control
shares in question. Any redemption pursuant to this Section 5.5
shall be made at the fair value of the control shares and
pursuant to such procedures for the redemption as may be set
forth in these By-laws or adopted by resolution of the Board of
Directors.
As used in this Section 5.5, the terms "control shares,"
"control share acquisition," "acquiring person statement" and
"acquiring person" shall have the meanings ascribed to them in IC
23-1-42.
ARTICLE VI
Miscellaneous
SECTION 6.0. Corporate Seal. The Seal of the Corporation
shall consist of a circular disk around the circumference of
which shall appear the words:
"ELI LILLY AND COMPANY, INDIANAPOLIS, INDIANA"
and across the center thereof the words:
"Established 1876 Incorporated 1901".
SECTION 6.1. Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of January in each year and shall
end on the thirty-first day of the following December.
SECTION 6.2. Amendment of By-laws. These By-laws may be
amended or repealed and new By-laws may be adopted by the
affirmative vote of at least a majority of the actual number of
directors elected and qualified at any regular or special meeting
of the Board of Directors, provided that the notice or waiver of
notice of such meeting states in effect that consideration is to
be given at such meeting to the amendment or repeal of the
By-laws or the adoption of new By-laws and; provided further that
no provision of these By-laws incorporating a provision of
Articles 9 or 13 of the Articles of Incorporation may be amended
except in a manner consistent with those Articles as they may be
amended in compliance with the requirements stated therein.
* * *
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TABLE OF CONTENTS
Page
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Section 1. Certain Definitions....................... 2
Section 2. Appointment of Rights Agent................ 7
Section 3. Issue of Right Certificates................ 7
Section 4. Form of Right Certificates................ 10
Section 5. Countersignature and Registration......... 12
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificate............. 14
Section 7. Exercise of Rights........ ............... 16
Section 8. Cancellation and Destruction of Right
Certificates............................... 21
Section 9. Reservation and Availability of Shares
of Preferred Stock....................... 21
Section 10. Preferred Stock Record Date................ 24
Section 11. Adjustment of Purchase Price,
Number of Shares or Number of Rights......25
Section 12. Certification of Adjusted Purchase
Price or Number of Shares.................43
Seection 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power................44
Section 14. Fractional Rights and Fractional Shares.....49
Section 15. Rights of Action..... .....................51
Section 16. Agreement of Right Holders..................52
Section 17. Right Certificate Holder Not Deemed a
Shareholder............................... 53
Section 18. Concerning the Rights Agent............ ....53
Section 19. Merger or Consolidation or Change
of Name of Rights Agent...................55
Section 20. Duties of Rights Agent........... ..........56
Section 21. Change of Rights Agent................... ..60
Section 22. Issuance of New Right Certificates..........61
Section 23. Redemption..................................62
Section 24. Notice of Proposed Actions....... ..........63
Section 25. Notices.....................................65
Section 26. Supplements and Amendments..................66
Section 27. Successors..................................68
Section 28. Benefits of this Agreement..................68
Section 29. Governing Law............... ...............68
Section 30. Counterparts................................69
Section 31. Severability................................69
Section 32. Descriptive Headings........................69
Section 33. Determinations and Actions Taken
by the Board of Directors.................70
Exhibit A Form of Right Certificate..................A-1
Exhibit B Summary of Rights to Purchase Preferred
Stock......................................B-1
Exhibit C Form of Amendment to Amended Articles of
Incorporation of Eli Lilly and Co........C-1
ELI LILLY AND COMPANY
and
BANK ONE, INDIANAPOLIS, NA
Rights Agent
Rights Agreement
Dated as of July 18, 1988
RIGHTS AGREEMENT
This Agreement, dated as of July 18, 1988 between Eli Lilly
and Company, an Indiana corporation (the "Company"), and Bank One,
Indianapolis, NA, a national banking corporation (the "Rights Agent"):
W I T N E S S E T H
WHEREAS, the Board of Directors of the Company has
authorized and declared a dividend distribution of one right (a
"Right") for each share of Common Stock, par value $.62-1/2 per share,
of the Company ("Common Stock") outstanding on July 28, 1988 and has
authorized the issuance of one Right with respect to each share of
Common Stock that shall become outstanding between July 28, 1988 and
the earlier of the Distribution Date or the Expiration Date (as such
terms are hereinafter defined) or the date, if any, on which such
rights may be redeemed, each Right initially representing the right to
purchase one one-hundredth of a share of Series A Participating
Preferred Stock of the Company ("Preferred Stock") having the rights
and preferences set forth in the form of Certificate of Amendment of
Articles of Incorporation of Eli Lilly and Company attached hereto as
Exhibit C upon the terms and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as
follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall
be the Beneficial Owner of a Substantial Block, but shall not
include (i) the Company, (ii) any Subsidiary of the Company,
(iii) any employee benefit plan or employee stock plan of the
Company or of any Subsidiary of the Company or any Person
organized, appointed, established or holding Voting Stock by, for
or pursuant to, the terms of any such plan, (iv) any Person who
acquires a Substantial Block in connection with a transaction or
series of transactions approved prior to such transaction or
transactions by the Board of Directors of the Company or (v)
Lilly Endowment, Inc.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934,
as in effect as of the date hereof.
(c) A Person shall be deemed the "Beneficial Owner" of, and
shall be deemed to "Beneficially Own," any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire
(whether such right is exercisable immediately or only after
the passage of time) pursuant to any agreement, arrangement
or understanding, or upon the exercise of any conversion,
exchange or purchase rights (other than the Rights),
warrants or options, or otherwise, provided, however, that a
Person shall not be deemed the Beneficial Owner of
securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are
accepted for payment, or (B) the right to vote pursuant to
any agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or
any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any securities of
the Company;
provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to Beneficially Own, any security if the
agreement, arrangement or understanding to vote such security
arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and
regulations of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and provided, further, that nothing in this
paragraph (c) shall cause a person engaged in business as an
underwriter of securities to be the Beneficial Owner of, or to
Beneficially Own, any securities acquired through such person's
participation in good faith in a firm commitment underwriting
until the expiration of forty days after the date of such
acquisition.
(d) "Business Day " shall mean any day other than a
Saturday, Sunday or day on which banking institutions in the
State of Indiana are authorized or obligated by law or executive
order to close.
(e) "Close of Business " on any given date shall mean
5:00 P.M., Indianapolis time, on such date; provided, however,
that if such date is not a Business Day it shall mean 5:00 P.M.,
Indianapolis time, on the next succeeding Business Day.
(f) "Common Stock " shall have the meaning assigned to it
in the recital, and "common stock " (i) when used with reference
to any Person other than the Company shall mean the capital stock
with the greatest voting power of such Person or, if such Person
is a Subsidiary of another Person, the Person which ultimately
controls such first-mentioned Person and (ii) when used with
reference to any Person other than the Company which shall not be
organized in corporate form shall mean units of beneficial
interest which (A) shall represent the right to participate
generally in the profits and losses of such Person (including,
without limitation, any flow-through tax benefits resulting from
an ownership interest in such Person) and which (B) shall be
entitled to exercise the greatest voting power of such Person or,
in the case of a limited partnership, shall have the power to
remove the general partner or partners.
(g) "Continuing Director" shall mean any member of the
Board of Directors of the Company (while such Person is a member
of the Board) who is not an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, or a representative of an
Acquiring Person or of any such Affiliate or Associate, and who
either (i) was a member of the Board prior to the time that any
Person became an Acquiring Person, or (ii) became a member of the
board subsequent to the time that any Person became an Acquiring
Person, if such Person's nomination for election or election to
the board was recommended or approved by a majority of the
Continuing Directors then in office.
(h) "Distribution Date" shall have the meaning assigned to
it in Section 3.
(i) "Equivalent Stock" shall have the meaning assigned to
it in Section 7.
(j) "Exchange Act" shall have the meaning assigned to it in
Section l(c).
(k) "Expiration Date" shall have the meaning assigned to it
in Section 7.
(l) "Person" shall mean any individual, firm, corporation
or other entity and shall include any successor by merger or
otherwise of such entity.
(m) "Preferred Stock" shall have the meaning assigned to it
in the recital.
(n) "Purchase Price" shall have the meaning assigned to it
in Section 4.
(o) "Redemption Price" shall have the meaning assigned to
it in Section 23.
(p) "Stock Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such.
(q) "Subsidiary" shall mean, with respect to any Person, any
corporation or other entity of which securities or other
ownership interests having ordinary voting power sufficient, in
the absence of contingencies, to elect a majority of the board of
directors or other persons performing similar functions are at
the time directly or indirectly owned by such Person and any
Affiliate of such Person.
(r) "Substantial Block" shall mean a number of shares of
Voting Stock having in the aggregate 20% or more of the general
voting power (or which would have such voting power but for the
application of the Indiana Control Share Statute).
(s) "Trading Day" shall have the meaning assigned to it in
Section 11(d).
(t) "Voting Stock" shall mean shares of the Company's
capital stock the holders of which have general voting power
under ordinary circumstances to elect at least a majority of the
board of directors of the Company and shall include any shares of
the Company's capital stock during any period such shares may be
subject to the voting limitation provisions of the Indiana
Control Share Statute.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the
holders of the Rights (who, in accordance with Section 3, shall prior
to the Distribution Date also be the holders of Common Stock) in
accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Company may from time to time
appoint such Co-Rights Agent or Agents as it may deem necessary or
desirable.
Section 3. Issue of Right Certificates.
(a) The "Distribution Date " shall mean the earlier of (i)
the tenth Business Day after the date of the commencement of a
tender or exchange offer (as determined by reference to Rule 14d-
2(a) (or any successor rule) under the Exchange Act) by any
Person (other than the Company, any Subsidiary of the Company,
Lilly Endowment, Inc., or any employee benefit plan or employee
stock plan of the Company or any Subsidiary of the Company) for a
number of shares of the outstanding Voting Stock having 30% or
more of the general voting power or (ii) the tenth Business Day
after a Stock Acquisition Date provided, however, that the
Company's Board of Directors in its discretion may extend the
time periods referred to clauses (i) and (ii) above during which
period of extension the Board may determine the day that shall
constitute the Distribution Date, if any. Up to and including
the Distribution Date, (x) the Rights will be evidenced by the
certificate for Common Stock registered in the names of the
holders of Common Stock (which certificates for Common Stock
shall be deemed also to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the
transfer of Common Stock. As soon as practicable after the
Distribution Date, the Rights Agent will mail, by first-class,
insured, postage prepaid mail, to each record holder of Common
Stock as of the Close of Business on the Distribution Date, as
shown by the records of the Company at the Close of Business on
the Distribution Date, at the address of such holder shown on
such records, a Right Certificate, in substantially the form of
Exhibit A hereto, evidencing one Right for each share of Common
Stock so held.
(b) On July 29, 1988 or as soon as practicable thereafter,
the Company will send a copy of a Summary of Rights to Purchase
Preferred Stock ( "Summary of Rights "), in substantially the
form attached hereto as Exhibit B, by first-class mail, postage
prepaid, to each record holder of Common Stock as of the Close of
Business on July 28, 1988, at the address of such holder shown on
the records of the Company.
(c) As soon as practicable, the Company will cause
certificates for Common Stock issued after the date of this
Agreement, but prior to the earlier of the Distribution Date or
the Expiration Date or the date, if any, on which the Rights may
be redeemed, to have impressed on, printed on, written on or
otherwise affixed to them the following legend:
This certificate also entitles the holder hereof to
certain Rights as set forth in a Rights Agreement
between Eli Lilly and Company and Bank One,
Indianapolis, NA, dated as of July 18, 1988, as the
same shall be amended from time to time (the "Rights
Agreement "), the terms of which are hereby
incorporated herein by reference and a copy of which is
on file at the principal executive offices of Eli Lilly
and Company. Under certain circumstances, as set forth
in the Rights Agreement, such Rights will be evidenced
by separate certificates and will no longer be
evidenced by this certificate. Eli Lilly and Company
will mail to the holder of this certificate a copy of
the Rights Agreement without charge after receipt of a
written request therefor. Under certain circumstances
set forth in the Rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring
Person or any Affiliate or Associate thereof (as such
terms are defined in the Rights Agreement) or one of
certain transferees thereof, whether currently held by
or on behalf of such Person or by any subsequent
holder, may be limited as provided in Section 7(e) of
the Rights Agreement.
With respect to such certificates containing the foregoing
legend, until the Distribution Date, the Rights associated with
Common Stock represented by such certificates shall be evidenced
by such certificates alone, and the surrender for transfer of any
such certificate shall also constitute the transfer of the Rights
associated with the Common Stock certificate.
(d) Until the Distribution Date, the surrender for transfer
of any of the certificates for Common Stock outstanding on or
after July 28, 1988, with or without a copy of the Summary of
Rights attached thereto, shall also constitute the transfer of
the Rights associated with Common Stock represented by such
certificates. After the Distribution Date, the Rights will be
evidenced solely by the Right Certificates.
Section 4. Form of Right Certificates.
(a) The Right Certificates (and the forms of assignment and
of election to purchase shares to be printed on the reverse
thereof) shall be in substantially the form of Exhibit A hereto
and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company
may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply
with any law or with any rule or regulation made pursuant thereto
or with any rule or regulation of any stock exchange on which the
Rights may from time to time be listed, or to conform to usage.
Subject to the provisions of Section 11, Section 13 and Section
22, the Right Certificates, whenever issued, shall be dated as of
July 28, 1988, and on their face shall entitle the holders
thereof to purchase such number of shares of Preferred Stock as
shall be set forth therein at the price per one one-hundredth of
a share set forth therein (the "Purchase Price"), but the amount
and type of securities purchasable upon the exercise of each
Right and the Purchase Price thereof shall be subject to
adjustment as provided herein. (b) Any Right Certificate
issued pursuant to Section 3(a) or Section 22 that represents
Rights Beneficially Owned by:
(i) an Acquiring Person or any Associate or Affiliate
of an Acquiring Person,
(ii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee after
the Acquiring Person becomes such, or
(iii) a transferee of an Acquiring Person (or of any
such Associate or Affiliate) who becomes a transferee prior
to or concurrently with the Acquiring Person becoming such
and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person
to holders of equity interests in such Acquiring Person or
to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding
the transferred Rights or (B) a transfer which the Board of
Directors of the Company has determined is part of a plan,
arrangement or understanding which has as a primary purpose
or effect avoidance of Section 7(e), and any Right
Certificate issued pursuant to Section 6 or Section 11 upon
transfer, exchange, replacement or adjustment of any other
Right Certificate referred to in this sentence, shall
contain (to the extent feasible and reasonably identifiable
as such) the following legend:
The Rights represented by this Right Certificate
are or were beneficially owned by a Person who was
or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms
are defined in the Rights Agreement? or one of
certain transferees thereof. Accordingly, under
certain circumstances as provided in the Rights
Agreement, this Right Certificate and the Rights
represented hereby may be limited as provided in
Section 7(e) of such Agreement.
Section 5. Countersignature and Registration.
(a) The Right Certificates shall be executed on behalf of
the Company by its President or any Vice President, either
manually or by facsimile signature, and have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by
the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall
be manually countersigned by the Rights Agent and shall not be
valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by
the Company, such Right Certificates, nevertheless, may be
countersigned by the Rights Agent, issued and delivered with the
same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company;
and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such
Right Certificate, shall be a proper officer of the Company to
sign such Right Certificate, although at the date of the
execution of this Rights Agreement any such person was not such
an officer.
(b) Following the Distribution Date, the Rights Agent will
keep or cause to be kept, at its principal stock transfer office,
which as of the date hereof is located at 111 Monument Circle,
Indianapolis, Indiana 46277, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall
show the names and addresses of the respective holders of the
Right Certificates, the number of Rights evidenced on its face by
each Right Certificate, the date of each Right Certificate and
the number of each Right Certificate.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e)
and Section 14, at any time after the Close of Business on the
Distribution Date, and prior to the Close of Business on the
Expiration Date or the day prior to the day, if any, on which the
Rights are to be redeemed pursuant to Section 23, any Right
Certificate or Certificates may be transferred, split up,
combined or exchanged for another Right Certificate or Right
Certificates, entitling the registered holder to purchase such
number of shares of Preferred Stock as the Right Certificate or
Right Certificates surrendered then entitled such holder to
purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate shall make such request
in writing, signed by the registered holder with such signature
guaranteed in such manner as is reasonably satisfactory to the
Rights Agent, delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred,
split up, combined or exchanged at the principal stock transfer
office of the Rights Agent. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with
respect to the transfer of any such surrendered Right Certificate
until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse
side of such Right Certificate and shall have provided such
additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as
the Company shall reasonably request. Thereupon the Rights Agent
shall, subject to Section 4(b), Section 7(e) and Section 14,
countersign and deliver to the person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so
requested. The Company may require payment of a sum sufficient
to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange
of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft,
destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably
satisfactory to them, and reimbursement to the Company and the
Rights Agent of all reasonable expenses incidental thereto, and
upon surrender to the Rights Agent and cancellation of the Right
Certificate, if mutilated, the Company will execute and deliver a
new Right Certificate of like tenor to the Rights Agent for
delivery to the registered owner in lieu of the Right Certificate
so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration
Date of Rights.
(a) Subject to Section 7(e) and unless previously redeemed,
the registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein
including, without limitation, the restrictions on exercisability
set forth in Section 9 and Section 23) in whole or in part at any
time after the date on which the Company's right to redeem has
expired pursuant to Section 23, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse
side thereof duly executed, to the Rights Agent at the principal
stock transfer office of the Rights Agent, together with payment
of the Purchase Price for each one one-hundredth of a share of
Preferred Stock (or other securities or property as the case may
be) as to which the Rights are exercised, at or prior to the
Close of Business on July 28, 1998 (such date being hereinafter
referred to as the "Expiration Date "). If at any time after
the Rights become exercisable hereunder but prior to the
Expiration Date the Company is prohibited by its Articles of
Incorporation from issuing Preferred Stock or Common Stock upon
the exercise of all of the outstanding Rights, the Company may
issue upon the exercise of the Rights shares of stock or other
securities of the Company of equivalent value to the Preferred
Stock or Common Stock ( "Equivalent Stock "), as determined by
the Board of Directors. For purposes of this Section 7(a), any
exercise shall be effective as of the Wednesday of the calendar
week immediately succeeding the calendar week in which the Rights
Agent receives the Right Certificate.
(b) The Purchase Price for each one one-hundredth of a
share of Preferred Stock pursuant to the exercise of a Right
shall initially be $325, shall be subject to adjustment from time
to time as provided in Sections 11 and 13 and shall be payable in
lawful money of the United States of America.
(c) Upon receipt of a Right Certificate, with the form of
election to purchase duly executed, accompanied by payment of the
Purchase Price for the shares to be purchased and an amount equal
to any applicable transfer tax in cash, or by certified check or
money order payable to the order of the Company, the Rights Agent
shall, subject to Section 20(j) and to the final sentence of
Section 7(a), thereupon promptly (i) requisition from any
transfer agent of Preferred Stock or Common Stock (or any
Equivalent Stock then issuable) a certificate for the number of
shares of Preferred Stock or Common Stock (or any Equivalent
Stock then issuable) to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such
requests, (ii) when appropriate, requisition from the Company the
amount of cash to be paid in lieu of issuance of a fractional
share in accordance with Section 14 and (iii) promptly after
receipt of such certificate, cause the same to be delivered to or
upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be
designated by such holder, and, when appropriate, after receipt
promptly deliver such cash to or upon the order of the registered
holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new
Right Certificate evidencing Rights equivalent to the Rights
remaining unexercised shall be issued by the Rights Agent to the
registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14.
(e) Notwithstanding any provision of this Agreement to the
contrary, upon the occurrence of any of the events described in
clauses (a), (b) or (c) of the first sentence of Section 13 or
subparagraphs (A), (B), (C), or (D) of Section 11(a)(ii), any
Rights that are at the time of the occurrence of such event
Beneficially Owned by (i) an Acquiring Person or by any Associate
or Affiliate of such Acquiring Person or (ii) a transferee of an
Acquiring Person or of any Associate or Affiliate of such
Acquiring Person (A) who becomes a transferee after the Acquiring
Person becomes such, or (B) who becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and receives
such Rights pursuant to either (1) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity
interests in such Acquiring Person or to any Person with whom
such Acquiring Person has any continuing agreement, arrangement
or understanding regarding the transferred Rights or (2) a
transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which
has as a primary purpose or effect the avoidance of this Section
7(e), shall be exercisable for shares of Common Stock (if Section
11(a)(ii) is applicable) or shares of common stock of the
Principal Party (as defined in Section 13) (if Section 13 is
applicable) without regard to the adjustments with respect to the
amount of securities issuable otherwise provided for in Section
11(a)(ii) or Section 13.
In lieu of such adjustments:
(i) If Section 11(a)(ii) is applicable, each holder of
such Rights shall thereafter have the right to receive upon
exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, in lieu of a
number of one-hundredths of a share of Preferred Stock, such
number of shares of Common Stock of the Company as shall
equal the result obtained by (x) multiplying the then
current Purchase Price per one one-hundredths of a share of
Preferred Stock by the number of one one-hundredths of a
share of Preferred Stock for which a Right is then
exercisable and dividing that product by (y) 100% of the
then current market price per share of Common Stock
(determined pursuant to Section 11(d) hereof) on the date of
the occurrence of any of the events listed in Section
11(a)(ii); and
(ii) If Section 13 is applicable, each holder of such
Rights shall thereafter have the right to receive, upon the
exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of
shares of common stock of the Principal Party (as defined in
Section 13) as shall, based on the current market price per
share of the common stock of the Principal Party (determined
in the same manner as the current market price of Common
Stock is determined under Section 11(d) hereof) on the date
of consummation of the events described in Section 13, have
a value equal to the Purchase Price.
The Company shall use all reasonable efforts to ensure
that the provisions of this Section 7(e) and Section 4(b) are
complied with, but shall have no liability to any holder of Right
Certificates or other Person as a result of its making or failing
to make any determinations with respect to an Acquiring Person or
its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be
obligated to undertake any action with respect to a registered
holder upon the occurrence of any purported exercise as set forth
in this Section 7 unless such registered holder shall have (i)
completed and signed the certificate contained in the form of
election to purchase set forth on the reverse side of the Right
Certificate surrendered for such exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as
the Company shall reasonably request.
Section 8. Cancellation and Destruction of Right
Certificates. All Right Certificates surrendered for the purpose of
exercise, transfer, split up, combination or exchange shall, if
surrendered to the Company or to any of its agents, be delivered to
the Rights Agent for cancellation or in canceled form, or, if
surrendered to the Rights Agent, shall be canceled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly
permitted by this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired
by the Company otherwise than upon the exercise thereof. The Rights
Agent shall deliver all canceled Right Certificates to the Company.
Section 9. Reservation and Availability of Shares of
Preferred Stock. The Company covenants and agrees that it shall from
time to time (a) cause to be reserved and kept available out of its
authorized and unissued shares of Preferred Stock or its authorized
and issued shares of Preferred Stock held in its treasury (and,
following the occurrence of any event set forth in Section 11(a)(ii)
hereof, out of its authorized and unissued shares of Common Stock
and/or other securities or shares held in its treasury), the number of
shares of Preferred Stock (and, following the occurrence of any event
set forth in Section 11(a)(ii) hereof, Common Stock and/or other
securities) that will be sufficient to permit the exercise in full of
all outstanding Rights, (b) take all such action as may be necessary
to insure that all shares of Preferred Stock or Common Stock and/or
other securities delivered upon exercise of Rights shall, at the time
of delivery of the certificates for such shares (subject to payment of
the Purchase Price), be duly and validly authorized and issued and
fully paid and non assessable, (c) pay when due and payable any and
all federal and state transfer taxes and charges which may be payable
in respect of the issuance or delivery of the Right Certificates or of
any shares of Preferred Stock or Common Stock and/or other securities
upon the exercise of Rights and (d) take all such action, from and
after the date the Rights become exercisable hereunder, as may be
necessary to permit the exercise of the Rights for Preferred Stock or
Common Stock and/or other securities, including any required
registration under the Securities Act of 1933, as amended (the "1933
Act"), and, in connection therewith and if deemed desirable by the
Company, use its best efforts to list (or continue the listing of) the
Preferred Stock or Common Stock and/or other securities on a national
securities exchange and to cause all shares of Preferred Stock
reserved for issuance upon exercise of Rights to be listed on such
exchange upon official notice of issuance upon such exercise. The
Company will also take such action as may be appropriate under, or to
ensure compliance with, the securities or "blue sky " laws of the
various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to
exceed ninety (90) days, the exercisability of the Rights in order to
comply with all applicable federal and state securities laws. Upon
any such suspension, the Company shall issue a public announcement
(and shall provide written notice to the Rights Agent) stating that
the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no
longer in effect. Notwithstanding any provision of this Agreement to
the contrary, the Rights shall not be exercisable in any jurisdiction
unless the requisite qualification in such jurisdiction shall have
been obtained and until a registration statement has been declared
effective. Notwithstanding the provisions of clause (c) of the first
sentence of this Section 9, the Company shall not be required to pay
any transfer tax which may be payable in respect of any transfer
involved in the transfer or delivery of Right Certificates or the
issuance or delivery of certificates for Preferred Stock or Common
Stock and/or other securities in a name other than that of the
registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or deliver any certificates for
shares of Preferred Stock or Common Stock and/or other securities upon
the exercise of any Rights until any such tax shall have been paid
(any such tax being payable by the holder of such Right Certificate at
the time of surrender) or until it has been established to the
Company's satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each Person in
whose name any certificate for shares of Preferred Stock (or Common
Stock or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the
holder of record of the Preferred Stock (or Common Stock or other
securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Right Certificate
evidencing such Rights was duly surrendered and payment of the
Purchase Price (and any applicable transfer taxes) was made; provided,
however, that if the date of such surrender and payment is a date upon
which the Preferred Stock (or Common Stock or other securities, as the
case may be) transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock (or Common Stock or other securities, as
the case may be) transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Right
Certificate shall not be entitled to any rights of a shareholder of
the Company with respect to shares for which the Rights shall be
exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares
or Number of Rights. The Purchase Price, the number and kind of
shares covered by each Right and the number of Rights outstanding are
subject to adjustment from time to time as provided in this Section
11.
