<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) NOVEMBER 21, 1994
PCS HOLDING CORPORATION (FORMERLY MCKESSON CORPORATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 1-9626 94-3207296
<S> <C> <C>
(STATE OR OTHER JURISDIC- (COMMISSION (IRS EMPLOYER
TION OF INCORPORATION) FILE NUMBER) IDENTIFICATION NO.)
</TABLE>
LILLY CORPORATE CENTER, INDIANAPOLIS, INDIANA 46285
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (317) 276-2000
MCKESSON CORPORATION, MCKESSON PLAZA, ONE POST STREET, SAN FRANCISCO,
CALIFORNIA 94104
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
ITEMS 1 AND 2. CHANGES IN CONTROL OF REGISTRANT; DISPOSITION OF ASSETS
On November 21, 1994, ECO Acquisition Corporation, a Delaware corporation
("ECO") and a wholly-owned subsidiary of Eli Lilly and Company, an Indiana
corporation ("Lilly"), pursuant to an Offer to Purchase, dated July 15, 1994
(the "Offer"), purchased 42,135,998 shares of the common stock, par value $2.00
per share (the "Shares"), of McKesson Corporation, a Delaware corporation (the
"Company") for $76.00 net per Share. The Shares so purchased represented
approximately 94% of the Shares outstanding on such date.
Pursuant to the Agreement and Plan of Merger, dated July 10, 1994, as
amended, by and among ECO, Lilly and the Company (the "Merger Agreement"), on
November 30, 1994, pursuant to Section 253 of the Delaware General Corporation
Law, ECO was merged with and into the Company (the "Merger") and the Company
was renamed PCS Holding Corporation. Upon the consummation of the Merger, each
outstanding Share (other than Shares acquired by ECO in the Offer, Shares owned
by a subsidiary of the Company and Shares as to which appraisal rights are
perfected) was converted into the right to receive $76.00 in cash without
interest. Prior to the expiration of the Offer, the Company completed a spin-
off (the "Spin Off") to its stockholders of record on November 19, 1994 of the
common stock of a newly created corporation that held all of the Company's
businesses and subsidiaries other than its pharmaceutical benefits management
business (the "Retained Business"). Accordingly, upon consummation of the Offer
and the Merger, the Company, then consisting solely of the Retained Business,
became a wholly-owned subsidiary of Lilly.
In connection with the Spin Off, the newly created corporation ("New
McKesson") assumed various liabilities of the Company not related to the
Retained Business, including the Company's obligations, aggregating
approximately $239 million in principal amount as of October 31, 1994, under
its 4 1/2% Exchangeable Subordinated Debentures due 2004, its 8 5/8% Notes due
February 1, 1998 and its 8 3/4% Series B Medium Term Notes due February 4, 1997
(collectively, the "Public Indebtedness"). New McKesson has indemnified the
Company and Lilly with respect to liabilities under the Public Indebtedness and
agreed to seek consents from the holders of the Public Indebtedness to the
release of the Company from its obligations thereunder. Pending receipt of such
releases, the Company remains a co-obligor with New McKesson with respect to
the Public Indebtedness.
On November 21, 1994, the Board of Directors of the Company accepted the
resignations of Ms. Friedman and Messrs. Harvey, Keller, Piettruski, Shaw and
Waterman. In addition, consistent with the obligations under the Merger
Agreement, on such date the Board of Directors of the Company elected Messrs.
James M. Cornelius, Mitchell E. Daniels, Jr., Pedro P. Grandillo, and Sidney
Taurel, who had been designated by Lilly pursuant to Section 1.4 of the Merger
Agreement, as directors of the Company. On November 30, 1994, upon consummation
of the Merger, Mrs. Leslie L. Luttgens and Messrs. James M. Cornelius, Pedro P.
Grandillo, David E. McDowell and Alan Seelenfreund were removed from the Board
and Mr. Michael S. Hunt was elected a director by stockholder consent. Thus,
the Company's Board of Directors now consists of Messrs. Mitchell E. Daniels,
Jr., Michael S. Hunt and Sidney Taurel.
Lilly funded the acquisition of Shares pursuant to the Offer and the payment
of approximately $640 million to the Company (as required by the Merger
Agreement), and expects to fund the Merger and all transaction-related fees and
expenses (all of which are expected to total approximately $4.1 billion), with
the proceeds of a $4.0 billion commercial paper program and internally
generated funds. On October 21, 1994, Lilly entered into agency agreements with
Morgan Stanley & Co. Incorporated, Goldman Sachs Money Markets, L.P. and Lehman
Brothers Inc. pursuant to which each such firm agreed to act as an agent for
the private placement of commercial paper issued by Lilly. Commercial paper
issued by Lilly are unsecured obligations of Lilly having maturities not
exceeding 270 days from the date of issuance. The commercial paper has been
rated A-1+ by Standard & Poor's Corporation and P-1 by Moody's Investors
Service.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
Financial Statements
2
<PAGE>
PCS GROUP
CONDENSED COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED SEPTEMBER 30,
---------------------
1994 1993
---------- ---------
<S> <C> <C>
Revenues................................................. $ 103,136 $ 76,363
---------- ---------
Expenses
Cost of services rendered............................... 56,350 36,236
Selling, general and administrative..................... 26,654 17,908
Interest (income) expense--net.......................... (453) (13)
---------- ---------
Total expenses........................................ 82,551 54,131
---------- ---------
Income before taxes on income............................ 20,585 22,232
Taxes on income.......................................... 8,646 9,538
---------- ---------
Net income............................................... $ 11,939 $ 12,694
========== =========
</TABLE>
See accompanying notes to condensed combined financial statements.
3
<PAGE>
PCS GROUP
CONDENSED COMBINED BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1994
-------------
<S> <C>
ASSETS
Current Assets
Cash and short-term investments................................. $ 2,990
--------
Receivables
Service fees.................................................. 45,806
Claim reimbursements and rebate receivables................... 353,821
Other, including officers and employees....................... 1,460
Allowance for doubtful accounts............................... (1,684)
--------
Receivables--net............................................ 399,403
Prepaids and other.............................................. 6,816
Deferred income taxes........................................... 3,136
--------
Current assets.............................................. 412,345
--------
Property--net..................................................... 84,386
Goodwill--net..................................................... 65,360
Other Assets...................................................... 23,140
--------
Total Assets $585,231
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Claims and rebates payable...................................... $174,386
Checks outstanding.............................................. 212,958
Due to McKesson................................................. 57,602
Deposits........................................................ 20,439
Accrued and other liabilities................................... 22,947
--------
Current liabilities......................................... 488,332
--------
Non Current Liabilities
Deferred income taxes........................................... 5,970
Postretirement obligations...................................... 900
Deferred compensation........................................... 2,052
--------
Non current liabilities..................................... 8,922
--------
Commitments and Contingencies (Note 4)
Stockholder's Equity
Combined common stock and other capital......................... 45,614
Combined retained earnings...................................... 42,363
--------
Stockholder's equity........................................ 87,977
--------
Total Liabilities and Stockholder's Equity................ $585,231
========
</TABLE>
See accompanying notes to condensed combined financial statements.
4
<PAGE>
PCS GROUP
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
-------------------
1994 1993
--------- --------
<S> <C> <C>
Operating Activities
Net income.............................................. $ 11,939 $ 12,694
Adjustments to reconcile to net cash provided (used) by
operating activities
Depreciation and amortization......................... 8,032 6,243
Deferred income taxes................................. 470 2,111
--------- --------
Total............................................... 20,441 21,048
--------- --------
Effect of changes in
Receivables........................................... (107,211) (43,089)
Claims and rebates payable............................ (76,004) 44,704
Checks outstanding.................................... 164,040 (10,501)
Accrued and other liabilities......................... (4,036) (3,789)
Other................................................. (4,130) (685)
--------- --------
Total............................................... (27,341) (13,360)
--------- --------
Net cash provided (used) by operating activities.... (6,900) 7,688
--------- --------
Investing Activities
Acquisition of businesses............................. (553) (34,704)
Capital expenditures.................................. (6,518) (12,206)
Property retirements.................................. 674 --
Other................................................. (3,284) (320)
--------- --------
Net cash used by investing activities............... (9,681) (47,230)
--------- --------
Financing Activities
Short-term borrowings from McKesson................... 12,602 43,681
Deferred compensation................................. 999 412
--------- --------
Net cash provided by financing activities........... 13,601 44,093
--------- --------
Net increase (decrease) in cash and short-term
investments............................................ (2,980) 4,551
Cash and short-term investments at beginning of period.. 5,970 8,305
--------- --------
Cash and short-term investments at end of period........ $ 2,990 $ 12,856
========= ========
</TABLE>
See accompanying notes to condensed combined financial statements.
5
<PAGE>
PCS GROUP
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying condensed combined financial statements include PCS Health
Systems, Inc. and its subsidiaries ("PCS"), Clinical Pharmaceuticals, Inc. and
its subsidiary ("CPI") and an equity interest in Integrated Medical Systems
("IMS"), collectively defined as the "PCS Group" or the "Company". McKesson
Corporation ("McKesson") at September 30, 1994 owned 100% of the outstanding
common stock of PCS and CPI and the equity interest in IMS. On July 10, 1994,
McKesson entered into an Agreement and Plan of Merger ("Agreement") to sell the
PCS Group, see Note 3. The accompanying condensed combined financial statements
have been prepared in connection with this Agreement.
All significant intercompany balances and transactions have been eliminated.
2. Interim Financial Statements
In the opinion of the Company, these unaudited condensed combined financial
statements include all adjustments necessary to a fair presentation of the
Company's financial position as of September 30, 1994 and the results of its
operations and its cash flows for the six months then ended. Such adjustments
were of a normal recurring nature.
The results of operations for the six months ended September 30, 1994 and
1993 are not necessarily indicative of the results for the full year.
It is suggested that these financial statements be read in conjunction with
the financial statements, accounting policies and financial notes thereto
included in the Company's March 31, 1994 annual financial statements.
3. Proposed Sale of the PCS Group
On July 10, 1994, McKesson entered into an Agreement providing for the
acquisition by Eli Lilly and Company ("Lilly") of the PCS Group. On November
21, 1994, a Lilly subsidiary acquired through a tender offer approximately 95%
of McKesson after the distribution by McKesson of all its businesses other than
the PCS Group.
4. Contingencies
The Company has entered into capitation contracts with certain customers in
the ordinary course of business. These contracts provide that the Company
assume varying percentages of the risk associated with claims experience
differing from fixed fee arrangements under managed care programs. During the
six months ended September 30, 1994, the Company recorded loss provisions
totalling $6,400,000 related to these contracts.
