Fill and Sign the 305 to Amend the Articles of Incorporation to a Increase the Authorized Number of Shares of Form

§3.305 To amend the Articles of Incorporation to (a) increase the authorized number of shares of Common Stock from 400,000,000 to 800,000,000 and (b) eliminate the par value designation of the Common Stock and the related concepts of earned surplus and capital surplus (with a copy of the Amendments)3. PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK AND ELIMINATE PAR VALUE The Board of Directors has recommended amendment of the Articles of Incorporation to increase the authorized common stock from 400,000,000 shares to 800,000,000 shares. In addition, the Board of Directors has recommended amendments to the Articles of Incorporation to eliminate the concept of par value with respect to the Company's shares and to eliminate the related concepts of earned surplus and capital surplus. The presently authorized capital stock of the Company is 400,000,000 shares of common stock having a par value of $.62½ per share and 5,000,000 shares of preferred stock, without par value. On February 20, 1989, the Board of Directors authorized a two-for-one stock split, to be effected in the form of a 100% stock dividend. The stock dividend is payable on April 28, 1989, to owners of record of common stock on March 31, 1989. As a result of that action, the number of authorized but unissued shares of common stock available to the Company for future use will be reduced significantly. Following the stock dividend, approximately 276,000,000 shares of common stock will be issued and outstanding and additional shares of common stock will have been reserved for issuance under the Company's stock plans and in connection with convertible securities issued pursuant to acquisitions. None of the preferred stock is outstanding. The proposed increase in the number of shares of authorized common stock will insure that shares will be available, if needed, for issuance in connection with stock splits, stock dividends, acquisitions, and other corporate purposes. The Board of Directors believes that the availability of the additional shares for such purposes without delay or the necessity for a special shareholders' meeting would be beneficial to the Company. The Company does not have any immediate plans, arrangements, commitments, or understandings with respect to the issuance of any of the additional shares of common stock which would be authorized by the proposed amendments. No further action or authorization by the Company's shareholders would be necessary prior to the issuance of the additional shares of common stock unless required by applicable law or regulatory agencies or by the rules of any stock exchange on which the Company's securities may then be listed. The holders of any of the additional shares of common stock issued in the future would have the same rights and privileges as the holders of the shares of common stock currently authorized and outstanding. Those rights do not include preemptive rights with respect to the future issuance of any such additional shares. The amendments with respect to the elimination of par value will serve to conform the Company's Articles of Incorporation to current Indiana law, clarify situations under which the Company may pay dividends or other distributions to shareholders and permit the Company to declare stock splits in the future without the need for shareholder approval. In 1986 the Company became subject to the newly enacted Indiana Business Corporation Law (the "New Law") which revised and restated substantially all of the Indiana law governing general business corporations. The prior law incorporated the concepts of par value, stated capital, capital surplus and earned surplus and utilized such concepts to determine a corporation's ability to pay dividends, redeem its stock or make other distributions to shareholders. For example, under prior law a corporation could not pay dividends out of stated capital, which represented an amount equal to the aggregate par value of common stock previously issued. The New Law recognized that such concepts were complex and confusing and failed to serve the original purpose of protecting creditors and senior security holders. The New Law eliminated these concepts entirely and substituted a simpler, more flexible, two-step test for judging distributions and redemptions. Under the New Law, a corporation may make a dividend or other distribution to shareholders if afterward the corporation will be able to pay its debts as they become due in the ordinary course, and if the corporation's total assets will be greater than its total liabilities. The proposed amendments conform the Company's Articles of Incorporation to these provisions of the New Law. The Company does not anticipate that the amendments will affect the frequency or amount of dividends paid by the Company. The complete text of the proposed amendments is set forth as Exhibit B to this Proxy Statement. As stated above, the Company has no immediate plans, arrangements, commitments, or understandings with respect to the issuance of any additional shares of common stock which would be authorized by the proposed amendments. However, the increased authorized shares could be used to make a takeover attempt more difficult such as by using the shares to make a counter-offer for the shares of the bidder or by selling shares to dilute the voting power of the bidder. As of this date, the Board is unaware of any specific effort to accumulate the Company's shares or to obtain control of the Company by means of a merger, tender offer, solicitation in opposition to management or otherwise. The Company's Articles of Incorporation, as amended by the shareholders at the 1985 Annual Meeting, contain certain provisions that may be viewed as having possible anti-takeover effects. Under these provisions, the Company's Board of Directors is divided into three classes, with approximately one-third of the members of the Board nominated for election each year. Thus, two Annual Meetings are necessary for a majority shareholder to replace a majority of incumbent directors. In addition, directors may be removed only for cause and only upon the affirmative vote of the holders of 80% of the outstanding voting power of the Company. The Articles further provide