<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 1-6351
---
ELI LILLY AND COMPANY
(Exact name of Registrant as specified in its charter)
INDIANA 35-0470950
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
LILLY CORPORATE CENTER, INDIANAPOLIS, INDIANA 46285
(Address of principal executive offices)
Registrant's telephone number, including area code (317) 276-2000
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 ---
The number of shares of common stock outstanding as of July 31, 1998:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
----- ----------------------------
<S> <C>
Common 1,101,311,973
</TABLE>
1
<PAGE>
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Eli Lilly and Company and Subsidiaries
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
-------------------------------------------------------------
(Dollars in millions except per-share data)
<S> <C> <C> <C> <C>
Net sales......................................... $2,340.7 $1,988.7 $4,609.8 $3,941.7
Cost of sales..................................... 626.1 548.8 1,228.2 1,090.1
Research and development.......................... 418.7 326.7 783.4 627.9
Marketing and administrative...................... 654.1 572.7 1,220.1 1,044.4
Asset impairment.................................. - 2,443.0 - 2,443.0
Gain on sale of DowElanco......................... - (618.2) - (618.2)
Interest expense.................................. 43.1 62.5 91.7 123.1
Other income - net................................ (56.4) (57.9) (73.1) (56.5)
------- ------- ----- -------
1,685.6 3,277.6 3,250.3 4,653.8
------- ------- ------- -------
Income (loss) before income taxes
and extraordinary item......................... 655.1 (1,288.9) 1,359.5 (712.1)
Income taxes...................................... 163.8 443.2 339.9 587.4
------- ------- ------- -------
Income (loss) before
extraordinary item............................. 491.3 (1,732.1) 1,019.6 (1,299.5)
------- ------- ------- -------
Extraordinary item -
Loss on early redemption
of debt, net of tax............................ - - (7.2) -
------- ------ -------- -----
Net income (loss)................................. $ 491.3 $(1,732.1) $1,012.4 $(1,299.5)
======= ======== ======= ========
Earnings (loss) per share
Income (loss) before
extraordinary item........................... $ 0.45 $ (1.57) $ 0.93 $ (1.18)
Extraordinary item............................. 0.00 0.00 (0.01) 0.00
-------- -------- ------- --------
Net income (loss).............................. $ 0.45 $ (1.57) $ 0.92 $ (1.18)
======== ======== ======= ========
Earnings (loss) per share - Diluted
Income (loss) before
extraordinary item........................... $ 0.44 $ 1.57 $ 0.91 $ (1.18)
Extraordinary item............................. 0.00 0.00 (0.01) 0.00
------- ------- -------- -------
Net income (loss).............................. $ 0.44 $ (1.57) $ 0.90 $ (1.18)
======= ======= ======= =======
Dividends paid per share $ 0.20 $ 0.18 $ 0.40 $ 0.36
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
2
<PAGE>
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Eli Lilly and Company and Subsidiaries
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
-----------------------------------------------------------------
(Dollars in millions except per-share data)
<S> <C> <C> <C> <C>
Net income (loss).............................. $491.3 $(1,732.1) $1,012.4 $(1,299.5)
Other comprehensive income..................... (27.6) (47.9) (32.4) (130.1)
---- ---- ---- -----
Comprehensive income (loss)........................$463.7........$(1,780.0) $ 980.0 $(1,429.6)
===== ======= ======= =======
</TABLE>
3
See Notes to Consolidated Condensed Financial Statements.
<PAGE>
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
Eli Lilly and Company and Subsidiaries
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------------------
(Millions)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................................. $ 1,315.2 $ 1,947.5
Short-term investments.................................................... 67.6 77.1
Accounts receivable, net of allowances for
doubtful amounts of $51.1 (1998)
and $53.3 (1997)........................................................ 1,650.0 1,544.3
Other receivables......................................................... 168.3 338.9
Inventories............................................................... 985.2 900.7
Deferred income taxes..................................................... 320.0 325.7
Prepaid expenses.......................................................... 291.7 186.5
-------- --------
TOTAL CURRENT ASSETS...................................................... 4,798.0 5,320.7
OTHER ASSETS
Prepaid retirement........................................................ 592.0 579.1
Investments............................................................... 300.7 465.6
Goodwill and other intangibles, net of
allowances for amortization of
$143.8 (1998) and $119.3 (1997)......................................... 1,508.0 1,550.5
Sundry.................................................................... 625.3 559.8
-------- --------
3,026.0 3,155.0
PROPERTY AND EQUIPMENT
Land, buildings, equipment and
construction-in-progress................................................ 7,091.7 7,034.9
Less allowances for depreciation.......................................... 3,047.0 2,933.2
-------- --------
4,044.7 4,101.7
-------- --------
$11,868.7 $12,577.4
======== ========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term borrowings..................................................... $ 195.1 $ 227.6
Accounts payable.......................................................... 897.1 985.5
Employee compensation..................................................... 433.6 456.6
Dividends payable......................................................... - 221.7
Income taxes payable...................................................... 1,082.1 1,188.0
Other liabilities......................................................... 839.1 1,112.2
-------- --------
TOTAL CURRENT LIABILITIES................................................. 3,447.0 4,191.6
LONG-TERM DEBT................................................................ 2,307.5 2,326.1
DEFERRED INCOME TAXES........................................................ 408.2 215.5
RETIREE MEDICAL BENEFIT OBLIGATION........................................... 107.4 118.3
OTHER NONCURRENT LIABILITIES................................................. 797.0 920.3
-------- --------
3,620.1 3,580.2
COMMITMENTS AND CONTINGENCIES................................................ - -
MINORITY INTEREST IN SUBSIDIARY.............................................. 160.0 160.0
SHAREHOLDERS' EQUITY
Common stock.............................................................. 688.9 694.7
Retained earnings......................................................... 4,524.5 4,497.3
Deferred costs - ESOP..................................................... (149.2) (155.7)
Accumulated comprehensive income.......................................... (313.6) (281.2)
-------- --------
4,750.6 4,755.1
Less cost of common stock in treasury..................................... 109.0 109.5
-------- --------
4,641.6 4,645.6
-------- --------
$11,868.7 $12,577.4
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Eli Lilly and Company and Subsidiaries
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
---------------------------
(Millions)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss)................................................................... $1,012.4 $(1,299.5)
Adjustments to Reconcile Net Income (Loss) to Cash
Flows from Operating Activities:
Changes in operating assets and liabilities........................................ (612.5) (140.3)
Change in deferred taxes........................................................... 204.6 11.5
Depreciation and amortization...................................................... 236.4 275.0
Net gain from sale of DowElanco.................................................... - (295.6)
Asset impairment, net of tax...................................................... - 2,429.6
Other items, net.................................................................. (49.5) (33.6)
------- -------
NET CASH FLOWS FROM OPERATING ACTIVITIES........................................... 791.4 947.1
INVESTING ACTIVITIES
Net additions to property and equipment............................................ (177.5) (136.0)
Additions to sundry assets and intangibles......................................... (35.3) (18.5)
Reduction of investments........................................................... 160.7 180.9
Additions to investments........................................................... (28.3) (124.8)
Proceeds from sale of DowElanco.................................................... - 1,200.0
------ -------
NET CASH FROM (USED FOR) INVESTING ACTIVITIES...................................... (80.4) 1,101.6
FINANCING ACTIVITIES
Dividends paid..................................................................... (440.7) (396.8)
Purchases of common stock and other capital
transactions..................................................................... (864.0) 97.5
Net reductions to short-term borrowings............................................ (14.4) (643.0)
Net additions (reductions) to long-term debt....................................... (23.0) 6.4
------- -------
NET CASH USED FOR FINANCING ACTIVITIES............................................. (1,342.1) (935.9)
Effect of exchange rate changes on cash............................................ (1.2) (73.5)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................... (632.3) 1,039.3
Cash and cash equivalents at January 1............................................. 1,947.5 813.7
------- -------
CASH AND CASH EQUIVALENTS AT JUNE 30............................................... $1,315.2 $1,853.0
======= =======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with the requirements of Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations, and cash flows in conformity with
generally accepted accounting principles. In the opinion of management, the
financial statements reflect all adjustments that are necessary for a fair
statement of the results for the periods shown. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues, expenses and related disclosures at the date of
the financial statements and during the reporting period. Actual results could
differ from those estimates.