6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholder of PCS Group:
We have audited the accompanying combined balance sheets of PCS Group
(defined in Note 1 to the combined financial statements) as of March 31, 1994,
1993 and 1992, and the related combined statements of income, stockholder's
equity and cash flows for the years then ended. The companies defined in Note 1
to the combined financial statements are under common ownership and common
management. These financial statements are the responsibility of PCS Group's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of PCS Group at March 31, 1994, 1993
and 1992, and the combined results of their operations and their combined cash
flows for the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the combined financial statements, in 1992 PCS
Group changed its method of accounting for postretirement benefits other than
pensions to conform with Statement of Financial Accounting Standards No. 106.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
August 19, 1994
7
<PAGE>
PCS GROUP
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-----------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Revenues (Note 1)............................... $ 173,495 $ 111,457 $ 102,463
--------- --------- ---------
Expenses (Note 1)
Cost of services rendered..................... 84,668 43,423 40,106
Selling, general and administrative........... 43,901 35,947 31,800
Interest expense.............................. 68 73 2,424
--------- --------- ---------
Total expenses.............................. 128,637 79,443 74,330
--------- --------- ---------
Income before taxes on income................... 44,858 32,014 28,133
Taxes on income (Note 3)........................ 19,252 13,378 11,845
--------- --------- ---------
Income before cumulative effect of accounting
change......................................... 25,606 18,636 16,288
Cumulative effect of accounting change (Note 1). -- -- (540)
--------- --------- ---------
Net income...................................... $ 25,606 $ 18,636 $ 15,748
========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
8
<PAGE>
PCS GROUP
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and short-term investments (Note 1).... $ 5,970 $ 8,305 $ 280
--------- --------- ---------
Receivables
Service fees.............................. 13,056 11,852 8,778
Claim reimbursements and rebate
receivables (Note 1)..................... 280,444 119,343 102,212
Other, including officers and employees... 705 537 435
Allowance for doubtful accounts........... (2,013) (2,726) (1,469)
--------- --------- ---------
Receivables--net........................ 292,192 129,006 109,956
Prepaids and other.......................... 6,686 1,271 1,623
Deferred income taxes (Note 3).............. 1,619 1,844 729
--------- --------- ---------
Current assets.......................... 306,467 140,426 112,588
--------- --------- ---------
Property--net (Notes 1 and 4)............... 85,348 69,886 65,088
Goodwill--net (Notes 1 and 2)............... 70,106 38,352 39,564
Other Assets (Note 2)....................... 15,225 7,327 2,379
--------- --------- ---------
Total Assets............................ $ 477,146 $ 255,991 $ 219,619
========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Claims and rebates payable (Note 1)......... $ 250,390 $ 105,889 $ 87,980
Checks outstanding (Note 1)................. 48,918 57,682 57,302
Due to McKesson (Note 5).................... 45,000 4,365 7,464
Deposits.................................... 20,980 20,075 19,855
Accrued and other liabilities............... 26,442 11,675 10,373
--------- --------- ---------
Current liabilities..................... 391,730 199,686 182,974
--------- --------- ---------
Non Current Liabilities
Deferred income taxes (Note 3).............. 7,425 4,735 4,229
Postretirement obligations (Note 1)......... 900 900 900
Deferred compensation....................... 1,053 666 148
--------- --------- ---------
Non current liabilities................. 9,378 6,301 5,277
--------- --------- ---------
Commitments and Contingencies (Notes 7 and 8)
Stockholder's Equity
Combined common stock and other capital..... 45,614 45,614 45,614
Combined retained earnings (deficit)........ 30,424 4,390 (14,246)
--------- --------- ---------
Stockholder's equity.................... 76,038 50,004 31,368
--------- --------- ---------
Total Liabilities and Stockholder's
Equity................................. $ 477,146 $ 255,991 $ 219,619
========= ========= =========
</TABLE>
See accompanying notes to combined financial statements.
9
<PAGE>
PCS GROUP
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED COMBINED TOTAL
NUMBER OF SHARES OTHER EARNINGS (DEFICIT) RETAINED STOCK-
---------------- CAPITAL ---------------------EARNINGS HOLDER'S
PCS CPI PCS PCS CPI (DEFICIT) EQUITY
-------- -------- -------- ---------- ------------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 31, 1991
(Note 1)............... 100 $ 45,614 $ (29,994) $ $ (29,994) $ 15,620
Net income.............. 15,748 15,748 15,748
-------- -------- -------- ---------- -------- --------- --------
Balances, March 31, 1992 100 45,614 (14,246) (14,246) 31,368
Net income.............. 18,636 18,636 18,636
-------- -------- -------- ---------- -------- --------- --------
Balances, March 31,
1993................... 100 45,614 4,390 4,390 50,004
Acquisition of CPI (Note
2)..................... 100
Net income.............. 24,050 1,556 25,606 25,606
Other................... 428 428 428
-------- -------- -------- ---------- -------- --------- --------
Balances, March 31,
1994................... 100 100 $ 45,614 $ 28,868 $ 1,556 $ 30,424 $ 76,038
======== ======== ======== ========== ======== ========= ========
</TABLE>
PCS's capital structure includes $0.01 par value preferred stock; 10,000,000
shares authorized; no shares outstanding and $0.01 par value common stock;
1,000 shares authorized; 100 shares outstanding.
CPI's capital structure includes $0.01 par value common stock; 1,000 shares
authorized; 100 shares outstanding.
See accompanying notes to combined financial statements.
10
<PAGE>
PCS GROUP
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Operating Activities
Income before cumulative effect of accounting
change........................................ $ 25,606 $ 18,636 $ 16,288
Adjustments to reconcile to net cash provided
by operating activities
Depreciation and amortization................ 13,394 9,350 11,064
Provision for losses on receivables.......... (178) 546 1,347
Deferred income taxes........................ 2,915 (609) (313)
-------- -------- --------
Total...................................... 41,737 27,923 28,386
-------- -------- --------
Effect of changes in
Receivables.................................... (156,707) (19,596) 2,265
Claims and rebates payable..................... 144,507 17,909 24,133
Checks outstanding............................. (8,764) 380 (38,214)
Accrued and other liabilities.................. 8,084 1,521 3,623
Other.......................................... (5,393) 352 (149)
-------- -------- --------
Total...................................... (18,273) 566 (8,342)
-------- -------- --------
Net cash provided by operating activities.. 23,464 28,489 20,044
-------- -------- --------
Investing Activities
Acquisition of businesses (Note 2)............. (40,335) -- --
Capital expenditures........................... (26,122) (12,994) (2,298)
Property retirements........................... 68 58 5
Other.......................................... (432) (4,947) (1,563)
-------- -------- --------
Net cash used by investing activities...... (66,821) (17,883) (3,856)
-------- -------- --------
Financing Activities
Short-term borrowings from McKesson (Note 5)... 40,635 (3,099) 7,734
Deferred compensation.......................... 387 518 79
Payments for retirement of debt................ -- -- (24,150)
-------- -------- --------
Net cash provided (used) by investing
activities................................ 41,022 (2,581) (16,337)
-------- -------- --------
Net increase (decrease) in cash and short-term
investments..................................... (2,335) 8,025 (149)
Cash and short-term investments at beginning of
year............................................ 8,305 280 429
-------- -------- --------
Cash and short-term investments at end of year... $ 5,970 $ 8,305 $ 280
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
11
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Basis of Presentation--The accompanying combined financial statements include
PCS Health Systems, Inc. and its subsidiaries ("PCS"), Clinical
Pharmaceuticals, Inc. and its subsidiary ("CPI") and an equity interest in
Integrated Medical Systems ("IMS"), collectively defined as the "PCS Group" or
the "Company". CPI and IMS have been included in the accompanying financial
statements since their respective dates of acquisition (see Note 2). McKesson
Corporation ("McKesson") at March 31, 1994 owned 100% of the outstanding common
stock of PCS and CPI and the equity interest in IMS. On July 10, 1994, McKesson
entered into an Agreement and Plan of Merger ("Agreement") to sell the PCS
Group, see Proposed Sale of the Company below. The accompanying combined
financial statements have been prepared in connection with this Agreement.
All significant intercompany balances and transactions have been eliminated.
Business--The Company provides computer-based prescription drug claims
processing and pharmacy benefit design, administration and management services
to health plan sponsors, including, insurance companies, third party
administrators, self-insured employers, and health maintenance and Blue
Cross/Blue Shield organizations that underwrite or administer prescription
benefit plans. The Company helps these customers manage the cost of
prescription plans by providing drug utilization reviews, clinically-based
formularies and generic substitution programs. The Company also operates an on-
line electronic network to transmit medical, hospital, laboratory, clinical and
billing information that links health care providers (physicians, hospitals and
clinics) with health plan sponsors. RECAP (TM), the Company's on-line
prescription claims management system, is linked with over 95% of retail
pharmacies in the U.S.
Transactions with McKesson Corporation--Certain expenses, principally
employee benefits, are paid on behalf of, and charged to the Company by
McKesson. In addition, the Company uses certain resources and administrative
staff of McKesson, including financial, legal, tax, internal audit, accounting
advice, and certain personnel and financial systems data processing and
employee benefit services. The Company is charged a fee for these and other
services and general liability and workers' compensation insurance premiums at
an amount based on actual time or costs incurred. The Company paid McKesson
$1,294,000, $946,000 and $979,000 in fiscal years 1994, 1993 and 1992,
respectively, for the services; and, $400,000, $75,000 and $115,000 in fiscal
years 1994, 1993 and 1992, respectively, for the insurance premiums.
The Company participated in McKesson's cash management program as described
in Note 5 and also participates in certain McKesson employee benefit plans, as
described in Note 6.
The accompanying financial statements reflect a distribution, retroactive to
fiscal 1991, of a dividend (reflected as a reduction to the March 31, 1991 PCS
retained earnings balance) to McKesson totalling $93,567,000.
Proposed Sale of the Company--On July 10, 1994, McKesson entered into an
Agreement providing for the acquisition by a subsidiary of Eli Lilly and
Company ("Lilly") of the PCS Group. This transaction is subject to various
conditions including provisions of the Hart-Scott-Rodino Act.
Income Taxes--The Company accounts for income taxes under the liability
method in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes".
Cash and Short-Term Investments include all highly liquid debt instruments
purchased with a maturity of three months or less.
12
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Property is stated at cost and depreciated on the straight-line method over
estimated useful lives of three to ten years. The buildings are depreciated
over their estimated useful life of 35 years (see Note 4).
Goodwill is amortized over 3 to 40 years and is stated net of accumulated
amortization of $7,532,000, $5,158,000 and $3,946,000 at March 31, 1994, 1993
and 1992, respectively (see Note 2).
Capitalized Software included in other assets reflects costs related to
internally developed or purchased software for projects in excess of $100,000
that are capitalized and amortized on a straight-line basis over periods not
exceeding five years.
Claim Reimbursements Receivable and Claims Payable are recorded when the
reimbursement request is received from a member pharmacy. Reimbursements for
claim payments are not included in revenues, and payments to member pharmacies
are not included in expenses. Checks outstanding are classified as liabilities
because they are drawn on zero balance accounts.
Revenues include claims processing fees that are accrued when the related
claim is processed and approved for payment. Other revenues are generally
recognized as the services are performed.
Changes in Accounting Principles--During 1994, the Company adopted SFAS No.
112, "Employer's Accounting for Postemployment Benefits". This accounting
change did not have a material effect on the Company's consolidated financial
statements. In 1992, the Company adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions". The cumulative effect of
adopting this new standard resulted in a charge to net income of $540,000 net
of a $360,000 tax benefit.
2. Acquisitions
In April 1993, McKesson purchased all the outstanding shares of CPI, an
administrator of clinically based managed prescription drug benefit programs.
The cost of the shares, which was paid in cash, was approximately $34,079,000
including transaction related costs. The acquisition, which has been accounted
for as a purchase, resulted in additional goodwill of $34,820,000 which is
being amortized over 25 years. The accompanying combined financial statements
include CPI from the date of acquisition.