(a)(i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on Common Stock
payable in shares of Common Stock, (B) subdivide the outstanding
Common Stock, (C) combine the outstanding Common Stock into a
smaller number of shares or (D) issue any shares of its capital
stock in a reclassification of the Common Stock (including any
such reclassification in connection with a consolidation or
merger in which the Company is the surviving corporation), except
as otherwise provided in this Section 11(a), then and in each
such event the number of shares issuable upon the exercise of a
Right and the Purchase Price payable after such event shall be
the number of shares issuable immediately prior to such event
multiplied by a fraction the numerator of which is the number of
Rights outstanding immediately prior to such event and the
denominator of which is the number of Rights outstanding
immediately after such event and the Purchase Price after such
event shall be the Purchase Price in effect immediately prior to
such event multiplied by such fraction. If an event occurs which
would require an adjustment under both Section 11(a)(i) and
Section 11(a)(ii), the adjustment provided for in Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii).
(ii) In the event on or at any time after a Stock
Acquisition Date
(A)(1) any Person (other than a wholly owned
Subsidiary of the Company), directly or indirectly,
shall merge into the Company or any of its Subsidiaries
or otherwise combine with the Company or any of its
Subsidiaries and the Company or such Subsidiary shall
be the continuing or surviving corporation of such
merger or combination, or (2) any Person, directly or
indirectly, shall sell or otherwise transfer, in one or
more transactions, assets to the Company or any of its
Subsidiaries in exchange for 50% or more of the shares
of any class of capital stock of the Company or any of
its Subsidiaries, and Common Stock of the Company shall
remain outstanding and unchanged,
(B) any Acquiring Person, directly or indirectly,
shall (1) in one or more transactions, transfer any
assets to the Company or any of its Subsidiaries in
exchange (in whole or in part) for shares of any class
of capital stock of the Company or any of its
Subsidiaries or for securities exercisable for or
convertible into shares of any class of capital stock
of the Company or any of its Subsidiaries or otherwise
obtain from the Company or any of its Subsidiaries,
with or without consideration, any additional shares of
any class of capital stock of the Company or any of its
Subsidiaries or other securities exercisable for or
convertible into shares of any class of capital stock
of the Company or any of its Subsidiaries (other than
as part of a pro rata distribution to all holders of
Common Stock), (2) sell, purchase, lease, exchange,
mortgage, pledge, transfer or otherwise dispose of (in
one or more transactions), to, from or with, as the
case may be, the Company or any of its Subsidiaries,
assets on terms and conditions less favorable to the
Company or such Subsidiary than the Company or such
Subsidiary would be able to obtain in arm's-length
negotiation with an unaffiliated third party, (3)
receive any compensation from the Company or any of the
Company's Subsidiaries other than compensation for full-
time employment as a regular employee, or fees for
serving as director, at rates in accordance with the
Company's (or its Subsidiaries') past practices, or (4)
receive the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial
assistance provided by the Company or any of its
Subsidiaries on terms and conditions less favorable to
the Company or such Subsidiary than the Company or such
Subsidiary would be able to obtain in arm's-length
negotiation with an unaffiliated party,
(C) there shall be any reclassification of
securities (including any reverse stock split), or
recapitalization of the Company, or any merger or
consolidation of the Company with any of its
Subsidiaries or any other similar transaction or series
of transactions involving the Company or any of its
Subsidiaries (whether or not with or into or otherwise
involving an Acquiring Person) which has the effect,
directly or indirectly, of increasing by more than 1%
the proportionate share of the outstanding shares of
any class of equity securities or of securities
exercisable for or convertible into equity securities
of the Company or any of its Subsidiaries which is
directly or indirectly owned by any Acquiring Person or
any Associate or Affiliate of any Acquiring Person or
(D) any Person (other than the Company, Lilly
Endowment, Inc., any Subsidiary of the Company, any
employee benefit plan or employee stock plan of the
Company or of any Subsidiary of the Company or any
Person organized, appointed, established or holding
Voting Stock by, for or pursuant to, the terms of any
such plan or any Person who acquires a Substantial
Block in connection with a transaction or series of
transactions approved prior to such transaction or
transactions by the Board of Directors of the Company),
who or which alone or together with its Affiliates and
Associates become the Beneficial Owner of a number of
shares of the outstanding Voting Stock having 25% or
more of the general voting power of the Company; then,
and in each such case, proper provision shall be made
so that each holder of a Right, except as provided
below and in Section 7(e), shall thereafter have the
right to receive, upon exercise thereof at the then
current Purchase Price in accordance with the terms of
this Agreement, in lieu of a number of one-hundredths
of a share of Preferred Stock, such number of shares of
Common Stock of the Company as shall equal the result
obtained by (x) multiplying the then current Purchase
Price per one one-hundredth of a share of Preferred
Stock by the number of one one-hundredths of a share of
Preferred Stock for which a Right is then exercisable
and dividing that product by (y) 50% of the current
market price per share of Common Stock (determined
pursuant to Section 11(d) hereof) on the date of the
occurrence of any of the events listed above in this
subparagraph (ii); provided, however, that if the
transaction that would otherwise give rise to the
foregoing adjustment is also subject to the provisions
of Section 13, then only the provisions of Section 13
shall apply and no adjustment shall be made pursuant to
this Section 11(a)(ii). The Company shall not
consummate any such merger, combination, transfer or
transaction unless prior thereto there shall be
sufficient authorized but unissued Common Stock and
authorized and issued Common Stock held in its treasury
to permit the exercise in full of the Rights in
accordance with the foregoing sentence; provided,
however, that in no case may the Company consummate any
such merger, combination, transfer or transaction if at
the time of or immediately after such transaction there
are any rights, warrants or other instruments or
securities outstanding or agreements in effect which
would substantially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights.
In the event that the issuance of any Common Stock
pursuant to the exercise of the Rights as required by
the preceding paragraph is prohibited by any provision
of the Company's Articles of Incorporation, then upon
the exercise of a Right in accordance with the
preceding paragraph, proper provision shall be made so
that each holder of a Right (except as provided in
Section 7(e)) shall thereafter have the right to
receive, upon exercise thereof at the then current
Purchase Price in accordance with the terms of this
Agreement, the greater of (x) the number of one one
hundredths of a share of Preferred Stock to which such
Right related immediately prior to such event or (y)
the number of one one-hundredths of a share of
Preferred Stock as shall, based on the current market
price per share of Preferred Stock (determined pursuant
to Section 11(d)) on the date of the occurrence of any
one of the events listed above in this subparagraph
(ii), have a value equal to twice the Purchase Price or
such number of shares or other units of Equivalent
Stock of the Company as shall equal the result obtained
by (x) multiplying the then current Purchase Price per
one one-hundredth of a share of Preferred Stock by the
number of one one-hundredths of a share of Preferred
Stock for which a Right is then exercisable and
dividing that product by (y) 50% of the current market
price per share or other unit of the Equivalent Stock
of the Company (determined on substantially the same
basis as is prescribed by Section 11(d)) on the date of
consummation of such merger, combination or transfer.
In the event that at any time the Company should be
prohibited by law, by any provision of its Articles of
Incorporation or by any instrument or agreement to
which the Company is a party or by which it is bound
from issuing sufficient Equivalent Stock to permit the
exercise of all outstanding Rights in accordance with
the foregoing sentence, then, in lieu of issuing such
Equivalent Stock upon such exercise, the Company shall
pay to each holder of a Right (except as provided in
Section 7(e)) upon surrender of the Right as provided
herein but without payment of the Purchase Price, an
amount in cash for each Right equal to the Purchase
Price.
(iii) In the event the Company shall at any time after
the date of this Agreement (A) combine or subdivide the
outstanding Preferred Stock into a different number of
shares, or (B) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such
reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section
11(a) and Section 7(e), the holder of any Right exercised
after such time shall be entitled to receive, upon payment
of the Purchase Price, the number of shares of Preferred
Stock or the number and kind of shares of such other capital
stock, as the case may be, issuable on the effective date of
such combination, subdivision or reclassification which such
holder would have been entitled to receive had such holder
been the holder of the number of shares of Preferred Stock
for which such Right was then exercisable immediately prior
to such effective date. If an event occurs which would
require an adjustment under both this Section 11(a)(iii) and
Section 11(a)(ii), the adjustment provided for in this
Section 11(a)(iii) shall be in addition to, and shall be
made prior to, any adjustment required pursuant to Section
11(a)(ii).
(b) In case the Company shall fix a record date for the
issuance of rights or warrants to all holders of shares of Common
Stock entitling them (for a period expiring within 45 calendar
days after such record date) to subscribe for or purchase Common
Stock or securities convertible into Common Stock at a price per
share of Common Stock (or having a conversion price per share, if
a security convertible into Common Stock) less than the current
market price per share of Common Stock (as defined in Section
11(d)) on such record date, the Purchase Price to be in effect
after such record date shall be determined by multiplying the
Purchase Price in effect immediately prior to such record date by
a fraction, of which the numerator shall be the number of shares
of Common Stock outstanding on such record date plus the number
of shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so to be offered
(and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current
market price and of which the denominator shall be the number of
shares of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock to be offered for
subscription or purchase (or into which the convertible
securities to be offered are initially convertible). In case
such subscription price may be paid in a consideration part or
all of which shall be in a form other than cash, the value of
such consideration shall be as determined in good faith by the
Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent. Shares of
Common Stock owned by or held for the account of the Company
shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever
such a record date is fixed; and in the event that such rights or
warrants are not so issued, the Purchase Price shall be adjusted
to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for the
making of a distribution to all holders of shares of Common Stock
(including any such distribution made in connection with a
consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness or assets (other than
any distribution approved by a majority of the Continuing
Directors then in office or a regular periodic cash dividend at a
rate not in excess of 130% of the rate of the last cash dividend
theretofore paid or a dividend payable in Common Stock) or
subscription rights or warrants (excluding those referred to in
Section 11(b)), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price
in effect immediately prior to such record date by a fraction, of
which the numerator shall be the current market price per share
of Common Stock (as defined in Section 11(d)) on such record
date, less the fair market value (as determined in good faith by
the Board of Directors of the Company, whose determination shall
be described in a statement filed with the Rights Agent) of the
portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable
to one share of Common Stock, and of which the denominator shall
be such current market price per share of Common Stock. Such
adjustments shall be made successively whenever such a record
date is fixed; and in the event that such distribution is not so
made, the Purchase Price shall again be adjusted to be the
Purchase Price which would then be in effect if such record date
had not been fixed.
(d) For the purpose of any computation hereunder, the
"current market price" per share of Preferred Stock or Common
Stock on any date shall be deemed to be the average of the daily
closing prices per share of such stock for the 30 consecutive
Trading Days immediately prior to such date; provided, however,
that in the event that the current market price per share of such
stock is determined during a period following the announcement by
the issuer of such stock of a dividend or distribution on such
stock payable in shares of such stock or securities convertible
into shares of such stock, and prior to the expiration of 30
Trading Days after the ex-dividend date for such dividend or
distribution, then, and in each such case, the current market
price shall be appropriately adjusted to reflect the current
market price per share of such stock. The closing price for each
day shall be the last sale price, regular way, or, in case no
such sale takes place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock
Exchange or, if the shares of such stock are not listed or
admitted to trading on the New York Stock Exchange, as reported
in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities
exchange on which the shares of such stock are listed or admitted
to trading or, if the shares of such stock are not listed or
admitted to trading on any national securities exchange, the
average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of
Securities Dealers, Inc., Automated Quotation System ( "NASDAQ
"). If on any such date the shares of such stock are not quoted
by any such organization, the fair value of such shares on such
date as determined in good faith by the Board of Directors of the
Company shall be used. The term "Trading Day " shall mean a day
on which the principal national securities exchange on which the
shares of such stock are listed or admitted to trading is open
for the transaction of business or, if the shares of such stock
are not listed or admitted to trading on any national securities
exchange, a Monday, Tuesday, Wednesday, Thursday or Friday on
which banking institutions in the State of Indiana are not
authorized or obligated by law or executive order to close. If
such stock is not publicly held or not so listed or traded,
"current market price " per share shall mean the fair value per
share as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a
statement filed with the Rights Agent.
(e) Except as hereinafter provided, no adjustment in the
Purchase Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this
Section 11(e) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 11 shall be made to the nearest
cent or to the nearest one hundredth of a share as the case may
be. Notwithstanding the first sentence of this Section 11(e),
any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the
transaction which mandates such adjustment or (ii) the date of
the expiration of the right to exercise any Rights.
(f) In the event that at any time, as a result of an
adjustment made pursuant to Section 11(a)(ii) or Section 13, the
holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock other than shares of
Preferred Stock, thereafter the number of such other shares so
receivable upon exercise of any Right shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
shares contained in Section 11(a), (b), (c), (e), (g), (h), (i),
(j), (k) and (m), and the provisions of Sections 7, 9, 10, 13 and
14 with respect to the shares of Preferred Stock shall apply on
like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent
to any adjustment made to the Purchase Price hereunder shall
evidence the right to purchase, at the adjusted Purchase Price,
the number of one one-hundredths of a share of Preferred Stock
purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase
Price as a result of the calculations made in Section 11(b) and
(c), each Right outstanding immediately prior to the making of
such adjustment shall thereafter evidence the right to purchase,
at the adjusted Purchase Price, that number of one one-hundredths
of a share (calculated to the nearest one-hundredth) obtained by
(i) multiplying (x) the number of one one-hundredths of a share
covered by a Right immediately prior to such adjustment by (y)
the Purchase Price in effect immediately prior to such adjustment
of the Purchase Price and (ii) dividing the product so obtained
by the Purchase Price in effect immediately after such adjustment
of the Purchase Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights,
in substitution for any adjustment in the number of shares of
Preferred Stock purchasable upon the exercise of a Right. Each
of the Rights outstanding after such adjustment of the numbers of
Rights shall be exercisable for the number of shares of Preferred
Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment
of the number of Rights shall become that number of Rights
(calculated to the nearest one-hundredth) obtained by dividing
the Purchase Price in effect immediately prior to adjustment of
the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a
public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. This
record date may be the date on which the Purchase Price is
adjusted or any day thereafter, but, if the Right Certificates
have been issued, shall be at least 10 days later than the date
of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to
this Section 11(i) the Company shall, as promptly as practicable,
cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing,
subject to Section 14, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at
the option of the Company, shall cause to be distributed to such
holders of record in substitution and replacement for the Right
Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to
which such holders shall be entitled after such adjustment.
Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein (and may
bear, at the option of the Company, the adjusted Purchase Price)
and shall be registered in the names of the holders of record of
Right Certificates on the record date specified in the public
announcement.
(j) Irrespective of any adjustment or change in the
Purchase Price or the number of one one-hundredths of a share of
Preferred Stock issuable upon the exercise of the Rights, the
Right Certificates theretofore and thereafter issued may continue
to express the Purchase Price per one one-hundredth share and the
number of shares which were expressed in the initial Right
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value of the
shares of Preferred Stock issuable upon exercise of the Rights,
the Company shall take all corporate action which may, in the
opinion of its counsel, be necessary in order that the Company
may validly and legally issue fully paid and non assessable
shares of such Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that
an adjustment in the Purchase Price be made effective as of a
record date for a specified event, the Company may elect to defer
until the occurrence of such event the issuing to the holder of
any Right exercised after such record date the shares of
Preferred Stock and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the
shares of Preferred Stock and other capital stock or securities
of the Company, if any, issuable upon such exercise on the basis
of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder
a due bill or other appropriate instrument evidencing such
holder's right to receive such additional shares and securities
upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such
reductions in the Purchase Price, in addition to those
adjustments expressly required by this Section 11, as and to the
extent that it in its sole discretion shall determine to be
advisable in order that any consolidation or subdivision of the
Common Stock or Preferred Stock, issuance wholly for cash of any
Common Stock at less than the current market price, issuance
wholly for cash of Common Stock or securities which by their
terms are convertible into or exchangeable for Common Stock,
stock dividends or issuance of rights, options or warrants
referred to hereinabove in this Section 11, hereafter made by the
Company to holders of its Common Stock and/or Preferred Stock
shall not be taxable to such shareholders.
Section 12. Certification of Adjusted Purchase Price or
Number of Shares. Whenever an adjustment is made as provided in
Section 11 or 13, the Company shall (a) promptly prepare a certificate
setting forth such adjustment, and a brief statement of the facts
accounting for such adjustment, (b) promptly file with the Rights
Agent and with each transfer agent for the Preferred Stock or the
Common Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with
Section 25. Notwithstanding the foregoing sentence, the failure of
the Company to give such notice shall not affect the validity of, or
the force or effect of, the requirement for such adjustment.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. In the event on or at any time after a Stock
Acquisition Date, directly or indirectly, (a) the Company shall
consolidate with, or merge with and into, any other Person, (b) any
other Person shall consolidate, merge with and into the Company, the
Company shall be the continuing or surviving corporation of such
merger and, in connection with such merger, all or part of the Common
Stock shall be changed into or exchanged for stock or other securities
of any other Person or cash or any other property, or (c) the Company
shall sell or otherwise transfer (or one or more of its Subsidiaries
shall sell or otherwise transfer), in one or more transactions, assets
or earning power aggregating more than 50% of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to any
other Person (other than a pro rata distribution by the Company of
assets (including securities) of the Company or any of its
Subsidiaries to all holders of the Company's Common Stock), then, and
in each such case:
(A) except as provided in Section 7(e), proper provision
shall be made so that (i) each holder of a Right shall thereafter
have the right to receive, upon the exercise thereof at the then
current Purchase Price in accordance with the terms of this
Agreement, such number of shares of common stock of the Principal
Party (as hereinafter defined) as shall, based on the current
market price per share of the common stock of the Principal Party
(determined in the same manner as the current market price of
Common Stock is determined under Section 11(d)) on the date of
consummation of such consolidation, merger, sale or transfer,
have a value equal to twice the Purchase Price; (ii) the
Principal Party shall thereafter be liable for, and shall assume,
by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this
Agreement; (iii) the term "Company " shall thereafter be deemed
to refer to such Principal Party; and (iv) the Principal Party
shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its common stock
in accordance with Section 9) in connection with such
consummation as may be necessary to assure that the provisions
hereof shall thereafter be applicable, as nearly as reasonably
may be, in relation to the shares of its common stock thereafter
deliverable upon the exercise of the Rights; provided, however,
that, upon the subsequent occurrence of any merger,
consolidation, sale of all or substantially all assets,
recapitalization, reclassification of shares, reorganization or
other extraordinary transaction in respect of such Principal
Party, except as provided in Section 7(e), each holder of a Right
shall thereupon be entitled to receive, upon exercise of a Right
and payment of the Purchase Price, such cash, shares, rights,
warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such
transaction, owned the shares of common stock of the Principal
Party purchasable upon the exercise of a Right, and such
Principal Party shall take such steps (including, but not limited
to, reservation of shares of stock) as may be necessary to permit
the subsequent exercise of the Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other
property.
(B) "Principal Party" shall mean
(1) in the case of any transaction described in (a) or
(b) of the first sentence of this Section 13, (i) the Person
that is the issuer of any securities into which shares of
Common Stock of the Company are converted in such merger or
consolidation, or, if there is more than one such issuer,
the issuer the common stock of which has the greatest market
value or (ii) if no securities are so issued, (x) the Person
that is the other party to the merger or consolidation and
that survives said merger or consolidation, or, if there is
more than one such Person, the Person the common stock of
which has the greatest market value or (y) if the Person
that is the other party to the merger or consolidation does
not survive the merger or consolidation, the Person that
does survive the merger or consolidation (including the
Company if it survives);
(2) in the case of any transaction described in (c) of
the first sentence of this Section 13, the Person that is
the party receiving the greatest portion of the assets or
earning power transferred pursuant to such transaction or
transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the
assets or earning power so transferred or if the Person
receiving the greatest portion of the assets or earning
power cannot be determined, whichever of such Persons as is
the issuer of common stock having the greatest market value
of shares outstanding; provided, however, that in any such
case (w) if the common stock of such Person is not at such
time and has not been continuously over the preceding 12-
month period registered under Section 12 of the Exchange
Act, and such Person is a direct or indirect Subsidiary of
another corporation the common stock of which is and has
been so registered, "Principal Party " shall refer to such
other corporation, (x) if the common stock of such Person is
not and has not been so registered and such Person is not a
direct or indirect Subsidiary of another corporation the
common stock of which is and has been so registered,
"Principal Party " shall refer to the corporation which
ultimately controls such Person, (y) in case such Person is
a Subsidiary, directly or indirectly, of more than one
corporation, the common stocks of all of which are and have
been so registered, "Principal Party " shall refer to
whichever of such corporations is the issuer of the common
stock having the greatest market value of shares held by the
public, and (z) in case such Person is owned, directly or
indirectly, by a joint venture formed by two or more Persons
that are not owned, directly or indirectly, by the same
Person, the rules set forth in (w) - (y) above shall apply
to each of the chains of ownership having an interest in
such joint venture as if such party were a Subsidiary of
both or all of such joint ventures and the Principal Parties
in each such chain shall bear the obligations set forth in
this Section 13 in the same ratio as their direct or
indirect interests in such Person bear to the total of such
interests.
The Company shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto
the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement
making valid provision for the result described in
subsections (A) and (B) above provided, however, that in no
case may the Company consummate any such consolidation,
merger, sale or transfer if (i) at the time of or
immediately after such transaction there are any rights,
warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by
the Rights or (ii) prior to, simultaneously with or
immediately after such transaction, the shareholders of the
Person who constitutes, or would constitute, the Principal
Party for purposes of Section 13 shall have received a
distribution of Rights previously owned by such Person or
any of its Affiliates and Associates. The provisions of
this Section 13 shall similarly apply to successive mergers
or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Right Certificates which evidence
fractional Rights. If the Company shall determine not to issue
such fractional Rights, in lieu of such fractional Rights, there
shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be
issuable an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this
Section 14(a), the current market value of a whole Right shall be
the closing price of the Rights for the Trading Day immediately
prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the
last sale price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading
on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the
Rights are not listed or admitted to trading on any national
securities exchange, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ. If
on any such date the Rights are not quoted by any such
organization, the fair value of the Rights on such date as
determined in good faith by the Board of Directors of the Company
shall be used.
(b) The Company shall not be required to issue fractions of
shares (other than fractions which are integral multiples of the
fraction of a share for which a Right is then exercisable) upon
exercise of the Rights or to distribute certificates which
evidence fractional shares (other than fractions which are
integral multiples of the fraction of a share for which a Right
is exercisable). In lieu of fractional shares that are not
integral multiples of the fraction for which a Right is then
exercisable, the Company shall pay to the registered holders of
Right Certificates at the time such Right Certificates are
exercised as herein provided an amount in cash equal to the same
fraction of the current market value of a share of Preferred
Stock. For purposes of this Section 14, the current market value
of a share of Preferred Stock shall be the closing price of a
share of Preferred Stock (as determined pursuant to the second
sentence of Section 11(d)) for the Trading Day immediately prior
to the date of such exercise.
(c) The holder of a Right by the acceptance of the Rights
expressly waives his right to receive any fractional Rights or
any fractional shares (other than fractions which are integral
multiples of the fraction of a share for which a Right is then
exercisable) upon exercise of a Right.
Section 15. Rights of Action. All rights of action in
respect of this Agreement are vested in the respective registered
holders of the Right Certificates (and prior to the Distribution Date,
the registered holders of the Common Stock); and any registered holder
of any Right Certificate (or, prior to the Distribution Date, any
registered holder of the Common Stock), without the consent of the
Rights Agent or of the holder of any other Right Certificate (or,
prior to the Distribution Date, any registered holder of the Common
Stock), may, on his own behalf and for his own benefit, enforce, and
may institute and maintain any suit, action or proceeding against the
Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of
Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this
Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this
Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right by accepting the same, consents and agrees with the Company and
the Rights Agent and with every other holder of a Right that:
(a) up to and including the Distribution Date, the
Rights will be transferable only in connection with the transfer
of Common Stock;
(b) after the Distribution Date, the Right
Certificates are transferable only on the registry books of the
Rights Agent and then if surrendered at the principal stock
transfer office of the Rights Agent, duly endorsed or accompanied
by a proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and
treat the person in whose name the Right Certificate (or, prior
to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of
the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated
Common Stock certificate made by anyone other than the Company or
the Rights Agent) for all purposes whatsoever, and neither the
Company nor the Rights Agent shall be affected by any notice to
the contrary.