As presented herein, sales include sales of the Company's life-sciences products
and service revenue from the Company's health-care management operations,
primarily PCS Health Systems, Inc. (PCS).
CONTINGENCIES
The Company has been named as a defendant in numerous product liability lawsuits
involving primarily two products, diethylstilbestrol and Prozac'r'. 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.
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 the payment of those costs. The Company has reached a
settlement with its primary liability insurance carrier providing for coverage
for certain environmental liabilities and has instituted litigation seeking
coverage from certain excess carriers.
The Company has been named, along with numerous other U.S. prescription drug
manufacturers, as a defendant in a large number of related actions brought by
retail pharmacies alleging violations of federal and state antitrust and pricing
laws. The federal suits include a class action on behalf of the majority of U.S.
retail pharmacies. The Company and several other manufacturers agreed to settle
the federal class action case. The Company has also settled with a large number
of the remaining retail pharmacies. Still
6
<PAGE>
<PAGE>
pending are related suits brought in federal and some state courts by a large
number of retail pharmacies involving claims of price discrimination or claims
under other pricing laws. Additional cases have been brought on behalf of
consumers in several states.
The environmental liabilities and litigation accruals have been reflected in the
Company's consolidated balance sheet at the gross amount of approximately $325
million at June 30, 1998. Estimated insurance recoverables have been reflected
as assets in the consolidated balance sheet of approximately $241 million at
June 30, 1998.
Barr Laboratories, Inc. (Barr) and Geneva Pharmaceuticals, Inc. (Geneva) have
each submitted Abbreviated New Drug Applications (ANDAs) seeking FDA approval to
market generic forms of Prozac before the expiration of the Company's patents.
The ANDAs assert that Lilly's U.S. patents covering Prozac are invalid and
unenforceable. In April 1996, the Company filed suit against Barr in federal
court in Indianapolis seeking a ruling that Barr's challenge to Lilly's patents
is without merit. In June 1997, the Company filed a similar suit against Geneva
in the same court. The patent validity aspects of the case are currently set for
trial in January 1999. While the Company believes that the claims of Barr and
Geneva are without merit, there can be no assurance that the Company will
prevail. An unfavorable outcome of this litigation could have a material adverse
effect on the Company's consolidated financial position, liquidity, or results
of operations.
While it is not possible to predict or determine the outcome of the product
liability, antitrust, patent, or other legal actions brought against the
Company, or the ultimate cost of environmental matters, the Company believes
that, except as noted above, the costs associated with all such matters will not
have a material adverse effect on its consolidated financial position or
liquidity but could possibly be material to the consolidated results of
operations in any one accounting period.
EARNINGS PER SHARE
To reflect the impact of the Company's September 1997 stock split, previously
reported outstanding and weighted-average number of shares of common stock and
per share data have been adjusted.
At December 31, 1997, the Company adopted SFAS No. 128, "Earnings per Share",
which requires presentation of both basic earnings per share and diluted
earnings per share on the income statement. Accordingly, earnings per share data
for previous periods has been restated. All per share amounts, unless otherwise
noted in the footnotes, are presented on a diluted basis, that is, based on the
weighted-average number of outstanding common shares and the effect of all
potentially dilutive common shares (primarily unexercised stock options).
ACCOUNTING CHANGES
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income". Under provisions of
this statement, the Company has included a financial statement presentation of
comprehensive income to conform to these new requirements. SFAS No. 130 requires
unrealized gains or losses on the Company's available-for-sale securities,
minimum pension liability adjustments and foreign currency translation
adjustments, which prior to adoption were reported separately in shareholders'
equity to be included in other comprehensive
7
<PAGE>
<PAGE>
income. As a consequence of this change, certain balance sheet reclassifications
were necessary for previously reported amounts to achieve the required
presentation of comprehensive income. Implementation of this disclosure standard
did not affect the Company's financial position or results of operations.
Effective January 1, 1998, the Company adopted the American Institute of
Certified Public Accountants' (AICPA) Statement of Position (SOP) 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". The statement requires capitalization of certain costs incurred
in the development of internal-use software, including external direct material
and service costs, employee payroll and payroll-related costs, and capitalized
interest. Prior to adoption of SOP 98-1, the Company expensed these costs as
incurred. The effect of this change in accounting principle on consolidated
earnings during the current period is immaterial.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information", was issued. The statement must be adopted by the Company
on December 31, 1998. Under provisions of this statement, the Company will be
required to modify or expand the financial statement disclosures for operating
segments, products and services, and geographic areas. Implementation of this
disclosure standard will not affect the Company's financial position or results
of operations.
In December 1997, SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits", was issued and is effective for the Company's 1998
fiscal year. The statement revises current disclosure requirements for
employers' pensions and other retirees benefits. Implementation of this
disclosure standard will not affect the Company's financial position or results
of operations.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was issued. Statement No. 133 is required to be adopted in years
beginning after June 15, 1999. The statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The statement will require
the company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. Hedge ineffectiveness, the amount by which the change in the value of
a hedge does not exactly offset the change in the value of the hedged item, will
be immediately recognized in earnings.
The Company has not yet determined what the effect of Statement No. 133 will be
on the Company or when the statement will be adopted.
8
<PAGE>
<PAGE>
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
OPERATING RESULTS:
The Company's sales for the second quarter of 1998 increased 18 percent compared
with the second quarter of 1997. Sales inside the United States increased 25
percent while sales outside of the United States increased 7 percent. Compared
with the second quarter of 1997, worldwide sales reflected volume growth of 17.2
percent and a 3.1 percent increase in selling prices which were partially offset
by the unfavorable impact of exchange rates of 2.6 percent.
The Company's sales for the first six months of 1998 increased 17 percent
compared with the same period in 1997. Sales inside the United States increased
22 percent while sales outside the United States increased 8 percent. Compared
with the first six months of 1997, worldwide sales reflected volume growth of
17.2 percent and a 2.4 percent increase in selling prices which were partially
offset by unfavorable exchange rate comparisons of 2.6 percent.
Worldwide pharmaceutical sales and services for the quarter were $2,204 million
and for the six month period were $4,327 million, reflecting increases of 19
percent and 18 percent, respectively, compared with the same periods of 1997.
Sales growth in both periods was led by Prozac and three of the Company's newer
products, Gemzar'r', ReoPro'r', and Zyprexa'r'. Revenue growth for both the
quarter and the six month period was partially offset by lower sales of
anti-infective products and Axid'r', due to continuing generic competition and
competitive pressures. Total U.S. pharmaceutical sales and services for the
quarter increased 25 percent to $1,458 million and for the six month period
increased 23 percent to $2,851 million. Growth in both periods was driven
primarily by increased volumes. International pharmaceutical sales for the
quarter increased 7 percent to $746 million and for the six month period
increased 9 percent to $1,476 million. Strong volume growth drove these
increases, offset by the effect of unfavorable exchange rates with selling
prices remaining stable. The exchange rate impact in the Asia Pacific region did
not have a material impact on worldwide sales.