In January 1994, McKesson purchased an approximate 15% interest in IMS, a
developer of community medical information systems. IMS's networks link
physicians with other health care providers, managed care organizations and
health plan sponsors. McKesson paid an aggregate cash purchase price of
$6,256,000 for 50,000 common shares and 1,250,000 convertible preferred shares
(convertible 1 to 1 into common) of outstanding IMS stock. Such investment is
accounted for under the cost method and is included in other assets. In
addition, McKesson placed a $4,000,000 deposit in escrow toward the purchase of
an additional 1,000,000 convertible preferred shares. On July 12, 1994,
McKesson used the $4,000,000 deposit to acquire the additional convertible
preferred shares, increasing the Company's ownership interest in IMS to
approximately 24%.
The impact on fiscal 1994 and 1993 revenues and net income, had the
acquisitions occurred at the beginning of fiscal 1993, is not material.
3. Taxes on Income
The Company is included in McKesson's consolidated federal income tax return.
The Company's tax provision has been computed as if the Company filed separate
income tax returns. The provision for income taxes is made up of the following
components:
13
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal.................................... $ 12,787 $ 11,099 $ 9,403
State...................................... 3,503 2,868 2,406
Foreign.................................... 47 20 (11)
-------- -------- --------
Total current............................ 16,337 13,987 11,798
======== ======== ========
Deferred
Federal.................................... 2,294 (616) 113
State...................................... 621 7 (66)
-------- -------- --------
Total deferred........................... 2,915 (609) 47
-------- -------- --------
Total.................................. $ 19,252 $ 13,378 $ 11,845
======== ======== ========
</TABLE>
Deferred income taxes arise from temporary differences between the tax basis
of assets and liabilities and their reported amounts in the financial
statements. The Company's effective tax rate differs from the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate................. 35.0% 34.0% 34.0%
State income taxes................................ 6.0 6.0 5.5
Goodwill amortization and other................... 1.9 1.8 2.6
------ ------ ------
Effective tax rate............................ 42.9% 41.8% 42.1%
====== ====== ======
</TABLE>
The deferred tax balances consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current Assets:
Nondeductible accrual for:
Allowances................................ $ 608 $1,084 $ 618
Accrued vacation pay...................... 560 443 311
Other....................................... 451 317 (200)
------- ------- -------
Total................................... $ 1,619 $ 1,844 $ 729
======= ======= =======
Noncurrent Liabilities:
Nondeductible accrual for:
Deferred compensation..................... $ (424) $ (265) $ (58)
Postretirement plan....................... (366) (358) (360)
Accelerated depreciation.................... 4,949 4,719 4,086
Capitalized software........................ 2,149 956 387
Deferred costs of new programs.............. 1,174 (358) --
CPI net operating loss carryforward......... (3,442) -- --
Reserve--CPI net operating loss
carryforward............................... 3,442 -- --
Other....................................... (57) 41 174
------- ------- -------
Total................................... $ 7,425 $ 4,735 $ 4,229
======= ======= =======
</TABLE>
As the benefit of CPI's net operating loss is realized in future periods, a
corresponding reduction in goodwill will be recorded.
14
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. Property
Property is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land........................................ $ 25,744 $ 25,744 $ 25,744
Buildings and improvements.................. 29,069 27,204 26,791
Equipment................................... 64,934 51,181 42,580
Furniture and fixtures...................... 10,108 8,220 7,262
-------- -------- --------
Total..................................... 129,855 112,349 102,377
Accumulated depreciation.................... (44,507) (42,463) (37,289)
-------- -------- --------
Property--net............................. $ 85,348 $ 69,886 $ 65,088
======== ======== ========
</TABLE>
Depreciation expense was $11,020,000, $8,138,000 and $9,059,000 in fiscal
1994, 1993 and 1992, respectively.
5. Due to McKesson
The Company participated in McKesson's cash management program whereby the
Company's cash receipts were transferred daily to a McKesson bank account and
the Company's cash disbursements were funded by McKesson. The Company was
charged interest expense on funds advanced by McKesson and received interest
income on funds provided to McKesson, at McKesson's short-term borrowing rates.
At March 31, 1994, McKesson converted the excess of disbursements funded by
McKesson over cash receipts to a short-term credit line which is due on demand
and bears interest at McKesson's short-term borrowing rates. During the three
year period ended March 31, 1994, the amounts by which the Company's
disbursements that McKesson funded, net of the Company's cash receipts,
averaged $0 on a daily basis.
6. Employee Benefit Plans
The Company's employees are eligible to participate in a profit-sharing plan.
The Company's contributions to the plan were $949,000, $625,000 and $548,000 in
fiscal 1994, 1993 and 1992, respectively. The Company's employees are also
eligible to participate in McKesson's health, retirement and certain other
employee benefit plans. The expense of these benefit plans was approximately
$5,720,000, $4,663,000 and $3,946,000 ($4,925,000, $3,995,000 and $3,442,000
for the health plan benefit) in fiscal 1994, 1993 and 1992, respectively.
7. Lease Commitments
The Company leases facilities and equipment under operating leases that
expire on various dates through September 2000. Rent expense was $4,051,000,
$2,127,000 and $1,912,000 in fiscal 1994, 1993 and 1992, respectively. As of
March 31, 1994, future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31
--------------------
(IN THOUSANDS)
<S> <C>
1995............................................... $ 1,136
1996............................................... 1,135
1997............................................... 925
1998............................................... 723
1999 and thereafter................................ 1,331
-------
Total............................................ $ 5,250
=======
</TABLE>
15
<PAGE>
PCS GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. CONTINGENCIES
Subsequent to year end, the Company entered into capitation contracts with
certain customers in the ordinary course of business. These contracts provide
that the Company assume varying percentages of the risk associated with claims
experience differing from fixed fee arrangements under managed care programs.
During the three months ended June 30, 1994, the Company recorded loss
provisions totalling $3,700,000 related to these contracts.
The Company is subject to various claims, including claims related to certain
sales/use tax matters, and possible legal actions brought by plan sponsors for
alleged errors or omissions arising out of the ordinary course of business. The
Company has in place insurance to cover certain claims subject to a $1,000,000
deductible. Management believes that it has adequate reserves against potential
losses and that the outcome of such claims will not have a material adverse
effect on the Company's combined financial position or results of operations.
9. SUPPLEMENTAL CASH FLOW DISCLOSURES
Income taxes totalling $16,806,000, $15,140,000 and $14,792,000 were paid,
primarily to McKesson in fiscal 1994, 1993 and 1992, respectively. Interest
totalling $18,000, $81,000 and $2,433,000 was paid in fiscal 1994, 1993 and
1992, respectively.
10. SIGNIFICANT CUSTOMER
During 1994 one customer accounted for 17% of the Company's revenues.
11. EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITORS'
REPORT
On November 21, 1994, a subsidiary of Lilly acquired through a tender offer
approximately 95% of McKesson after the distribution by McKesson of the common
stock of a new corporation that held all of McKesson's businesses other than
the PCS Group. The new created corporation ("New McKesson") assumed various
liabilities of McKesson not related to the businesses of the PCS Group,
including McKesson's obligations, aggregating approximately $239 million in
principal amount as of October 31, 1994, under its 4 1/2% Exchangeable
Subordinated Debentures due 2004, its 8 5/8% Notes due February 1, 1998 and its
8 3/4% Series B Medium Term Notes due February 4, 1997 (collectively, the
"Public Indebtedness"). New McKesson has indemnified McKesson with respect to
liabilities under the Public Indebtedness and agreed to seek consents from the
holders of the Public Indebtedness to the release of McKesson from its
obligations thereunder. Pending receipt of such releases, McKesson remains a
co-obligor with New McKesson with respect to the Public Indebtedness.
16
<PAGE>
<TABLE>
<CAPTION>
Exhibits
<C> <S>
2.1 Agreement and Plan of Merger, dated July 10, 1994 (the "Merger
Agreement"), among the Company, Lilly and ECO, filed as Exhibit 3 to
the Company's Schedule 14D-9 dated July 15, 1994 (incorporated herein
by reference).
2.2 Amendment, dated as of August 8, 1994, by and among the Company,
Lilly and ECO, which amends the Merger Agreement, filed as Exhibit 15
to Amendment No. 2 to the Company's Schedule 14D-9 dated August 9,
1994 (incorporated herein by reference).
2.3 Restructuring and Distribution Agreement, dated as of July 10, 1994
(the "Distribution Agreement"), by and among the Company, McKesson
Corporation, a Maryland Corporation ("Maryland"), Clinical
Pharmaceuticals, Inc. ("CPI"), PCS Health Systems, Inc. ("PCS") and
SP Ventures, Inc. ("Newco"), filed as Exhibit 4 to the Company's
Schedule 14D-9 dated July 15, 1994 (incorporated herein by
reference).
2.4 Amendment, dated as of October 10, 1994, by and among the Company,
Maryland, CPI, PCS and Newco, which amends the Distribution
Agreement, filed as Exhibit 21 to Amendment No. 4 to the Company's
Schedule 14D-9 dated October 11, 1994 (incorporated herein by
reference).
2.5 Second Amendment, dated as of November 3, 1994, by and among the
Company, Maryland, CPI, PCS and Newco, which amends the Distribution
Agreement, filed as Exhibit 24 to Amendment No. 6 to the Company's
Schedule 14D-9 dated November 7, 1994 (incorporated herein by
reference).
2.6 Closing Statement, dated November 21, 1994, among Lilly, ECO, the
Company, Maryland, CPI, PCS and Newco, filed as Exhibit 28 to
Amendment No. 9 to the Company's Schedule 14D-9 dated November 22,
1994 (incorporated herein by reference).
99.1 Form of agency agreement, dated October 21, 1994, between Lilly and
Morgan Stanley & Co. Incorporated.
99.2 Form of agency agreement, dated October 21, 1994, between Lilly and
Goldman Sachs Money Markets, L.P.
99.3 Form of agency agreement, dated October 21, 1994, between Lilly and
Lehman Brothers Inc.
</TABLE>
17
<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 hereunto duly authorized.
PCS HOLDING CORPORATION
(REGISTRANT)
/s/ Mitchell E. Daniels, Jr.
By: _________________________________
Mitchell E. Daniels, Jr.
Chairman and President
Dated: December 6, 1994
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, dated July 10, 1994, among the Company,
Lilly and ECO, filed as Exhibit 3 to the Company's Schedule 14D-9 dated
July 15, 1994 (incorporated herein by reference).
2.2 Amendment, dated as of August 8, 1994, by and among the Company, Lilly
and ECO, which amends the Merger Agreement, filed as Exhibit 15 to
Amendment No. 2 to the Company's Schedule 14D-9 dated August 9, 1994
(incorporated herein by reference).
2.3 Restructuring and Distribution Agreement, dated as of July 10, 1994 (the
"Distribution Agreement"), by and among the Company, McKesson
Corporation, a Maryland Corporation ("Maryland"), Clinical
Pharmaceuticals, Inc. ("CPI"), PCS Health Systems, Inc. ("PCS") and SP
Ventures, Inc. ("Newco"), filed as Exhibit 4 to the Company's Schedule
14D-9 dated July 15, 1994 (incorporated herein by reference).
2.4 Amendment, dated as of October 10, 1994, by and among the Company,
Maryland, CPI, PCS and Newco, which amends the Distribution Agreement,
filed as Exhibit 21 to Amendment No. 4 to the Company's Schedule 14D-9
dated October 11, 1994 (incorporated herein by reference).
2.5 Second Amendment, dated as of November 3, 1994, by and among the Company,
Maryland, CPI, PCS and Newco, which amends the Distribution Agreement,
filed as Exhibit 24 to Amendment No. 6 to the Company's Schedule 14D-9
dated November 7, 1994 (incorporated herein by reference).