Section 17. Right Certificate Holder Not Deemed a
Shareholder. No holder, as such, of any Right Certificate shall be
entitled to vote, receive dividends or be deemed for any purpose the
holder of Preferred Stock or any other securities of the Company which
may at any time be issuable on the exercise of the Rights represented
thereby, nor shall anything contained herein or in any Right
Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a shareholder of the
Company or any right to vote for the election of directors or upon any
matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareholders (except as provided
in Section 24),or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right
Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent
reasonable compensation for all services rendered by it hereunder
and, from time to time, on demand of the Rights Agent, its
reasonable expenses and counsel fees and other disbursements
incurred in the administration and execution of this Agreement
and the exercise and performance of its duties hereunder. The
Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense,
incurred without gross negligence, bad faith or willful
misconduct on the part of the Rights Agent, for anything done or
omitted by the Rights Agent in connection with the acceptance and
administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the
premises.
(b) The Rights Agent shall be protected and shall
incur no liability for or in respect of any action taken,
suffered or omitted by it in connection with its administration
of this Agreement in reliance upon any Right Certificate or
certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it
to be genuine and to be signed, executed and, where necessary,
verified or acknowledged, by the proper person or persons.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent.
(a) Any corporation into which the Rights Agent or any
successor Rights Agent may be merged or with which it may be
consolidated, or any corporation resulting from any merger or
consolidation to which the Rights Agent or any successor Rights
Agent shall be a party, or any corporation succeeding to the
stock transfer business of the Rights Agent or any successor
Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment
as a successor Rights Agent under the provisions of Section 21.
In case at the time such successor Rights Agent shall succeed to
the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any
such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Right Certificates so
countersigned, and in case at that time any of the Right
Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in
the name of the predecessor Rights Agent or in the name of the
successor Rights Agent; and in all such cases such Right
Certificates shall have the full force provided in the Right
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent
shall be changed and at such time any of the Right Certificates
shall have been countersigned but not delivered, the Rights Agent
may adopt the countersignature under its prior name and deliver
Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, the
Rights Agent may countersign such Right Certificates either in
its prior name or in its changed name; and in all such cases such
Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon
the following terms and conditions, by all of which the Company and
the holders of Right Certificates, by their acceptance thereof, shall
be bound:
(a) The Rights Agent may consult with legal counsel (who
may be legal counsel for the Company), and the opinion of such
counsel shall be full and complete authorization and protection
to the Rights Agent as to any action taken or omitted by it in
good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable
that any fact or matter be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved
and established by a certificate signed by the President, any
Vice President, the Treasurer, any Assistant Treasurer, the
Secretary or any Assistant Secretary of the Company and delivered
to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or
suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its
own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason
of any of the statements of fact or recitals contained in this
Agreement or in the Right Certificates (except its
countersignature thereof) or be required to verify the same, but
all such statements and recitals are and shall be deemed to have
been made by the Company only.
(e) The Rights Agent shall not be under any responsibility
in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights
Agent) or in respect of the validity or execution of any Right
Certificate (except its countersignature thereof); nor shall it
be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate
nor shall it be responsible for any adjustment required under the
provisions of Section 11 or 13 or responsible for the manner,
method or amount of any such adjustment or the ascertaining of
the existence of facts that would require any such adjustment
(except with respect to the exercise of Rights evidenced by Right
Certificates after actual notice of any such adjustment); nor
shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation
of any shares of Preferred Stock to be issued pursuant to this
Agreement or any Right Certificate or as to whether any shares of
Preferred Stock will, when issued, be validly authorized and
issued, fully paid and non assessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts,
instruments and assurances as may reasonably be required by the
Rights Agent for the carrying out or performing by the Rights
Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from the President, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer or any Assistant Treasurer
of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be
liable for any action taken or suffered to be taken by it in good
faith in accordance with instructions of any such officer.
(h) The Rights Agent and any shareholder, director, officer
or employee of the Rights Agent may buy, sell or deal in any of
the Rights or other securities of the Company or become
pecuniarily interested in any transaction in which the Company
may be interested, or contract with or lend money to the Company
or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the
Rights Agent from acting in any other capacity for the Company or
for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty
hereunder either itself or by or through its attorneys or agents,
and the Rights Agent shall not be answerable or accountable for
any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was
exercised in the selection and continued employment thereof.
(j) If, with respect to any Right Certificate surrendered
to the Rights Agent for exercise or transfer, the certificate
attached to the form of assignment or form of election to
purchase, as the case may be, has either not been completed or
indicates an affirmative response to clause 1 and/or 2 thereof,
the Rights Agent shall not take any further action with respect
to such requested exercise of transfer without first consulting
with the Company.
Section 21. Change of Rights Agent. The Rights Agent or
any successor Rights Agent may resign and be discharged from its
duties under this Agreement upon 30 days' notice in writing mailed to
the Company and to each transfer agent of Common Stock and Preferred
Stock by registered or certified mail, and to the holders of the Right
Certificates by first-class mail. The Company may remove the Rights
Agent or any successor Rights Agent upon 30 days' notice in writing,
mailed to the Rights Agent or successor Rights Agent, as the case may
be, and to each transfer agent of Common Stock and Preferred Stock by
registered or certified mail, and to the holders of the Right
Certificates by first-class mail. If the Rights Agent shall resign or
be removed or shall otherwise become incapable of acting, the Company
shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of 30 days after such
removal or after it has been notified in writing of such resignation
or incapacity by the resigning or incapacitated Rights Agent or by the
holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then such registered
holder of any Right Certificate may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of
the United States or of a state of the United States in good standing,
which is authorized under such laws to exercise stock transfer powers
and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent
a combined capital and surplus of at least $50,000,000. After
appointment, the successor Rights Agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor
Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed
necessary for the purpose. Not later than the effective date of any
such appointment the Company shall file notice thereof in writing with
the predecessor Rights Agent and each transfer agent of Common Stock
and Preferred Stock, and mail a notice thereof in writing to the
registered holders of the Right Certificates. Failure to give any
notice provided for in this Section 21, however, or any defect
therein, shall not affect the legality or validity of the resignation
or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Company may, at its option, issue new
Right Certificates evidencing Rights in such form as may be approved
by its Board of Directors to reflect any adjustment or change in the
Purchase Price per share and the number or kind or class of shares of
stock or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement.
Section 23. Redemption. The Board of Directors may, at its
option and as provided herein, elect to redeem all but not less than
all the then outstanding Rights at a redemption price of $.01 per
Right; as such amount may be appropriately adjusted to reflect any
combination or subdivision of the outstanding Common Stock, any
dividend payable in Common Stock in respect of the outstanding Common
Stock or any other similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the
"Redemption Price ") at any time up to and including the tenth
Business Day after a Stock Acquisition Date; provided, however, that
the Board of Directors of the Company may extend the time during which
the Rights may be redeemed to be at any time as may be determined by
the Board of Directors of the Company; and provided, further, that if
the Board of Directors of the Company authorizes redemption of the
Rights or an extension of the time period during which the Rights may
be redeemed after the time that any Person becomes an Acquiring
Person, then there must be Continuing Directors then in office and
such authorization or extension shall require the concurrence of a
majority of such Continuing Directors. Promptly upon the action of
the Board of Directors of the Company electing to redeem the Rights,
the Company shall make a public announcement thereof, and from and
after the date of such announcement, without any further action and
without any further notice, the only right of the holders of Rights
shall be to receive the Redemption Price. As soon as practicable
after the action of the Board of Directors ordering the redemption of
the Rights, the Company shall give notice of such redemption to the
holders of the then outstanding Rights by mailing such notice to all
such holders at their last addresses as they appear upon the registry
books of the Rights Agent. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the
method by which the payment of the Redemption Price will be made.
Notwithstanding anything contained in this Agreement to the contrary,
the Rights shall not be exercisable prior to the expiration of the
Company's right of redemption hereunder.
Section 24. Notice of Proposed Actions.
(a) In case the Company, after the Distribution Date, shall
propose (1) to pay any dividend payable in stock of any class to
the holders of its Common Stock or Preferred Stock or to make any
other distribution to the holders of its Common Stock or
Preferred Stock (other than any distribution approved by a
majority of the Continuing Directors then in office or a regular
periodic cash dividend at a rate not in excess of 130% of the
rate of the last cash dividend theretofore paid), or (2) to offer
to the holders of its Common Stock or Preferred Stock rights or
warrants to subscribe for or to purchase any additional shares of
Common Stock or Preferred Stock or shares of stock of any class
or any other securities, rights or options, or (3) to effect any
reclassification of its Common Stock or Preferred Stock (other
than a reclassification involving only the subdivision of
outstanding shares of Common Stock), or (4) to effect any
consolidation or merger into or with, or to effect any sale or
other transfer (or to permit one or more of its Subsidiaries to
effect any sale or other transfer), in one or more transactions,
of more than 50% of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to, any other Person, or
(5) to effect the liquidation, dissolution or winding up of the
Company, then, in each such case, the Company shall give to each
holder of a Right, in accordance with Section 25, a notice of
such proposed action, which shall specify the record date for the
purposes of such stock dividend, distribution of rights or
warrants, or the date on which such reclassification,
consolidation, merger, sale, transfer, liquidation, dissolution,
or winding up is to take place and the date of participation
therein by the holders of Common Stock and/or Preferred Stock, if
any such date is to be fixed, and such notice shall be so given
in the case of any action covered by clause (a) or (b) above at
least twenty days prior to the record date for determining
holders of Common Stock and/or Preferred Stock for purposes of
such action, and in the case of any such other action, at least
twenty days prior to the date of the taking of such proposed
action or the date of participation therein by the holders of
Common Stock and/or Preferred Stock, whichever shall be the
earlier. The failure to give notice required by this Section 24
or any defect therein shall not affect the legality or validity
of the action taken by the Company or the vote upon any such
action.
(b) In case any of the events set forth in Section 11(a)(ii)
hereof shall occur, then, in any such case, the Company shall as
soon as practicable thereafter give to each holder of a Right to
the extent feasible and in accordance with Section 25 hereof, a
notice of the occurrence of such event, which shall specify the
event and the consequences of the event to holders of Rights
under Section 11(a)(ii) hereof.
Section 25. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of
any Right Certificate to or on the Company shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Rights Agent) as follows:
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Attention: Secretary
Subject to the provisions of Section 21, any notice or
demand authorized by this Agreement to be given or made by the Company
or by the holder of any Right Certificate to or on the Rights Agent
shall be sufficiently given or made if sent by first-class mail,
postage prepaid, addressed (until another address is filed in writing
with the Company) as follows:
Bank One, Indianapolis, NA
111 Monument Circle
Indianapolis, Indiana 46277
Attention: Security Holder Services Department
Notices or demands authorized by this Agreement to be given
or made by the Company or the Rights Agent to the holder of any Right
Certificate shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Rights Agent.
Section 26. Supplements and Amendments. Prior to the
Distribution Date and subject to the penultimate sentence of this
Section 26, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend any provision of this Agreement without
the approval of any holders of certificates representing shares of
Common Stock. From and after the Distribution Date and subject to the
penultimate sentence of this Section 26, the Company and the Rights
Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Right Certificates in
order (i) to cure any ambiguity, (ii) to correct or supplement any
provision contained herein which may be defective or inconsistent with
any other provisions herein, (iii) to shorten or lengthen any time
period hereunder (which lengthening or shortening, after the time that
any Person becomes an Acquiring Person, shall be effective only if
there are Continuing Directors and shall require the concurrence of a
majority of such Continuing Directors), or (iv) to change or
supplement the provisions hereof in any manner which the Company may
deem necessary or desirable and which shall not adversely affect the
interests of the holders of Right Certificates; provided this
Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iii) of this sentence, (A) a time period relating to when the
Rights may be redeemed at such time as the Rights are not then
redeemable, or (B) any other time period, unless such lengthening is
for the purpose of protecting, enhancing or clarifying the rights of,
and/or the benefits to, the holders of Rights. Upon the delivery of a
certificate from an appropriate officer of the Company which states
that the proposed supplement or amendment is in compliance with the
terms of this Section 26, the Rights Agent shall execute such
supplement or amendment. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment shall be made
which changes the Redemption Price, the Expiration Date, the Purchase
Price or the number of shares of Preferred Stock for which a Right is
exercisable. Prior to the Distribution Date, the interests of the
holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock.
Section 27. Successors. All the covenants and provisions
of this Agreement by or for the benefit of the Company or the Rights
Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.
Section 28. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation
other than the Company, the Rights Agent and the registered holders of
the Right Certificates any legal or equitable right, remedy or claim
under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates.
Section 29. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of Indiana and for all purposes shall be
governed by and construed in accordance with the laws of such State
applicable to contracts to be made and performed entirely within such
State.
Section 30. Counterparts. This Agreement may be executed
in any number of counterparts and each of such counterparts shall for
all purposes be deemed to be an original, and all such counterparts
shall together constitute but one and the same instrument.
Section 31. Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, illegal, or
unenforceable, (a) such invalid, illegal or unenforceable term,
provision, covenant or restriction shall nevertheless be valid, legal
and enforceable to the extent, if any, provided by such court or
authority, and (b) the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
Section 32. Descriptive Headings. Descriptive headings of
the several Sections of this Agreement are inserted for convenience
only and shall not control or affect the meaning or construction of
any of the provisions hereof.
Section 33. Determinations and Actions Taken by the Board
of Directors. For all purposes of this Agreement, any calculation of
the number of shares of Common Stock or of any other class of capital
stock outstanding at any particular time, including for purposes of
determining the particular percentage of the outstanding Common Stock
of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3(d)(1)(i) (as in effect
on the date of this Agreement) of the General Rules and Regulations
under the Exchange Act. The Board of Directors of the Company shall
have the exclusive power and authority to administer this Agreement
and to exercise all rights and powers specifically granted to the
Board or to the Company, or as may be necessary or advisable in the
administration of this Agreement, including, without limitation, the
right and power to (i) interpret the provisions of this Agreement, and
(ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem
or not redeem the Rights or to amend the Agreement); provided,
however, that any determination or action by the Board of Directors of
the Company pursuant to this Section 33 shall be made by a vote of a
majority of the Continuing Directors then in office.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and their respective corporate seals to
be hereunto affixed and attested, all as of the day and year first
above written.
Exhibit A
[Form of Right Certificate]
Certificate No. R- Rights
NOT EXERCISABLE AFTER PUBLIC ANNOUNCEMENT OF REDEMPTION IS
MADE. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION
OF THE COMPANY, AT $.01 PER RIGHT (SUBJECT TO ADJUSTMENT) ON
THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. IN THE EVENT
THAT THE RIGHTS REPRESENTED BY THIS CERTIFICATE ARE ISSUED
TO A PERSON WHO IS AN ACQUIRING PERSON OR AN ASSOCIATE OR
AFFILIATE THEREOF (AS DEFINED IN THE RIGHTS AGREEMENT) OR
CERTAIN TRANSFEREES THEREOF, THIS RIGHT CERTIFICATE AND THE
RIGHTS REPRESENTED HEREBY MAY BE SUBJECT TO CERTAIN
LIMITATIONS IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e)
OF THE RIGHTS AGREEMENT.
RIGHT CERTIFICATE
ELI LILLY AND COMPANY
This certifies that , or registered
assigns, is the registered owner of the number of Rights set forth
above, each of which entitles the owner thereof, subject to the terms,
provisions and conditions of the Rights Agreement, dated as of July
18, 1988 (the "Rights Agreement"), between Eli Lilly and Company, an
Indiana corporation (the "Company "), and Bank One, Indianapolis, NA,
a national banking corporation (the "Rights Agent "), to purchase
from the Company, unless the Rights have been previously redeemed, at
any time after the date on which the Company's right to redeem has
expired and prior to the Expiration Date (as such term is defined in
the Rights Agreement), at the principal stock transfer office of the
Rights Agent, or its successors as Rights Agent, one one-hundredth
(1/100) of a fully paid non assessable share of the Series A
Participating Preferred Stock of the Company ( "Preferred Stock "), at
a purchase price of $325 per one one-hundredth of a share (the
"Purchase Price ") upon presentation and surrender of this Right
Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number
of shares which may be purchased upon exercise thereof) set forth
above, and the Purchase Price per one one-hundredth of a share set
forth above, are the number and Purchase Price as of July 28, 1988
based on the shares of Common Stock of the Company as constituted at
such date.
Upon the occurrence of an event described in clauses (a),
(b) or (c) of the first sentence of Section 13 or subparagraphs (A),
(B), (C) or (D) of Section 11(a)(ii) of the Rights Agreement, the
holder of any Rights that are, or were, beneficially owned by an
Acquiring Person or an Associate or Affiliate thereof (as defined in
the Rights Agreement) or certain transferees thereof shall not be
entitled to the benefit of the adjustments described in Section
11(a)(ii) and Section 13.
As provided in the Rights Agreement, the Purchase Price and
the number and kind of shares of Preferred Stock or other securities
which may be purchased upon the exercise of the Rights evidenced by
this Right Certificate are subject to modification and adjustment upon
the happening of certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms,
provisions and conditions are hereby incorporated herein by reference
and made a part hereof and to which Rights Agreement reference is
hereby made for a full description of the rights, limitations of
rights, obligations, duties and immunities hereunder of the Rights
Agent, the Company and the holders of the Right Certificates, which
limitations of rights include the temporary suspension of the
exercisability of such Rights under the specific circumstances set
forth in the Rights Agreement. Copies of the Rights Agreement are on
file at the principal stock transfer office of the Rights Agent and at
the principal office of the Company.
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal stock transfer office of
the Rights Agent, may be exchanged for another Right Certificate or
Right Certificates of like tenor and date evidencing Rights entitling
the holder to purchase such number of shares of Preferred Stock as the
Rights evidenced by the Right Certificate or Right Certificates
surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Right Certificate or
Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the
Rights evidenced by this Certificate may be redeemed by the Company at
its option at a redemption price of $.01 per Right, which amount is
subject to adjustment as provided in the Rights Agreement.
No fractional shares of Preferred Stock (other than
fractions which are integral multiples of the fraction of a share for
which a Right is then exercisable) will be issued upon the exercise of
any Right or Rights evidenced hereby, but in lieu thereof a cash
payment shall be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of
Preferred Stock or of any other securities of the Company which may at
any time be issuable on the exercise hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer
upon the holder hereof, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon
any matter submitted to stockholders at any meeting thereof, or to
give or withhold consent to any corporate action, or, to receive
notice of meetings or other actions affecting shareholders (except as
provided in the Rights Agreement), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced
by this Right Certificate shall have been exercised as provided in the
Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights
Agent.
WITNESS the facsimile signature of the proper officers of
the Company and its corporate seal. Dated as of , 1988.
ATTEST: ELI LILLY AND COMPANY
By
Title:
Countersigned:
BANK ONE, INDIANAPOLIS, NA
By
Authorized Signature
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
Attorney to transfer the within Right Certificate on the books of the
within-named Rights Agent, with full power of substitution.
Dated: ----------------, 19---
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies (after due inquiry and to
the best knowledge of the undersigned) by checking the appropriate
boxes that:
(1) this Right Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or
was an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights
Agreement);
(2) the undersigned [ ] did [ ] did not acquire the Rights
evidenced by this Right Certificate from any Person who is, was
or subsequently became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: ------------, 19----
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment must correspond to
the name as written upon the face of this Right Certificate in every
particular, without alteration or enlargement or any change
whatsoever.
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Right Certificate.)
To Eli Lilly and Company:
The undersigned hereby irrevocably elects to exercise
Rights represented by this Right Certificate to
purchase the shares of Preferred Stock issuable upon the exercise of
such Rights and requests that certificates for such shares be issued
in the name of:
Please insert social security
or other identifying number
(Please print name and address)
If such number of rights shall not be all the Rights evidenced by this
Right Certificate, a new Right Certificate for the balance remaining
of such Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
(Please print name and address)
Dated: --------------, 19-----
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies (after due inquiry and to
the best knowledge of the undersigned) by checking the appropriate
boxes that:
(1) the Rights evidenced by this Right Certificate [ ] are [
] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of an Acquiring Person
(as such terms are defined in the Rights Agreement);
(2) the undersigned [ ] did [ ] did not acquire the Rights
evidenced by this Right Certificate from any person who is, was or
subsequently became an Acquiring Person or an Affiliate or Associate
of an Acquiring Person.
Dated: , 19
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and
Certificate must correspond to the name as written upon the face of
this Right Certificate in every particular, without alteration or
enlargement or any change whatsoever.
Exhibit B
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On July 18, 1988, the Board of Directors of Eli Lilly and
Company (the "Company ") declared a distribution of one Right for
each outstanding share of Common Stock, par value $.62-1/2 per share,
of the Company ( "Common Stock "). The distribution is payable to the
shareholders of record as of the close of business on July 28, 1988,
and, in addition, the Company has authorized the issuance of one Right
with respect to each share of Common Stock that shall become
outstanding after July 28, 1988, and until the earlier of the
Distribution Date or Expiration Date (as such terms are hereinafter
defined) or the date on which Rights are redeemed. When exercisable,
each Right initially entitles the registered holder to purchase from
the Company one one-hundredth of a share of a new series of the
Company's preferred stock designated as Series A Participating
Preferred Stock ( "Preferred Stock ") at a price of $325 per one one-
hundredth of a share (the "Purchase Price "), subject to adjustment.
The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement ") between the Company and Bank One,
Indianapolis, NA, as Rights Agent (the "Rights Agent ").
Up to and including the Distribution Date, the Rights will
be evidenced, with respect to any of the Common Stock certificates
outstanding as of the close of business on July 28, 1988, by such
Common Stock certificates, and the Rights will be transferred with and
only with Common Stock. In addition, (i) new Common Stock
certificates issued after July 28, 1988, upon transfer or new issuance
of Common Stock, will contain a notation incorporating the Rights
Agreement by reference and (ii) the surrender for transfer of any
certificates for Common Stock outstanding after July 28, 1988, will
also constitute the transfer of the Rights associated with Common
Stock represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the
Rights ( "Right Certificates ") will be mailed to holders of record of
Common Stock as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
Under the Rights Agreement, the Distribution Date is defined
as the earlier of the tenth business day after (i) the commencement of
a tender or exchange offer by any person (other than the Company, any
subsidiary of the Company, Lilly Endowment, Inc., or any employee
benefit plan or employee stock plan of the Company or of any
subsidiary of the Company) for a number of the outstanding shares of
the Company's stock having in the aggregate 30% or more of the general
voting power of the Company or (ii) the date of a public announcement
by the Company or an Acquiring Person (as hereinafter defined) that an
Acquiring Person has become such (the "Stock Acquisition Date"),
unless, in the case of either clause (i) or clause (ii) above, the
Board extends such day to a later date. In general, under the Rights
Agreement an acquiring Person is a person or group of affiliated or
associated persons (other than the Company, any subsidiary of the
Company, any employee benefit plan or employee stock plan of the
Company or of any subsidiary of the Company, Lilly Endowment, Inc., or
any person who acquires shares of the Company's stock in connection
with a transaction or series of transactions approved in advance by
the Board) who has acquired or obtained the right to acquire
beneficial ownership of a number of the outstanding shares of the
Company's stock having in the aggregate 20% or more of the general
voting power of the Company (or which would have such voting power but
for the Indiana Control Share Statute).
The Rights are not exercisable until after the date on which
the Company's right to redeem has expired. The Rights will expire on
July 28, 1998 (the "Expiration Date"), unless earlier redeemed by the
Company as described below.
The Preferred Stock will be non-redeemable and will rank on
a parity in respect of the preference as to dividends and the
distribution of assets with all other classes or series of the
Company's preferred stock, unless the terms thereof shall provide
otherwise. Each share of Preferred Stock will have a minimum
preferential quarterly dividend rate of $0.05 per share but will be
entitled to an aggregate of 100 times the cash and non-cash (payable
in kind) dividends and distributions (other than dividends and
distributions payable in Common Stock) declared on the Company's
Common Stock. In the event of liquidation, the holders of Preferred
Stock will be entitled to receive a liquidation payment in an amount
equal to the greater of $100 per share or 100 times the payment made
per share of Common Stock, plus an amount equal to accrued and unpaid
dividends and distributions thereon. Shares of Preferred Stock will
have voting rights only in the event of certain arrearages in
dividends, and as required by applicable law. In the event of any
merger, consolidation, or other transaction in which shares of Common
Stock are exchanged, each share of Preferred Stock will be entitled to
receive 100 times the amount received per share of Common Stock. The
rights of the Preferred Stock as to dividends and liquidation are
protected by antidilution provisions.
The Purchase Price payable and number of shares of Preferred
Stock or other securities or property issuable upon exercise of the
Rights are subject to adjustment from time to time to prevent
dilution.