Worldwide sales of Prozac for the quarter were $666 million and for the six
month period were $1,284 million, representing increases over the same periods
of 1997 of 12 percent and 11 percent, respectively. Prozac sales in the U.S.
increased 16 percent to $531 million for the quarter and 13 percent to $1,015
million for the six month period. Sales of Prozac outside the U.S. declined 2
percent to $136 million for the quarter, but reflected an increase of 1 percent
to $269 million for the six month period. Both periods were affected by
unfavorable exchange rates and continued competitive pressures.
Zyprexa posted worldwide sales for the quarter of $328 million and $615 million
for the six month period, representing increases of $172 million and $354
million, respectively, over the same periods of 1997. U.S. sales of Zyprexa
increased $130 million to $256 million for the quarter and increased $269
million to $486 million for the six month period. Sales outside the U.S.
increased $42 million to $72 million for the quarter and increased $84 million
to $129 million for the six month period.
Worldwide insulin sales, composed of Humulin'r', Humalog'r', and Iletin'r',
increased in the quarter by 16 percent to $291 million and, for the six month
9
<PAGE>
<PAGE>
period, increased 8 percent to $528 million. Insulin sales in the U.S. for the
quarter increased by 16 percent to $177 million and for the six month period
increased 4 percent to $308 million. Insulin sales outside the U.S. increased by
16 percent to $114 million for the quarter and increased 14 percent to $221
million for the six month period. Worldwide Humulin sales increased 12 percent
for the quarter and 3 percent for the six month period. U.S. Humulin sales
increased for the quarter by 12 percent, but for the six month period decreased
by 1 percent. Humulin sales outside the U.S. increased by 11 percent and 9
percent for the quarter and six month period, respectively, despite unfavorable
exchange rates. The Company expects Humulin sales for the full year to increase
from 3 to 5 percent over 1997 levels. Worldwide Humalog sales were $30 million
for the quarter and $54 million for the six month period, representing increases
over the same periods of 1997.
Worldwide sales of anti-infectives decreased by 11 percent to $250 million for
the quarter and by 12 percent to $545 million for the six month period. U.S.
anti-infective sales declined 21 percent for the quarter and 29 percent for the
six month period. International anti-infective sales declined by 7 percent and 6
percent for the same time periods. These declines were due in part to continued
generic competition in certain markets and the impact of unfavorable exchange
rates. Cefaclor accounted for the majority of the decline in anti-infective
sales. Sales of cefaclor declined 11 percent for the quarter and 14 percent for
the six month period.
Worldwide Axid sales decreased by 35 percent to $77 million for the quarter and
by 22 percent to $222 million for the six month period due to continuing generic
competition and competitive pressures.
Worldwide ReoPro sales of $101 million for the quarter and $171 million for the
six month period reflected increases of $41 million and $59 million over the
same periods of 1997, respectively.
Worldwide Gemzar sales of $85 million for the quarter and $143 million for the
six month period reflected increases of $44 million and $68 million over the
same periods of 1997, respectively.
Evista'r', launched in the first quarter, had worldwide sales of $15 million for
the quarter and $49 million for the six month period. The Company expects to
have introduced Evista in approximately 30 countries by the end of 1998.
Assuming that current new prescription trends continue, the Company anticipates
worldwide Evista sales for the full year of 1998 to be in the range of $125
million to $150 million.
Health-care management revenues increased 35 percent for the quarter to $180
million and 44 percent for the six month period of 1998 to $361 million, driven
largely by increased mail order pharmacy sales.
Worldwide sales of animal health products increased 6 percent over the second
quarter of 1997 to $135 million and 7 percent for the six month period to $279
million. This sales growth was driven primarily by Micotil'r'.
Cost of sales decreased in the second quarter to 26.7 percent of sales as
compared with 27.6 percent of sales in the same quarter of 1997. Cost of sales
for the first six months of 1998 was 26.6 percent of sales as compared with 27.7
percent in the prior year. The decreases for both periods were primarily the
result of favorable changes in product mix, continued productivity improvements,
and enhanced plant utilization. These improvements were offset in part by
increased health-care-management service revenues,
10
<PAGE>
<PAGE>
which have lower margins than pharmaceutical products. For the year, the Company
anticipates that cost of sales as a percent of sales will be below 1997 levels.
In both periods comparisons of operating expenses benefited by the inclusion of
the settlement of a significant portion of the company's remaining retail
pharmacy pricing litigation in the second quarter of 1997. Excluding the impact
of the 1997 pricing litigation, operating expenses for 1998 increased 22 percent
for the second quarter and 21 percent for the first half of the year. The
increases reflect 28 percent and 25 percent growth rates in research and
development for the second quarter and six month periods, respectively. This
growth is the result of greater investments in both internal research efforts
and external research collaborations. The Company expects research and
development expenses for the full year to increase from 20 to 22 percent over
1997 levels. Excluding the impact of the 1997 pricing litigation, marketing and
administrative expenses increased 18 percent over the second quarter of 1997 and
19 percent over the first six months. This increase was driven by increased
expenditures to support continued new product launches around the world,
including the U.S. launch of Evista, enhancements of the Company's global
information technology capabilities, including expenditures relating to the
Company's development and implementation of the year 2000 computer initiatives,
and direct-to-consumer advertising campaigns in the U.S.
In the second quarter of 1997 the Company recognized an asset impairment (a
noncash charge) of approximately $2.4 billion to adjust the carrying value of
PCS health-care-management businesses (PCS) long-lived assets, primarily
goodwill, to their fair value of approximately $1.5 billion. The Company
determined that PCS' estimated future undiscounted cash flows were below the
carrying value of PCS' long-lived assets. As a consequence, the carrying value
was adjusted to estimated fair value based on anticipated future cash flows,
discounted at a rate commensurate with the risk involved.
On June 30, 1997, The Dow Chemical Company acquired the Company's 40 percent
interest in DowElanco. The cash purchase price was $1.2 billion resulting in a
gain in the second quarter of 1997 of $618.2 million ($295.6 million after-tax).
Compared to the second quarter and first six months of 1997, interest expense
decreased $19 million (31 percent) and $31 million (26 percent), respectively,
due largely to declines in the Company's short-term borrowings.
Net other income for the quarter of $56 million reflected a decrease of $2
million from 1997. Net other income for the six month period was $73 million, an
increase of $16 million over 1997. The first six months of 1998 benefited from a
decrease in goodwill amortization expense, gains on the sale of certain
investments, the exchange of Somatogen stock for Baxter stock as part of their
merger, and increased interest income. Also, the first six months comparison
benefited from the inclusion in the 1997 amount of the charges associated with
the discontinuance of a collaboration with Somatogen, Inc. These increases were
partially offset by the absence of DowElanco joint venture income in the first
six months.
The Company's effective tax rate for both the second quarter and first six
months was 25 percent. For the first six months of 1997 the Company's effective
tax rate was distorted by the impacts of the PCS impairment and the gain from
the sale of DowElanco. The Company's estimated tax rate for the
11
<PAGE>
<PAGE>
first six months of 1997, excluding the impacts of these items, was 25 percent.
Second quarter net income was $491 million, or $0.44 per share, compared to a
$1,732 million net loss ($1.57 per share) for the second quarter of 1997. For
the six month period, net income was $1,012 million, or $0.90 per share,
compared to a $1,299 million net loss ($1.18 per share) for the same period in
1997. The second quarter 1997 results were impacted by the three non-recurring
significant events described above: the PCS asset impairment, the retail
pharmacy pricing litigation settlement and the DowElanco sale. Excluding these
non-recurring significant events, second quarter net income increased 18 percent
as compared to 1997 and for the six month period, net income increased 17
percent over the first six months of 1997. For the second quarter, net income
was favorably impacted by increased sales and improved gross margin, offset
somewhat by higher research and development expenses as a percent of sales.