2.6 Closing statement, dated November 21, 1994, among Lilly, ECO, the
Company, Maryland, CPI, PCS and Newco, filed as Exhibit 28 to Amendment
No. 9 to the Company's Schedule 14D-9 dated November 22, 1994
(incorporated herein by reference).
99.1 Form of agency agreement, dated October 21, 1994, between Lilly and
Morgan Stanley & Co. Incorporated.
99.2 Form of agency agreement, dated October 21, 1994, between Lilly and
Goldman Sachs Money Markets, L.P.
99.3 Form of agency agreement, dated October 21, 1994, between Lilly and
Lehman Brothers Inc.
<PAGE>
EXHIBIT 99.1
October 21, 1994
Morgan Stanley & Co. Incorporated
1221 Avenue of the Americas
New York, New York 10020
Dear Sirs:
Eli Lilly and Company, an Indiana corporation (the "Company"), hereby
appoints you as its agent for the purpose of soliciting offers to purchase from
the Company from time to time its commercial paper notes, maturing not later
than nine months from date of issue (the "CP Notes") in an aggregate principal
amount outstanding not to exceed the amount authorized from time to time by the
Board of Directors of the Company. The CP Notes will be issued under an Issuing
and Paying Agency Agreement dated as of October 21, 1994 (the "Paying Agency
Agreement"), between the Company and Citibank, N.A., as Issuing and Paying
Agent (the "Paying Agent"), and will be issued in denominations of $250,000 and
integral multiples of $1,000 in excess thereof. The Company may sell CP Notes
directly to you as principal for resale to others. The Company understands that
this letter does not constitute a commitment or obligation, expressed or
implied, on the part of you to purchase any CP Notes from the Company.
Section 1. Issuance and Purchase of the CP Notes. If you and the Company
shall agree upon the sale of any CP Notes to or through you (including, but not
limited to, agreement with respect to the price, principal amount, maturity and
interest or discount rate thereof), (i) instructions to the Paying Agent to
complete, authenticate and deliver the CP Notes shall be given in the manner
described in the Paying Agency Agreement and (ii) the authentication and
delivery to you of such CP Notes by the Paying Agent shall constitute the
issuance of such CP Notes by the Company.
Section 2. Offering of the CP Notes; Restrictions on Transfer. (a) You agree
with the Company that (i) you will deliver a Private Placement Memorandum (as
hereinafter defined) to each prospective investor in the CP Notes prior to the
initial offer to purchase a CP Note or CP Notes by such investor, (ii) you will
not solicit offers for, or offer or sell, CP Notes by any form of general
solicitation or general advertising or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), and Rule 506 thereunder, and (iii) you will
solicit offers for CP Notes only from, and will offer CP Notes only to, (x)
institutional investors that you reasonably believe are "accredited investors"
within the meaning of Rule 501(a) under the Securities Act or (y) qualified
institutional buyers as defined in Rule 144A under the Securities Act ("QIBs")
and who, in purchasing CP Notes, may be deemed to have represented and agreed
as provided in paragraphs (1) through (4) of Section 2(b).
(b) Each Private Placement Memorandum shall contain paragraphs in
substantially the following form:
"Each purchaser of a CP Note will be deemed to have represented and agreed as
follows:
(1) It is a sophisticated institutional investor that is an "accredited
investor", as defined in Regulation D under the Securities Act or a QIB; it
is purchasing the CP Note for its own account or an account with respect to
which it exercises sole investment discretion; if it is acting for another,
it confirms that such investor is an institutional "accredited investor" or
a QIB; and it is not acquiring the CP Note with a view to, or for sale in
connection with, any distribution thereof;
(2) It understands that the CP Note is being offered only in a
transaction not involving any public offering within the meaning of the
Securities Act, that the purchaser must be prepared to hold the CP Note
until maturity, and that, if in the future it decides to resell, pledge or
otherwise transfer the CP Note, the CP Note will be resold, pledged or
transferred only (i) to you or the Company, (ii) through you to an
institutional investor approved by you as an accredited investor or a QIB,
(iii) to a QIB in a
<PAGE>
transaction made under Rule 144A, or (iv) in a transaction previously
approved by the Company and you as exempt from registration under the
Securities Act.
(3) It understands that the CP Note will bear a legend to the following
effect:
THE NOTES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, (THE "ACT"), AND INITIAL SALES OF THE NOTES
MAY BE MADE ONLY TO INSTITUTIONAL "ACCREDITED INVESTORS" AS DEFINED IN
RULE 501(A) UNDER THE ACT OR QUALIFIED INSTITUTIONAL BUYERS AS DEFINED
IN RULE 144A UNDER THE ACT ("QIB"). BY ITS ACCEPTANCE OF A NOTE, THE
PURCHASER (A) REPRESENTS THAT IT IS (I) AN INSTITUTIONAL ACCREDITED
INVESTOR OR A FIDUCIARY OR AGENT (OTHER THAN A U.S. BANK OR SAVINGS AND
LOAN ASSOCIATION) THAT IS ACTING ON BEHALF OF AN INSTITUTIONAL
ACCREDITED INVESTOR AND THAT THE NOTE IS BEING ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION, OR (II) A QIB ACTING ON BEHALF OF
ITSELF OR ANOTHER QIB (AND, IF IT IS A QIB, ACKNOWLEDGES THAT IT IS
AWARE THAT THE SELLER MAY RELY ON AN EXEMPTION FROM THE PROVISIONS OF
SECTION 5 OF THE ACT PURSUANT TO RULE 144A) AND (B) AGREES THAT ANY
RESALE OF THE NOTE WILL BE MADE ONLY IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE ACT AND ONLY (I) TO MORGAN STANLEY & CO.
INCORPORATED ("MORGAN STANLEY"), GOLDMAN SACHS MONEY MARKETS, L.P.
("GSMM LP"), LEHMAN BROTHERS INC. ("LEHMAN BROTHERS") OR TO ELI LILLY
AND COMPANY (THE "COMPANY"), OR THROUGH MORGAN STANLEY, GSMM LP, OR
LEHMAN BROTHERS TO AN INSTITUTIONAL ACCREDITED INVESTOR OR A QIB, (II)
TO A QIB IN A TRANSACTION MADE UNDER RULE 144A, OR (III) IN A
TRANSACTION PREVIOUSLY APPROVED BY THE COMPANY AS EXEMPT FROM
REGISTRATION UNDER THE ACT.
(4) It has received the Private Placement Memorandum and has had full
opportunity to request from the Company and to review, and has received,
all additional information necessary to verify the accuracy of the
information therein that the Company could provide without unreasonable
effort or expense."
Section 3. Representations and Warranties. The Company represents and
warrants to you as of the date hereof, as of each date on which you solicit
offers to purchase CP Notes, as of each date on which the Company accepts an
offer to purchase CP Notes (including any purchase by you as principal), as of
each date the Company issues and sells CP Notes and as of each date the Private
Placement Memorandum (as hereinafter defined) is amended or supplemented, as
follows (it being understood that such representations and warranties shall be
deemed to relate to the Private Placement Memorandum as amended and
supplemented to each such date):
(a) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation and has full power and authority to execute, deliver and perform
this Agreement, the CP Notes and the Paying Agency Agreement.
(b) The CP Notes have been duly authorized and, when executed and
authenticated in accordance with the Paying Agency Agreement and delivered to
and paid for by the purchasers thereof, will be entitled to the benefits of the
Paying Agency Agreement and will be valid and binding obligations of the
Company, enforceable in accordance with their respective terms except that (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles
of general applicability.
(c) This Agreement has been duly authorized, executed and delivered by the
Company.
2
<PAGE>
(d) The Paying Agency Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the Company,
enforceable in accordance with its terms except that (i) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (ii) rights of acceleration and the
availability of equitable remedies may be limited by equitable principles of
general applicability.
(e) The execution and delivery by the Company of, and the performance by the
Company of its obligations under, this Agreement, the CP Notes and the Paying
Agency Agreement will not contravene any provision of applicable law or the
articles of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is material
to the Company and its subsidiaries, taken as a whole, or any judgment, order
or decree of any governmental body, agency or court having jurisdiction over
the Company or any subsidiary, and no consent, approval, authorization or order
of or qualification with any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, the CP
Notes and the Paying Agency Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the CP Notes.
(f) The issuance and sale of the CP Notes under the circumstances
contemplated hereby and by the Paying Agency Agreement do not require
registration of the CP Notes under the Securities Act, pursuant to the
exemption from registration contained in Section 4(2) thereof and do not
require compliance with any provision of the Trust Indenture Act of 1939, as
amended.
(g) The Company is not an "investment company" or an entity "controlled" by
an "investment company" as such terms are defined in the Investment Company Act
of 1940, as amended.
(h) There has not been any material adverse change in the financial
condition, business or operations of the Company and its subsidiaries, taken as
a whole, from that set forth in the Private Placement Memorandum.
(i) The CP Notes satisfy the requirements set forth in Rule 144A(d)(3) under
the Securities Act.
Section 4. Agreements. The Company agrees with you that:
(a) The Company will promptly deliver to you copies of all (i) filings by the
Company with the Securities and Exchange Commission pursuant to Section 13(a)
of the Securities Exchange Act of 1934, as amended, and (ii) all information
generally supplied by the Company to its shareholders.
(b) The Company will provide to you as soon as practicable a Private
Placement Memorandum containing business and financial information concerning
the Company and a description of the CP Notes which (with any amendments and
supplements provided by the Company) may be used by you in connection with the
sale of the CP Notes until the Company provides you with an updated or revised
memorandum (such Private Placement Memorandum, together with any amendments or
supplements thereto, including information incorporated therein by reference,
if any, is herein referred to as the "Private Placement Memorandum").
(c) If, at any time when you are offering CP Notes or any CP Notes are
outstanding, any event occurs or condition exists as a result of which the
Private Placement Memorandum as then amended or supplemented would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
when such Private Placement Memorandum is delivered to a purchaser, not
misleading, or if, in your opinion or the opinion of the Company, it is
necessary at any time to amend or supplement the Private Placement Memorandum
as then amended or supplemented to comply with applicable law, the Company will
immediately notify you and will prepare and furnish to you a revision or
supplement to the Private Placement Memorandum reasonably satisfactory in all
respects to you, that will correct such statement or omission or effect such
compliance.
3
<PAGE>
(d) The Company will, whether or not any sale of CP Notes is consummated, pay
all reasonable expenses incurred by you incident to the performance of its
obligations under this Agreement, the CP Notes and the Paying Agency Agreement,
including, without limitation, fees and expenses of your counsel.
(e) The Company will notify you promptly in writing of any downgrading, or of
its receipt of any notice of any intended or potential downgrading or of any
review for a possible change, that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act.
(f) The Company agrees promptly from time to time to take such action as you
may reasonably request to qualify the CP Notes for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you may reasonably request
and to maintain such qualifications for as long as you shall reasonably
request. The Company also agrees to reimburse you for any reasonable fees or
costs (including fees and disbursements of counsel) incurred in so qualifying
the CP Notes.
(g) The Company is currently issuing commercial paper which is offered and
sold in the commercial paper market in reliance upon, and in compliance with
the requirements of, the exemption provided by Section 3(a)(3) of the
Securities Act and the Company expects to continue to do so. In connection with
the foregoing, the Company agrees that (i) the proceeds from the sale of the CP
Notes will be deposited and kept in a different depositary bank account from
that which is used for the deposit of the proceeds from the sale of such
commercial paper and (ii) appropriate corporate controls will be instituted and
maintained to ensure that the proceeds from the sale of CP Notes will be used
for purposes which do not meet the "current transactions" requirements of
Section 3(a)(3) of the Act and the proceeds from the sale of such commercial
paper will be used for purposes which meet such requirements.