In the event that, at any time after a Stock Acquisition
Date, the Company is acquired in a merger or other business
combination transaction (in which any shares of the Company's Common
Stock are changed into or exchanged for other securities or assets) or
50% or more of the assets or earning power of the Company and its
subsidiaries (taken as a whole) are sold, proper provision shall be
made so that each holder of a Right (except as described herein) shall
thereafter have the right to receive, upon the exercise thereof at the
then current exercise price of the Right, that number of shares of
common stock of the acquiring company which at the time of such
transaction would have a market value of two times the Purchase Price.
The holder of any Rights that are, or were, beneficially owned by an
Acquiring Person or an affiliate or associate thereof or certain
transferees thereof shall not be entitled to the benefit of the
adjustment with respect to the number of shares described in this
paragraph.
In the event that at any time after a Stock Acquisition
Date, (i) the Company is the surviving corporation in a merger or
other business combination and its Common Stock remains outstanding
and unchanged, (ii) an Acquiring Person engages in one or more self-
dealing transactions specified in the Rights Agreement, (iii) a Person
becomes the beneficial owner of a number of the outstanding shares of
the Company's stock having in the aggregate 25% or more of the general
voting power of the Company or (iv) any of certain events specified in
the Rights Agreement occurs which results in such Acquiring Person's
ownership interest being increased by more than 1%, then, and in each
such case, proper provision shall be made so that each holder of a
Right (except as described herein) will thereafter have the right to
receive, upon payment of the Purchase Price, that number of shares of
Common Stock having a market value of two times the Purchase Price.
The holder of any Rights that are, or were, beneficially owned by an
Acquiring Person or an affiliate or associate thereof or certain
transferees thereof which engaged in, or realized the benefit of, an
event or transaction or transactions described in this paragraph,
shall not be entitled to the benefit of the adjustment with respect to
the number of shares described in this paragraph.
Up to and including the tenth business day after a Stock
Acquisition Date or such later date as may be determined by the Board
of Directors, the Company may redeem the rights in whole, but not in
part, at a price of $.01 per Right, which amount may be adjusted as
provided in the Rights Agreement (the "Redemption Price "). Under
certain circumstances set forth in the Rights Agreement, the decision
to redeem shall require the concurrence of a majority of the
Continuing Directors (as defined below). Promptly upon the action of
the Board of Directors electing to redeem the Rights, the Company
shall make an announcement thereof and, upon such announcement, the
right to exercise the Rights will terminate and the only right of the
holders of Rights will be to receive the Redemption Price.
The term "Continuing Directors " means any member of the
Board of Directors of the Company who was a member of the Board
immediately prior to the time that any Person became an Acquiring
Person, or any member of the Board of Directors who becomes a member
of the Board subsequent to the time that any Person shall become an
Acquiring Person if such person is recommended or approved by a
majority of the Continuing Directors then in office, but shall not
include an Acquiring Person, or any representative of such Acquiring
Person.
Other than those provisions relating to the principal
economic terms of the Rights, any of the provisions of the Rights
Agreement may be amended by the Board of Directors of the Company
prior to the Distribution Date. From and after the Distribution Date,
the provisions of the Rights Agreement may be amended by the Board in
order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights, or to shorten or lengthen
any time period under the Rights Agreement; provided, however, that
the Expiration Date may not be changed, and the time period for
redemption may not be lengthened when the Rights are not redeemable.
Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of the Company with respect to a
Right held, including, without limitation, the right to vote or to
receive dividends.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration
Statement on Form 8-A dated July 19, 1988. A copy of the Rights
Agreement is available free of charge from the Company. This summary
description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which
is incorporated in this Summary by reference.
EXHIBIT C
FORM OF
AMENDMENT TO
AMENDED ARTICLES OF INCORPORATION
OF
ELI LILLY AND COMPANY
The Amended Articles of Incorporation of Eli Lilly and
Company are hereby amended by the addition of a new Article 14, to
read in its entirety as follows:
14. A total of 1,400,000 shares of the 5,000,000 shares of
authorized Preferred Stock are designated as "Series A Participating
Preferred Stock" (the "Series A Preferred Stock "), which shall
possess the rights, preferences, qualifications, limitations, and
restrictions set forth below:
(a) The holders of shares of Series A Preferred Stock
shall have the following rights to dividends and distributions:
(i) The holders of shares of Series A Preferred
Stock shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash on the first day of April, July,
October and January in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date "), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an amount
per share (rounded to the nearest cent) equal to the greater of (i)
$0.05 or (ii) subject to the provision for adjustment hereinafter set
forth, 100 times the aggregate per share amount of all cash dividends,
and 100 times the aggregate per share amount (payable in kind) of all
non-cash dividends or other distributions other than a dividend or
distribution payable in shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock, par value $.62-1/2 per share, of the
Corporation (the "Common Stock") since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share
or fraction of a share of Series A Preferred Stock. If on any
Quarterly Dividend Payment Date the Corporation's Articles of
Incorporation shall limit the amount of dividends which may be paid on
the Series A Preferred Stock to an amount less than that provided
above, such dividends will accrue and be paid in the maximum
permissible amount and the shortfall from the amount provided above
shall be a cumulative dividend requirement and be carried forward to
subsequent Quarterly Dividend Payment Dates.
(ii) In the event the Corporation shall at any
time declare or pay any dividend on Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then in
each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under
the second preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(iii) When, as and if the Corporation shall
declare a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock), the Corporation shall at
the same time declare a dividend or distribution on the Series A
Preferred Stock as provided in this paragraph (a) and no such dividend
or distribution on the Common Stock shall be paid or set aside for
payment on the Common Stock unless such dividend or distribution on
the Series A Preferred Stock shall be simultaneously paid or set aside
for payment; provided that, in the event no dividend or distribution
shall have been declared on the Common Stock during the period between
any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share on the Series A
Preferred Stock shall nevertheless be payable, when, as and if
declared by the Board of Directors, on such subsequent Quarterly
Dividend Payment Date.
(iv) Dividends shall begin to accrue and be
cumulative on outstanding shares of Series A Preferred Stock from the
date of issue of such shares of Series A Preferred Stock, unless the
date of issue is a Quarterly Dividend Payment Date or is a date after
the record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in which event such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding. The Board of
Directors may fix a record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date shall be
no more than 60 days prior to the relevant Quarterly Dividend Payment
Date.
(b) The holders of shares of Series A Preferred Stock
shall have the following voting rights:
(i) The holders of outstanding Series A Preferred
Stock shall be entitled to vote as a class for the election of
two (2) directors if the Corporation shall fail for six quarters
to pay the dividend payable with respect to such shares pursuant
to paragraph (a) hereof. Such limited voting rights may be
exercised at the next annual meeting of shareholders following
the failure to pay a dividend for the sixth quarter and at each
succeeding annual meeting of shareholders until payment of all
such preferred dividends which are in arrears has been made or
provided for (the "Dividend Date"), at which time the right to
vote for election of two directors conferred upon the holders of
the outstanding Series A Preferred Stock shall cease. Each of
such two directors shall be elected to one of the three classes
of directors so that the three classes shall be as equal in
number as may be feasible and shall be elected to hold office for
a term expiring at the earlier of (i) the expiration of the term
of the class to which he is elected or (ii) the Dividend Date.
In addition to the conditional right to vote for election of two
directors, any proposal to amend the relative rights and
privileges of shares of Series A Preferred Stock (including those
conferred by this paragraph (b)(i) upon which the holders of such
Series A Preferred Stock are entitled by the provisions of the
Indiana Business Corporation Law to vote upon as a class shall
require, instead of a vote of the holders of a majority of such
shares, the affirmative vote of the holders of two-thirds (2/3)
of such shares.
(ii) Except as specified in paragraph (b)(i)
above, the holders of Series A Preferred Stock shall not be
entitled to any vote on any matter, including questions of
merger, consolidation, and the sale of all or substantially all
of the assets of the Corporation.
(c) The Corporation shall be subject to the following
restrictions:
(i) Whenever quarterly dividends or other
dividends or distributions payable on the Series A Preferred
Stock as provided in paragraph (a) of this Article 14 are in
arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A
Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
a. declare or pay dividends on, make any
other distributions on, or redeem or purchase or otherwise
acquire for consideration any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock;
b. declare or pay dividends on or make any
other distributions on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred
Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
c. except as permitted by subparagraph d of
this paragraph (c)(i), redeem or purchase or otherwise
acquire for consideration shares of any stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series A Preferred
Stock, provided that the Corporation may at any time redeem,
purchase or otherwise acquire shares of any such parity
stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock;
or
d. purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes, provided
that the Corporation may at any time purchase or otherwise
acquire shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock.
(ii) The Corporation shall not permit
any subsidiary of the Corporation to purchase or
otherwise acquire for consideration any shares of stock
of the Corporation unless the Corporation could, under
subparagraph (i) of this paragraph (c), purchase or
otherwise acquire shares at such time and in such
manner.
(iii) The Corporation shall not issue
any shares of Series A Preferred Stock except upon
exercise of Rights issued pursuant to that certain
Rights Agreement dated as of July 18, 1988 between the
Corporation and Bank One, Indianapolis, NA, a copy of
which is on file with the Secretary of the Corporation
at its principal executive office and shall be made
available to shareholders of record without charge upon
written request therefor addressed to said Secretary.
Notwithstanding the foregoing sentence, nothing
contained herein shall prohibit or restrict the
Corporation from issuing for any purpose any series of
preferred stock with rights and privileges similar to
or different from those of the Series A Preferred
Stock.
(d) Any shares of Series A Preferred Stock purchased
or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof.
All such shares shall upon their cancellation without designation as
to series, become authorized but unissued shares of preferred stock
and may be reissued as part of a new series of preferred stock to be
created by resolution or resolutions of the Board of Directors,
subject to the conditions and restrictions on issuance set forth
herein.
(e) Upon any voluntary liquidation, dissolution or
winding up of the Corporation, no distribution shall be made (i) to
the holders of shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received, subject to adjustment as
hereinafter provided, an aggregate amount equal to (a) $100 per share,
plus an amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment or (b)
if greater, an aggregate amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 100 times the aggregate
amount to be distributed per share to holders of Common Stock plus an
amount equal to accrued and unpaid dividends and distributions
thereon, whether or not declared, to the date of such payment, or (ii)
to the holders of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all other such parity stock in proportion to the
total amounts to which the holders of all such shares are entitled
upon such liquidation, dissolution or winding up, disregarding for
this purpose the amounts referred to in clause (i)(b) of this
paragraph (e). In the event the Corporation shall at any time declare
or pay any dividend or make any distribution on Common Stock payable
in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the aggregate amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to
such event under the provision in clause (i) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
(f) In case the Corporation shall enter into any
consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case
proper provision shall be made so that the shares of Series A
Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for
adjustment hereinafter set forth) equal to 100 times the aggregate
amount of stock, securities, cash and/or any other property (payable
in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. The Corporation shall not
consummate any such consolidation, merger, combination or other
transaction unless prior thereto the Corporation and the other party
or parties to such transaction shall have so provided in any agreement
relating thereto. In the event the Corporation shall at any time
declare or pay any dividend on Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock)
into a greater or lesser number of shares of Common Stock, then in
each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series A Preferred
Stock shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately
prior to such event.
(g) The shares of Series A Preferred Stock shall not
be redeemable. Notwithstanding the foregoing sentence, the
Corporation may acquire shares of Series A Preferred Stock in any
other manner permitted by law, hereby and the Articles of
Incorporation of the Corporation, as from time to time amended.
(h) The Articles of Incorporation of the Corporation
shall not be amended in any manner which would increase or decrease
the aggregate number of authorized shares of Series A Preferred Stock,
increase or decrease the par value of the shares of Series A Preferred
Stock, or alter or change the powers, preferences or special rights of
the shares of Series A Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of two-thirds or more of
the outstanding shares of Series A Preferred Stock, voting together as
a single class.
EXHIBIT 2
July 18, 1988
Immediately
(317) 276-3655
LILLY BOARD DECLARES THIRD-QUARTER DIVIDEND,
ADOPTS SHAREHOLDER RIGHTS PLAN
The Board of Directors of Eli Lilly and Company today declared a third-
quarter dividend for 1988 of 57.5 cents a share on outstanding common
stock. The dividend is payable September 10, 1988, to shareholders of
record at the close of business on
August 15, 1988.
This is the same as the previous quarterly rate and brings to $1.72-
1/2 the total dividends declared for 1988.
The Company also announced that the Board of Directors today adopted a
Shareholder Rights Plan. The plan is designed to help ensure that
Lilly shareholders receive fair treatment in the event of an
unsolicited attempt to acquire control of the Company and to
discourage certain abusive takeover techniques being utilized by
raiders in the current acquisition environment.
Under the plan, each shareholder of record at the close of business on
July 28, 1988, will receive a distribution of one preferred stock
purchase right with an exercise price of $325 for each share of Lilly
common stock owned. If the rights become exercisable, they entitle
the holder, under certain circumstances to acquire shares in the
Company or in the acquiring corporation at a substantial discount.
Richard D. Wood, chairman of the Board, stated that "the plan was not
adopted in response to any effort to acquire control of the Company.
Rather, it is a precautionary step that will increase the Board's
ability to represent effectively the interests of the shareholders in
the event of an unsolicited takeover attempt. This plan in not
unique. Similar plans have been adopted by a large number of
corporations throughout the country."
Details of the plan will be mailed to shareholders.
# # #
EXHIBIT 10.2. 1989 STOCK PLAN, AS AMENDED
1989 LILLY STOCK PLAN
(as amended through October 18, 1993)
The 1989 Lilly Stock Plan ("1989 Plan") authorizes the
Compensation Committee ("Committee") to provide officers and
other key executive and management employees of Eli Lilly and
Company and its subsidiaries ("Company") with certain rights to
acquire shares of the Company's common stock. The Company
believes that this incentive program will cause those persons to
contribute materially to the growth of the Company, thereby
benefiting its shareholders.
1. Administration.
The 1989 Plan shall be administered and interpreted by the
Committee consisting of not less than three persons appointed by
the Board of Directors of the Company from among its members. A
person may serve on the Committee only if he is not eligible and
has not been eligible to receive a Grant under the 1989 Plan or
the 1984 Plan for at least one year before his appointment. The
Committee shall determine the fair market value of the Company's
common stock ("Lilly Stock") for purposes of the 1989 Plan. The
Committee's decisions shall be final and conclusive with respect
to the interpretation and administration of the 1989 Plan and any
Grant made under it.
2. Grants.
Incentives under the 1989 Plan shall consist of incentive
stock options, nonqualified stock options, stock appreciation
rights, performance awards, and restricted stock grants
(collectively, "Grants"). All Grants shall be subject to the
terms and conditions set out herein and to such other terms and
conditions consistent with this 1989 Plan as the Committee deems
appropriate. The Committee shall approve the form and provisions
of each Grant. Grants under a particular section of the 1989
Plan need not be uniform and Grants under two or more sections
may be combined in one instrument.
3. Eligibility for Grants.
Grants may be made to any employee of the Company who is an
officer or other key executive, professional, or administrative
employee, including a person who is also a member of the Board of
Directors ("Eligible Employee"). The Committee shall select the
persons to receive Grants ("Grantees") from among the Eligible
Employees and determine the number of shares subject to any
particular Grant.
4. Shares Available for Grant.
(a) Shares Subject to Issuance or Transfer. Subject to
adjustment as provided in Section 4(b), the aggregate number of
shares of Lilly Stock that may be issued or transferred under the
1989 Plan is 10,000,000. The shares may be authorized but
unissued shares or treasury shares. The number of shares
available for Grants at any given time shall be 10,000,000,
reduced by the aggregate of all shares previously issued or
transferred and of shares which may become subject to issuance or
transfer under then-outstanding Grants. Payment in cash in lieu
of shares shall be deemed to be an issuance of the shares.
(b) Recapitalization Adjustment. If any subdivision or
combination of shares of Lilly Stock or any stock dividend,
capital reorganization, recapitalization, consolidation, or
merger with the Company as the surviving corporation occurs after
the adoption of the 1989 Plan, the Committee shall make such
adjustments as it determines appropriate in the number of shares
of Lilly Stock that may be issued or transferred in the future
under Section 4(a). The Committee shall also adjust the number
of shares and Option Price in all outstanding Grants made before
the event.
5. Stock Options.
The Committee may grant options qualifying as incentive stock
options under the Internal Revenue Code of 1986, as amended
("Incentive Stock Options"), and nonqualified options
(collectively, "Stock Options"). The following provisions are
applicable to Stock Options:
(a) Option Price. The price at which Lilly Stock may
be purchased by the Grantee under a Stock Option ("Option
Price") shall be the fair market value of Lilly Stock on the
date of the Grant.
(b) Option Exercise Period. The Committee shall
determine the option exercise period of each Stock Option.
The period shall not exceed ten years from the date of the
Grant.
(c) Exercise of Option. A Grantee may exercise a Stock
Option by delivering a notice of exercise to the Company,
either with or without accompanying payment of the Option
Price. The notice of exercise, once delivered, shall be
irrevocable.
(d) Satisfaction of Option Price. The Grantee shall
pay the Option Price in cash, or with the Committee's
permission, by delivering shares of Lilly Stock already
owned by the Grantee and having a fair market value on the
date of exercise equal to the Option Price, or a combination
of cash and shares. The Grantee shall pay the Option Price
not later than thirty (30) days after the date of a
statement from the Company following exercise setting forth
the Option Price, fair market value of Lilly Stock on the
exercise date, the number of shares of Lilly Stock that may
be delivered in payment of the Option Price, and the amount
of withholding tax due, if any. If the Grantee fails to pay
the Option Price within the thirty (30) day period, the
Committee shall have the right to take whatever action it
deems appropriate, including voiding the option exercise.
The Company shall not issue or transfer shares of Lilly
Stock upon exercise of a Stock Option until the Option Price
is fully paid.
(e) Share Withholding. With respect to any
nonqualified option, the Committee may, in its discretion
and subject to such rules as the Committee may adopt, permit
the Grantee to satisfy, in whole or in part, any withholding
tax obligation which may arise in connection with the
exercise of the nonqualified option by electing to have the
Company withhold shares of Lilly Stock having a fair market
value equal to the amount of the withholding tax.
(f) Limits on Incentive Stock Options. The aggregate
fair market value of the stock covered by Incentive Stock
Options granted under the 1989 Plan or any other stock
option plan of the Company or any subsidiary or parent of
the Company that become exercisable for the first time by
any employee in any calendar year shall not exceed $100,000.
The aggregate fair market value will be determined at the
time of grant. An Incentive Stock Option shall not be
granted to any Eligible Employee who, at the time of grant,
owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company
or any subsidiary or parent of the Company.
6. Stock Appreciation Right.
The Committee may grant a Stock Appreciation Right ("SAR")
with respect to any Stock Option granted under the 1989 Plan
either at the time of grant of the option or thereafter and may
also grant an SAR with respect to any outstanding option granted
under a prior plan of the Company ("Prior Stock Option"). The
following provisions are applicable to each SAR:
(a) Options to Which Right Relates. Each SAR shall
specify the Stock Option or Prior Stock Option to which the
right is related, together with the Option Price and number
of option shares subject to the SAR at the time of its
grant.
(b) Requirement of Employment. An SAR may be exercised
only while the Grantee is in the employment of the Company,
except that the Committee may provide for partial or
complete exceptions to this requirement as it deems
equitable.
(c) Exercise. A Grantee may exercise an SAR in whole
or in part by delivering a notice of exercise to the
Company. The notice of exercise once given shall be
irrevocable. An SAR may be exercised only to the extent
that the Stock Option or Prior Stock Option to which it
relates is exercisable. If a Grantee exercises an SAR, he
agrees to forgo the right to purchase the number of shares
under the related Stock Option or Prior Stock Option with
respect to which the SAR has been exercised.
(d) Payment and Form of Settlement. If a Grantee
exercises an SAR, he shall receive the aggregate of the
excess of the fair market value of each share of Lilly Stock
with respect to which the SAR is being exercised over the
Option Price of each such share. Payment may be made in
cash, Lilly Stock at fair market value, or a combination of
the two, in the discretion of the Committee. The fair
market value shall be determined as of the date of exercise.
(e) Expiration and Termination. Each SAR shall expire
on a date determined by the Committee at the time of grant.
If a Stock Option or Prior Stock Option is exercised in
whole or in part, the SAR related to the shares purchased
shall terminate immediately.
7. Performance Awards.
The Committee may grant Performance Awards under which
payment shall be made in shares of Lilly Stock ("Performance
Shares"), or in cash, if the financial performance of the Company
or any subsidiary or division of the Company ("Business Unit")
selected by the Committee during the Award Period meets certain
financial goals established by the Committee. The following
provisions are applicable to Performance Awards:
(a) Award Period. The Committee shall determine and
include in the Grant the period of time (which shall be four
(4) or more consecutive fiscal quarters) for which a
Performance Award is made ("Award Period"). Grants of
Performance Awards need not be uniform with respect to the
length of the Award Period. A Performance Award may not be
granted for a given Award Period after one half (1/2) or
more of such period has elapsed.
(b) Performance Goals and Payment. Before a Grant is
made, the Committee shall establish objectives ("Performance
Goals") that must be met by the Business Unit during the
Award Period as a condition to payment being made under the
Performance Award. The Performance Goals, which must be set
out in the Grant, may include earnings per share, return on
shareholders' equity, return on assets, net income,
divisional income, or any other financial measurement
established by the Committee. The Committee shall also
establish the method of calculating the amount of payment to
be made under a Performance Award if the Performance Goals
are met, including the fixing of a maximum payment.
(c) Computation of Payment. After an Award Period, the
financial performance of the Business Unit during the period
shall be measured against the Performance Goals. If the
Performance Goals are not met, no payment shall be made
under a Performance Award. If the Performance Goals are met
or exceeded, the Committee shall determine the number of
Performance Shares payable under a Performance Award. The
Committee, in its sole discretion, may elect to pay the
Performance Award in cash in lieu of issuing or transferring
part or all of the Performance Shares. The cash payment
shall be based on the fair market value of Lilly Stock on
the date of payment. The Company shall promptly notify each
Grantee of the number of Performance Shares and the amount
of cash he or she is to receive.
(d) Revisions for Significant Events. At any time
before payment is made, the Committee may revise the
Performance Goals and the computation of payment if
unforeseen events occur during an Award Period which have a
substantial effect on the financial performance of the
Business Unit and which in the judgment of the Committee
make the application of the Performance Goals unfair unless
a revision is made.
(e) Requirement of Employment. To be entitled to
receive payment under a Performance Award, a Grantee must
remain in the employment of the Company to the end of the
Award Period, except that the Committee may provide for
partial or complete exceptions to this requirement as it
deems equitable.
8. Restricted Stock Grants.
The Committee may issue or transfer shares of Lilly Stock to
a Grantee under a Restricted Stock Grant. Upon the issuance or
transfer, the Grantee shall be entitled to vote the shares and to
receive any dividends paid. The following provisions are
applicable to Restricted Stock Grants:
(a) Requirement of Employment. If the Grantee's
employment terminates during the period designated in the
Grant as the "Restricted Period," the Restricted Stock Grant
terminates and the shares of Lilly Stock must be returned
immediately to the Company. However, the Committee may
provide for partial or complete exceptions to this
requirement as it deems equitable.
(b) Restrictions on Transfer and Legend on Stock
Certificate. During the Restriction Period, a Grantee may
not sell, assign, transfer, pledge, or otherwise dispose of
the shares of Lilly Stock except to a Successor Grantee
under Section 10(a). Each certificate for shares issued or
transferred under a Restricted Stock Grant shall contain a
legend giving appropriate notice of the restrictions in the
Grant.
(c) Lapse of Restrictions. All restrictions imposed
under the Restricted Stock Grant shall lapse upon the
expiration of the Restriction Period if all conditions
stated in Sections 8(a) and (b) have been met. The Grantee
shall then be entitled to have the legend removed from the
certificate.
9. Amendment and Termination of the 1989 Plan.
(a) Amendment. The Company's Board of Directors may
amend or terminate the 1989 Plan, subject to shareholder
approval to the extent necessary for the continued
applicability of Rule 16b-3 under the Securities Exchange
Act of 1934, but no amendment shall withdraw from the
Committee the right to select Grantees under Section 3.
(b) Termination of 1989 Plan. The 1989 Plan shall
terminate on the fifth anniversary of its effective date
unless terminated earlier by the Board or unless extended by
the Board.
(c) Termination and Amendment of Outstanding Grants. A
termination or amendment of the 1989 Plan that occurs after
a Grant is made shall not result in the termination or
amendment of the Grant unless the Grantee consents or unless
the Committee acts under Section 10(e). The termination of
the 1989 Plan shall not impair the power and authority of
the Committee with respect to outstanding Grants. Whether
or not the 1989 Plan has terminated, an outstanding Grant
may be terminated or amended under Section 10(e) or may be
amended by agreement of the Company and the Grantee
consistent with the 1989 Plan.