FINANCIAL CONDITION:
As of June 30, 1998, cash, cash equivalents and short-term investments totaled
$1,383 million as compared with $2,025 million at December 31, 1997, a net
decrease of $642 million. The decrease in cash was due primarily to stock
repurchases. Total debt at June 30, 1998, was $2,503 million, a decrease of $51
million from December 31, 1997.
The Company believes that cash generated from operations in 1998, along with
available cash and cash equivalents, will be sufficient to fund essentially all
of the 1998 operating needs, including debt service, repayment of short term
borrowing, capital expenditures, and dividends.
Many of the Company's computer systems and laboratory and process automation
devices will require modification or replacement over the next 18 months in
order to render the systems ready for the Year 2000. Modifications of some
systems have already occurred and others are in various stages of activity
ranging from evaluation to testing. The Company is also assessing how it could
be affected by the failure of third parties (e.g., vendors and customers) to
mitigate their own Year 2000 issues. Management currently believes that the
incremental costs of addressing these issues will not materially affect the
Company's consolidated financial position, liquidity or results of operations
through December 31, 1999. The Company believes it will be able to resolve all
major Year 2000 issues by the end of 1999. However, if the Company is not able
to do so, the impact on business operations could be material to the Company's
consolidated results of operations.
Barr Laboratories, Inc. (Barr) and Geneva Pharmaceuticals, Inc. (Geneva) have
each submitted Abbreviated New Drug Applications (ANDAs) seeking FDA approval to
market generic forms of Prozac before the expiration of the Company's patents.
The ANDAs assert that Lilly's U.S. patents covering Prozac are invalid and
unenforceable. The Company has filed suit in federal court in Indianapolis
against both Barr and Geneva seeking a ruling that both challenges are without
merit. The patent validity aspects of the case are currently set for trial in
January 1999. While the Company believes that the claims of Barr and Geneva are
without merit, there can be no assurance that the Company will prevail. An
unfavorable outcome of this litigation could have a material adverse effect on
the Company's consolidated financial position, liquidity, or results of
operations.
12
<PAGE>
<PAGE>
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:
Under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, the Company cautions investors that any forward-looking statements or
projections made by the Company are subject to risks and uncertainties which may
cause actual results to differ materially from those projected. Economic,
competitive, governmental, technological and other factors which may affect the
Company's operations are discussed in Exhibit 99 and elsewhere in this Form 10-Q
filing.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to the discussion of the patent litigation with Barr
Laboratories, Inc. and Geneva Pharmaceuticals, Inc. involving two U.S. Prozac
patents contained in the Company's 1997 Form 10-K under Item 3, "Legal
Proceedings -- Prozac Patent Litigation." The patent validity aspects of this
case are currently scheduled for trial in January 1999.
Reference is made to the discussion of In re Brand Name Prescription Drugs
Antitrust Litigation (MDL No. 997) and related cases contained in the Company's
1997 Form 10-K under Item 3, "Legal Proceedings -- Pricing Litigation." In the
second quarter of 1998, the Company reached a confidential settlement with an
additional large group of chain pharmacies.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of shareholders on April 20, 1998. The
following is a summary of the matters voted on at the meeting.
(a) The four management nominees for Director were elected to serve three-
year terms ending in 2001, as follows:
<TABLE>
<CAPTION>
Nominee For Withhold Vote
------- --- -------------
<S> <C> <C>
Steven C. Beering, M.D. 976,085,424 11,869,332
Franklyn G. Prendergast, M.D., Ph.D. 977,726,066 10,228,690
Kathi P. Seifert 977,242,554 10,712,202
Randall L. Tobias 976,297,077 11,657,679
</TABLE>
The terms of office of the following directors continued after the
meeting: Evan Bayh, Alfred G. Gilman, M.D., Charles E. Golden, Karen
N. Horn, Ph.D., J. Clayburn La Force, Jr., Ph.D., Kenneth L. Lay,
Ph.D., Sidney Taurel, August M. Watanabe, M.D. and Alva O. Way. Dr. La
Force retired from the Board of Directors effective April 20, 1998.
(b) By the following vote, the shareholders approved amendments to the
Articles of Incorporation recommended by the Board of Directors to
increase the number of authorized shares of common stock:
For: 933,218,245
Against: 50,245,716
Abstain: 4,490,795
13
<PAGE>
<PAGE>
(c) By the following vote, the shareholders approved the 1998 Lilly Stock
Plan:
For: 948,864,916
Against: 33,887,457
Abstain: 5,202,383
(d) By the following vote, the shareholders approved the Eli Lilly and
Company EVA Bonus Plan:
For: 959,782,831
Against: 21,835,595
Abstain: 6,336,330
(e) The appointment of Ernst & Young LLP as the Company's principal
independent auditors was ratified by the following shareholder vote:
For: 984,011,833
Against: 1,746,191
Abstain: 2,196,732
14
<PAGE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following documents are filed as exhibits to this
Report:
3. By-laws (as amended through July 1, 1998)
11. Statement re: Computation of Basic Earnings Per Share
and Diluted Earnings Per Share
12. Statement re: Computation of Ratio of Earnings from
Continuing Operations to Fixed Charges
27. Financial Data Schedule
99. Cautionary Statement Under Private Securities Litigation
Reform Act of 1995 - "Safe Harbor" for Forward-Looking
Disclosures
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the second quarter of
1998.