that, in certain situations, the affirmative vote of the holders of 80% of the Company's outstanding voting power is required to approve certain business transactions (such as mergers or sales of assets) involving another entity which beneficially owns 5% or more of the voting power of the Company. At the 1985 Annual Meeting, the shareholders further amended the Articles to provide that the Board, when evaluating such transactions, shall, in connection with the exercise of its judgment in determining ,A hat is in the best interests of the Company and its shareholders, give due consideration to all relevant factors, including the social and economic effects on employees, customers, suppliers, and other constituents of the Company and on the communities in which the Company operates or is located. The Company's savings plans permit a participant in the plans to instruct the trustees of the plans as to whether the Company's common stock credited to the participant's account should be tendered in any tender offer for the Company's common stock. On July 18, 1988, the Company adopted a Shareholder Rights Plan. Under the terms of the Plan, all shareholders of common stock received, for each share owned, a preferred stock purchase right entitling them to purchase from the Company one one-hundredth of a share of Series A Participating Preferred Stock at an exercise price of $325. The rights are not exercisable until after the date on which the Company's right to redeem has expired. The Company may redeem the rights for S.01 per right up to and including the tenth business day after the date of a public announcement that a person (the "Acquiring Person") has acquired ownership of stock having 20% or more of the Company's general voting power (the "Stock Acquisition Date"). The Plan provides that if the Company is acquired in a business combination transaction at any time after a Stock Acquisition Date, generally each holder of a right will be entitled to purchase at the exerc ise price a number of the acquiring company's shares having a market value of twice the exercise price. The Plan also provides that in the event of certain other business combinations, certain self-dealing transactions, or the acquisition by a person of stock having 25% or more of the Company's general voting power, generally each holder of a right will be entitled to purchase at the exercise price a number of shares of the Company's common stock having a market value of twice the exercise price. Any rights beneficially owned by an Acquiring Person shall not be entitled to the benefit of the adjustments with respect to the number of shares described above. The rights will expire on July 28, 1998, unless redeemed earlier by the Company.The Company also has 5,000,000 shares of authorized preferred stock which have not been issued. A total of 1,400,000 shares of the preferred stock have been reserved for issuance pursuant to the Shareholder Rights Plan discussed above. The Board (subject to applicable law or rules of regulatory agencies and requirements of stock exchanges) has the power to issue the preferred stock without further shareholder approval with such rights as the Board deems advisable, including conversion rights, redemption rights, and liquidation rights. While the preferred stock may not be given voting rights other than the right to vote in the cases of certain dividend arrearages and certain fundamental changes in the rights of the holders of preferred stock-, the stock could be issued to deter a takeover by establishing the terms of the preferred stock so as to make the take over substantially more expensive. The adoption of the proposal to amend the Articles of Incorporation requires that the votes cast in favor of the proposal exceed the votes cast opposing the proposal. If the proposal is adopted, the increase in the authorized capital stock and the elimination of the par value designation will become effective upon the requisite filing under the Indiana Business Corporation Law. If not otherwise specified. properly executed proxies will be voted in favor of the proposal. The Board of Directors recommends that the shareholders vote FOR approval of these amendments to the Articles of Incorporation. EXHIBIT B PROPOSED AMENDMENTS TO THE ARTICLES OF INCORPORATION Text of Current Article 2(m): (m) To purchase, hold, cancel, reissue, sell, resell and transfer its own bonds, debentures, warrants, rights, scrip or other obligations or securities of any nature howsoever evidenced and to acquire, by purchase or otherwise, shares of its own stock and to hold, own, pledge, transfer or otherwise dispose of the same; provided, that no purchase shall be made, either directly or indirectly, except to the extent of the aggregate of unreserved and unrestricted earned surplus and of unreserved and unrestricted capital surplus. Text of Proposed Article 2(m): (m) To purchase, hold, cancel, reissue, sell, resell and transfer its own bonds, debentures, warrants, rights, scrip or other obligations or securities of any nature howsoever evidenced and to acquire, by purchase or otherwise, shares of its own stock and to hold, own, pledge, transfer or otherwise dispose of the same; provided, that no purchase shall be made, either directly or indirectly, except to the extent permitted by applicable law. Text of Current Article 5: 5. The total number of shares into which its authorized Capital Stock is divided is 405,000,000, of which 400,000,000 are shares of Common Stock having a par value of $.62-1/1, and 5,000,000 are shares of Preferred Stock, having no par value. Text of Proposed Article 5: 5. The total number of shares into which its authorized Capital Stock is divided is 805,000,000, of which 800,000,000 are shares of Common Stock and 5,000,000 are shares of Preferred Stock. The Corporation's shares do not have any par or stated value, except that, solely for the purpose of any statute or regulation imposing any tax or fee based upon the capitalization of the Corporation, each of the Corporation's shares shall be deemed to have a par value of $0.01 per share. Text of Current Article 6: 6. The designation of the different classes of stock of the Corporation, and the number and par value of shares of each class of such stock, are as follows: (a) Common Stock consisting of 400,000,000 shares having a par value of $.62-!