10. General Provisions.
(a) Prohibitions Against Transfer. Only a Grantee or
his authorized representative may exercise rights under a
Grant. Such persons may not transfer those rights. When a
Grantee dies, the personal representative or other person
entitled under a Prior Stock Option or a Grant under the
1989 Plan to succeed to the rights of the Grantee
("Successor Grantee") may exercise the rights. A Successor
Grantee must furnish proof satisfactory to the Company of
his or her right to receive the Grant under the Grantee's
will or under the applicable laws of descent and
distribution.
(b) Substitute Grants. The Committee may make a Grant
to an employee of another corporation who becomes an
Eligible Employee by reason of a corporate merger,
consolidation, acquisition of stock or property,
reorganization or liquidation involving the Company in
substitution for a stock option, stock appreciation right,
performance award, or restricted stock grant granted by such
corporation ("Substituted Stock Incentive"). The terms and
conditions of the substitute Grant may vary from the terms
and conditions required by the 1989 Plan and from those of
the Substituted Stock Incentives. The Committee shall
prescribe the exact provisions of the substitute Grants,
preserving where possible the provisions of the Substituted
Stock Incentives. The Committee shall also determine the
number of shares of Lilly Stock to be taken into account
under Section 4.
(c) Subsidiaries. The term "subsidiary" means a
corporation of which the Company owns directly or indirectly
50% or more of the voting power.
(d) Fractional Shares. Fractional shares shall not be
issued or transferred under a Grant, but the Committee may
pay cash in lieu of a fraction or round the fraction.
(e) Compliance with Law. The 1989 Plan, the exercise
of Grants, and the obligations of the Company to issue or
transfer shares of Lilly Stock under Grants shall be subject
to all applicable laws and to approvals by any governmental
or regulatory agency as may be required. The Committee may
revoke any Grant if it is contrary to law or modify a Grant
to bring it into compliance with any valid and mandatory
government regulation. The Committee may also adopt rules
regarding the withholding of taxes on payment to Grantees.
(f) Ownership of Stock. A Grantee or Successor Grantee
shall have no rights as a shareholder of the Company with
respect to any shares of Lilly Stock covered by a Grant
until the shares are issued or transferred to the Grantee or
Successor Grantee on the Company's books.
(g) No Right to Employment. The 1989 Plan and the
Grants under it shall not confer upon any Grantee the right
to continue in the employment of the Company or affect in
any way the right of the Company to terminate the employment
of a Grantee at any time.
(h) Effective Date of the 1989 Plan. The 1989 Plan
shall become effective upon its approval by the Company's
shareholders at the annual meeting to be held on April 17,
1989, or any adjournment of the meeting.
EXHIBIT 10.6. ELI LILLY AND COMPANY SENIOR
EXECUTIVE BONUS PLAN, AS AMENDED
ELI LILLY AND COMPANY
SENIOR EXECUTIVE BONUS PLAN
(As Amended Through July 1, 1993)
Section 1. Purpose
The purpose of the Senior Executive Bonus Plan is to recognize certain
Senior Executives for contributions to the Company and to provide a
financial incentive to continue their efforts toward more effective
Company operations by a bonus payment based on Company performance.
Section 2. Definitions
The following words and phrases as used in this Plan shall
have the following meanings unless a different meaning is clearly
required by the context:
2.1. "Board of Directors" means the Board of Directors of Lilly.
2.2. "Bonus" means the annual bonus determined under Section 5.
2.3. "Committee" means the Compensation Committee of the Board of
Directors.
2.4. "Company" means Eli Lilly and Company or each subsidiary
corporation as the case may be.
2.5. "CNI" means, for any year, the consolidated net income of Lilly
and its consolidated subsidiaries, after provision for all taxes
for such year, as set forth in the "Consolidated Statements of
Income" as determined by Lilly and certified by its independent
accountants,
a. including the effect on net income of the amount included
therein as a charge for payments made under this Plan for
such year, and
b. excluding to the extent the Committee shall deem proper the
whole or any part of any extraordinary or unusual gains,
losses, charges or credits.
2.6. "CNS" means, for any year, the consolidated net sales of Lilly and
its consolidated subsidiaries as determined by Lilly and certified
by its independent accountants, adjusted to the extent the
Committee shall deem proper for the effect on sales of acquisitions
or dispositions of businesses during the year.
2.7. "Lilly" means Eli Lilly and Company.
2.8. "Plan" means the Senior Executive Bonus Plan as set forth herein
and as hereafter modified or amended from time to time.
2.9. "Senior Executive" means, the Chairman of the Board of Lilly and
other key executives of the Company selected by the Committee.
Section 3. Administration
3.1. Committee. The Plan shall be administered by the Compensation
Committee, the members of which shall be selected by the Board of
Directors from among its members. No member of the Committee shall
be a salaried employee of the Company.
3.2. Powers of Committee. The Committee shall have the right:
(i) to select key executives (including members of the
Board of Directors who are salaried employees of the
Company) for participation in the Plan and to determine
the level of participation of each such key executive;
(ii) to interpret the terms and provisions of the Plan and
to determine any and all questions arising under the
Plan, including, without limitation, the right to
remedy possible ambiguities, inconsistencies, or
omissions by a general rule or particular decision; and
(iii) to adopt rules consistent with the Plan.
3.3. Finality of Committee Determinations. Determination by
the Committee of the amount of the Bonus for any year and any
interpretation, rule, or decision adopted by the Committee under
the Plan or in carrying out or administering the Plan shall be
final and binding for all purposes and upon all interested
persons, their heirs, and personal representatives. The
Committee may rely conclusively on determinations by the auditors
of the Company for the amounts of CNS and CNI.
3.4. Powers of the Salary Committee. The Salary Committee
shall have the right to select key executives (other than
executive officers of the Company or members of the Board of
Directors who are salaried employees of the Company) for
participation in the Plan and to determine the level of
participation of each such key executive.
Section 4. Participation in the Plan
4.1. General Rule. Only a Senior Executive may participate
in the Plan. A Senior Executive may not receive payment under
this Plan attributable to any period of a year for which he is
entitled to receive payment under the Contingent Compensation
Plan.
4.2. Commencement of Participation. A senior Executive's participation
in the Plan will commence on such date the Committee shall determine.
Section 5. Executive Bonus
5.1. Computation of Bonus. The Bonus of each Senior Executive shall
be computed as follows:
Level of Participation Senior Executive Bonus Formula
I .004745% CNS plus .03796% CNI
II .002497% CNS plus .01998% CNI
III .001864% CNS plus .01491% CNI
IV .001218% CNS plus .009746% CNI
V .000836% CNS plus .006688% CNI
VI .000688% CNS plus .005506% CNI
VII .000392% CNS plus .003136% CNI
5.2. Consideration for Payment. Payment of the Bonus is
made in consideration of services rendered by the Senior
Executive to the time of payment. If the employment of a Senior
Executive shall terminate because of retirement (normal or
early), disability or death, the Senior Executive or the personal
representative, as the case may be, shall be entitled to a bonus
adjusted for that period of the year during which the Senior
Executive was an active employee of the Company. If a Senior
Executive shall cease to be an employee of the Company before
payment of the Bonus for reasons other than retirement,
disability or death, the Senior Executive shall receive a Bonus
in such amount, if any, as may be determined by the Committee in
its sole discretion.
5.3. Time of Payment. Payment of the Bonus will be made before March l
of the year next following the year for which the Bonus was earned.
5.4. Deferred Pavement. A senior Executive who is eligible to participate
in The Lilly Deferred Compensation Plan (the "Deferred Compensation
Plan") may elect, on or before January 31, 1978 and on or before
each December 31 thereafter, to defer receipt of all or part of the
Bonus to be earned respectively, (i) during the last eleven months
of 1978 and (ii) during the year ending on December 31, following
the year in which the election is made, subject to limitations set
forth in the Deferred Compensation Plan. In the event of such
deferral, the Company will credit the account of the Senior Executive
maintained pursuant to the Deferred Compensation Plan. Upon
crediting such account, all rights of the Senior Executive with
respect to the amount of the Bonus deferred will be determined
under the Deferred Compensation Plan exclusively.
Section 6. Miscellaneous
6.1. No Vested Right. No Senior Executive shall have a vested right to
the Bonus or any part thereof until payment is made.
6.2. No Employment Rights. No provision of the Plan, or any
action taken by the Company, the Board of Directors or the
Committee shall give a Senior Executive, or any other person, any
right to be retained in the employ of the Company or to continued
participation in the Plan.
6.3. No Adjustments. After the amount of the Bonus has been
determined by the Committee for any year, no adjustments shall be
made to reflect any subsequent change in accounting, the effect
of federal, state, or municipal taxes later assessed or
determined or otherwise.
6.4. Non-alienation. Except as provided in Subsection 5.4,
no Senior Executive or other person shall have any right or
power, by draft, assignment, or otherwise, to mortgage, pledge,
or otherwise encumber in advance any payment under the plan; and
every attempted draft, assignment, or other disposition thereof
shall be absolutely void.
Section 7. Amendment, Suspension, or Termination
The Board of Directors shall have the right, from time to time, to amend,
suspend or terminate the Plan. The Committee shall also have the right
to amend the Plan, except that the Committee may not amend Subsection
3.1 or this Section 7.
Section 8. Effective Date
The Plan shall become effective July l, 1977.
EXHIBIT 10.8. LETTER AGREEMENT DATED SEPTEMBER 3, 1993
BETWEEN THE COMPANY AND VAUGHN D. BRYSON
September 3, 1993
Mr. Vaughn D. Bryson
3533 Bay Road, North Drive
Indianapolis, IN 46240
Dear Vaughn:
This letter will confirm our agreement effective as of
August 31, 1993, concerning the conditions under which
you will retire from employment at Eli Lilly and
Company (the "Company" herein).
1. Retirement and Resignation
a. You will retire as an employee of the Company
effective August 31, 1993.
b. You will resign from the Board of Directors
of the Company effective August 31, 1993.
2. Severance Pay and Benefits
a. Upon signing this agreement you will be paid
the amount of $2,462,073, subject to withholding for
any income or employment taxes that the Company
determines to be due, which you and I have agreed
represents the net present value of (i) your current
salary through December 31, 1994; (ii) your Company
provided term life insurance through December 31, 1994;
(iii) the Company's match (at a level of 80%) of your
contribution to the Lilly Savings Plan through December
31, 1994; and (iv) a projected bonus of $1,500,000 for
the calendar years 1993 and 1994.
b. You and the Company have agreed to
modification of any of your stock option grants that
remain outstanding as of August 31, 1993, to eliminate
any limitation on the option exercise period that is
related to your retirement. Incentive stock options
will convert to non-qualified options, as required by
law.
c. You will be reimbursed by the Company for
fees you have incurred for lawyers, accountants and
consultants incident to the negotiation of this
agreement in an amount not to exceed $150,000.
3. Retirement
a. Beginning January 1, 1995, you will receive a
monthly payment for life in the amount of $60,000 (as
may be adjusted in accordance with paragraph 3(c)),
subject to applicable withholding taxes that the
Company determines to be due, which will be the
combination of the following:
(i) Your monthly pension under the Lilly
Retirement Plan and the Excess Benefits Plan (the
"Plans" herein) which you have agreed to commence
receiving effective January 1, 1995; and
(ii) A supplemental monthly payment which
will be paid by the Company in an amount equal to the
difference between $60,000 (as may be adjusted in
accordance with paragraph 3(c)) and the monthly pension
payment as provided in paragraph 3(a)(i).
You agree to complete the appropriate election
forms with respect to the pension payments specified in
paragraph 3(a)(i) within ninety (90) days prior to
January 1, 1995.
b. In the event of your death prior to January
1, 1995, your surviving spouse, Nancy, will receive no
payment until January, 1995; but beginning in January,
1995, she will receive for her life a monthly survivor
benefit equivalent to 50% of the aggregate of the
monthly benefit from the Plans and the supplemental
payment from the Company to which you would have been
entitled under this agreement had you been alive as of
January 1, 1995. In the event you die before Nancy
after January 1, 1995, she will receive for her life a
monthly survivor benefit equivalent to 50% of the
aggregate of the monthly benefit from the Plans and the
supplemental payment from the Company that you were
receiving at the time of your death. In either event,
the adjustment to your monthly pension under the Plans
referred to in paragraph 3(c) below will also be
applicable to the benefit payable to Nancy.
c. Upon your retirement on August 31, 1993, you
will be entitled to all other benefits available to
retirees. Your monthly pension under the Plans will be
adjusted from time to time for cost-of-living increases
in the same manner as is applicable to retirees
generally, including any adjustment made after August
31, 1993, and prior to January 1, 1995; the
supplemental payment will not be adjusted.
d. The Company will indemnify and defend you
from any claim, demand, action or cause of action
asserted against you arising out of your employment
with, or service as an officer and member of the Board
of Directors of, the Company to the same extent as for
any former employee, officer and director. The Company
will also continue your coverage under the directors'
and officers' liability insurance policy to the extent
the Company provides such coverage for its former
officers and directors.
4. Cooperation
You will cooperate with the Company upon request
in responding to or defending any claim, investigation
(internal or external), administrative proceeding and
lawsuit to the extent reasonably required by the
Company, taking into account your other business and
personal commitments. You will be reimbursed for any
travel expenses or other expenses reasonably incurred
in complying with this obligation.
5. Trade Secrets
During your employment by the Company you have had
access to confidential information concerning the
Company's plans, strategies, products, processes,
inventions, customers and suppliers. You have had
access also to the Company's trade secrets. You agree
not to disclose to anyone outside the Company any such
confidential information or trade secret, except (i) in
the course of complying with your obligations under
paragraph 4 or (ii) when required to do so by a court
of competent jurisdiction, by any governmental agency
having supervisory authority over the business of the
Company, or by any administrative or legislative body
(including a committee thereof) with purported or
apparent jurisdiction to order you to divulge, disclose
or make accessible such information. Confidential
information and trade secrets protected by this
paragraph do not include information that is or becomes
available to the public other than through your breach
of this agreement. You agree that disclosure of any
such confidential information or trade secret to
persons outside the Company may cause the Company
serious and irreparable harm for which monetary damages
would be inadequate and difficult to prove.
Accordingly, you agree the Company shall be entitled to
injunctive relief against any such disclosure or
threatened disclosure.
6. Restrictive Covenants
a. During the period prior to January 1, 1997,
you will not solicit, induce or encourage, directly or
indirectly, on behalf of yourself or another, any
person whom you know to be an employee of the Company
to terminate his or her employment by the Company. For
purposes of this paragraph, "solicit," "induce," or
"encourage" shall not include general advertising for
personnel to which an employee of the Company responds
or discussions with an employee of the Company who has
been notified by the Company that his or her employment
will be terminated.
b. During the period prior to January 1, 1997,
you will not personally solicit, induce or encourage,
on behalf of yourself or another, any customer,
distributor or supplier of the Company to cease doing
business with the Company or to decrease the volume of
business being done with the Company. For the purpose
of this paragraph 6(b), "personally solicit, induce or
encourage" does not include actions by your
subordinates.
c. Neither you nor the Company, directly or
through anyone acting at your or its direction, will
denigrate or disparage the other, or any of the
Company's current or former officers, directors or
employees, in the media or any other public forum;
provided, however, this restraint shall not be
applicable to any truthful statement required of either
party in any legal proceeding or government or
regulatory investigation.
d. You will refrain for a period of ten (10)
years from the date of this agreement from soliciting
or joining anyone else in soliciting proxies involving
the Company with respect to a meeting of its
shareholders.
7. Release and Covenant
a. In consideration of the Company's
undertakings herein, on behalf of yourself, your heirs,
successors and assigns, you hereby release and forever
discharge the Company and all other persons, firms and
companies, and each of them, from any claim, demand,
action or cause of action, which you have or may have
on account of or arising out of (a) the circumstances
surrounding your resignation from your position as
President and Chief Executive Officer of the Company
and as a member of its Board of Directors, (b) the
termination of your employment by the Company, and (c)
your employment by the Company, including without being
limited to, claims arising under Title VII of the Civil
Rights Act of 1964, the Age Discrimination in
Employment Act, the Rehabilitation Act of 1973, the
Americans with Disabilities Act, and any and all other
federal, state and local laws, ordinances and
regulations prohibiting discrimination in employment on
the basis of age, race, color, religion, sex, national
origin or physical or mental disability; provided,
however, this release does not affect (i) any vested
right you may have under an employee benefit plan
maintained by the Company; (ii) the Company's
obligations under this agreement; (iii) any rights you
may have to indemnification under the articles of
incorporation of the Company or under any agreement of
the Company; or (iv) any right you may have to obtain
contribution in the event of the entry of judgment
against you as a result of any act or failure to act
for which you and the Company are jointly responsible.
b. You acknowledge you have been represented by
an attorney throughout the negotiations leading up to
this agreement, you have been advised in writing to
consult with your attorney prior to signing this
agreement, and you have been given a period of up to
twenty-one (21) days within which to consider the
agreement before doing so.
c. For a period of seven (7) days after the date
of execution of this agreement you may revoke the
agreement by giving written notice of your revocation
and returning to the Company any sum(s) paid pursuant
to the agreement. This agreement shall not become
effective or enforceable until the revocation period
has expired.
d. You further covenant that you will not
initiate any action, claim or proceeding against any of
those hereby released for any of the foregoing.
8. Conditions of Company Obligations
In the event of a material breach by you of the
covenants in paragraphs 4, 5, 6 and 7(d) above, the
Company will have no further obligations to you under
this agreement, including without limitation, the
payment of the supplemental payment described above in
paragraph 3(a)(ii).
9. Announcement
Neither you nor the Company will issue any press
release concerning your retirement or resignation from
the Board of Directors without the prior written
approval of the other, which approval shall not be
unreasonably withheld.
10. Representation
The Company represents and warrants that it is
fully authorized and empowered to enter into this
agreement and that the performance of its obligations
under this agreement will not violate any agreement
between it and any other person, firm or organization.
11. Miscellaneous Provisions
a. This agreement constitutes the entire
understanding between you and the Company concerning
its subject matter. You acknowledge that in executing
this agreement you are not relying upon any
representation or statement made by the Company or any
of its officers, employees or agents with regard to the
subject matter, basis or effect of this agreement,
other than those things set forth in writing in this
document and in the employee benefit plan documents
relating to the pension and health care plans.
b. This agreement is binding upon and shall
inure to the parties hereto and their respective
successors, heirs, legal representatives and assigns.
c. This agreement shall be governed by and
construed in accordance with the laws of the State of
Indiana without reference to principles of conflict of
laws.
d. This agreement or any provision thereof may
not be revoked or revised except by an instrument in
writing and duly executed by both parties. No waiver
by either party of any breach by the other party of any
condition or provision contained in this agreement to
be performed by such other party shall be deemed a
waiver of a similar or dissimilar condition or
provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by you or the
Company, as the case may be.
e. The headings of the paragraphs contained in
this agreement are for convenience only and shall not
be deemed to control or affect the meaning or
construction of any provision of this agreement.
If the foregoing is in accordance with your
understanding and accurately describes your obligations
to the Company, please so indicate by signing in the
space provided below and returning an executed copy to
the undersigned. Thank you.
Sincerely,
ELI LILLY AND COMPANY
s/W. P. Bruen
I, Vaughn D. Bryson, hereby accept and agree to the
terms and conditions of the foregoing agreement
including but not limited to my commitment to abide by
and comply with the covenants and provisions of
paragraphs 4, 5, 6 and 7(d).
September 3, 1993
s/Vaughn D. Bryson
By: ---------------------------
Vaughn D. Bryson
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE ON PRIMARY
AND FULLY DILUTED BASES
Eli Lilly and Company and Subsidiaries
Year Ended December 31
1993 1992 1991
(Dollars in millions, except per-share data; shares in thousands)
PRIMARY:
Net income $480.2 $ 708.7 $1,314.7
Add tax benefit on dividends paid to ESOP - - 9.1
----- ----- -------
Adjusted net income $480.2 $ 708.7 $1,323.8
===== ===== =======
Average number of common shares
outstanding 292,673 292,593 288,976
Add incremental shares:
Stock plans and contingent
payments 1,178 1,885 3,118
Warrants - - 1,813
----- ----- -----
Adjusted average shares 293,851 294,478 293,907
======= ======= =======
Primary earnings per share $ 1.63 $ 2.41 $ 4.50
FULLY DILUTED:
Net income $ 480.2 $ 708.7 $1,314.7
Add incremental net income:-
Tax benefit on dividends paid to ESOP - - 9.1
----- ----- -------
Adjusted net income $ 480.2 $ 708.7 $1,323.8
===== ===== =======
Average number of common shares
outstanding 292,673 292,593 288,976
Add incremental shares:
Stock plans and contingent payments 1,616 1,885 3,449
Warrants - - 1,819
----- ----- -----
Adjusted average shares 294,289 294,478 294,244
======= ======= =======
Fully diluted earnings per share $ 1.63 $ 2.41 $ 4.50
EXHIBIT 12. STATEMENT RE: COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
Eli Lilly and Company and Subsidiaries
Years Ended December 31,
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Consolidated Pretax Income
Before Changes in
Accounting Principles $701.9 $1,182.3 $1,879.2 $1,599.0 $1,329.9
Interest 96.7 109.1 88.9 93.8 57.1
Less Interest Capitalized
During the Period (25.5) (37.4) (49.1) (27.4) (15.8)
------ ------- ------- ------- -------
Earnings $773.1 $1,254.0 $1,919.0 $1,665.4 $1,371.2
===== ======= ======= ======= =======
Fixed Charges:
Interest Expense $ 96.7 $ 109.1 $ 88.9 $ 93.8 $ 57.1
==== ===== ==== ==== ====
Ratio of Earnings to
Fixed Charges 8.0 11.5 21.6 17.8 24.0
==== ===== ==== ==== ====
EXHIBIT 13. ANNUAL REPORT TO SHAREHOLDERS FOR THE YEAR
ENDED DECEMBER 31, 1993
(portions incorporated by reference in this Form 10-K)
REVIEW OF OPERATIONS
OPERATING RESULTS--1993
Worldwide sales rose 5 percent in 1993, to $6.5 billion. The factor that
contributed most to the increase was a 6 percent rise in unit volume; price
contributed a modest 1 percent increase, while exchange rates decreased sales
growth by 2 percent.
The company achieved sales increases both in the United States and abroad.
Sales in the United States were $4.0 billion, a 4 percent increase. Sales
outside the United States were $2.5 billion, an increase of 6 percent from
the previous year.
Pharmaceutical sales for the year increased approximately 7 percent, to $4.7
billion, led by the antiulcer drug Axid (registered) and the antidepressant
Prozac. Other products contributing to worldwide pharmaceutical sales growth
included Humatrope (registered), Humulin (registered), and Vancocin
(registered). HCl. Sales also benefited from the first
full year of sales of Lorabid, an oral antibiotic, which was launched in
September 1992. Ceclor sales declined slightly in 1993, as good sales growth
abroad was offset by intense competition from other oral antibiotics in the
U.S. Sales of central-nervous-system and diabetic-care products, as
therapeutic classes, increased from 1992 levels; however, sales of anti-
infectives decreased slightly. U.S. pharmaceutical sales, which were $2.9
billion in 1993, continue to be negatively affected by increased
participation in managed-care programs and by federally mandated rebates to
the states on sales to Medicaid recipients. For 1993 these rebates totaled
$156 million, a 44 percent increase over 1992. The company anticipates a
decline in the rate of growth of these rebates under the current Medicaid
legislation. Pharmaceutical sales outside the U.S. were $1.8 billion in
1993.
The United States product patent on Ceclor, the company's second largest
selling product, expired in December 1992. U.S. Ceclor sales accounted for
approximately 8 percent of the company's worldwide sales. The company holds
a United States patent on a key intermediate material that remains in force
until December 1994, as well as process and product patents in many other
countries with various expiration dates. It has been reported that several
abbreviated new drug applications for generic formulations of cefaclor have
been filed in the United States and regulatory submissions have been made in
other countries. To date, the company is not aware of commercially
significant sales of generic cefaclor. However, small quantities of a
generic formulation are currently being marketed in India. Although the
company cannot predict the ultimate effect on Ceclor sales or the company's
results of operations, the company believes that the expiration of the U.S.
product and intermediate patents will not have a material adverse effect on
its near-term consolidated financial position.
The U.S. patent for the cardiovascular agent Dobutrex (registered) expired
on October 19, 1993. Prior to the expiration, U.S. sales of Dobutrex
accounted for approximately 2 percent of the company's worldwide sales.
Generic substitution caused a significant decline in U.S. sales of the
product during the fourth quarter of 1993, and the company expects this
trend to continue in 1994.
-1-
However, the company does not believe that the patent expiration will have a
material adverse effect on its near-term consolidated results of operations.
Medical devices and diagnostic products sales increased approximately 4
percent in 1993, to $1.3 billion. All companies within the group except
Hybritech Incorporated posted sales gains over 1992. During 1993, several of
the companies continued to experience strong competition, which caused the
rate of sales growth to be lower than 1992 levels. The division's sales
benefited from particularly strong growth from Devices for Vascular
Intervention, Inc., and from the resumption of shipments by Physio-Control
Corporation of the Lifepak (registered) 10 external defibrillator in May
1993 after a suspension of approximately one year due to regulatory
problems. Approval from the U.S. Food and Drug Administration (FDA) to
resume shipment of the Lifepak 9 was received in December 1993. Sales
of Hybritech products declined due to continued competitive pressures.