15
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements 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
---------------------
(Registrant)
Date August 12, 1998 /s/ Daniel P. Carmichael
--------------- ------------------------
Daniel P. Carmichael
Secretary and Deputy General Counsel
Date August 12, 1998 /s/ Arnold C. Hanish
--------------- ----------------------
Arnold C. Hanish
Director, Corporate Accounting and
Chief Accounting Officer
16
<PAGE>
<PAGE>
INDEX TO EXHIBITS
The following documents are filed as a part of this Report:
Exhibit
-------
3. By-laws (as amended through July 1, 1998)
11. Statement re: Computation of Basic Earnings Per
Share and Diluted Earnings Per Share
12. Statement re: Computation of Ratio of Earnings
from Continuing Operations to Fixed Charges
27. Financial Data Schedule
99. Cautionary Statement Under Private Securities Litigation
Reform Act of 1995 - "Safe Harbor" for Forward-Looking
Disclosures
17
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as ..............'r'
<PAGE>
<PAGE>
ELI LILLY AND COMPANY
BY-LAWS
As Amended through
July 1, 1998
<PAGE>
<PAGE>
ELI LILLY AND COMPANY
BY-LAWS
INDEX
ARTICLE I
The Shareholders
<TABLE>
<CAPTION>
Page
<S> <C> <C>
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 2
Section 1.5. Voting 2
Section 1.6. Voting Lists 2
Section 1.7. Fixing of Record Date 3
Section 1.8. Notice of Shareholder Business 3
Section 1.9. Notice of Shareholder Nominees 4
ARTICLE II
Board of Directors
Section 2.0. General Powers 5
Section 2.1. Number and Qualifications 5
Section 2.2. Classes of Directors and Terms 5
Section 2.3. Election of Directors 5
Section 2.4. Meetings of Directors 6
a. Annual Meeting 6
b. Regular Meetings 6
c. Special Meetings 6
Section 2.5. Quorum and Manner of Acting 6
Section 2.6. Resignations 7
Section 2.7. Removal of Directors 7
Section 2.8. Action without a Meeting 7
Section 2.9. Attendance and Failure to Object 7
Section 2.10. Special Standing Committees 8
Section 2.11. Appointment of Auditors 8
Section 2.12. Transactions with Corporation 8
Section 2.13. Compensation of Directors 9
</TABLE>
<PAGE>
<PAGE>
ii
ARTICLE III
Officers
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 3.0. Officers, General Authority and Duties 9
Section 3.1. Election, Term of Office, Qualifications 9
Section 3.2. Other Officers, Election or Appointment 10
Section 3.3. Resignation 10
Section 3.4. Removal 10
Section 3.5. Vacancies 10
Section 3.6. Honorary Chairman of the Board of Directors 10
Section 3.7. Chairman of the Board of Directors 10
Section 3.8. President 11
Section 3.9. Executive Vice Presidents 11
Section 3.10. Senior Vice Presidents and Group Vice Presidents 11
Section 3.11. Vice Presidents 11
Section 3.12. Secretary 12
Section 3.13. Assistant Secretaries 12
Section 3.14. Chief Financial Officer 12
Section 3.15. Treasurer 13
Section 3.16. Assistant Treasurers 13
Section 3.17. Chief Accounting Officer 14
Section 3.18. General Counsel 14
Section 3.19. Other Officers or Agents 14
Section 3.20 Chairman Emeritus 14
Section 3.21. Compensation 14
Section 3.22. Surety Bonds 15
ARTICLE IV
Execution of Instruments and Deposit
of Corporate Funds
Section 4.0. Execution of Instruments Generally 15
Section 4.1. Notes, Checks, Other Instruments 15
Section 4.2. Proxies 15
</TABLE>
<PAGE>
<PAGE>
iii
ARTICLE V
Shares
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 5.0. Certificates for Shares 16
Section 5.1. Transfer of Shares 17
Section 5.2. Regulations 17
Section 5.3. Transfer Agents and Registrars 17
Section 5.4. Lost or Destroyed Certificates 17
Section 5.5. Redemption of Shares Acquired in
Control Share Acquisitions 18
ARTICLE VI
Indemnification
Section 6.0. Right to Indemnification 18
Section 6.1. Insurance, Contracts and Funding 19
Section 6.2. Non-Exclusive Rights; Applicability
to Certain Proceedings 19
Section 6.3. Advancement of Expenses 19
Section 6.4. Procedures; Presumptions and Effect
of Certain Proceedings; Remedies 19
Section 6.5. Certain Definitions 22
Section 6.6. Indemnification of Agents 23
Section 6.7. Effect of Amendment or Repeal 23
Section 6.8. Severability 23
ARTICLE VII
Miscellaneous
Section 7.0. Corporate Seal 24
Section 7.1. Fiscal Year 24
Section 7.2. Amendment of By-laws 24
</TABLE>
<PAGE>
<PAGE>
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. Failure to hold an
annual meeting of the shareholders at such designated time shall not affect
otherwise valid corporate acts or work a forfeiture or dissolution of the
Corporation.
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.
<PAGE>
<PAGE>
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, facsimile, or electronic 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.
-2-
<PAGE>
<PAGE>
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.
SECTION 1.8. Notice of Shareholder Business. At an annual meeting of the
shareholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before the meeting by a
shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have the legal right and authority to make the
proposal for consideration at the meeting and the shareholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation, not less than ninety (90)
days prior to the meeting; provided, however, that in the event that less than
one hundred (100) days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (a) a brief description of the business described to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and record address of the
shareholder(s) proposing such business, (c) the class and number of the
Corporation's shares which are beneficially owned by such shareholder(s), and
(d) any material interest of such shareholder(s) in such business.
Notwithstanding anything in these By-laws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 1.8. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting and in accordance with the provisions of this Section
1.8, and if the Chairman should so determine, he or she shall so declare to the
meeting any such business not properly brought before the meeting shall not be
transacted. At any special meeting of the shareholders, only
-3-
<PAGE>
<PAGE>
such business shall be conducted as shall have been brought before the meeting
by or at the direction of the Board of Directors.
SECTION 1.9. Notice of Shareholder Nominees. Only persons who are
nominated in accordance with the procedures set forth in this Section 1.9 shall
be eligible for election as Directors. Nominations of persons for election to
the Board of Directors may be made at or prior to a meeting of shareholders by
or at the direction of the Board of Directors or by any nominating committee or
person appointed by or at the direction of the Board of Directors, and at a
meeting of shareholders by any shareholder entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
this Section 1.9. Such nominations, other than those made by or at the direction
of the Board of Directors, shall be made pursuant to timely notice in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholders to be timely must be so received not
later than the close of business on the tenth (10th) day following the date on
which such notice of the date of the meeting was made. Such shareholder's notice
shall set forth (a) as to each person whom the shareholder proposes to nominate
for election or re-election as a director, (i) the name, age, business address
and residence address of such person; (ii) the principal occupation or
employment of such person; (iii) the class and number of the Corporation's
shares which are beneficially owned by such person; and (iv) to the extent
reasonably available to the shareholder, any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of Directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including without
limitation such person's written consent to being named in the proxy statement
as a nominee and to serving as a Director if elected); and (b) as to the
shareholder giving the notice (i) the name and record address of such
shareholder and (ii) the class and number of the Corporation's shares which are
beneficially owned by such shareholder. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with the
procedures set forth in this Section 1.9. The Chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not so declared in accordance with the procedures prescribed by these By-laws,
and if the Chairman should so determine, he or she shall so declare to the
meeting and the defective nomination shall be disregarded.
-4-
<PAGE>
<PAGE>
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.
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.
-5-
<PAGE>
<PAGE>
If the holders of preferred stock are entitled to elect any directors
voting separately as a class, 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 of the holders of shares of
preferred stock is present.
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
-6-
<PAGE>
<PAGE>
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
-7-
<PAGE>
<PAGE>
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 transactions with the
Corporation in which one or more of its directors has a direct or indirect
interest shall be either void or voidable solely because of such interest if any
one of the following is true:
(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
-8-
<PAGE>
<PAGE>
(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 subsection
(a) of this section. The presence of, or a vote cast by, a director with a
direct or indirect interest in the transaction does not affect the validity of
any actions taken under subsection (a) of 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,
Senior 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 By-laws.
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.
-9-
<PAGE>
<PAGE>
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 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 or her by the By-laws and by the Board of Directors. The
-10-
<PAGE>
<PAGE>
Chairman shall, in the absence 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 be the chief executive
officer and, subject to the control of the Board of Directors, 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 President shall have such other powers
and perform such other duties as are assigned to him or her by the By-laws or
the Board of Directors. The President shall, in the absence or incapacity of 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 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 (and, between two or more of equal
seniority in office as Executive Vice Presidents, in order of their seniority in
office as Vice Presidents), perform the duties and exercise the powers of the
President.
SECTION 3.10. Senior Vice Presidents and Group Vice Presidents. Each
Senior Vice President and each Group Vice President shall perform such duties
and have such powers as may be assigned to him or her by the President or the
Board of Directors. In the case of the death or incapacity of the Chairman of
the Board, the President and the Executive Vice Presidents, the Senior Vice
Presidents shall, in the order of their seniority in office as Senior Vice
Presidents (and, between two or more of equal seniority in office as Senior Vice
Presidents, in order of their seniority in office as 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 President or
the Board of Directors.
-11-
<PAGE>
<PAGE>
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 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 President or
the Secretary 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 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;
-12-
<PAGE>
<PAGE>
(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 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 or invested in the name and to the credit of the Corporation in such
banks or trust companies or with such bankers or other depositories or
investments 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 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 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 President or the Board of Directors.
-13-
<PAGE>
<PAGE>
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 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 President or the Board of Directors.