(h) The Company will not sell or offer for sale any security (as defined in
the Securities Act) which could be integrated with the CP Notes so as to
require the registration under the Securities Act of such CP Notes. The Company
represents and you agree that its sale of commercial paper under Section
3(a)(3) of the Securities Act under the terms described in Section 4(g) does
not constitute a sale of a security that could be integrated with the CP Notes
as described herein.
(j) The Company shall not solicit any offer to buy or offer to sell CP Notes
by means of any form of general solicitation or general advertising, within the
meaning of Rule 502(c) under the Securities Act or otherwise, including: (x)
any advertisement, article, notice or other communication published in a
magazine or similar medium or broadcast over television or radio; and (y) any
seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(k) The Company also agrees that, as long as the CP Notes are being offered
for sale by you as contemplated hereby and until six months after the offer of
CP Notes hereunder has been terminated, neither the Company nor any person
other than you, Goldman Sachs Money Markets, L.P. ("GSMM LP") or Lehman
Brothers Inc. ("Lehman Brothers") will offer the CP Notes or, except as set
forth in paragraph 4(g) above, any substantially similar security of the
Company for sale to, or solicit offers to buy thereof from, any other person
other than you, GSMM LP or Lehman Brothers except with the prior written
consent of you, GSMM LP or Lehman Brothers, it being understood that this
agreement is made with a view to bringing the offer and sale of the CP Notes
within the exemption provided in Section 4(2) of the Securities Act and Rule
506 thereunder. The Company also confirms that it has entered into dealer
agreements with GSMM LP and Lehman Brothers which contain provisions relating
to the qualification of prospective investors and manner of offering the CP
Notes which are substantially identical to the corresponding provisions in this
agreement. The Company agrees that such provisions in its dealer agreements
with GSMM LP and Lehman Brothers shall not be amended in any material respect
without your prior written consent.
4
<PAGE>
(l) In the event that the Company determines to use the proceeds for the
purpose of buying, carrying or trading securities including, but not limited
to, buying, carrying or trading securities in connection with an acquisition of
equity securities of another company, the Company shall give you at least 5
days prior written notice to that effect. The Company shall also give you
prompt notice of the actual date that it commences to purchase such securities
with the proceeds of commercial paper. Thereafter, in the event that you
purchase CP Notes as principal and do not resell such CP Notes on the day of
such purchase, you will sell such CP Notes only to persons you reasonably
believe to be QIBs or to QIBs you reasonably believe are acting for other QIBs,
in each case pursuant to Rule 144A.
(m) The Company will furnish to you such additional information as you may
reasonably request.
(n) At any time when the Company is not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Company shall make available,
upon request, to any holder, beneficial owner or prospective purchaser of any
CP Notes the information required to be delivered to such persons pursuant to
Rule 144A(d)(4) under the Securities Act and will furnish to you, upon request,
copies of such information.
Section 5. Indemnity and Contribution. The Company agrees to (a) indemnify
and hold harmless you and each person, if any, who controls you within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended, from and against any and all
losses, claims, damages or liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in the Private Placement
Memorandum (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein not misleading, and (b) to reimburse you for all reasonable expenses
(including counsel fees) as they are incurred by you in connection with
investigating or defending any such loss, claim, damage or liability. The
Company's indemnification of you shall not apply insofar as such losses,
claims, damages or liabilities are caused by any untrue statement or omission
or alleged untrue statement or omission based upon information relating to you
furnished to the Company in writing by you expressly for use therein. The
Company shall not, without your prior written consent, effect any settlement of
any pending or threatened proceeding in respect of which you are or could have
been a party and indemnity could have been sought hereunder by you, unless such
settlement includes an unconditional release of you from all liability on
claims that are the subject matter of such proceeding. If the indemnification
provided for in this Section 5 is unavailable or insufficient in respect of any
losses, claims, damages or liabilities referred to herein, then you, on the one
hand, and the Company, on the other hand, shall contribute to the amount paid
or payable by you as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the relative benefits received by
you, on the one hand, and the Company, on the other hand, or, if such
allocation is not permitted by applicable law, to reflect not only the relative
benefits referred to above but also the relative fault of each of the parties
and any other relevant equitable considerations. For the purposes of this
Section 5, the "relative benefits" received by the Company shall be equal to
the aggregate proceeds received by the Company from the CP Notes sold pursuant
to this Agreement and the "relative benefits" received by you shall be equal to
the aggregate commissions received by you therefrom.
Section 6. Payment and Delivery. (a) Payment for CP Notes sold to or through
you pursuant to this Agreement shall be made by you in immediately available
funds payable to the Paying Agent for the account of the Company in such manner
and at such time as provided in the Paying Agency Agreement, at the offices of
the Paying Agent. Delivery of CP Notes sold to or through you hereunder shall
be made by the Paying Agent to you (in definitive form payable to the bearer
and in such denominations as may be requested by you) by 2:15 p.m. New York
time on the date agreed upon for delivery (the "Settlement Date").
(b) In the event the Company shall direct the Paying Agent to cease issuing
CP Notes, the Paying Agent shall be instructed by the Company to issue such CP
Notes as you shall certify were sold within sixty (60) minutes after your
receipt of written notice of such cessation. You agree upon receipt of any such
cessation
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notice to use your reasonable efforts to immediately cease effecting
transactions in CP Notes; provided, however, that this provision shall have no
effect with respect to CP Notes purchased by you as principal from the Company.
Section 7. Conditions Precedent to Effectiveness of Dealer Agreement. The
following documents shall have been provided to you at or promptly following
the execution of this Agreement:
(i) An executed copy of the Paying Agency Agreement.
(ii) A certified copy of resolutions of the Board of Directors of the Company
authorizing (i) the issuance of the CP Notes and (ii) the execution and
delivery of this Agreement and the Paying Agency Agreement.
(iii) An opinion of counsel to the Company substantially in the form of
Exhibit A hereto.
(iv) All other documents reasonably requested by you.
Section 8. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to Morgan Stanley, will be mailed,
delivered or telecopied and confirmed to Morgan Stanley at 1221 Avenue of the
Americas, New York, New York 10020, Attention: Manager, Continuously Offered
Products (telecopy number: (212) 764-7490), with a copy to 1251 Avenue of the
Americas, New York, New York 10020, Attention: Manager, Credit Department,
(telecopy number: (212) 703-4575), or, if sent to the Company, will be mailed,
delivered, or telecopied and confirmed to the Company at Lilly Corporate
Center, Indianapolis, Indiana 46285, Attention: Assistant Treasurer, (telecopy
number: (317) 277-3275), or to either of the foregoing parties, or their
successors, at such other address as such party or successor may designate from
time to time by notice duly given in accordance with the terms of this Section
8 to the other party hereto.
Section 9. Amendments; Successors. (a) This Agreement may be amended or
supplemented if, but only if, such amendment or supplement is in writing and is
signed by the Company and you. This Agreement is not assignable by either party
hereto without the written consent of the other party.
(b) This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors and the controlling persons
referred to in Section 5 and the purchasers of CP Notes (to the extent
expressly provided in Section 7), and no other person will have any right or
obligation hereunder.
(c) The Company will give you notice of any proposed cancellation, amendment,
supplement, waiver or consent to or under the Paying Agency Agreement at least
seven (7) days prior to the effective date thereof.
Section 10. Termination. This Agreement may be terminated at any time by
either party hereto upon the giving of written notice of such termination to
the other party hereto, but without prejudice to any rights, obligations or
liabilities of either party hereto accrued or incurred prior to such
termination. If this Agreement is terminated, the provisions of Sections 3,
4(d), 4(f), 4(g), 4(h) and 5 shall survive and continue in full force and
effect.
Section 11. Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
Section 12. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
Section 13. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
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If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company and you.
Very truly yours,
ELI LILLY AND COMPANY
By __________________________________
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
MORGAN STANLEY & CO. INCORPORATED
By __________________________________
Title:
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EXHIBIT 99.2
October 21, 1994
Goldman Sachs Money Markets, L.P.
85 Broad Street
New York, New York 10004
Dear Sirs:
Eli Lilly and Company, an Indiana corporation (the "Company"), hereby
appoints you as its agent for the purpose of soliciting offers to purchase from
the Company from time to time its commercial paper notes, maturing not later
than nine months from date of issue (the "CP Notes") in an aggregate principal
amount outstanding not to exceed the amount authorized from time to time by the
Board of Directors of the Company. The CP Notes will be issued under an Issuing
and Paying Agency Agreement dated as of October 21, 1994 (the "Paying Agency
Agreement"), between the Company and Citibank, N.A., as Issuing and Paying
Agent (the "Paying Agent"), and will be issued in denominations of $250,000 and
integral multiples of $1,000 in excess thereof. The Company may sell CP Notes
directly to you as principal for resale to others. The Company understands that
this letter does not constitute a commitment or obligation, expressed or
implied, on the part of you to purchase any CP Notes from the Company.
Section 1. Issuance and Purchase of the CP Notes. If you and the Company
shall agree upon the sale of any CP Notes to or through you (including, but not
limited to, agreement with respect to the price, principal amount, maturity and
interest or discount rate thereof), (i) instructions to the Paying Agent to
complete, authenticate and deliver the CP Notes shall be given in the manner
described in the Paying Agency Agreement and (ii) the authentication and
delivery to you of such CP Notes by the Paying Agent shall constitute the
issuance of such CP Notes by the Company.
Section 2. Offering of the CP Notes; Restrictions on Transfer. (a) You agree
with the Company that (i) you will deliver a Private Placement Memorandum (as
hereinafter defined) to each prospective investor in the CP Notes prior to the
initial offer to purchase a CP Note or CP Notes by such investor, (ii) you will
not solicit offers for, or offer or sell, CP Notes by any form of general
solicitation or general advertising or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), and Rule 506 thereunder, and (iii) you will
solicit offers for CP Notes only from, and will offer CP Notes only to, (x)
institutional investors that you reasonably believe are "accredited investors"
within the meaning of Rule 501(a) under the Securities Act or (y) qualified
institutional buyers as defined in Rule 144A under the Securities Act ("QIBs")
and who, in purchasing CP Notes, may be deemed to have represented and agreed
as provided in paragraphs (1) through (4) of Section 2(b).
(b) Each Private Placement Memorandum shall contain paragraphs in
substantially the following form:
"Each purchaser of a CP Note will be deemed to have represented and agreed as
follows:
(1) It is a sophisticated institutional investor that is an "accredited
investor", as defined in Regulation D under the Securities Act or a QIB; it
is purchasing the CP Note for its own account or an account with respect to
which it exercises sole investment discretion; if it is acting for another,
it confirms that such investor is an institutional "accredited investor" or
a QIB; and it is not acquiring the CP Note with a view to, or for sale in
connection with, any distribution thereof;
(2) It understands that the CP Note is being offered only in a
transaction not involving any public offering within the meaning of the
Securities Act, that the purchaser must be prepared to hold the CP Note
until maturity, and that, if in the future it decides to resell, pledge or
otherwise transfer the CP Note, the CP Note will be resold, pledged or
transferred only (i) to you or the Company, (ii) through you to an
institutional investor approved by you as an accredited investor or a QIB,
(iii) to a QIB in a transaction made under Rule 144A, or (iv) in a
transaction previously approved by the Company and you as exempt from
registration under the Securities Act.