Worldwide sales of Elanco Animal Health products increased 3 percent, to $439
million. Sales in the United States increased 12 percent over 1992.
However, this increase was partially offset by a decrease of 4 percent in
sales outside the United States due primarily to exchange rate comparisons
and the recession in Europe. Strong worldwide sales growth of Micotil
(registered) more than offset a decline in sales of Tylan (registered),
primarily in Europe.
In the fourth quarter, as a result of a comprehensive review of the company's
global operations, the company's board of directors approved several
streamlining initiatives. These initiatives included a voluntary early-
retirement program. Approximately 2,600 employees worldwide are retiring
under the program. The company hopes to eliminate another 1,400 positions
over the next several years by restricting its use of temporary and contract
workers and consultants and through ongoing normal attrition and strict
hiring practices.
In January 1994, following the review of operations, the company announced a
series of strategic actions designed to allow it to enhance its core
competencies and set the stage for necessary changes to enable the company to
deliver more clinical and economic value to its customers worldwide. As part
of these actions, the company announced its intent to divest itself of the
Medical Devices and Diagnostics (MDD) Division along with a number of
initiatives to further streamline its pharmaceutical operations. The final
form of the divestiture of the MDD businesses has not been resolved. It will
depend on tax, market, and other considerations, including the nature of any
offers that the company may receive from prospective purchasers. Current
plans call for the creation of a new holding company comprising six of the
businesses and the divestiture of the new company through a spin-off to Lilly
shareholders, one or more public offerings of the holding company's shares,
or a combination of these methods. These six businesses are Advanced
Cardiovascular Systems, Inc.; Cardiac Pacemakers, Inc.; Devices for Vascular
Intervention, Inc.; Heart Rhythm Technologies, Inc.; IVAC Corporation; and
Origin Medsystems, Inc. Lilly intends to sell separately the three other
businesses in the division: Hybritech Incorporated; Pacific Biotech, Inc.;
and Physio-Control Corporation.
The strategic actions to streamline the pharmaceutical business, together
with the early-retirement programs, resulted in 1993 restructuring, special,
and other charges of approximately $1.2 billion before tax and $856 million
after tax ($2.91 per share). Costs associated with the early-retirement
programs were approximately $535 million before tax. Other actions include
consolidation of certain manufacturing and distribution operations and
streamlining of various other operations ($365 million before tax). In
addition, anticipated expenses of $300 million, before tax, were recorded
relating to impaired manufacturing assets, write-offs of certain acquired
intangibles, and certain patent and
-2-
product liability matters. Of the total charges, approximately $130
million were paid in cash as of December 31, 1993. Of the remainder,
approximately 75 percent will be paid in cash and 25 percent represent
noncash charges. The amount to be paid in cash will be funded from
operations over an extended period because a significant portion
is pension related. The company expects the restructuring actions to result
in operating expense savings (salaries and wages, employee benefits, and
depreciation and amortization) in the near-term. See Note 2 to the
consolidated financial statements for further discussion.
Manufacturing costs, operating expenses, and other income and deductions for
1992 reflected additional expenses, including restructuring and special charges,
relating to various strategic actions taken by the company in 1992.
Accordingly, year-to-year comparisons are difficult.
Research and development expenses increased 3 percent in 1993. Global
clinical trial expenses more than doubled, compared with 1992, reflecting the
movement of several compounds into the later and most costly stages of
clinical trials. As part of the company's new strategic initiatives, the
company decided in December to refocus its research and development efforts
from eight therapeutic areas to five. The company anticipates that research
and development expenses will grow at a rate in excess of sales for the next
two years, primarily as a result of compounds moving into the more costly
stages of clinical research.
Marketing and administrative expenses increased 5 percent in 1993. Marketing
costs increased due to a number of factors: continued globalization of the
company's products, including the U.S. launch of Lorabid Pediatric; the full-
year impact of the 1992 expansion of the pharmaceutical sales forces outside
the United States; a realignment of sales forces in the U.S.; and the
inclusion of a full year of expenses of Lilly-Beiersdorf G.m.b.H. and Origin
Medsystems, Inc., two 1992 acquisitions. Administrative expenses declined in
1993, compared with 1992. This decrease was largely attributable to a number
of one-time expenses recognized in 1992 in connection with the 1992 strategic
actions and to various cost-containment measures initiated in 1993.
Net other income in 1993 increased from 1992 levels due primarily to the
additional charges recognized in connection with the 1992 strategic actions.
However, net other income in 1993 was negatively affected by lower interest
income on investments.
The effective tax rate for 1993 was 30.0 percent, the same as 1992. The
company's effective tax rate was not increased by the Omnibus Budget
Reconciliation Act of 1993 (OBRA) because the effect of the corporate rate
increase was largely offset by the retroactive restoration of the research
tax credit. OBRA is expected to increase the company's effective tax rate in
1994 by one to three percentage points.
(See Graph #1, "Research and Development Expenses", in the Appendix to this
Exhibit 13.)
Fundamental changes continued to reshape the traditional patterns of health
care delivery in the United States and certain other countries in 1993.
Further changes are expected during the next several years. In the United
States, managed-care organizations, buying groups, and other large customers
of pharmaceuticals account for an increasing portion of total pharmaceutical
purchases. These customers are exerting increasing pricing pressures on
the pharmaceutical industry and the company. The health-care-reform
debate also continued in the United States during 1993. A number of
competing health-care-reform bills have been introduced in Congress.
The current proposals generally
-3-
would expand access to health care coverage, and several proposals
could lead to the establishment of more comprehensive pharmaceutical
benefits; however, the Clinton administration's proposal and certain others
call for expanded rebates on pharmaceuticals and other forms of government
mandates affecting pricing and choice of therapy. It is uncertain when
health-care-reform legislation will be adopted or what form it may take.
Major changes in health care delivery and pharmaceutical reimbursement
policies are also occurring outside the United States, most notably in
Germany and Italy, where government health care cost-control measures have
adversely affected pharmaceutical industry revenues.
The company is continuing to adapt its operations to the changing market
conditions and government cost-containment efforts. It has significantly
expanded its efforts to serve its managed-care customers and is working with
its evolving customer base to deliver greater clinical and economic value
through combinations of products, services, and information. As described
above, the company has also made a number of strategic decisions to
streamline its operations, reduce its work force, and focus its research and
development program on a smaller number of therapeutic areas that hold the
greatest promise. Most significantly, the company is refocusing its
resources on its core business, the research-based pharmaceutical business.
This focus is intended to allow the company to invest its resources in an
effort to increase the productivity of its research programs and develop a
broad product portfolio, to grow geographically, and to continue developing
the capabilities needed to deliver more clinical and economic value to its
customers.
As in 1993, the company has pledged voluntarily to hold the increase in the
weighted-average transaction price of its U.S. pharmaceutical products in
1994 to the projected rate of inflation and to limit increases in the prices
of individual products to the forecasted increase in the Consumer Price Index
for all urban consumers, all items (CPI-U), during the year plus 2 percent.
This policy, as in the past, will be contingent upon stable market conditions
and governmental policies recognizing, acknowledging, and supporting
innovation.
OPERATING RESULTS--1992
Worldwide sales rose 8 percent in 1992, to $6.2 billion. Unit volume provided
a 4 percent increase, while price increases and the impact of exchange rates
contributed increases of 3 percent and 1 percent, respectively.
In 1992, the company achieved sales increases both in the United States and
abroad. Sales in the United States were $3.84 billion, a 6 percent increase.
Sales outside the United States were $2.33 billion, a gain of 11 percent from
the previous year.
Pharmaceutical sales increased 10 percent, to $4.5 billion, in 1992. The
1992 sales increase was led by Axid and Prozac. Other products contributing
to worldwide pharmaceutical sales growth included Dobutrex, Humatrope,
Humulin, and Vancocin HCl. Sales benefited from the U.S. launch of Lorabid
as well as the inclusion of the sales of Beiersdorf-Lilly G.m.b.H., in
Germany, beginning in May 1992. Sales of anti-infectives and central-nervous-
system and diabetic-care products, as therapeutic classes, increased from
1991 levels. Ceclor sales declined slightly in 1992 due to increased global
competition from the introduction of several new oral antibiotics and lower
incidence of flu in the United States, compared with 1991. In addition, U.S.
pharmaceutical sales were also negatively affected by Medicaid rebates.
These rebates totaled $108 million in 1992, an amount nearly double that of
1991.
-4-
Medical devices and diagnostics products sales increased 1 percent in 1992,
to $1.2 billion. All companies within this group except Physio-Control
Corporation had sales increases from 1991. However, during 1992, several of
the companies experienced increased competition, which reduced the rate of
sales growth from 1991. In May 1992, Physio-Control halted production as a
consequence of an inspection of its operations by the FDA. Due to the
production halt, Physio-Control's sales in 1992 declined $79 million from
1991.
Worldwide sales of Elanco Animal Health products increased 10 percent, to
$427 million, in 1992. The increase was largely due to the introduction of
Micotil. The remaining growth was balanced across the product line.
Manufacturing costs, operating expenses, and other income and deductions for
1992 reflect additional expenses, including restructuring and special
charges, relating primarily to various strategic actions taken by the company
in the third quarter. Those actions centered around a streamlining of the
global manufacturing operations, an aggressive response to regulatory
initiatives relating to several of the medical devices companies, and other
actions designed to enhance the company's competitiveness. The total impact
of those and other actions described below was approximately $720 million,
substantially all of which was before taxes. See Note 2 to the consolidated
financial statements for further discussion.
Gross profits for 1992 increased at a lower rate than sales because of
certain one-time charges taken as part of the strategic actions discussed
above, production and start-up costs associated with new production
facilities for Humulin and Lorabid, and costs associated with modifications
to existing production facilities to comply with environmental regulations.
Cost of sales also increased because of the production halt at Physio-
Control. Worldwide cost of sales in 1992 increased to 30.8 percent of sales,
from 30 percent in 1991.
Research and development expenses increased 21 percent in 1992. The increase
reflected the company's continued commitment to life-sciences research and
development, including alliances with Centocor, Inc., and Oclassen
Pharmaceuticals, Inc. During 1992, the company incurred expenses in excess
of $66 million on new external research collaborations.
The 10 percent growth in marketing and administrative expenses was greater
than the sales growth rate in 1992. The increase in marketing costs was
primarily associated with the continued worldwide introduction of the
company's newer products. Also, 1992 expenses reflected an expansion and
realignment of the pharmaceutical sales forces. The 1992 growth in
administrative expenses was largely attributable to a number of one-time
expenses in connection with the previously noted strategic actions, to
increased legal expenses, and to the inclusion of the expenses of Origin
Medsystems, Inc., which was acquired in February 1992, and of Beiersdorf-
Lilly G.m.b.H., in which Lilly acquired a majority interest.
Other income in 1992 decreased significantly from 1991 levels due primarily
to reduced net interest income resulting from lower interest rates on
investments and higher debt levels. Other income also declined as a result
of the company's special charges, including the write-off of certain fixed
assets. These declines were offset in part by the gain on the sale of the
company's worldwide capsule business.
The effective tax rate for 1992 remained at the 1991 level of 30 percent.
-5-
Effective January 1, 1992, the company adopted two Financial Accounting
Standards Board (FAS) pronouncements. The adoption of FAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," resulted in a
pretax charge of $269 million. The adoption of FAS 109, "Accounting for
Income Taxes," produced a $49 million benefit to net income. The net-of-tax
effect of the accounting changes, a charge of $118.9 million, has been
reflected in the company's results of operations for the year.
Both 1992 net income and earnings per share declined from 1991 levels by 46
percent. The declines were primarily the result of the impacts of the
company's strategic business actions on costs and expenses, the cumulative
effect of the accounting changes, the growth in Medicaid rebates, the
production halt at Physio-Control, and the write-down of Centocor-related
investments.
FINANCIAL CONDITION
The company maintained its sound financial position in 1993 despite the
impacts of the restructuring and special charges taken in both 1993 and 1992.
The cash generated from operations provided the resources to fund capital
expenditures, dividends, and acquisitions. In 1993, the company issued
additional long-term debt of $350 million to take advantage of favorable long-
term interest rates.
Capital expenditures during 1993 were approximately $279 million less than
in 1992, as work progressed toward completion of new manufacturing
facilities, including environmental control systems, and development,
research, and administrative facilities. The company expects a continued
decline in near-term capital-expenditure requirements. Sufficient liquidity
exists to meet these near-term capital-expenditure requirements.
(See Graph #2, "Capital Expenditures", in the Appendix to this Exhibit 13)
The company is a 40 percent partner with The Dow Chemical Company in
DowElanco, a global agricultural products joint venture. The company holds a
put option, which can be exercised after October 31, 1994, requiring Dow to
purchase the company's interest in DowElanco at a fair market value.
The company's strong financial position contributes to its ability to finance
growth. Liquidity is substantial as evidenced by the company's ability to
generate cash from operations, debt-to-equity ratio, and substantial debt
capacity. These factors give the company the ability and flexibility to meet
its obligations, to pay dividends, and to continue to invest in growth
opportunities. The highest long-term debt rating of AAA for the company was
reaffirmed by Standard & Poor's in December 1993; however, the company's long-
term debt rating was lowered to Aa1 from AAA by Moody's in January 1994.
Dividends of $2.42 per share were paid in 1993, a 10 percent increase from
the $2.20 per share paid in 1992. Dividends of $2.20 per share were paid in
1992, a 10 percent increase from the $2.00 per share paid in 1991. The year
1993 was the 109th consecutive year that the company made dividend payments
and the 26th consecutive year in which dividends have been increased.
(See Graph #3, "Dividends Per Share", in the Appendix to this Exhibit 13)
-6-
ENVIRONMENTAL AND LEGAL MATTERS
As with other industrial enterprises, the company's operations are subject to
increasingly complex and changing federal, state, and local environmental
laws and regulations, which will continue to require capital investment and
operational expenses. The company also has been designated a potentially
responsible party under the Comprehensive Environmental Response,
Compensation, and Liability Act, commonly known as Superfund, with respect to
approximately 10 sites with which the company had varying degrees of
involvement. Further, the company continues remediation of certain of its
own properties consistent with current environmental practices. The company
has accrued for estimated Superfund costs and remediation of its own
properties, taking into account, as applicable, available information
regarding site conditions, potential cleanup methods, estimated costs, and
the extent to which other parties can be expected to contribute to those
costs, and has also accrued for certain other environmental matters. While
it is not feasible to predict the ultimate cost of Superfund liability,
remediation of its own sites, or compliance with evolving regulations, the
company continues to believe that such costs will not have a material adverse
effect on its consolidated financial position.
During 1993, the company continued to be named as a defendant in lawsuits
involving Prozac. The number of new case filings in 1993 declined from the
1992 level. In addition, the company has been named in approximately 10 of
more than 40 lawsuits filed in various federal courts against a number of
U.S. pharmaceutical manufacturers and in some cases wholesalers. The suits
in which the company is a defendant generally allege an industrywide
agreement to deny favorable pricing on sales to certain retail pharmacies.
Some also allege price discrimination. The suits purport to be class actions
on behalf of all retail pharmacies in the United States. The suits are in a
very early procedural stage. While it is not feasible to predict the outcome
of these actions, the company believes they will not have a material adverse
effect on its consolidated financial position. For additional information on
litigation and environmental matters, see Note 11 to the consolidated
financial statements.
-7-
Consolidated Statements of Income
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except per-share data)
Year Ended December 31 1993 1992 1991
- ---------------------------------------------------------------------
Net sales $6,452.4 $6,167.3 $5,725.7
Cost of sales 1,959.0 1,897.0 1,717.7
Research and development 954.6 924.9 766.9
Marketing and administrative 1,713.5 1,624.2 1,472.8
Restructuring and special charges(Note 2) 1,172.7 565.7 -
Other income--net (49.3) (26.8) (110.9)
------- ------- -------
5,750.5 4,985.0 3,846.5
------- ------- -------
Income before income taxes and cumulative
effect of changes in accounting principles 701.9 1,182.3 1,879.2
Income taxes (Note 8) 210.8 354.7 564.5
----- ----- -----
Income before cumulative effect of changes
in accounting principles 491.1 827.6 1,314.7
Cumulative effect of changes in accounting
principles (net of taxes) (Note 3) (10.9) (118.9) -
---- ----- -------
Net income $ 480.2 $ 708.7 $1,314.7
===== ===== =======
Earnings per share:
Income before cumulative effect of
changes in accounting principles $1.67 $ 2.81 $ 4.50
Cumulative effect of accounting changes (.04) (.40) -
---- ---- ----
Net income $1.63 $2.41 $4.50
==== ==== ====
See notes to consolidated financial statements.
-8-
Consolidated Balance Sheets
Eli lilly and company and subsidiaries
(Dollars in millions)
December 31 1993 1992
- ------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 539.6 $ 432.4
Short-term investments 447.5 295.9
Accounts receivable, net of allowances of
$32.3 (1993) and $35.0 (1992) 950.1 898.6
Inventories (Note 1) 1,103.0 938.4
Deferred income taxes (Note 8) 334.0 175.6
Other current assets 322.9 265.1
------- -------
Total current assets 3,697.1 3,006.0
Other Assets
Prepaid retirement (Note 9) 266.0 381.0
Investments--at cost 221.7 242.5
Goodwill and other intangibles, net of
allowances for amortization of $289.9 (1993)
and $283.6 (1992) (Note 1) 405.0 460.1
Sundry 833.6 511.1
------- -------
1,726.3 1,594.7
Property and Equipment (Note 1) 4,200.2 4,072.1
------- -------
$9,623.6 $8,672.8
======= =======
-9-
Consolidated Balance Sheets
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions)
December 31 1993 1992
- --------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Short-term borrowings (Note 6) $ 524.8 $ 591.2
Accounts payable 329.6 323.6
Employee compensation 328.6 272.8
Dividends payable 183.3 175.9
Other liabilities 1,115.7 575.3
Income taxes payable 446.0 459.8
------- -------
Total current liabilities 2,928.0 2,398.6
Other Liabilities
Long-term debt (Note 6) 835.2 582.3
Deferred income taxes (Note 8) 127.5 169.7
Retiree medical benefit
obligation (Note 9) 183.9 137.9
Other noncurrent liabilities 980.2 492.2
------- -------
2,126.8 1,382.1
Shareholders' Equity (Notes 5 and 7)
Common stock--no par value
Authorized shares: 800,000,000
Issued shares: 292,807,644 183.0 183.0
Additional paid-in capital 294.6 307.9
Retained earnings 4,500.9 4,743.1
Deferred costs--ESOP (242.8) (263.9)
Currency translation adjustments (163.5) (70.2)
------- -------
4,572.2 4,899.9
Less cost of common stock in treasury:
1993 -- 59,277 shares
1992 -- 122,120 shares 3.4 7.8
------- -------
4,568.8 4,892.1
------- -------
$9,623.6 $8,672.8
======= =======
See notes to consolidated financial statements.
-10-
Consolidated Statements of Cash Flows
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions)
Year Ended December 31 1993 1992 1991
- -----------------------------------------------------------------------
Cash Flows from Operating Activities
Net income $ 480.2 $ 708.7 $1,314.7
Adjustments to Reconcile Net Income to
Cash Flows from Operating Activities
Depreciation and amortization 398.3 368.1 299.5
Change in deferred taxes (231.6) (184.3) (13.7)
Restructuring and special
charges--net of payments 1,041.3 565.7 -
Cumulative effect of changes in
accounting principles 10.9 118.9 -
Other noncash (income)--net (53.1) (16.2) (8.7)
-------- ------- -------
1,646.0 1,560.9 1,591.8
Changes in operating assets and liabilities:
Receivables--(increase) decrease (32.1) 28.1 (122.2)
Inventories--increase (192.3) (198.4) (116.1)
Other assets--increase (104.5) (48.8) (140.3)
Accounts payable and other
liabilities--increase 199.8 141.7 41.4
------ ----- -----
(129.1) (77.4) (337.2)
Net Cash Flows from Operating Activities 1,516.9 1,483.5 1,254.6
Cash Flows from Investing Activities
Additions to property and equipment (633.5) (912.9)(1,142.4)
Disposals of property and equipment 5.4 10.6 28.5
Additions to intangibles and other assets (70.1) (59.6) (100.9)
Net proceeds from divestiture - 98.9 -
Reductions of investments 889.3 764.2 1,301.7
Additions to investments (1,001.7) (740.2) (942.6)
Acquisitions (56.1) (89.2) -
------ ------- ------
Net Cash Used for Investing Activities (866.7) (928.2) (855.7)
Cash Flows from Financing Activities
Dividends paid (708.4) (643.7) (582.7)
Warrant exercises - - 955.7
Purchase of common stock and other
capital transactions (25.8) (68.5) (69.2)
Issuance under stock plans 19.8 26.0 39.3
Decrease in short-term borrowings (152.7) (104.9) (713.9)
Additions to long-term debt 383.8 205.5 152.6
Reductions of long-term debt (39.8) (3.0) (60.0)
------ ------- -------
Net Cash Used for Financing Activities (523.1) (588.6) (278.2)
Effect of exchange rate changes on cash (19.9) (13.5) 8.3
------ ------ -----
Net increase (decrease) in cash and
cash equivalents 107.2 (46.8) 129.0
Cash and cash equivalents at the beginning
of year 432.4 479.2 350.2
----- ----- -----
Cash and cash equivalents at end of year $ 539.6 $ 432.4 $ 479.2
===== ===== =====
See notes to consolidated financial statements.
-11-
Segment Information
Industry Data (Dollars in millions) 1993 1992 1991
- --------------------------------------------------------------------
Net sales--to unaffiliated customers
Life-sciences products
Anti-infectives $1,731.4 $1,735.9 $1,723.8
Central nervous system 1,393.6 1,290.0 1,109.6
Medical devices and diagnostics 1,254.0 1,204.3 1,192.3
Diabetic care 687.4 641.8 583.5
Animal health 439.1 426.5 388.0
All other 946.9 868.8 728.5
------- ------- -------
Net sales $6,452.4 $6,167.3 $5,725.7
======= ======= =======
Life-sciences products include a broad range of pharmaceuticals,
diagnostics, and medical devices used for the treatment of human and
animal diseases. The largest category of the products is the anti-
infectives, which include Ceclor, Keflex (registered), Kefzol (registered),
Lorabid, Nebcin (registered), Tazidime (registered), and Vancocin HCl.
Central-nervous-system agents include Prozac and Darvon (registered).
Medical devices and diagnostics include intravenous fluid-delivery and
control systems, implantable cardiac pacemakers and defibrillators, external
cardiac defibrillators and monitors, coronary angioplasty catheter systems,
peripheral and coronary atherectomy catheter systems, patient vital-signs
measurement and monitoring systems, and diagnostic products that include
tests incorporating monoclonal antibodies, of which Tandem (registered)
PSA and Tandem Icon (registered) HCG are the largest. Other major
groups are diabetic-care products, of which Humulin and Iletin (registered)
are the largest, and animal health products that include a nonhormonal
cattle feed additive, Rumensin (registered), which improves feed efficiency
and growth; Micotil, an antibiotic for bovine respiratory disease; Tylan,
an antibiotic for promoting feed efficiency and growth in swine and cattle;
anticoccidial agents for use in broilers and layer replacements, the largest
of which is Coban (registered); and other products for livestock and poultry.
Major products in the all-other category include cardiovascular therapy
products, of which Dobutrex is the largest; an antiulcer agent known as
Axid; hormone products, the largest of which is Humatrope; and other
products, including cancer-therapy and other miscellaneous pharmaceutical
products.
Most of the pharmaceutical products are distributed through wholesalers that
serve physicians, dentists, pharmacies, and hospitals. In 1993, one
wholesaler accounted for approximately 11 percent of consolidated net sales.
The medical devices and diagnostic products are marketed to physicians,
hospitals, clinics, and medical laboratories through distributors and on a
direct basis. Animal health products are sold to wholesale distributors,
retailers, manufacturers, and producers.
-12-
Geographic Information (Dollars in millions) 1993 1992 1991
- --------------------------------------------------------------------
Net sales
United States
Sales to unaffiliated customers $3,981.0 $3,835.4 $3,624.9
Transfers to other geographic areas 552.3 443.6 432.2
------- ------- -------
4,533.3 4,279.0 4,057.1
Europe, Middle East, and Japan
Sales to unaffiliated customers 1,846.3 1,786.8 1,606.7
Transfers to other geographic areas 218.6 207.2 196.9
----- ------- -------
2,064.9 1,994.0 1,803.6
Other
Sales to unaffiliated customers 625.1 545.1 494.1
Transfers to other geographic areas 3.9 4.9 2.3
----- ----- -----
629.0 550.0 496.4
Eliminations--transfers between
geographic areas (774.8) (655.7) (631.4)
------- ------- -------
$6,452.4 $6,167.3 $5,725.7
======= ======= =======
Income before income taxes and cumulative
effect of changes in accounting principles
United States $ 457.9 $ 716.1 $1,299.6
Europe, Middle East, and Japan 185.0 372.7 479.8
Other 75.1 97.1 100.8
Eliminations and adjustments (16.1) (3.6) (1.0)
----- ------- --------
$ 701.9 $1,182.3 $1,879.2
===== ======= =======
Total assets
United States $7,187.8 $6,564.8 $6,319.0
Europe, Middle East, and Japan 2,507.1 2,215.9 2,056.1
Other 382.5 330.3 302.9
Eliminations and adjustments (453.8) (438.2) (379.4)
------ ------ -------
$9,623.6 $8,672.8 $8,298.6
======= ======= =======
Transfers between geographic areas are made at prices that, in general, are
calculated to reflect a profit attributable to manufacturing operations. Net
assets relating to operations outside the United States amounted to
approximately $1,604.3 million at the end of 1993 and $1,550.8 million at the
end of 1992. Remittances to the United States are subject to various
regulations of the respective governments as well as to fluctuations in
exchange rates.