SECTION 3.20. Chairman Emeritus. In recognition of distinguished service
to the Corporation, the Board of Directors may designate a person who has served
as Chairman of the Board and who is no longer an employee, officer, or director
as Chairman Emeritus. The Chairman Emeritus may serve to represent the
Corporation at the request of the Chairman of the Board.
SECTION 3.21. Compensation. The compensation of executive officers of the
Corporation shall be fixed from time to time by the Compensation and Management
Development Committee (or successor committee) established pursuant to Section
2.10. Unless the Board of Directors by resolution shall direct otherwise, the
compensation of employees who are not executive officers of the Corporation
shall
-14-
<PAGE>
<PAGE>
be fixed by the management of the Company. No employee shall be prevented
from receiving such compensation by reason of being a director of the
Corporation.
SECTION 3.22. 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 any Vice President, the Treasurer, any Assistant
Treasurer, the Secretary or by any other person or persons thereunto authorized
by the Board of Directors.
-15-
<PAGE>
<PAGE>
ARTICLE V
SHARES
SECTION 5.0. Certificates for Shares. Shares in the corporation may be
issued in book-entry form or evidenced by certificates. However, every holder of
shares in the Corporation shall be entitled upon request 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 (or in the case of book-entry shares,
the statements evidencing ownership of such shares shall state) 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 (or book-entry statement) shall state
whether such shares have been fully paid and are non-assessable. If any such
shares are not fully paid, the certificate (or book-entry statement) 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 (or book-entry
statement updated) 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 (if any), the name
of the person owning the shares represented thereby, the class of such share and
the date of the issuance or transfer thereof.
-16-
<PAGE>
<PAGE>
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 (if any) 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 or
book-entry 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 and the book-entry 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 or the Secretary, and the Board of Directors or Secretary may require
the owner of the lost or destroyed certificate or the owner's legal
representatives to give the Corporation a bond in such form and for such amount
as the Board of Directors or Secretary may direct, and with such surety or
sureties as may be satisfactory to the Board of Directors or the Secretary 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 or the
Secretary, it is proper so to do.
-17-
<PAGE>
<PAGE>
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
INDEMNIFICATION
SECTION 6.0. Right to Indemnification. The Corporation shall, to the
fullest extent permitted by applicable law now or hereafter in effect, indemnify
any person who is or was a director, officer or employee of the Corporation
("Eligible Person") and who is or was involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved in
any threatened, pending or completed investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative (including,
without limitation, any action, suit or proceeding by or in the right of the
Corporation to procure a judgment in its favor) (a "Proceeding") by reason of
the fact that such Eligible Person is or was a director, officer or employee of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, partner, member, manager, trustee, employee, fiduciary or
agent of another corporation, partnership, joint venture, limited liability
company, trust or other enterprise (including, without limitation, any employee
benefit plan) (a "Covered Entity"), against all expenses (including attorneys'
fees), judgments, fines or penalties against (including excise taxes assessed
with respect to an employee benefit plan) and amounts paid in settlement
actually and reasonably incurred by such Eligible Person in connection with such
-18-
<PAGE>
<PAGE>
Proceeding; provided, however, that the foregoing shall not apply to a
Proceeding commenced by a current or former director, officer or employee of the
Corporation except for such a Proceeding commenced following a Change in Control
(as hereafter defined) with respect to actions or failure to act prior to such
Change in Control. Any right of an Eligible Person to indemnification shall be a
contract right and shall include the right to receive, prior to the conclusion
of any Proceeding, advancement of any expenses incurred by the Eligible Person
in connection with such Proceeding in accordance with Section 6.3.
SECTION 6.1. Insurance, Contracts and Funding. The Corporation may
purchase and maintain insurance to protect itself and any Eligible Person
against any expense, judgments, fines and amounts paid in settlement as
specified in Section 6.0 of this Article or incurred by any Eligible Person in
connection with any Proceeding referred to in such section, to the fullest
extent permitted by applicable law now or hereafter in effect. The Corporation
may enter into agreements with any director, officer, employee or agent of the
Corporation or any director, officer, employee, fiduciary or agent of any
Covered Entity supplemental to or in furtherance of the provisions of this
Article and may create a trust fund or use other means (including, without
limitation, a letter of credit) to ensure the payment of such amounts as may be
necessary to effect indemnification and advancement of expenses as provided in
this Article.
SECTION 6.2. Non-Exclusive Rights; Applicability to Certain Proceedings.
The rights provided in this Article shall not be exclusive of any other rights
to which any Eligible Person may otherwise be entitled, and the provisions of
this Article shall inure to the benefit of the heirs and legal representatives
of any Eligible Person and shall be applicable to Proceedings commenced or
continuing after the adoption of this Article, whether arising from acts or
omissions occurring before or after such adoption.
SECTION 6.3. Advancement of Expenses. All reasonable expenses incurred by
or on behalf of an Eligible Person in connection with any Proceeding shall be
advanced to the Eligible Person by the Corporation within sixty (60) days after
the receipt by the Corporation of a statement or statements from the Eligible
Person requesting such advance or advances from time to time, whether prior to
or after final disposition of such Proceeding unless a determination has been
made pursuant to Section 6.4 that such Eligible Person is not entitled to
indemnification. Any such statement or statements shall reasonably evidence the
expenses incurred by the Eligible Person and shall include any written
affirmation or undertaking to repay advances if it is ultimately determined that
the Eligible Person is not entitled to indemnification under this Article.
-19-
<PAGE>
<PAGE>
SECTION 6.4. Procedures; Presumptions and Effect of Certain Proceedings;
Remedies. In furtherance, but not in limitation, of the foregoing provisions,
the following procedures, presumptions and remedies shall apply with respect to
and the right to indemnification and advancement of expenses under this Article.
(a) To obtain indemnification under this Article, an Eligible Person
shall submit to the Secretary of the Corporation a written request, including
such documentation and information as is reasonably available to the Eligible
Person and reasonably necessary to determine whether and to what extent the
Eligible Person is entitled to indemnification (the "Supporting Documentation").
The determination of the Eligible Person's entitlement to indemnification shall
be made not later than sixty (60) days after receipt by the Corporation of the
written request together with the Supporting Documentation. The Secretary of the
Corporation shall, promptly upon receipt of such request, advise the Board in
writing of the Eligible Person's request.
(b) An Eligible Person's entitlement to indemnification under this
Article shall be determined in one of the following methods, such method to be
selected by the Board of Directors, regardless of whether there are any
Disinterested Directors (as hereinafter defined): (i) by a majority vote of the
Disinterested Directors, if they constitute a quorum of the Board; (ii) by a
written opinion of Special Counsel (as hereinafter defined) if (A) a Change in
Control shall have occurred and the Eligible Person so requests or (B) a quorum
of the Board consisting of Disinterested Directors is not obtainable or, even if
obtainable, a majority of such Disinterested Directors so directs; (iii) by the
shareholders of the Corporation (but only if a majority of the Disinterested
Directors, if they constitute a quorum of the Board, presents the issue of
entitlement to the shareholders for their determination); or (iv) as provided in
subsection (d).
(c) In the event of the determination of entitlement is to be made by
Special Counsel, a majority of the Disinterested Directors shall select the
Special Counsel, but only Special Counsel to which the Eligible Person does not
reasonably object; provided, however, that if a Change in Control shall have
occurred, the Eligible Person shall select such Special Counsel, but only
Special Counsel to which a majority of the Disinterested Directors does not
reasonably object.