<PAGE>
(3) It understands that the CP Note will bear a legend to the following
effect:
THE NOTES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT"), AND INITIAL SALES OF
THE NOTES MAY BE MADE ONLY TO INSTITUTIONAL "ACCREDITED INVESTORS" AS
DEFINED IN RULE 501(A) UNDER THE ACT OR QUALIFIED INSTITUTIONAL
BUYERS AS DEFINED IN RULE 144A UNDER THE ACT ("QIB"). BY ITS
ACCEPTANCE OF A NOTE, THE PURCHASER (A) REPRESENTS THAT IT IS (I) AN
INSTITUTIONAL ACCREDITED INVESTOR OR A FIDUCIARY OR AGENT (OTHER THAN
A U.S. BANK OR SAVINGS AND LOAN ASSOCIATION) THAT IS ACTING ON BEHALF
OF AN INSTITUTIONAL ACCREDITED INVESTOR AND THAT THE NOTE IS BEING
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION, OR (II)
A QIB ACTING ON BEHALF OF ITSELF OR ANOTHER QIB (AND, IF IT IS A QIB,
ACKNOWLEDGES THAT IT IS AWARE THAT THE SELLER MAY RELY ON AN
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE ACT PURSUANT TO
RULE 144A) AND (B) AGREES THAT ANY RESALE OF THE NOTE WILL BE MADE
ONLY IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE ACT AND ONLY
(I) TO GOLDMAN SACHS MONEY MARKETS, L.P. ("GSMM LP"), LEHMAN BROTHERS
INC. ("LEHMAN BROTHERS"), MORGAN STANLEY & CO. INCORPORATED ("MORGAN
STANLEY") OR TO ELI LILLY AND COMPANY (THE "COMPANY"), OR THROUGH
GSMM LP, LEHMAN BROTHERS, OR MORGAN STANLEY TO AN INSTITUTIONAL
ACCREDITED INVESTOR OR A QIB, (II) TO A QIB IN A TRANSACTION MADE
UNDER RULE 144A, OR (III) IN A TRANSACTION PREVIOUSLY APPROVED BY THE
COMPANY AS EXEMPT FROM REGISTRATION UNDER THE ACT.
(4) It has received the Private Placement Memorandum and has had full
opportunity to request from the Company and to review, and has received,
all additional information necessary to verify the accuracy of the
information therein that the Company could provide without unreasonable
effort or expense."
Section 3. Representations and Warranties. The Company represents and
warrants to you as of the date hereof, as of each date on which you solicit
offers to purchase CP Notes, as of each date on which the Company accepts an
offer to purchase CP Notes (including any purchase by you as principal), as of
each date the Company issues and sells CP Notes and as of each date the Private
Placement Memorandum (as hereinafter defined) is amended or supplemented, as
follows (it being understood that such representations and warranties shall be
deemed to relate to the Private Placement Memorandum as amended and
supplemented to each such date):
(a) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation and has full power and authority to execute, deliver and perform
this Agreement, the CP Notes and the Paying Agency Agreement.
(b) The CP Notes have been duly authorized and, when executed and
authenticated in accordance with the Paying Agency Agreement and delivered to
and paid for by the purchasers thereof, will be entitled to the benefits of the
Paying Agency Agreement and will be valid and binding obligations of the
Company, enforceable in accordance with their respective terms except that (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles
of general applicability.
(c) This Agreement has been duly authorized, executed and delivered by the
Company.
(d) The Paying Agency Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the Company,
enforceable in accordance with its terms except that
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<PAGE>
(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(e) The execution and delivery by the Company of, and the performance by the
Company of its obligations under, this Agreement, the CP Notes and the Paying
Agency Agreement will not contravene any provision of applicable law or the
articles of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is material
to the Company and its subsidiaries, taken as a whole, or any judgment, order
or decree of any governmental body, agency or court having jurisdiction over
the Company or any subsidiary, and no consent, approval, authorization or order
of or qualification with any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, the CP
Notes and the Paying Agency Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the CP Notes.
(f) The issuance and sale of the CP Notes under the circumstances
contemplated hereby and by the Paying Agency Agreement do not require
registration of the CP Notes under the Securities Act, pursuant to the
exemption from registration contained in Section 4(2) thereof and do not
require compliance with any provision of the Trust Indenture Act of 1939, as
amended.
(g) The Company is not an "investment company" or an entity "controlled" by
an "investment company" as such terms are defined in the Investment Company Act
of 1940, as amended.
(h) There has not been any material adverse change in the financial
condition, business or operations of the Company and its subsidiaries, taken as
a whole, from that set forth in the Private Placement Memorandum.
(i) The CP Notes satisfy the requirements set forth in Rule 144A(d)(3) under
the Securities Act.
Section 4. Agreements. The Company agrees with you that:
(a) The Company will promptly deliver to you copies of all (i) filings by the
Company with the Securities and Exchange Commission pursuant to Section 13(a)
of the Securities Exchange Act of 1934, as amended, and (ii) all information
generally supplied by the Company to its shareholders.
(b) The Company will provide to you as soon as practicable a Private
Placement Memorandum containing business and financial information concerning
the Company and a description of the CP Notes which (with any amendments and
supplements provided by the Company) may be used by you in connection with the
sale of the CP Notes until the Company provides you with an updated or revised
memorandum (such Private Placement Memorandum, together with any amendments or
supplements thereto, including information incorporated therein by reference,
if any, is herein referred to as the "Private Placement Memorandum").
(c) If, at any time when you are offering CP Notes or any CP Notes are
outstanding, any event occurs or condition exists as a result of which the
Private Placement Memorandum as then amended or supplemented would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
when such Private Placement Memorandum is delivered to a purchaser, not
misleading, or if, in your opinion or the opinion of the Company, it is
necessary at any time to amend or supplement the Private Placement Memorandum
as then amended or supplemented to comply with applicable law, the Company will
immediately notify you and will prepare and furnish to you a revision or
supplement to the Private Placement Memorandum reasonably satisfactory in all
respects to you, that will correct such statement or omission or effect such
compliance.
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<PAGE>
(d) The Company will, whether or not any sale of CP Notes is consummated, pay
all reasonable expenses incurred by you incident to the performance of its
obligations under this Agreement, the CP Notes and the Paying Agency Agreement,
including, without limitation, fees and expenses of your counsel.
(e) The Company will notify you promptly in writing of any downgrading, or of
its receipt of any notice of any intended or potential downgrading or of any
review for a possible change, that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act.
(f) The Company agrees promptly from time to time to take such action as you
may reasonably request to qualify the CP Notes for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you may reasonably request
and to maintain such qualifications for as long as you shall reasonably
request. The Company also agrees to reimburse you for any reasonable fees or
costs (including fees and disbursements of counsel) incurred in so qualifying
the CP Notes.
(g) The Company is currently issuing commercial paper which is offered and
sold in the commercial paper market in reliance upon, and in compliance with
the requirements of, the exemption provided by Section 3(a)(3) of the
Securities Act and the Company expects to continue to do so. In connection with
the foregoing, the Company agrees that (i) the proceeds from the sale of the CP
Notes will be deposited and kept in a different depositary bank account from
that which is used for the deposit of the proceeds from the sale of such
commercial paper and (ii) appropriate corporate controls will be instituted and
maintained to ensure that the proceeds from the sale of CP Notes will be used
for purposes which do not meet the "current transactions" requirements of
Section 3(a)(3) of the Act and the proceeds from the sale of such commercial
paper will be used for purposes which meet such requirements.
(h) The Company will not sell or offer for sale any security (as defined in
the Securities Act) which could be integrated with the CP Notes so as to
require the registration under the Securities Act of such CP Notes. The Company
represents and you agree that its sale of commercial paper under Section
3(a)(3) of the Securities Act under the terms described in Section 4(g) does
not constitute a sale of a security that could be integrated with the CP Notes
as described herein.
(j) The Company shall not solicit any offer to buy or offer to sell CP Notes
by means of any form of general solicitation or general advertising, within the
meaning of Rule 502(c) under the Securities Act or otherwise, including: (x)
any advertisement, article, notice or other communication published in a
magazine or similar medium or broadcast over television or radio; and (y) any
seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(k) The Company also agrees that, as long as the CP Notes are being offered
for sale by you as contemplated hereby and until six months after the offer of
CP Notes hereunder has been terminated, neither the Company nor any person
other than you, Lehman Brothers Inc. ("Lehman Brothers"), or Morgan Stanley &
Co. Inc. ("Morgan Stanley") will offer the CP Notes or, except as set forth in
paragraph 4(g) above, any substantially similar security of the Company for
sale to, or solicit offers to buy thereof from, any other person other than
you, Lehman Brothers or Morgan Stanley except with the prior written consent of
you, Lehman Brothers or Morgan Stanley, it being understood that this agreement
is made with a view to bringing the offer and sale of the CP Notes within the
exemption provided in Section 4(2) of the Securities Act and Rule 506
thereunder. The Company also confirms that it has entered into dealer
agreements with Lehman Brothers and Morgan Stanley which contain provisions
relating to the qualification of prospective investors and manner of offering
the CP Notes which are substantially identical to the corresponding provisions
in this agreement. The Company agrees that such provisions in its dealer
agreements with Lehman Brothers and Morgan Stanley shall not be amended in any
material respect without your prior written consent.
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<PAGE>
(l) In the event that the Company determines to use the proceeds for the
purpose of buying, carrying or trading securities including, but not limited
to, buying, carrying or trading securities in connection with an acquisition of
equity securities of another company, the Company shall give you at least 5
days prior written notice to that effect. The Company shall also give you
prompt notice of the actual date that it commences to purchase such securities
with the proceeds of commercial paper. Thereafter, in the event that you
purchase CP Notes as principal and do not resell such CP Notes on the day of
such purchase, you will sell such CP Notes only to persons you reasonably
believe to be QIBs or to QIBs you reasonably believe are acting for other QIBs,
in each case pursuant to Rule 144A.
(m) The Company will furnish to you such additional information as you may
reasonably request.
(n) At any time when the Company is not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Company shall make available,
upon request, to any holder, beneficial owner or prospective purchaser of any
CP Notes the information required to be delivered to such persons pursuant to
Rule 144A(d)(4) under the Securities Act and will furnish to you, upon request,
copies of such information.
Section 5. Indemnity and Contribution. The Company agrees to (a) indemnify
and hold harmless you and each of the partners, officers, directors, employees
and agents of GSMMLP or its affiliates, and each person who controls GSMMLP or
such affiliate within the meaning of the Act or the Exchange Act (collectively,
the "Imdemnitees") from and against any and all losses, claims, damages or
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in the Private Placement Memorandum (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein not misleading, and (b)
to reimburse each Indemnitee for all reasonable expenses (including counsel
fees) as they are incurred by it in connection with investigating or defending
any such loss, claim, damage or liability. The Company's indemnification of you
shall not apply insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission or alleged untrue statement or
omission based upon information relating to you furnished to the Company in
writing by you expressly for use therein. The Company shall not, without your
prior written consent, effect any settlement of any pending or threatened
proceeding in respect of which you are or could have been a party and indemnity
could have been sought hereunder by you, unless such settlement includes an
unconditional release of you from all liability on claims that are the subject
matter of such proceeding. If the indemnification provided for in this Section
5 is unavailable or insufficient in respect of any losses, claims, damages or
liabilities referred to herein, then you, on the one hand, and the Company, on
the other hand, shall contribute to the amount paid or payable by you as a
result of such losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative benefits received by you, on the one hand,
and the Company, on the other hand, or, if such allocation is not permitted by
applicable law, to reflect not only the relative benefits referred to above but
also the relative fault of each of the parties and any other relevant equitable
considerations. For the purposes of this Section 5, the "relative benefits"
received by the Company shall be equal to the aggregate proceeds received by
the Company from the CP Notes sold pursuant to this Agreement and the "relative
benefits" received by you shall be equal to the aggregate commissions received
by you therefrom.