-13-
Selected Quarterly Data (unaudited)
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except per-share data)
1993 1992
--------------------------------------------------------------------
Fourth* Third Second First Fourth* Third* Second First
--------------------------------------------------------------------
Net sales $1,800.8 $1,530.6 $1,561.0 $1,560.0 $1,655.4 $1,476.5 $1,478.3 $1,557.1
Cost of
sales 575.5 467.4 469.5 446.6 483.8 532.5 445.6 435.1
Operating
expenses 778.1 650.1 634.8 605.1 680.2 731.8 595.2 541.9
Restruc-
turing and
special
charges 1,172.7 - - - 46.1 519.6 - -
Other income
(loss)-net (11.9) 4.5 35.2 21.5 (.8) (78.2) 49.0 56.8
Income (loss)
before cumula-
tive effect of
changes in
accounting
principles (523.6) 294.4 346.8 373.5 311.2 (268.5) 340.2 444.7
Cumulative effect
of accounting
changes - - - (10.9) - - - (118.9)
Net income
(loss) (523.6) 294.4 346.8 362.6 311.2 (268.5) 340.2 325.8
Earnings (loss)
per share:
Income (loss)
before cumulative
effect of changes
in accounting
principles (1.77) 1.00 1.18 1.27 1.06 (.91) 1.16 1.51
Net income
(loss) (1.77) 1.00 1.18 1.23 1.06 (.91) 1.16 1.10
Dividends paid
per share .605 .605 .605 .605 .55 .55 .55 .55
Common stock prices:
High 60.75 50.63 52.13 62.00 65.50 72.00 74.63 87.75
Low 50.13 43.63 45.00 45.13 57.75 61.25 63.63 69.50
*Reflects impact of restructuring and special charges. (See Note 2 to
consolidated financial statements.)
First-quarter dividends are declared in December of the preceding year.
It is the present intention of the board of directors to continue to
consider quarterly the payment of a cash dividend, the payment and amount
thereof to be dependent on the net earnings, financial condition and
requirements of the company, and other relevant considerations.
The company's common stock is listed on the New York, Tokyo, London, and
other stock exchanges. The number of shareholders of record as of
December 31, 1993, was 59,300.
-14-
Selected Financial Data (unaudited)
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except per-share data)
1993* 1992* 1991 1990 1989
---- ---- ---- ---- ----
Operations
Net sales $6,452.4 $6,167.3 $5,725.7 $5,191.6 $4,175.6
Research and development expenses 954.6 924.9 766.9 702.7 605.4
Other operating costs and expenses3,672.5 3,521.2 3,190.5 2,949.5 2,405.4
Restructuring and special charges 1,172.7 565.7 - - -
Other income--net 49.3 26.8 110.9 59.6 165.1
Income before taxes and changes in
accounting principles 701.9 1,182.3 1,879.2 1,599.0 1,329.9
Income taxes 210.8 354.7 564.5 471.7 390.4
Cumulative effect of accounting
changes 10.9 118.9 - - -
Net income 480.2 708.7 1,314.7 1,127.3 939.5
As a percent of sales:
Net income 7.4% 11.5% 23.0% 21.7% 22.5%
Research and development 14.8 15.0 13.4 13.5 14.5
Per-share data:
Before effect of accounting
changes $1.67 $2.81 $4.50 $ 3.90 $3.20
Net income 1.63 2.41 4.50 3.90 3.20
Dividends declared 2.44 2.255 2.05 1.73 1.4225
Dividends paid 2.42 2.20 2.00 1.64 1.35
Average number of shares and share
equivalents (thousands) 294,289 294,478 294,244 289,993 294,507
============================================
Financial Position
Current assets $3,697.1 $3,006.0 $2,939.3 $2,501.3 $2,274.4
Current liabilities 2,928.0 2,398.6 2,272.0 2,817.6 1,328.8
Working capital 769.1 607.4 667.3 (316.3) 945.6
Current ratio 1.3 1.3 1.3 .9 1.7
Other assets $1,726.3 $1,594.7 $1,576.8 $1,704.8 $1,459.0
Property and equipment 4,200.2 4,072.1 3,782.5 2,936.7 2,114.6
Total assets 9,623.6 8,672.8 8,298.6 7,142.8 5,848.0
Long-term debt 835.2 582.3 395.5 277.0 269.5
Deferred income taxes 127.5 169.7 415.6 351.2 300.4
Other noncurrent liabilities 1,164.1 630.1 249.4 229.5 192.2
Shareholders' equity 4,568.8 4,892.1 4,966.1 3,467.5 3,757.1
Long-term debt as a percent
of equity 18.3% 11.9% 8.0% 8.0% 7.2%
============================================
Supplementary Data
Return on shareholders' equity 10.2% 14.4% 31.2% 31.2% 26.9%
Return on assets 5.2% 8.3% 17.2% 17.5% 17.0%
Number of employees 32,700** 32,200 30,800 29,500 27,800
Net sales per
employee (thousands) $ 197.3 $ 191.5 $ 185.9 $176.0 $150.2
Net income per
employee (thousands) 14.7 22.0 42.7 38.2 33.8
Capital expenditures 633.5 912.9 1,142.4 1,007.3 554.5
Depreciation and amortization 398.3 368.1 299.5 247.5 229.3
Effective tax rate 30.0% 30.0% 30.0% 29.5% 29.4%
Number of shareholders 59,300 53,900 46,000 39,300 36,000
===========================================
*Reflects impact of restructuring, special charges, and accounting changes.
(See Notes 2 and 3 to consolidated financial statements.)
**Does not reflect the impact of the special retirement programs since the
retirements were generally effective January 1, 1994. Approximately 2,600
people will be retiring under the programs. (See Note 2 to consolidated
financial statements.)
-15-
Notes to Consolidated Financial Statements
ELI LILLY AND COMPANY AND SUBSIDIARIES
(Dollars in millions, except per-share data)
Note 1: Summary of Significant Accounting Policies
Basis of Presentation: The accounts of all wholly owned and majority-
owned subsidiaries are included in the consolidated financial statements.
All intercompany balances and transactions have been eliminated.
Cash Equivalents: The company considers all highly liquid investments,
generally with a maturity of three months or less, to be cash equivalents.
The cost of these investments approximates fair value.
Inventories: The company states all its inventories at the lower of cost
or market. The company uses the last-in, first-out (LIFO) cost method for
a significant portion of its inventories located in the continental United
States, or approximately 50 percent of its total inventories. Other
inventories are valued by the first-in, first-out (FIFO) method.
Inventories at December 31, 1993 and 1992, consisted of the following:
1993 1992
---- ----
Finished products $ 272.5 $ 272.2
Work in process 667.7 530.9
Raw materials and supplies 271.5 222.2
------- -------
1,211.7 1,025.3
Less reduction to LIFO cost 108.7 86.9
------- ------
$1,103.0 $ 938.4
======= ======
Intangible Assets: Intangible assets arising from acquisitions and
research alliances are amortized over their estimated useful lives,
ranging from 5 to 40 years, using the straight-line method.
Property and Equipment: Property and equipment is stated on the basis of
cost. Provisions for depreciation of buildings and equipment are computed
generally by the straight-line method at rates based on their estimated
useful lives. At December 31, 1993 and 1992, property and equipment
consisted of the following:
1993 1992
---- ----
Land $ 130.2 $ 112.8
Buildings 1,957.3 1,655.4
Equipment 3,771.7 3,344.3
Construction in progress 707.3 1,035.6
------- -------
6,566.5 6,148.1
Less allowances for depreciation 2,366.3 2,076.0
------- -------
$4,200.2 $4,072.1
======= =======
Approximately $25.5 million, $37.4 million, and $49.1 million of interest
costs were capitalized as part of property and equipment in 1993, 1992, and
1991, respectively. The estimated cost to complete significant construction
projects in progress at December 31, 1993, approximated $472 million.
Total rental expense for all leases, including contingent rentals (not
material), amounted to approximately $97.0 million for 1993, $86.3
-16-
million for 1992, and $75.3 million for 1991. Capital leases
included in property and equipment in the consolidated balance sheets and
future minimum rental commitments are not material.
Foreign Currency Swaps, Options, and Forward Contracts: The company
enters into a variety of forward contracts, options, and swaps in its
management of foreign currency exposures and interest rate risk. Realized
and unrealized gains and losses on contracts that qualify as designated
hedges are deferred. Those contracts that do not qualify as hedges for
accounting purposes are marked to market, and the resulting gains and
losses are recognized in other income.
Income Taxes: Deferred taxes are recognized for the future tax effects of
temporary differences between financial and income tax reporting based on
enacted tax laws and rates. Federal income taxes are provided on the
portion of the income of foreign subsidiaries that is expected to be
remitted to the United States and be taxable.
Earnings per Share: Earnings per share are calculated on a fully diluted
basis. They are based on the weighted average number of outstanding
common shares and common share equivalents (primarily stock options).
Primary earnings per share have not been presented because they do not
differ significantly from the reported earnings per share computed on a
fully diluted basis.
Note 2: Restructuring and Special Charges
In both 1993 and 1992, the company took actions designed to enhance the
company's competitiveness in the changing health care environment, reduce
expenses, and improve efficiencies. As a result of these actions, the
company recognized restructuring and special charges amounting to $1,172.7
million and $565.7 million in 1993 and 1992, respectively. Restructuring
costs include those amounts that arose as a direct result of management's
commitment to revised strategic actions. Special charges represent
unusual, generally nonrecurring expense items. Significant components of
these charges are summarized as follows (dollars in millions):
Special
Restructuring Charges Total
------------- ------- -----
1993
Work force reductions $545.4 - $545.4
Manufacturing consolidations
and other closings 249.9 - 249.9
Revised distribution strategies 71.7 - 71.7
Pharmaceutical streamlining 35.3 - 35.3
Intangibles write-downs 18.7 $ 56.5 75.2
Asset write-downs, legal
accruals, and other 2.4 192.8 195.2
-----------------------------
$923.4 $249.3 $1,172.7
=============================
-17-
Special
Restructuring Charges Total
------------ ------- -----
1992
Global manufacturing strategy $218.9 - $218.9
Provision for redirection--
Medical Devices and
Diagnostics Division 161.3 - 161.3
Legal, environmental, and
asbestos abatement - $139.4 139.4
Research investment expenses - 46.1 46.1
-----------------------------
$380.2 $185.5 $565.7
=============================
The 1993 restructuring actions consisted principally of early-retirement
programs instituted in various countries that resulted in more than 2,600
employee positions being eliminated. The related provision for work force
reductions includes cash termination benefits, pension enhancements, and
other costs associated with these and other severance programs. In
addition, the company took actions to consolidate certain manufacturing
operations around the world, close certain European headquarters
operations, and discontinue its efforts to develop the imaging and
therapeutic product lines at its Hybritech subsidiary. The company also
approved plans to implement revised product distribution strategies in
certain markets outside the United States and to streamline its core
pharmaceutical operations. The company took special charges to write down
certain operating assets and acquired intangibles as the result of recent
developments in pharmaceutical markets and to provide for certain patent
and product liability matters.
The 1992 actions centered around a streamlining of the global
manufacturing operations and an aggressive response to regulatory
initiatives relating to several of the medical devices and diagnostics
companies. The revised manufacturing strategy was undertaken in response
to a comprehensive review of the global business and manufacturing
operations. These actions will result in significant changes to the
nature and/or location of future manufacturing operations. The charge for
the Medical Devices and Diagnostics Division relates principally to the
write-down of certain intangible assets and costs associated with
responding to regulatory initiatives. Special charges include accruals
for an accelerated asbestos abatement program, other environmental and
legal matters, and a charge for the write-down of the company's investment
in Centocor, Inc., following the suspension of clinical trials of HA-1A
(trademark)/Centoxin.
In 1993 and 1992, the company also recognized other charges of
approximately $30 million and $204 million, respectively, representing
miscellaneous unusual items covering a variety of other operational
matters. These charges are reflected in the applicable operating expense
lines in the statements of income.
Note 3: Accounting Changes
Effective January 1, 1993, the company elected the early adoption of
Financial Accounting Standards Board (FAS) 112, "Employers' Accounting for
Postemployment Benefits." FAS 112 requires employers to recognize
currently the obligation to provide postemployment benefits to former or
inactive employees and others. The company's adoption of FAS 112 resulted
in a pretax charge of $17.3 million ($10.9 million after tax; $.04 per
share) relating primarily to disability benefits. Prior to 1993, the
company expensed these obligations when paid.
-18-
In 1992, the company elected the early adoption of two Financial
Accounting Standards Board pronouncements. The adoption of FAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
resulted in a pretax charge of $268.9 million ($167.5 million after tax;
$.57 per share). The adoption of FAS 109, "Accounting for Income Taxes,"
produced a $48.6 million benefit to net income ($.17 per share). The
effective date of adoption of both standards was January 1, 1992. The
company elected to report the cumulative effect on prior years of the
changes as a charge to income in 1992 of $118.9 million.
Note 4: Acquisitions
In September 1993, IVAC Corporation, a wholly owned subsidiary, completed
the acquisition of certain of the assets of the MiniMed III product line,
a three-channel infusion pump system, from Siemens Infusion Systems, Ltd.
The purchase price was approximately $38 million, which includes
guaranteed minimum royalties payable annually from 1996 through 1999.
Under provisions of the acquisition agreement, if the royalties are in
excess of the guaranteed minimums, IVAC will incur additional
consideration, which will be accounted for as goodwill and amortized using
the straight-line method.
In 1992, the company acquired Origin Medsystems, Inc. (OMI), a company
specializing in devices for use in laparoscopic surgery. The purchase
price, including subsequent contingent payments earned through December
31, 1993, totaled $66 million. Depending on the annual performance of OMI
and other conditions over the period ending December 31, 1997, additional
cash up to $165 million may be paid to holders of OMI common stock. Such
additional consideration would be accounted for as goodwill. Goodwill
recognized in the acquisition is being amortized over 15 years using the
straight-line method.
Note 5: Stock Plans
Stock options and performance awards have been granted to officers and
other executive and key employees. Stock options are granted at prices
equal to 100 percent of the fair market value at the dates of grant.
In April 1993, the company announced the GlobalShares program, under which
essentially all employees were given an option to buy 100 shares of stock.
Options to purchase approximately 3 million shares were granted under the
program.
Stock-option activity during 1993 and 1992 is summarized below:
Number of Shares
1993 1992
---- ----
Unexercised at January 1 8,359,206 8,065,473
Granted 6,964,325 1,227,300
Exercised (671,038) (895,113)
Terminated (200,675) (38,454)
---------- ---------
Unexercised at December 31 14,451,818 8,359,206
========== =========
Exercisable at December 31 5,617,344 4,883,569
========= =========
-19-
The per-share price range of unexercised options at December 31, 1993 and
1992, was $9.14 to $81.88 and $9.00 to $81.88, respectively. Options were
exercised at prices ranging from $9.00 to $47.06 in 1993 ($9.14 to $81.88
in 1992). At December 31, 1993, additional options, performance awards,
stock appreciation rights, or restricted stock grants may be granted under
the Lilly Stock Plan for not more than 145,595 shares (1992--4,147,202
shares).
Note 6: Borrowings
Long-term debt at December 31, 1993 and 1992, consisted of the following:
1993 1992
---- ----
8.18 percent ESOP debentures (due in 2006) $159.1 $175.0
4.00 to 8.06 percent medium-term
notes (due 1994-1999) 225.8 200.8
6.25 percent notes (due in 2003) 200.0 -
6.75 percent notes (due in 1999) 100.0 100.0
5.5 percent Eurodollar bonds (due in 1998) 150.0 -
7 percent bonds sold through Swiss
banks (due in 1996) 61.9 60.7
Other, including capitalized leases 42.2 72.2
----- -----
939.0 608.7
Less current portion 103.8 26.4
----- -----
$835.2 $582.3
===== =====
The 8.18 percent Employee Stock Ownership Plan (ESOP) debentures are
obligations of the ESOP but are shown on the consolidated balance sheet
because they are guaranteed by the company. The principal and interest on
the debt will be funded by contributions from the company and by dividends
received on certain shares held by the ESOP. Because of the amortizing
feature of the ESOP debt, bondholders will receive both interest and
principal payments each quarter.
During 1991, the company entered into a currency swap related to $50
million of the medium-term notes, lowering the effective interest rate on
these notes to approximately 7 percent.
The 7 percent bonds sold through Swiss banks have an effective rate of 9
percent. These bonds were called at their carrying value in January 1994.
The aggregate amounts of maturities on long-term debt for the next five
years are as follows: 1994, $103.8 million; 1995, $43.0 million; 1996,
$100.3 million; 1997, $79.1 million; and 1998, $164.7 million.
At December 31, 1993, short-term borrowings included $346.4 million of
commercial paper and $74.6 million of notes payable to banks. At December
31, 1992, commercial paper and notes payable to banks totaled $416.3
million and $148.5 million, respectively. Interest expense as reported in
the financial statements was $71.2 million, $71.7 million, and $39.8
million in 1993, 1992, and 1991, respectively. Cash payments of interest
on all borrowings totaled $63.7 million, $72.6 million, and $53.1 million
in 1993, 1992, and 1991, respectively.
At December 31, 1993, unused committed lines of credit approximated $600
million. Compensating balances and commitment fees are not material, and
there are no significant conditions under which the lines may be
withdrawn.
-20-
Note 7: Shareholders' Equity
Changes in the components of shareholders' equity were as follows:
Common Stock in
Additional Deferred Treasury
Paid-in Retained Costs- ---------------
Capital Earnings ESOP Shares Amount
------- -------- ------- ---------------
Balance at January 1,1991 - $4,548.7 $(109.9) 15,743,256 $1,177.5
Net income 1,314.7
Cash dividends declared
per share: $2.05 (599.9)
Purchase for treasury 1,170,000 89.7
Exercise of warrants $370.8 (560.5) (15,231,234)(1,139.2)
Issuance of stock under
employee stock plans (39.8) (10.8) (1,496,064) (113.4)
ESOP transactions 9.1 (176.3)
Other .8 (993) (.1)
------------------------------------------------
Balance at Dec. 31, 1991 340.1 4,693.0 (286.2) 184,965 14.5
Net income 708.7
Cash dividends declared
per share: $2.255 (658.6)
Purchase for treasury 970,000 72.5
Issuance of stock under
employee stock plans (35.2) (1,021,375) (78.3)
ESOP transactions 2.9 22.3
Other .1 (11,470) (.9)
------------------------------------------------
Balance at Dec. 31, 1992 307.9 4,743.1 (263.9) 122,120 7.8
------------------------------------------------
Net income 480.2
Cash dividends declared
per share: $2.44 (715.7)
Purchase for treasury 550,000 29.8
Issuance of stock under
employee stock plans (16.3) (585,103) (32.5)
ESOP transactions 3.6 21.1
Other (.6) (6.7) (27,740) (1.7)
------------------------------------------------
Balance at Dec. 31, 1993 $294.6 $4,500.9 $(242.8) 59,277 $3.4
===============================================
The company has 292,807,644 issued shares of common stock without par value.
In addition, the company has 5,000,000 authorized and unissued shares of
preferred stock without par value.
In 1989, the company established an Employee Stock Ownership Plan (ESOP) as a
funding vehicle for the existing employee savings plan. The ESOP used the
proceeds of a loan from the company to purchase 2,200,000 shares of common
stock from the treasury for $129.8 million. In September 1991, the ESOP
issued $200 million of third-party debt, repayment of which was guaranteed by
the company (see Note 6). The proceeds were used to purchase shares of the
company's common stock on the open market. Shares of common stock held by
the ESOP will be allocated to participating employees annually through 2006
as part of the company's savings plan contribution. The cost of shares
allocated each period is recognized as expense on a first-in, first-out
basis.
-21-
Generally, the assets and liabilities of foreign operations are translated
into U.S. dollars using the current exchange rate. For those operations,
changes in exchange rates generally do not affect cash flows; therefore,
resulting translation adjustments are made to shareholders' equity rather
than to income. Following is an analysis of currency translation
adjustments reflected in shareholders' equity:
1993 1992 1991
---- ---- ----
Balance (negative amount) at January 1 $ (70.2) $ 50.7 $ 28.6
Translation adjustments and gains
(losses) from intercompany transactions (93.3) (121.0) 17.4
Allocated income taxes - .1 4.7
------ ------ -----
Balance (negative amount) at
December 31 $(163.5) $(70.2) $ 50.7
====== ===== =====
In 1988, the company adopted a Shareholder Rights Plan. Under the terms of
the plan, all shareholders of common stock received for each share owned a
preferred stock purchase right entitling them to purchase from the company
one two-hundredth of a share of Series A Participating Preferred Stock at an
exercise price of $162.50. The rights are not exercisable until after the
date on which the company's right to redeem has expired. The company may
redeem the rights for $.005 per right up to and including the 10th business
day after the date of a public announcement that a person (the "Acquiring
Person") has acquired ownership of stock having 20 percent or more of the
company's general voting power (the "Stock Acquisition Date").
The plan provides that, if the company is acquired in a business combination
transaction at any time after a Stock Acquisition Date, generally each
holder of a right will be entitled to purchase at the exercise price a
number of the acquiring company's shares having a market value of twice the
exercise price. The plan also provides that in the event of certain other
business combinations, certain self-dealing transactions, or the acquisition
by a person of stock having 25 percent or more of the company's general
voting power, generally each holder of a right will be entitled to purchase
at the exercise price a number of shares of the company's common stock
having a market value of twice the exercise price. Any rights beneficially
owned by an Acquiring Person shall not be entitled to the benefit of the
adjustments with respect to the number of shares described above. The
rights will expire on July 28, 1998, unless redeemed earlier by the company.
-22-
Note 8: Income Taxes
Following is the composition of income taxes. The 1993 and 1992 amounts
reflect use of the liability method under FAS 109, while the 1991 amounts
reflect accounting using the deferred method, which was required under the
previous rules.
1993 1992 1991
---- ---- ----
Current:
Federal $329.8 $385.7 $330.1
Foreign 80.5 88.7 104.2
State 42.5 55.4 87.3
----- ----- -----
452.8 529.8 521.6
Deferred:
Federal (112.7) (124.1) 43.4
Foreign (89.5) (35.1) (5.5)
State (39.8) (15.9) 5.0
----- ----- ---
(242.0) (175.1) 42.9
----- ----- ----
Income taxes $210.8 $354.7 $564.5
===== ===== =====
1991 deferred income tax provision:
Accelerated depreciation $ 18.6
Employee benefit plans 32.8
Vacation liability (3.5)
Other timing differences (5.0)
----
Total deferred income tax provision $ 42.9
====
At December 31, 1993, the company had net operating loss carryforwards
for income tax purposes of $294 million, of which $8 million will expire
within 5 years. The majority of the remaining carryforwards do not
expire.
Significant components of the company's deferred tax assets and
liabilities as of December 31 are as follows:
1993 1992
---- ----
Deferred tax assets:
Restructuring and special charges--other $361.2 $154.3
Compensation and benefits 179.0 149.0
Inventory 103.1 96.9
Litigation, environmental and asbestos 99.2 93.7
Net operating losses of subsidiaries 59.1 4.5
Other 179.8 123.1
----- -----
981.4 651.5
Valuation allowances (104.0) (20.4)
------ ------
Total deferred tax assets 877.4 631.1
----- -----
Deferred tax liabilities:
Property and equipment (435.6) (345.7)
Prepaid employee benefits (122.9) (208.2)
Other (52.8) (53.1)
---- ----
Total deferred tax liabilities (611.3) (607.0)
----- -----
Deferred tax assets--net $266.1 $ 24.1
===== =====
-23-
Unremitted earnings of foreign subsidiaries that have been, or are
intended to be, permanently reinvested for continued use in foreign
operations and which, if distributed, would result in taxes at
approximately the U.S. statutory rate, aggregated $976 million at December
31, 1993 ($788 million at December 31, 1992). Cash payments of taxes
totaled $455 million, $484 million, and $489 million in 1993, 1992, and
1991, respectively.