(d) Except as otherwise expressly provided in this Article, if a Change
in Control shall have occurred, the Eligible Person shall be presumed to be
entitled to indemnification (with respect to actions or failures to act
occurring prior to such Change in Control) upon submission of a request for
indemnification together with the Supporting Documentation in accordance with
subsection (a), and thereafter the Corporation shall have the burden of proof to
overcome that presumption in reaching a contrary determination. In any event, if
the person or persons empowered under subsection (c) to determine entitlement
shall not have been
-20-
<PAGE>
<PAGE>
appointed or shall not have made a determination within sixty (60) days
after receipt by the Corporation of the request therefor together
with the Supporting Documentation, the Eligible Person shall be deemed
to be, and shall be, entitled to indemnification and advancement of expenses
unless (i) the Eligible Person misrepresented or failed to disclose a material
fact in making the request for indemnification or in the Supporting
Documentation or (ii) such indemnification is prohibited by law. The termination
of any Proceeding or of any claim, issue or matter therein, by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, adversely affect the right of an Eligible Person to
indemnification or create a presumption that the Eligible Person did not act in
good faith and in a manner which the Eligible Person reasonably believed to be
in or not opposed to the best interests of the Corporation and, with respect to
any criminal proceeding, that the Eligible Person had reasonable cause to
believe that his or her conduct was unlawful.
(e) In the event that a determination is made that the Eligible Person is
not entitled to indemnification (i) the Eligible Person shall be entitled to
seek an adjudication of his or her entitlement to such indemnification either,
at the Eligible Person's sole option, in (A) an appropriate court of the state
of Indiana or any other court of competent jurisdiction or (B) an arbitration to
be conducted in Indianapolis, Indiana, by a single arbitrator pursuant to the
rules of the American Arbitration Association; (ii) in any such judicial
proceeding or arbitration the Eligible Person shall not be prejudiced by reason
of the prior determination pursuant to this Section 6.4; and (iii) if a Change
in Control shall have occurred, in any such judicial proceeding or arbitration
the Corporation shall have the burden of proving that the Eligible Person is not
entitled to indemnification but only with respect to actions or failures to act
occurring prior to such Change in Control.
(f) If a determination shall have been made or deemed to have been made
that the Eligible Person is entitled to indemnification, the Corporation shall
be obligated to pay the amounts incurred by the Eligible Person within ten (10)
days after such determination has been made or deemed to have been made and
shall be conclusively bound by such determination unless (i) the Eligible Person
misrepresented or failed to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (ii) such indemnification
is prohibited by law. In the event that (A) any advancement of expenses is not
timely made pursuant to Section 6.3 or (B) payment of indemnification is not
made within ten (10) days after a determination of entitlement to
indemnification has been made, the Eligible Person shall be entitled to seek
judicial enforcement of the Corporation's obligation, to pay to the Eligible
Person such advancement of expenses or indemnification. Notwithstanding the
foregoing, the Corporation may bring an action, in an appropriate court in the
State of Indiana or any other court of competent jurisdiction, contesting the
right of the Eligible Person to receive indemnification hereunder due to the
occurrence of an event described in clause (i) or (ii) of this subsection (f) (a
"Disqualifying Event"); provided, however, that in any
-21-
<PAGE>
<PAGE>
such action the Corporation shall have the burden of proving the occurrence of
such Disqualifying Event.
(g) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 6.4 that the
procedures and presumptions of this Article are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by the provisions of this Article.
(h) In the event that the Eligible Person seeks a judicial adjudication
of or an award in arbitration to enforce his or her rights under, or to recover
damages for breach of this Article, the Eligible Person shall be entitled to
recover from the Corporation, and shall be indemnified by the Corporation,
against, any expenses actually and reasonably incurred by the Eligible Person if
the Eligible Person prevails in such judicial adjudication or arbitration. If it
shall be determined in such judicial adjudication or arbitration that the
Eligible Person is entitled to receive part but not all of the indemnification
or advancement of expenses sought, the expenses incurred by the Eligible Person
in connection with such judicial adjudication or arbitration shall be prorated
accordingly.
SECTION 6.5. Certain Definitions. For purposes of this Article:
(a) "Change in Control" means any of the following events: (i) the
acquisition by any "person," as that term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), other than (A)
the Corporation, (B) any subsidiary of the Corporation, (C) any employee benefit
plan or employee stock plan of the Corporation or a subsidiary of the
Corporation or any trustee or fiduciary with respect to any such plan when
acting in that capacity, or (D) Lilly Endowment, Inc., of "beneficial ownership"
as defined in Rule 13d-3 under the 1934 Act, directly or indirectly, of 20% or
more of the shares of the Corporation's capital stock the holders of which have
general voting power under ordinary circumstances to elect at least a majority
of the Board (or which would have such voting power but for the application of
IC 23-1-42-1 through IC 23-1-42-11) ("Voting Stock"); (ii) the first day on
which less than two-thirds of the total membership of the Board shall be
Continuing Directors (as such term is defined in Article 13.(f) of the Articles
of Incorporation); (iii) the approval by the shareholders of the Corporation of
a merger, share exchange, or consolidation of the Corporation (a "Transaction"),
other than a Transaction which would result in the Voting Stock of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the Voting Stock of the Corporation or
such surviving entity immediately after such Transaction; or (iv) approval by
the shareholders of the Corporation of a complete liquidation of the Corporation
or a sale of disposition of all or substantially all the assets of the
Corporation.
-22-
<PAGE>
<PAGE>
(b) "Disinterested Director" means a Director who is not or was not a
party to the Proceeding in respect of which indemnification is sought by the
Eligible Person.
(c) "Special Counsel" means a law firm or a member of a law firm that
neither presently is, nor in the past five years has been, retained to represent
any other party to the Proceeding giving rise to a claim for indemnification
under this Article. In addition, any person who, under applicable standards of
professional conduct, would have a conflict of interest in representing either
the Corporation or the Eligible Person in an action to determine the Eligible
Person's rights under this Article may not act as Special Counsel.
SECTION 6.6. Indemnification of Agents. Notwithstanding any other
provisions of this Article, the Corporation may, consistent with the provisions
of applicable law, indemnify any person other than a director, officer or
employee of the Corporation who is or was an agent of the Corporation and who is
or was involved in any manner (including, without limitation, as party or a
witness) or is threatened to be made so involved in any threatened, pending or
completed Proceeding by reasons of the fact that such person is or was an agent
of the Corporation or, at the request of the Corporation, a director, officer,
partner, member, manager, employee, fiduciary or agent of a Covered Entity
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in connection
with such Proceeding. The Corporation may also advance expenses incurred by such
person in connection with any such Proceeding, consistent with the provisions of
applicable law.
SECTION 6.7. Effect of Amendment or Repeal. Neither the amendment or
repeal of, nor the adoption of a provision inconsistent with, any provision of
this Article shall adversely affect the rights of any Eligible Person under this
Article (i) with respect to any Proceeding commenced or threatened prior to such
amendment, repeal or adoption of an inconsistent provision or (ii) after the
occurrence of a Change in Control, with respect to any Proceeding arising out of
any action or omission occurring prior to such amendment, repeal or adoption of
an inconsistent provision, in either case without the written consent of such
Eligible Person.
SECTION 6.8. Severability. If any of this Article shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Article
(including, without limitation, all portions of any Section of this Article
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby; and (b) to
-23-
<PAGE>
<PAGE>
the fullest extent possible, the provisions of this Article (including, without
limitation, all portions of any Section of this Article containing any such
provision held to be invalid, illegal or unenforceable, that are not themselves
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
ARTICLE VII
MISCELLANEOUS
SECTION 7.0. 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 7.1. 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 7.2. 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: (a) 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; (b) no provision of these By-laws incorporating a provision of
Articles 9, 13 or 14 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; and (c) any amendment to Articles I and VI of
these By-laws shall require the affirmative vote of a majority of (i) the actual
number of directors elected and qualified, and (ii) the Continuing Directors, as
defined in Article 13.(f) of the Articles of Incorporation.