Section 6. Payment and Delivery. (a) Payment for CP Notes sold to or through
you pursuant to this Agreement shall be made by you in immediately available
funds payable to the Paying Agent for the account of the Company in such manner
and at such time as provided in the Paying Agency Agreement, at the offices of
the Paying Agent. Delivery of CP Notes sold to or through you hereunder shall
be made by the Paying Agent to you (in definitive form payable to the bearer
and in such denominations as may be requested by you) by 2:15 p.m. New York
time on the date agreed upon for delivery (the "Settlement Date").
(b) In the event the Company shall direct the Paying Agent to cease issuing
CP Notes, the Paying Agent shall be instructed by the Company to issue such CP
Notes as you shall certify were sold within sixty (60) minutes after your
receipt of written notice of such cessation. You agree upon receipt of any such
cessation
5
<PAGE>
notice to use your reasonable efforts to immediately cease effecting
transactions in CP Notes; provided, however, that this provision shall have no
effect with respect to CP Notes purchased by you as principal from the Company.
Section 7. Conditions Precedent to Effectiveness of Dealer Agreement. The
following documents shall have been provided to you at or promptly following
the execution of this Agreement:
(i) An executed copy of the Paying Agency Agreement.
(ii) A certified copy of resolutions of the Board of Directors of the
Company authorizing (i) the issuance of the CP Notes and (ii) the execution
and delivery of this Agreement and the Paying Agency Agreement.
(iii) An opinion of counsel to the Company substantially in the form of
Exhibit A hereto.
(iv) All other documents reasonably requested by you.
Section 8. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to GSMM LP, will be mailed, delivered
or telecopied and confirmed to Goldman Sachs Money Markets, L.P. at 85 Broad
Street, New York, New York 10004, Attention: Dessa Bokides, Credit Department,
(telecopy number: (212) 363-7609), with a copy to 85 Broad Street, New York,
New York 10004, Attention: Joe Ziluca, Commercial Paper Trading Desk, (telecopy
number: (212) 902-3022), or, if sent to the Company, will be mailed, delivered,
or telecopied and confirmed to the Company at Lilly Corporate Center,
Indianapolis, Indiana 46285, Attention: Assistant Treasurer, (telecopy
number:(317) 277-3275), or to either of the foregoing parties, or their
successors, at such other address as such party or successor may designate from
time to time by notice duly given in accordance with the terms of this Section
8 to the other party hereto.
Section 9. Amendments; Successors. (a) This Agreement may be amended or
supplemented if, but only if, such amendment or supplement is in writing and is
signed by the Company and you. This Agreement is not assignable by either party
hereto without the written consent of the other party.
(b) This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors and the controlling persons
referred to in Section 5 and the purchasers of CP Notes (to the extent
expressly provided in Section 7), and no other person will have any right or
obligation hereunder.
(c) The Company will give you notice of any proposed cancellation, amendment,
supplement, waiver or consent to or under the Paying Agency Agreement at least
seven (7) days prior to the effective date thereof.
Section 10. Termination. This Agreement may be terminated at any time by
either party hereto upon the giving of written notice of such termination to
the other party hereto, but without prejudice to any rights, obligations or
liabilities of either party hereto accrued or incurred prior to such
termination. If this Agreement is terminated, the provisions of Sections 3,
4(d), 4(f), 4(g), 4(h) and 5 shall survive and continue in full force and
effect.
Section 11. Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
Section 12. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
Section 13. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
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If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company and you.
Very truly yours,
ELI LILLY AND COMPANY
By___________________________________
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
GOLDMAN SACHS MONEY MARKETS, L.P.
a Delaware limited partnership
By: GSMM Corp., as sole partner
By___________________________________
GSMM Corp. Officer
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EXHIBIT 99.3
October 21, 1994
Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285
Dear Sirs:
Eli Lilly and Company, an Indiana corporation (the "Company"), hereby
appoints you as its agent for the purpose of soliciting offers to purchase from
the Company from time to time its commercial paper notes, maturing not later
than nine months from date of issue (the "CP Notes") in an aggregate principal
amount outstanding not to exceed the amount authorized from time to time by the
Board of Directors of the Company. The CP Notes will be issued under an Issuing
and Paying Agency Agreement dated as of October 21, 1994 (the "Paying Agency
Agreement"), between the Company and Citibank, N.A., as Issuing and Paying
Agent (the "Paying Agent"), and will be issued in denominations of $250,000 and
integral multiples of $1,000 in excess thereof. The Company may sell CP Notes
directly to you as principal for resale to others. The Company understands that
this letter does not constitute a commitment or obligation, expressed or
implied, on the part of you to purchase any CP Notes from the Company.
Section 1. Issuance and Purchase of the CP Notes. If you and the Company
shall agree upon the sale of any CP Notes to or through you (including, but not
limited to, agreement with respect to the price, principal amount, maturity and
interest or discount rate thereof), (i) instructions to the Paying Agent to
complete, authenticate and deliver the CP Notes shall be given in the manner
described in the Paying Agency Agreement and (ii) the authentication and
delivery to you of such CP Notes by the Paying Agent shall constitute the
issuance of such CP Notes by the Company.
Section 2. Offering of the CP Notes; Restrictions on Transfer. (a) You agree
with the Company that (i) you will deliver a Private Placement Memorandum (as
hereinafter defined) to each prospective investor in the CP Notes prior to the
initial offer to purchase a CP Note or CP Notes by such investor, (ii) you will
not solicit offers for, or offer or sell, CP Notes by any form of general
solicitation or general advertising or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), and Rule 506 thereunder, and (iii) you will
solicit offers for CP Notes only from, and will offer CP Notes only to, (x)
institutional investors that you reasonably believe are "accredited investors"
within the meaning of Rule 501(a) under the Securities Act or (y) qualified
institutional buyers as defined in Rule 144A under the Securities Act ("QIBs")
and who, in purchasing CP Notes, may be deemed to have represented and agreed
as provided in paragraphs (1) through (4) of Section 2(b).
(b) Each Private Placement Memorandum shall contain paragraphs in
substantially the following form:
"Each purchaser of a CP Note will be deemed to have represented and agreed as
follows:
(1) It is a sophisticated institutional investor that is an "accredited
investor", as defined in Regulation D under the Securities Act or a QIB; it
is purchasing the CP Note for its own account or an account with respect to
which it exercises sole investment discretion; if it is acting for another,
it confirms that such investor is an institutional "accredited investor" or
a QIB; and it is not acquiring the CP Note with a view to, or for sale in
connection with, any distribution thereof;
(2) It understands that the CP Note is being offered only in a
transaction not involving any public offering within the meaning of the
Securities Act, that the purchaser must be prepared to hold the CP Note
until maturity, and that, if in the future it decides to resell, pledge or
otherwise transfer the CP Note, the CP Note will be resold, pledged or
transferred only (i) to you or the Company, (ii) through you to an
institutional investor approved by you as an accredited investor or a QIB,
(iii) to a QIB in a transaction made under Rule 144A, or (iv) in a
transaction previously approved by the Company and you as exempt from
registration under the Securities Act.
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(3) It understands that the CP Note will bear a legend to the following
effect:
THE NOTES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT"), AND INITIAL SALES OF
THE NOTES MAY BE MADE ONLY TO INSTITUTIONAL "ACCREDITED INVESTORS" AS
DEFINED IN RULE 501(A) UNDER THE ACT OR QUALIFIED INSTITUTIONAL
BUYERS AS DEFINED IN RULE 144A UNDER THE ACT ("QIB"). BY ITS
ACCEPTANCE OF A NOTE, THE PURCHASER (A) REPRESENTS THAT IT IS (I) AN
INSTITUTIONAL ACCREDITED INVESTOR OR A FIDUCIARY OR AGENT (OTHER THAN
A U.S. BANK OR SAVINGS AND LOAN ASSOCIATION) THAT IS ACTING ON BEHALF
OF AN INSTITUTIONAL ACCREDITED INVESTOR AND THAT THE NOTE IS BEING
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION, OR (II)
A QIB ACTING ON BEHALF OF ITSELF OR ANOTHER QIB (AND, IF IT IS A QIB,
ACKNOWLEDGES THAT IT IS AWARE THAT THE SELLER MAY RELY ON AN
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE ACT PURSUANT TO
RULE 144A) AND (B) AGREES THAT ANY RESALE OF THE NOTE WILL BE MADE
ONLY IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE ACT AND ONLY
TO (I) LEHMAN BROTHERS INC. ("LEHMAN BROTHERS"), GOLDMAN SACHS MONEY
MARKETS, L.P. ("GSMM LP"), MORGAN STANLEY & CO. INCORPORATED ("MORGAN
STANLEY") OR TO ELI LILLY AND COMPANY (THE "COMPANY"), OR THROUGH
LEHMAN BROTHERS, GSMM LP OR MORGAN STANLEY TO AN INSTITUTIONAL
ACCREDITED INVESTOR OR A QIB, (II) TO A QIB IN A TRANSACTION MADE
UNDER RULE 144A, OR (III) IN A TRANSACTION PREVIOUSLY APPROVED BY THE
COMPANY AS EXEMPT FROM REGISTRATION UNDER THE ACT.
(4) It has received the Private Placement Memorandum and has had full
opportunity to request from the Company and to review, and has received,
all additional information necessary to verify the accuracy of the
information therein that the Company could provide without unreasonable
effort or expense."
Section 3. Representations and Warranties. The Company represents and
warrants to you as of the date hereof, as of each date on which you solicit
offers to purchase CP Notes, as of each date on which the Company accepts an
offer to purchase CP Notes (including any purchase by you as principal), as of
each date the Company issues and sells CP Notes and as of each date the Private
Placement Memorandum (as hereinafter defined) is amended or supplemented, as
follows (it being understood that such representations and warranties shall be
deemed to relate to the Private Placement Memorandum as amended and
supplemented to each such date):
(a) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation and has full power and authority to execute, deliver and perform
this Agreement, the CP Notes and the Paying Agency Agreement.
(b) The CP Notes have been duly authorized and, when executed and
authenticated in accordance with the Paying Agency Agreement and delivered to
and paid for by the purchasers thereof, will be entitled to the benefits of the
Paying Agency Agreement and will be valid and binding obligations of the
Company, enforceable in accordance with their respective terms except that (i)
the enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting creditors' rights generally and (ii) rights of acceleration and
the availability of equitable remedies may be limited by equitable principles
of general applicability.
(c) This Agreement has been duly authorized, executed and delivered by the
Company.
(d) The Paying Agency Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement of the Company,
enforceable in accordance with its terms except that
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(i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (ii) rights of
acceleration and the availability of equitable remedies may be limited by
equitable principles of general applicability.
(e) The execution and delivery by the Company of, and the performance by the
Company of its obligations under, this Agreement, the CP Notes and the Paying
Agency Agreement will not contravene any provision of applicable law or the
articles of incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is material
to the Company and its subsidiaries, taken as a whole, or any judgment, order
or decree of any governmental body, agency or court having jurisdiction over
the Company or any subsidiary, and no consent, approval, authorization or order
of or qualification with any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, the CP
Notes and the Paying Agency Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the CP Notes.