Following is a reconciliation of the effective income tax rate:
1993 1992 1991
---- ---- ----
United States federal statutory tax rate 35.0% 34.0% 34.0%
Add (deduct):
State taxes, net of federal tax benefit .3 2.2 3.2
Tax savings from operations in Puerto Rico(10.0) (7.5) (4.7)
Research tax credit (2.4) (.3) (.7)
Effect of international operations 1.7 (.8) (2.4)
Nondeductible impact of restructuring 2.8 1.8 -
Sundry 2.6 .6 .6
---- ---- ----
Effective income tax rate 30.0% 30.0% 30.0%
==== ==== ====
Note 9: Retirement Benefits
Pension Plans:
The company has noncontributory defined benefit retirement plans that
cover substantially all United States employees and a majority of
employees in other countries. Benefits under the domestic plans are
calculated by using one of several formulas. These formulas are based on
a combination of the following: (1) years of service, (2) final average
earnings, (3) primary social security benefit, and (4) age. The benefits
for the company's plans in countries other than the United States are
based on years of service and compensation.
The company's funding practice for all plans is consistent with local
governmental and tax funding regulations. Generally, pension costs
accrued are funded. Plan assets consist primarily of equity and fixed
income instruments.
Net pension expense for the company's retirement plans included the
following components:
1993 1992 1991
---- ---- ----
Service cost--benefits earned during the
year $ 65.5 $ 69.4 $ 58.8
Interest cost on projected benefit
obligations 129.0 121.5 119.7
Actual return on assets (283.3) (197.2) (246.2)
Net amortization and deferral 91.6 18.1 78.3
----- ----- ----
Net annual pension cost $ 2.8 $ 11.8 $ 10.6
===== ===== ====
In addition to the net pension cost above, the 1993 restructuring charges
include curtailment losses and special termination costs resulting from
the early-retirement programs of $133.3 million and $113.4 million,
respectively.
-24-
The funded status and amounts recognized in the consolidated balance
sheets for the company's defined benefit retirement plans at December 31
were as follows:
Plans in Which Plan in Which
Assets Exceed Accumulated Benefits
Accumulated Benefits Exceed Assets
1993 1992 1993 1992
---- ---- ---- ----
Plan assets at fair
value $2,033.8 $1,806.9 $ 0.0 $ 0.0
Actuarial present value
of benefit obligations
Vested benefits 1,532.6 1,097.1 111.4 29.4
Nonvested benefits 149.0 108.6 1.6 2.5
------- ------ ----- ----
Accumulated benefit
obligation 1,681.6 1,205.7 113.0 31.9
Effect of projected future
salary increases 395.8 367.6 4.0 7.2
------- ------- ----- ----
Projected benefit
obligation 2,077.4 1,573.3 117.0 39.1
------- ------- ----- ----
Funded status (43.6) 233.6 (117.0) (39.1)
Unrecognized net loss 174.1 119.3 15.6 13.7
Unrecognized prior
service cost 128.0 25.6 9.1 5.2
Unrecognized net
obligation at
January 1, 1986 3.8 4.1 2.8 3.4
Additional minimum
liability 0.0 0.0 (23.5) (9.5)
----- ----- ----- -----
Prepaid (accrued) pension
cost $ 262.3 $382.6 $(113.0)$(26.3)
===== ===== ======= ====
The assumptions used to develop net periodic pension expense and the
actuarial present value of projected benefit obligations are shown below:
(percents) 1993 1992 1991
---- ---- ----
Weighted-average discount rate 7.6 8.7 9.2
Rate of increase in future compensation levels 4.5-9.5 6.0-9.5 5.5-9.5
Weighted-average expected long-term rate of
return on plan assets 11.0 11.0 11.0
The reduction in the discount rate at December 31, 1993 increased the
projected benefit obligation by approximately $210.4 million.
The company has defined contribution savings plans that cover its eligible
employees worldwide. The purpose of these defined contribution plans is
generally to provide additional financial security during retirement by
providing employees with an incentive to make regular savings. Company
contributions to the plans are based on employee contributions and the level
of company match. Expense under the plans totaled $32.9 million, $24.1
million, and $28.6 million for the years 1993, 1992, and 1991, respectively.
-25-
Retiree Health Benefits:
The company's noncontributory defined benefit postretirement plans provide
health benefits for the majority of the United States retirees and their
eligible dependents. Certain of the company's non-U.S. subsidiaries have
similar plans for retirees. Eligibility for these benefits is based upon
retirement from the company. Effective October 1, 1992, the plan was
modified such that the start date of an eligible employee's credited service
period begins when the combination of an employee's age and years of service
equals 60.
The company's funding practice for all plans is consistent with local
governmental and tax funding regulations. Plan assets consist primarily of
equity and fixed income instruments.
Net postretirement benefit expense for the company included the following
components:
1993 1992
---- ----
Service cost--benefits earned during the year $ 10.7 $ 7.2
Interest cost on accumulated postretirement benefit
obligations 19.8 21.8
Actual return on assets (11.2) (4.6)
Net amortization and deferral (10.2) (11.0)
------ -----
Net periodic postretirement benefit cost $ 9.1 $ 13.4
===== =====
Prior to 1992, the annual expense associated with these benefits was
recognized when incurred. The expense of these benefits was $13.4 million
in 1991.
The funded status and amounts recognized in the consolidated balance sheet
for the company's defined benefit postretirement plans at December 31 were
as follows:
1993 1992
---- ----
Accumulated postretirement benefit obligation:
Retirees $217.8 $131.5
Fully eligible active plan participants 61.0 45.8
Other active plan participants 75.7 56.6
----- -----
354.5 233.9
Plan assets at fair value 142.6 119.3
----- -----
Accumulated postretirement benefit obligation
in excess of plan assets 211.9 114.6
Unrecognized benefit of plan amendment 37.6 46.6
Unrecognized net loss (66.5) (18.9)
----- -----
Accrued postretirement benefit cost $183.0 $142.3
===== =====
In connection with the company's early-retirement programs, restructuring
charges include curtailment and termination costs relating to these plans of
$52.4 million and $7.0 million, respectively.
-26-
The assumptions used to develop the net postretirement benefit expense and
the present value of benefit obligations are shown below:
(percents) 1993 1992
----- ----
Weighted-average discount rate 7.5 8.5
Expected long-term rate of return 11.0 11.0
Health care cost trend rate for participants
Under age 65 8.0 8.0
Over age 65 6.0 6.0
If these trend rates were to be increased by 1 percentage point each year,
the December 31, 1993, accumulated postretirement benefit obligation would
increase by 12 percent and the aggregate of the service and interest cost
components of 1993 annual expense would increase by 20 percent. The
reduction in the discount rate at December 31, 1993, increased the
accumulated postretirement benefit obligation by approximately $30.0
million.
Note 10: Financial Instruments
Fair Value of Financial Instruments and Off-Balance-Sheet Risk: The methods
and assumptions used to estimate the fair value of the following classes of
financial instruments were:
Short-Term and Long-Term Debt: The carrying amount of the company's short-
term borrowings approximates its fair value. The fair values of the
company's long-term debt, including the current portion, are estimated using
discounted cash flow analyses, based on the company's current incremental
borrowing rates for similar types of borrowing arrangements.
A significant portion of long-term debt consists of noncallable notes and
bonds.
Investments: The fair values for marketable debt and equity securities are
based on quoted market prices. The fair values of nonmarketable equity
securities, which represent either equity investments in start-up technology
companies or partnerships that invest in start-up technology companies, are
estimated based on the fair value information provided by these ventures.
The fair value of nonmarketable debt securities is based on quoted market
prices of similar securities.
The company is a limited partner in certain investments for which the
determination of fair value is not practicable. The carrying value of such
investments is $73.6 million as of December 31, 1993.
Risk-Management Instruments: The fair values of the company's foreign
exchange and interest rate risk-management instruments (forwards, options,
and swaps) are estimated, based on quoted market prices of comparable
contracts.
-27-
The carrying amounts and fair values of the company's outstanding financial
instruments at December 31 were as follows:
1993 1992
---------------- ----------------
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Long-term debt $928.7 $964.5 $596.9 $620.4
Short-term investments 447.5 460.0 295.9 300.6
Noncurrent investments
Marketable equity 63.0 69.8 80.0 98.4
Debt securities 49.8 49.2 124.3 125.9
Nonmarketable equity 35.3 36.5 38.2 40.5
Risk-management instruments 12.0 5.4 2.8 .1
Off-Balance-Sheet Risk: The company enters into forward exchange contracts,
option contracts, and foreign currency swaps to hedge foreign currency
transactions on a continuing basis for periods consistent with its foreign
currency exposures. The effect of this practice is to reduce the impact of
foreign exchange rate movements on the company's operating results. The
company's hedging activities do not create exchange rate risk because gains
and losses on these contracts generally offset losses and gains on the
assets, liabilities, and transactions being hedged. In addition, the company
enters into interest rate swaps to manage its interest rate risk.
At December 31, the stated, or notional, amounts of the company's outstanding
off-balance-sheet financial instruments were as follows:
1993 1992
---- ----
Forward exchange contracts $790.7 $458.6
Foreign currency options issued - 40.0
Currency swaps 39.2 94.1
Interest rate swaps 225.0 100.0
Of the company's forward exchange contracts outstanding at December 31, 1993
and 1992, those which were denominated in European currencies amounted to 85
percent and 95 percent, respectively. The forward exchange contracts
generally have maturities that do not exceed 12 months and require the
company to exchange currencies at rates agreed to at inception of the
contracts upon maturity. The foreign currency options represent one part of
an overall strategy designed to hedge certain foreign currency exposures.
Concentrations of Credit Risk: Financial instruments that potentially
subject the company to credit risk consist principally of trade receivables
and interest-bearing investments. Wholesale distributors of life-sciences
products account for a substantial portion of trade receivables; collateral
is generally not required. The risk associated with this concentration is
limited due to the large number of wholesalers and their geographic
dispersion.
The company places substantially all its interest-bearing investments with
major financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution.
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Note 11: Contingencies
The company has been named as a defendant in numerous product liability
lawsuits involving primarily two products, diethylstilbestrol and Prozac.
The company has accrued for its estimated exposure, including costs of
litigation, with respect to all current product liability claims. In
addition, the company has accrued for certain future anticipated product
liability claims to the extent the company can formulate a reasonable
estimate of their costs. The company's estimates of these expenses are based
primarily on historical claims experience and data regarding product usage.
The company expects the cash amounts related to the accruals to be paid out
over the next several years. The majority of costs associated with defending
and disposing of these suits are covered by insurance. The company's
estimate of insurance recoveries is based on existing deductibles, coverage
limits, and the existing and projected future level of insolvencies among its
insurance carriers.
The company is a party to various patent litigation matters involving
Humatrope, Humulin, bovine somatotropin, and various products within the
Medical Devices and Diagnostics Division. Based upon historical and industry
data, the company has accrued for the anticipated cost of resolution of the
claims.
Under the Comprehensive Environmental Response, Compensation, and Liability
Act, commonly known as Superfund, the company has been designated as one of
several potentially responsible parties with respect to certain sites. Under
Superfund, each responsible party may be jointly and severally liable for the
entire amount of the cleanup. The company also continues remediation of
certain of its own sites. The company has accrued for estimated Superfund
cleanup costs, remediation, and certain other environmental matters, taking
into account, as applicable, available information regarding site conditions,
potential cleanup methods, estimated costs, and the extent to which other
parties can be expected to contribute to those costs. The company has
reserved its right to pursue claims for insurance with respect to certain
environmental liabilities. However, because of uncertainties with respect to
the timing and ultimate realization of those claims, the company has not
recorded any environmental insurance recoveries.
The product, patent, and environmental liabilities have been reflected in the
company's consolidated balance sheet at a gross amount of approximately $505
million. Estimated insurance recoverables of approximately $185 million
appear as assets in the consolidated balance sheet.
While it is not possible to predict or determine the outcome of the patent,
product liability, or other legal actions brought against the company, or the
ultimate cost of environmental matters, the company continues to believe the
costs associated with all such matters will not have a material adverse
effect on its consolidated financial position.
-29-
Note 12: Subsequent Event
In January 1994, the company announced that it intends to divest itself of
the Medical Devices and Diagnostics (MDD) Division, a global high technology
organization of nine companies. The final form of the divestiture will
depend on tax, market, and other considerations including the nature of any
offers that the company may receive. Under current plans, the company
expects to divest itself of six businesses in the MDD division through the
spin-off to shareholders of a new medical-devices holding company, through
one or more public offerings of the holding company's shares, or through a
combination of these methods. These six businesses include Advanced
Cardiovascular Systems, Inc.; Cardiac Pacemakers, Inc.; Devices for Vascular
Intervention, Inc.; Heart Rhythm Technologies, Inc.; IVAC Corporation; and
Origin Medsystems, Inc. The company intends to sell separately the MDD
division's three other businesses: Hybritech Incorporated; Pacific Biotech,
Inc.; and Physio-Control Corporation.
-30-
Report of Independent Auditors
Board of Directors and Shareholders,
Eli Lilly and Company
We have audited the accompanying consolidated balance sheets of Eli Lilly
and Company and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of income and cash flows for each of the
three years in the period ended December 31, 1993. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Eli Lilly
and Company and subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the financial statements, in 1992 the company
changed its methods of accounting for income taxes and postretirement health
benefits.
ERNST & YOUNG
Indianapolis, Indiana
February 1, 1994
-31-
Appendix to Exhibit 13
Graphs in Annual Report to Shareholders
for the Year Ended December 31, 1993
The portions of the Company's 1993 Annual Report to Shareholders that are
contained in this Exhibit 13 include, in their original paper form, three bar
graphs. The information contained in those graphs is set forth below in
tabular form. The captions of the graphs are also set forth below.
Graph #1 -- Research and Development (R&D) Expenses
($ millions)
Year Amount
- ---- ------
1989 $605.4
1990 702.7
1991 766.9
1992 924.9
1993 954.6
Caption: In 1993, 15 percent of each sales dollar was devoted to R&D
spending. The company's commitment to a strong R&D effort resulted in global
clinical trial spending more than doubling in 1993. As a result of these
efforts, the company now has approximately 15 compounds in Phase II or Phase
III clinical trials.
Graph #2 -- Capital Expenditures
($ millions)
Year Amount
- ----- ------
1989 $ 554.5
1990 1,007.3
1991 1,142.4
1992 912.9
1993 633.5
Caption: Capital expenditures during 1993 were $279 million less than the
1992 level and were at their lowest level in four years. Major research,
administrative, and manufacturing projects continued to progress toward
completion. It is expected that the near-term capital expenditure
requirements will be below the 1993 level.
-32-
Appendix to Exhibit 13 Continued
Graph #3 -- Dividends per Share
($ millions)
Year Amount
- ---- ------
1989 $1.35
1990 1.64
1991 2.00
1992 2.20
1993 2.42
Caption: Dividends of $2.42 per share were paid in 1993, which was a 10
percent increase over 1992. The company also declared a first-quarter
1994 dividend of $.625 per share which represents a 3.3 percent increase over
1993. Nineteen ninety-three was the 26th consecutive year in which dividends
increased.
-33-
EXHIBIT 21. LIST OF SUBSIDIARIES AND AFFILIATES
The following are the subsidiaries and affiliated corporations of the Company
at December 31, 1993.
State or Jurisdiction
of Incorporation %
or Organization Owned
---------------------- -----
ELI LILLY AND COMPANY (1) Indiana
Eli Lilly International Corporation Indiana 100
Eli Lilly Int'l. Corp.-Branch: England 100
Eli Lilly Int'l. Corp.-Branch: Poland 100
Eli Lilly Iran, S.A. Iran 100
ELCO Insurance Company, Ltd. Bermuda 100
Eli Lilly Interamerica, Inc. Indiana 100
Eli Lilly Interamerica, Inc.-Branch: Argentina 100
Eli Lilly Interamerica, Inc.-Branch: Columbia 100
Eli Lilly Interamerica, Inc.-Branch: Peru 100
Eli Lilly Interamerica, Inc.-Branch: Dominican Republic100
Elanco Quimica Limitada Brazil 100
Eli Lilly do Brasil Limitada Brazil 100
Darilor Sociedad Anonima Uruguay 100
Beimirco Sociedad Anonima Uruguay 100
STC Pharmaceuticals, Inc. Indiana 100
Eli Lilly de Centro America, S.A. Guatemala 100
Eli Lilly y Compania de Mexico, S.A. de C.V. Mexico 100
Dista Mexicana, S.A. de C.V. Mexico 100
Advanced Cardiovascular Systems, Inc. California 100
Cardiac Pacemakers, Inc. Minnesota 100
CPI del Caribe, Ltd. Minnesota 100
Devices for Vascular Intervention, Inc. California 100
EPCO, Inc. Indiana 100
DowElanco* Indiana 40
Heart Rhythm Technologies, Inc. California 100
Hybritech, Incorporated California 100
Hybritech International, Inc. California 100
Hybritech Europe, S.A. Belgium 100
Hybritech Clinical, Inc. California 100
Hybrigenetics Cancer Research, Inc. California 100
Hybritech G.m.b.H. Germany 100
Hybritech International Sales Corp. California 100
IVAC Corporation Delaware 100
MIS Scandinavia AB Sweden 100
Origin Medsystems, Inc. Delaware 100
Pacific Biotech, Inc. California 100
Physio-Control Corporation Delaware 100
Eli Lilly Industries, Inc. Delaware 100
Eli Lilly and Company (Taiwan), Inc. Taiwan 100
CBI Uniforms, Inc.* Delaware 50
ELCO Management Corporation Delaware 100
ELCO MANAGEMENT CORPORATION Delaware 100
Eli Lilly Australia Pty. Limited Australia 100
Eli Lilly Australia Custodian Pty. Limited Bermuda 100
Eli Lilly and Company (N.Z.) Limited New Zealand 100
Eli Lilly (NZ) Staff Benefits Custodian Ltd. New Zealand 100
Eli Lilly Canada, Inc. Canada 100
ELCO Dominicana, S.A. Dominican Rep. 100
ELCO International Sales Corporation Virgin Islands
-US Possess. 100
Eli Lilly Group Limited England 100
Lilly Industries Limited England 100
Dista Products Limited England 100
Eli Lilly and Company Limited England 100
Lilly Research Centre Limited England 100
Elanco Products Limited England 100
Creative Packaging Limited England 100
Greenfield Pharmaceuticals Limited England 100
Lilly Medical Instruments Limited England 100
Welmed Limited England 100
Eli Lilly Group Pension Trustees Limited England 100
Lilly Deutschland G.m.b.H. Germany 100
Eli Lilly (Suisse) S.A. & Co. KG Germany 100
Beiersdorf-Lilly G.m.b.H. Germany 51
Lilly Medizintechnik G.m.b.H. Germany 100
Danimed G.m.b.H. & Co. KG Germany 49
Eli Lilly & Co. (Ireland) Limited Ireland 100
Eli Lilly Overseas Finance N.V. Netherlands Antilles 100
Eli Lilly Overseas Finance II N.V. Netherlands Antilles 100
Eli Lilly Asia, Inc. Delaware 100
Eli Lilly Asia, Inc. - Branch Hong Kong 100
Eli Lilly Asia, Inc. - Branch Korea 100
Eli Lilly Asia, Inc. - Branch Thailand 100
Eli Lilly S.A. Switzerland 100
ELI LILLY S.A. Switzerland 100
Branch Ireland 100
Eli Lilly Export S.A. Switzerland 100
Puerto Rico - Branch Puerto Rico 100
Regional Office Singapore 100
GEMS Services, S.A. Belgium 100
T. P. Eli Lilly and Elanco D.O.O. Yugoslavia 100
Elanco Trustees Limited England 100
DowElanco, B.V. * Netherlands 40
Eli Lilly (Suisse) S.A Switzerland 100
Eli Lilly (Suisse) S.A. - Branch Iran 100
Oldfields Financial Management S.A. Switzerland 100
Elanco Industrial, S.A. Spain 100
Eli Lilly Nederland B.V. Netherlands 100
Eli Lilly & Elanco Ges.m.b.H. Austria 100
Czech Branch Czech Republic 100
Romanian Branch Romania 100
Russian Branch Russia 100
Ukraine Branch Ukraine 100
Bulgarian Branch Bulgaria 100
Slovakian Branch Slovakia 100
Slovenian Branch Slovenia 100
Eli Lilly Ges.m.b.H. Austria 100
Lilly Mont-Saint-Guibert Development Centre Belgium 100
Lilly-MDD Mont-Saint-Guibert Headquarters S.A. Belgium 100
MDD European Development Centre S.A. Belgium 100
Eli Lilly Benelux, S.A. Belgium 100
Eli Lilly Denmark A/S Denmark 100
OY Eli Lilly Finland Ab Finland 100
Lilly France S.A. France 100
Elsa France, S.A. France 100
BCR & Lilly Co., Ltd. Hungary 49
Lilly Hungaria KFT Hungary 100
Eli Lilly (Philippines), Incorporated Philippines 100
Eli Lilly Ranbaxy Limited * India 50<51
Dista Italia S.r.l. Italy 100
Eli Lilly Italia S.p.A. Italy 100
Eli Lilly Japan K.K. Japan 100
Daewoong Lilly Pharmaceutical Co., Ltd. Korea 50
Eli Lilly Malaysia Sdn Bhd. Malaysia 100
ELCO Production Services B.V. Netherlands 100
Eli Lilly Norway A.S. Norway 100
Eli Lilly-Gohar (Private) Limited * Pakistan 30
Eli Lilly Poland Sp.z.o.o. (Ltd.) Poland 100
Dista-Produtos Quimicos & Farmaceuticos, LD Portugal 100
Lilly-Farma, Produtos Farmaceuticos, Lda. Portugal 100
ELVA Joint Laboratory * Russia 50
ELI LILLY S.A.
Eli Lilly Nederland B.V. (Cont'd) Netherlands 100
Eli Lilly (S.A.) (Proprietary) Limited South Africa 100
Elancovet, S.A. Spain 50<51
Derly, S.A. Spain 50<51
Dista, S.A. Spain 50<51
Lilly, S.A. Spain 50<51
Elmedin, S.A. Spain 50<51
Elquiber, S.A. Spain 50<51
Geserco, S.A. Spain 50<51
Hybritech, S.A. Spain 50<51
Valquimica, S.A. Spain 50<51
Eli Lilly Sweden AB Sweden 100
Lilly Mustafa Nevzat Saglik
Urunleri ve llac Tic Turkey 90
Eli Lilly y Compania de Venezuela, S.A. Venezuela 100
(1) All of the companies listed, except those that are asterisked, are
included in the consolidated financial statements.
* Not Consolidated.
EXHIBIT 23. CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual
Report (Form 10-K) of Eli Lilly and Company of our report
dated February 1, 1994, included in the 1993 Annual Report
to Shareholders of Eli Lilly and Company.
Our audits also included the financial statement schedules
of Eli Lilly and Company listed in Item 14(a). These
schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial
statement schedules referred to above, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set
forth therein.
We also consent to the incorporation by reference in
Registration Statement Number 33-29482 on Form S-8 dated
June 23, 1989, in Registration Statement Number 33-37341 on
Form S-8 dated October 17, 1990, in Registration Statement
Number 33-38347 on Form S-3 dated December 20, 1990, in
Registration Statement Number 33-56208 on Form S-3 dated
December 23, 1992, in Registration Statement Number 33-58466
on Form S-8 dated February 17,1993 and in Registration
Statement Number 33-50783 on Form S-8 dated October 27, 1993
of our report dated February 1, 1994 with respect to the
consolidated financial statements incorporated herein by
reference, and our report included in the preceding
paragraph with respect to the financial statement schedules
included in this Annual Report (Form 10-K) of Eli Lilly and
Company.
ERNST & YOUNG
Indianapolis, Indiana
March 18, 1994
EXHIBIT 99. REPORT TO HOLDERS OF ELI LILLY AND COMPANY
CONTINGENT PAYMENT OBLIGATION UNITS
In 1993, sales of Hybritech Incorporated, including royalties,
decreased to $149.0 million. Sales (restated to include Pacific
Biotech, Inc.) in 1992 were $172.9 million, essentially the same as
1991.
Product sales declined in 1993 due primarily to lower unit volume and
unfavorable exchange rate comparisons. Sales of the company's largest
selling product, Tandem (Registered) PSA, a prostate cancer test, were
down when compared to 1992 due to competition.
Hybritech's gross profits declined 19 percent, to $73.2 million in
1993, compared with $90.7 million and $104.6 million in 1992 and
1991, respectively. The gross-profit decline in 1993 was largely
the result of lower sales, higher costs, and the impact of the
company's fourth quarter restructuring.
Beginning in 1993, Hybritech combined certain operations with
Pacific Biotech, Inc. (PBI), another wholly owned subsidiary of Eli
Lilly and Company; therefore, 1992 and 1991 sales and gross margin
have been restated to include the impact of PBI in the CPU
calculation.
Under the terms of the Contingent Payment Obligation Unit, payments
are earned if the sum of 6 percent of sales and 20 percent of gross
profits exceeds the annual deductible. The annual deductible was
originally set in 1986 at $11 million and increases at a compounded
rate of 35 percent per year thereafter. The deductibles through
1995 are as follows:
(Dollars in millions)
1991 1992 1993 1994 1995
- ------------------------------------------------
$49.3 $66.6 $89.9 $121.4 $163.8
In accordance with the formula, no payment was earned in 1993.
Tandem (Registered)(dual monoclonal sandwich assay kits, Hybritech)