* * *
-24-
<PAGE>
<PAGE>
EXHIBIT 11. STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
Eli Lilly and Company and Subsidiaries
(Dollars in millions except per share data. Shares in millions.)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC:
Net income (loss).................................... $ 491.3 $(1,732.1) $1,012.4 $(1,299.5)
Preferred stock dividends............................ (0.7) (0.6) (1.3) (1.3)
-------- ------- ------- -------
Adjusted net income (loss)........................... $ 490.6 $(1,732.7) $1,011.1 $(1,300.8)
======= ======= ======= =======
Average number of common shares
outstanding....................................... 1,098.2 1,102.5 1,099.6 1,100.7
Contingently issuable shares......................... - - 0.6 -
------- ------ -------- ------
Adjusted average shares.............................. 1,098.2 1,102.5 1,100.2 1,100.7
======= ======= ======= =======
Basic earnings (loss) per share...................... $ 0.45 $ (1.57) $ 0.92 $ (1.18)
======== ======== ======== ========
DILUTED:
Net income (loss).................................... $ 491.3 $(1,732.1) $1,012.4 $(1,299.5)
Preferred stock dividends............................ (0.7) (0.6) (1.3) (1.3)
------- -------- ------- --------
Adjusted net income (loss)........................... $ 490.6 $(1,732.7) $1,011.1 $(1,300.8)
======= ======= ======== ========
Average number of common shares
outstanding....................................... 1,098.2 1,102.5 1,099.6 1,110.7
Incremental shares -
Stock options and contingently
issuable shares................................... 26.8 - 28.2 -
------- -------- ------- ----
Adjusted average shares.............................. 1,125.0 1,102.5 1,127.8 1,100.7
======= ======= ======= =======
Diluted earnings (loss)
per share......................................... $ 0.44 $ (1.57) $ 0.90 $ (1.18)
======= ======== ======== ========
</TABLE>
For 1997, because the inclusion of stock options and other incremental shares
would be antidilutive, earnings per share has been calculated assuming no
incremental shares.
<PAGE>
<PAGE>
EXHIBIT 12. STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS FROM
CONTINUING OPERATIONS TO FIXED CHARGES
(Unaudited)
Eli Lilly and Company and Subsidiaries
(Dollars in Millions)
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years Ended December 31,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Consolidated
Pretax Income
from Continuing
Operations before
Accounting Changes &
Extraordinary Item................ $1,359.5 $ 510.2 $2,031.3 $1,765.6 $1,698.6 $ 662.8
Interest from Continuing
Operations........................ 102.1 260.0 324.9 324.6 129.2 96.1
Interest Capitalized
during the Period from
Continuing Operations.............. (10.4) (23.8) (36.1) (38.3) (25.4) (25.5)
------- ------- ------- ------- ------- -------
Earnings ........................... $1,451.2 $ 746.4 $2,320.1 $2,051.9 $1,802.4 $ 733.4
------- ------- ------- ------- ------- -------
Fixed Charges(1).................... $ 103.8 $ 264.2 $ 329.6 $ 324.6 $ 129.2 $ 96.1
======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges..................... 14.0 2.8(2) 7.0 6.3 14.0 7.6
======= ========= ====== ===== ====== =======
</TABLE>
(1)Fixed charges include interest from continuing operations for all years
presented and beginning in 1996, preferred stock dividends.
(2)Included in the 1997 earnings is a noncash charge of $2,443 million due to an
asset impairment. See notes to consolidated condensed financial statements.
If the asset impairment charge had not occurred, the ratio of earnings to
fixed charges would have been 12.1.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,315,178
<SECURITIES> 67,560
<RECEIVABLES> 1,701,127
<ALLOWANCES> 51,086
<INVENTORY> 985,211
<CURRENT-ASSETS> 4,798,014
<PP&E> 7,091,722
<DEPRECIATION> 3,046,976
<TOTAL-ASSETS> 11,868,651
<CURRENT-LIABILITIES> 3,446,914
<BONDS> 2,307,491
<COMMON> 0
0
688,887
<OTHER-SE> 3,952,711
<TOTAL-LIABILITY-AND-EQUITY> 11,868,651
<SALES> 4,060,400
<TOTAL-REVENUES> 4,609,828
<CGS> 758,817
<TOTAL-COSTS> 1,228,262
<OTHER-EXPENSES> 2,003,435<F1>
<LOSS-PROVISION> 0<F2>
<INTEREST-EXPENSE> 91,698
<INCOME-PRETAX> 1,359,572
<INCOME-TAX> 339,890
<INCOME-CONTINUING> 1,019,681
<DISCONTINUED> 0
<EXTRAORDINARY> (7,249)
<CHANGES> 0
<NET-INCOME> 1,012,432
<EPS-PRIMARY> .92
<EPS-DILUTED> .90
<FN>
<F1> Amounts include research and development, marketing and
administrative expenses.
<F2> The information called for is not given as the balances are not
individually significant.
</FN>
<PAGE>
<PAGE>
EXHIBIT 99 CAUTIONARY STATEMENT UNDER PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 - "SAFE HARBOR" FOR
FORWARD-LOOKING DISCLOSURES
Certain forward-looking statements are included in this Form 10-Q and may be
made by Company spokespersons based on current expectations of management. All
forward-looking statements made by the Company are subject to risks and
uncertainties. Certain factors, including but not limited to those listed below,
may cause actual results to differ materially from current expectations and
historical results.
- - Economic factors over which the Company has no control, including changes
in inflation, interest rates and foreign currency exchange rates.
- - Competitive factors including generic competition as patents on key
products, such as Prozac, expire; pricing pressures, both in the U.S. and
abroad, primarily from managed care groups and government agencies; and
technological advances and patents obtained by competitors.
- - Governmental factors including laws and regulations and judicial decisions
at the state and federal level related to Medicare, Medicaid and healthcare
reform; and laws and regulations affecting international pricing and
pharmaceutical reimbursement.
- - The difficulties and uncertainties inherent in new product development. New
product candidates that appear promising in development may fail to reach
the market or may not be as commercially successful as anticipated because
of efficacy or safety concerns, inability to obtain necessary regulatory
approvals, limitations on approved indications, difficulty or excessive
costs to manufacture, or infringement of the patents or intellectual
property rights of others.
- - Delays and uncertainties in the FDA approval process and the approval
processes in other countries, resulting in lost market opportunity.
- - Unexpected safety or efficacy concerns arising with respect to marketed
products, whether or not scientifically justified, leading to product
recalls, withdrawals or declining sales.
- - Legal factors including unanticipated litigation of product liability
claims; antitrust litigation; environmental matters; and patent disputes
with competitors which could preclude commercialization of products or
negatively affect the profitability of existing products.
- - Future difficulties obtaining or the inability to obtain existing levels of
product liability insurance.
- - Changes in tax laws, including the amendment to the Section 936 income tax
credit, and future changes in tax laws related to the remittance of foreign
earnings or investments in foreign countries with favorable tax rates.
- - Changes in accounting standards promulgated by the Financial Accounting
Standards Board, the Securities and Exchange Commission, and the American
Institute of Certified Public Accountants which are adverse to the Company.
<PAGE>
<PAGE>
- - Factors such as changes in business strategies and the impact of
restructurings, impairments in asset carrying values and business
combinations.
- - Difficulties in modification or replacement of existing computer systems
and/or software in order to render the Company's various computer systems
ready for the year 2000, including the difficulties encountered by third
party vendors and/or suppliers in their failure to render their systems
and/or software to be ready for the year 2000.