/2 per share and an aggregate par value of $250,000,000. (b) Preferred Stock, consisting of 5,000,000 shares having no par value, which may be issued in such series and which shall possess such relative rights, preferences, qualifications, limitations or restrictions as established by resolution of the Board of Directors, which is vested to the fullest extent permitted by law with authority to fix the relative rights, preferences, qualifications, limitations or restrictions for each series of such class of shares established by it, including, without limitation of the generality of the foregoing, the following: (i) The series, if any, of preferred to be issued and manner of its differentiation from other series of Preferred Stock; (ii) The number of shares which shall initially constitute each series; (iii) The rate or rates and the time or times at which dividends and other distributions on the shares of each series shall be paid, the relationship or priority of such dividends to those payable on Common Stock or to other series of Preferred Stock, and whether or not any such dividends shall be cumulative; (iv) The amount payable on the shares of each series in the event of the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, and the relative priorities, if any, to be accorded such payments in liquidation; (v) The terms and conditions upon which either the Corporation may exercise a right to redeem shares of each series or upon which the holder of such shares may exercise a right to require redemption of such shareholder's Preferred Stock, including any premiums or penalties applicable to exercise of such rights; (vi) Whether or not a sinking fund shall be created for the redemption of the shares of a series, and the terms and conditions of any such fund; (vii) Rights, if any, to convert any shares of Preferred Stock either into shares of Common Stock or into other series of Preferred Stock and the prices, premiums or penalties, ratios and other terms applicable to any such conversion; (viii) Restrictions on acquisition, rights of first refusal or other limitations on transfer as may be applicable to any series, including any series intended to be offered to a special class or group, such as corporate employees; and (ix) Any other relative rights, preferences, limitations, qualifications or restrictions on the Preferred Stock or any series of such shares. Text of Proposed Article 6: 6. The designation of the different classes of stock of the Corporation, and the number of shares of each class of such stock, are as follows: (a) Common Stock consisting of 800,000,000 shares.(b) Preferred Stock, consisting of 5,000,000 shares, which may be issued in such series and which shall possess such relative rights, preferences, qualifications, limitations or restrictions as established by resolution of the Board of Directors, which is vested to the fullest extent permitted by law with authority to fix the relative rights, preferences, qualifications, limitations or restrictions for each series of such class of shares established by it, including, without limitation of the generality of the foregoing, the following: (Subparagraphs M through Ux) of Article 6(b) are not affected by the amendments and remain unchanged.) Text of Current Article 12(a)(iii): 12. Provisions for regulation of business and conduct of affairs of the Corporation: (a) In furtherance and not in limitation of the powers conferred upon the Board of Directors by statute, the Board of Directors is expressly authorized, without any vote or other action by shareholders other than such as at the time shall be expressly required by statute or by the provisions of these Articles of Incorporation, as amended, or of the By-Laws, to exercise all of the powers, rights and privileges of the Corporation (whether expressed or implied herein or conferred by statute) and to do all acts and things which may be done by the Corporation, including, without limiting the generality of the foregoing, the right (iii) to authorize the issuance from time to time of all or any shares of the Corporation, now or hereafter authorized, part paid receipts or allotment certificates in respect of any such shares, and any securities convertible into or exchangeable for any such shares (whether such shares, receipts, certificates or securities be unissued or issued and thereafter acquired by the Corporation), in each case to such corporations, associations, partnerships, firms, individuals or others (without offering the same or any part thereof to the holders of any shares of the Corporation of any class now or hereafter authorized), and for such consideration (whether more or less than the par value thereof), and on such terms as the Board of Directors from time to time in its discretion lawfully may determine: Text of Proposed Article 12(a)(iii): 12. Provisions for regulation of business and conduct of affairs of the Corporation: (a) In furtherance and not in limitation of the powers conferred upon the Board of Directors by statute, the Board of Directors is expressly authorized, without any vote or other action by shareholders other than such as at the time shall be expressly required by statute or by the provisions of these Articles of Incorporation, as amended, or of the By-Laws, to exercise all of the powers, rights and privileges of the Corporation (whether expressed or implied herein or conferred by statute) and to do all acts and things which may be done by the Corporation, including, without limiting the generality of the foregoing, the right (iii) to authorize the issuance from time to time of all or any shares of the Corporation, now or hereafter authorized, part paid receipts or allotment certificates in respect to any such shares, and any securities covertible into or exchangable for any such shares (whether such shares, receipts, certificates or securities be unissued or issued and thereafter acquired by the Corporation), in each case to such corporations, associations, partnerships, firms, individuals or others (without offering the same or any part thereof to the holders of any shares of the Corporation of any class n ow or hereafter authorized), and for such consideration and on such terms as the Board of Directors from time to time in its discretion lawfully may determine; Eli Lilly and Company