(f) The issuance and sale of the CP Notes under the circumstances
contemplated hereby and by the Paying Agency Agreement do not require
registration of the CP Notes under the Securities Act, pursuant to the
exemption from registration contained in Section 4(2) thereof and do not
require compliance with any provision of the Trust Indenture Act of 1939, as
amended.
(g) The Company is not an "investment company" or an entity "controlled" by
an "investment company" as such terms are defined in the Investment Company Act
of 1940, as amended.
(h) There has not been any material adverse change in the financial
condition, business or operations of the Company and its subsidiaries, taken as
a whole, from that set forth in the Private Placement Memorandum.
(i) The CP Notes satisfy the requirements set forth in Rule 144A(d)(3) under
the Securities Act.
Section 4. Agreements. The Company agrees with you that:
(a) The Company will promptly deliver to you copies of all (i) filings by the
Company with the Securities and Exchange Commission pursuant to Section 13(a)
of the Securities Exchange Act of 1934, as amended, and (ii) all information
generally supplied by the Company to its shareholders.
(b) The Company will provide to you as soon as practicable a Private
Placement Memorandum containing business and financial information concerning
the Company and a description of the CP Notes which (with any amendments and
supplements provided by the Company) may be used by you in connection with the
sale of the CP Notes until the Company provides you with an updated or revised
memorandum (such Private Placement Memorandum, together with any amendments or
supplements thereto, including information incorporated therein by reference,
if any, is herein referred to as the "Private Placement Memorandum").
(c) If, at any time when you are offering CP Notes or any CP Notes are
outstanding, any event occurs or condition exists as a result of which the
Private Placement Memorandum as then amended or supplemented would include an
untrue statement of a material fact, or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
when such Private Placement Memorandum is delivered to a purchaser, not
misleading, or if, in your opinion or the opinion of the Company, it is
necessary at any time to amend or supplement the Private Placement Memorandum
as then amended or supplemented to comply with applicable law, the Company will
immediately notify you and will prepare and furnish to you a revision or
supplement to the Private Placement Memorandum reasonably satisfactory in all
respects to you, that will correct such statement or omission or effect such
compliance.
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(d) The Company will, whether or not any sale of CP Notes is consummated, pay
all reasonable expenses incurred by you incident to the performance of its
obligations under this Agreement, the CP Notes and the Paying Agency Agreement,
including, without limitation, fees and expenses of your counsel.
(e) The Company will notify you promptly in writing of any downgrading, or of
its receipt of any notice of any intended or potential downgrading or of any
review for a possible change, that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act.
(f) The Company agrees promptly from time to time to take such action as you
may reasonably request to qualify the CP Notes for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you may reasonably request
and to maintain such qualifications for as long as you shall reasonably
request. The Company also agrees to reimburse you for any reasonable fees or
costs (including fees and disbursements of counsel) incurred in so qualifying
the CP Notes.
(g) The Company is currently issuing commercial paper which is offered and
sold in the commercial paper market in reliance upon, and in compliance with
the requirements of, the exemption provided by Section 3(a)(3) of the
Securities Act and the Company expects to continue to do so. In connection with
the foregoing, the Company agrees that (i) the proceeds from the sale of the CP
Notes will be deposited and kept in a different depositary bank account from
that which is used for the deposit of the proceeds from the sale of such
commercial paper and (ii) appropriate corporate controls will be instituted and
maintained to ensure that the proceeds from the sale of CP Notes will be used
for purposes which do not meet the "current transactions" requirements of
Section 3(a)(3) of the Act and the proceeds from the sale of such commercial
paper will be used for purposes which meet such requirements.
(h) The Company will not sell or offer for sale any security (as defined in
the Securities Act) which could be integrated with the CP Notes so as to
require the registration under the Securities Act of such CP Notes. The Company
represents and you agree that its sale of commercial paper under Section
3(a)(3) of the Securities Act under the terms described in Section 4(g) does
not constitute a sale of a security that could be integrated with the CP Notes
as described herein.
(j) The Company shall not solicit any offer to buy or offer to sell CP Notes
by means of any form of general solicitation or general advertising, within the
meaning of Rule 502(c) under the Securities Act or otherwise, including: (x)
any advertisement, article, notice or other communication published in a
magazine or similar medium or broadcast over television or radio; and (y) any
seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
(k) The Company also agrees that, as long as the CP Notes are being offered
for sale by you as contemplated hereby and until six months after the offer of
CP Notes hereunder has been terminated, neither the Company nor any person
other than you, Goldman Sachs Money Markets, L.P. ("GSMM LP"), or Morgan
Stanley & Co. Incorporated ("Morgan Stanley") will offer the CP Notes or,
except as set forth in paragraph 4(g) above, any substantially similar security
of the Company for sale to, or solicit offers to buy thereof from, any other
person other than you, GSMM LP or Morgan Stanley except with the prior written
consent of you, GSMM LP or Morgan Stanley, it being understood that this
agreement is made with a view to bringing the offer and sale of the CP Notes
within the exemption provided in Section 4(2) of the Securities Act and Rule
506 thereunder. The Company also confirms that it has entered into dealer
agreements with GSMM LP and Morgan Stanley which contain provisions relating to
the qualification of prospective investors and manner of offering the CP Notes
which are substantially identical to the corresponding provisions in this
agreement. The Company agrees that such provisions in its dealer agreements
with GSMM LP and Morgan Stanley shall not be amended in any material respect
without your prior written consent.
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(l) In the event that the Company determines to use the proceeds for the
purpose of buying, carrying or trading securities including, but not limited
to, buying, carrying or trading securities in connection with an acquisition of
equity securities of another company, the Company shall give you at least 5
days prior written notice to that effect. The Company shall also give you
prompt notice of the actual date that it commences to purchase such securities
with the proceeds of commercial paper. Thereafter, in the event that you
purchase CP Notes as principal and do not resell such CP Notes on the day of
such purchase, you will sell such CP Notes only to persons you reasonably
believe to be QIBs or to QIBs you reasonably believe are acting for other QIBs,
in each case pursuant to Rule 144A.
(m) The Company will furnish to you such additional information as you may
reasonably request.
(n) At any time when the Company is not subject to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the Company shall make available,
upon request, to any holder, beneficial owner or prospective purchaser of any
CP Notes the information required to be delivered to such persons pursuant to
Rule 144A(d)(4) under the Securities Act and will furnish to you, upon request,
copies of such information.
Section 5. Indemnity and Contribution. The Company agrees to (a) indemnify
and hold harmless you and each person, if any, who controls you within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended, from and against any and all
losses, claims, damages or liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in the Private Placement
Memorandum (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein not misleading, and (b) to reimburse you for all reasonable expenses
(including counsel fees) as they are incurred by you in connection with
investigating or defending any such loss, claim, damage or liability. The
Company's indemnification of you shall not apply insofar as such losses,
claims, damages or liabilities are caused by any untrue statement or omission
or alleged untrue statement or omission based upon information relating to you
furnished to the Company in writing by you expressly for use therein. The
Company shall not, without your prior written consent, effect any settlement of
any pending or threatened proceeding in respect of which you are or could have
been a party and indemnity could have been sought hereunder by you, unless such
settlement includes an unconditional release of you from all liability on
claims that are the subject matter of such proceeding. If the indemnification
provided for in this Section 5 is unavailable or insufficient in respect of any
losses, claims, damages or liabilities referred to herein, then you, on the one
hand, and the Company, on the other hand, shall contribute to the amount paid
or payable by you as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the relative benefits received by
you, on the one hand, and the Company, on the other hand, or, if such
allocation is not permitted by applicable law, to reflect not only the relative
benefits referred to above but also the relative fault of each of the parties
and any other relevant equitable considerations. For the purposes of this
Section 5, the "relative benefits" received by the Company shall be equal to
the aggregate proceeds received by the Company from the CP Notes sold pursuant
to this Agreement and the "relative benefits" received by you shall be equal to
the aggregate commissions received by you therefrom.
Section 6. Payment and Delivery. (a) Payment for CP Notes sold to or through
you pursuant to this Agreement shall be made by you in immediately available
funds payable to the Paying Agent for the account of the Company in such manner
and at such time as provided in the Paying Agency Agreement, at the offices of
the Paying Agent. Delivery of CP Notes sold to or through you hereunder shall
be made by the Paying Agent to you (in definitive form payable to the bearer
and in such denominations as may be requested by you) by 2:15 p.m. New York
time on the date agreed upon for delivery (the "Settlement Date").
(b) In the event the Company shall direct the Paying Agent to cease issuing
CP Notes, the Paying Agent shall be instructed by the Company to issue such CP
Notes as you shall certify were sold within sixty (60) minutes after your
receipt of written notice of such cessation. You agree upon receipt of any such
cessation
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notice to use your reasonable efforts to immediately cease effecting
transactions in CP Notes; provided, however, that this provision shall have no
effect with respect to CP Notes purchased by you as principal from the Company.
Section 7. Conditions Precedent to Effectiveness of Dealer Agreement. The
following documents shall have been provided to you at or promptly following
the execution of this Agreement:
(i) An executed copy of the Paying Agency Agreement.
(ii) A certified copy of resolutions of the Board of Directors of the
Company authorizing (i) the issuance of the CP Notes and (ii) the execution
and delivery of this Agreement and the Paying Agency Agreement.
(iii) An opinion of counsel to the Company substantially in the form of
Exhibit A hereto.
(iv) All other documents reasonably requested by you.
Section 8. Notices. All communications hereunder will be in writing and
effective only on receipt, and, if sent to Lehman Brothers, will be mailed,
delivered or telecopied and confirmed to Lehman Brothers Inc., at 3 World
Financial Center, New York, New York 10258 Attention: Product Management,
(telecopy number: (212) 528-6669), or, if sent to the Company, will be mailed,
delivered, or telecopied and confirmed to the Company at Lilly Corporate
Center, Indianapolis, Indiana 46285, Attention: Assistant Treasurer, (telecopy
number: (317) 277-3275), or to either of the foregoing parties, or their
successors, at such other address as such party or successor may designate from
time to time by notice duly given in accordance with the terms of this Section
8 to the other party hereto.
Section 9. Amendments; Successors. (a) This Agreement may be amended or
supplemented if, but only if, such amendment or supplement is in writing and is
signed by the Company and you. This Agreement is not assignable by either party
hereto without the written consent of the other party.
(b) This Agreement will inure to the benefit of and be binding upon the
parties hereto and their respective successors and the controlling persons
referred to in Section 5 and the purchasers of CP Notes (to the extent
expressly provided in Section 7), and no other person will have any right or
obligation hereunder.
(c) The Company will give you notice of any proposed cancellation, amendment,
supplement, waiver or consent to or under the Paying Agency Agreement at least
seven (7) days prior to the effective date thereof.
Section 10. Termination. This Agreement may be terminated at any time by
either party hereto upon the giving of written notice of such termination to
the other party hereto, but without prejudice to any rights, obligations or
liabilities of either party hereto accrued or incurred prior to such
termination. If this Agreement is terminated, the provisions of Sections 3,
4(d), 4(f), 4(g), 4(h) and 5 shall survive and continue in full force and
effect.
Section 11. Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
Section 12. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
Section 13. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
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If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Company and you.
Very truly yours,
ELI LILLY AND COMPANY
By___________________________________
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
LEHMAN BROTHERS INC.
By___________________________________
Title:
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