Pfizer Inc., is a global pharmaceutical company headquartered in New York City, New York, United States. It was founded by Charles Pfizer from Ludwigsburg. Pfizer is the second largest pharmaceutical company in the world after Roche, followed by Novartis.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 4, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from________to_______ COMMISSION FILE NUMBER 1-3619 -- PFIZER INC. (Exact name of registrant as specified in its charter) DELAWARE 13-5315170 (State of incorporation) (I.R.S. Employer Identification No.) 235 East 42nd Street, New York, New York 10017 (Address of principal executive offices) (212) 573-2323 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO At May 17, 1999, 1,294,270,250 shares of the issuer's common stock were outstanding (voting). PFIZER INC. FORM 10-Q For the Quarter Ended April 4, 1999 Table of Contents <TABLE> PART I. FINANCIAL INFORMATION <CAPTION> Item 1. Page <S> <C> Financial Statements: Condensed Consolidated Statement of Income for the three months ended April 4, 1999 and March 29, 1998 3 Condensed Consolidated Balance Sheet at April 4, 1999, December 31, 1998 and March 29, 1998 4 Condensed Consolidated Statement of Cash Flows for the three months ended April 4, 1999 and March 29, 1998 5 Notes to Condensed Consolidated Financial Statements 6 Independent Auditors' Report 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 22 Item 4. Submission of Matters to a Vote of Security Holders 28 Item 6. Exhibits and Reports on Form 8-K 29 </TABLE> PART I. FINANCIAL INFORMATION Item 1. Financial Statements <TABLE> PFIZER INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) <CAPTION> Three Months Ended April 4, March 29, 1999 1998 (millions, except per share data) <S> <C> <C> Net sales. . . . . . . . . . . . . . . . . . . $3,524 $2,886 Alliance revenue . . . . . . . . . . . . . . . 403 150 Total revenues . . . . . . . . . . . . . . . . 3,927 3,036 Costs and expenses: Cost of sales . . . . . . . . . . . . . . . . 546 443 Selling, informational and administrative expenses . . . . . . . . . . 1,570 1,199 Research and development expenses . . . . . . 655 481 Other deductions-net. . . . . . . . . . . . . 7 171 Income from continuing operations before provision for taxes on income and minority interests . . . . . . . . 1,149 742 Provision for taxes on income. . . . . . . . . 333 206 Minority interests . . . . . . . . . . . . . . 1 1 Income from continuing operations. . . . . . . 815 535 Discontinued operations-net of tax . . . . . . -- 157 Net income . . . . . . . . . . . . . . . . . . $ 815 $ 692 Earnings per common share - basic Income from continuing operations. . . . . . $ .65 $ .42 Discontinued operations-net of tax . . . . . -- .13 Net income . . . . . . . . . . . . . . . . . $ .65 $ .55 Earnings per common share - diluted Income from continuing operations. . . . . . $ .62 $ .41 Discontinued operations-net of tax . . . . . -- .12 Net income . . . . . . . . . . . . . . . . . $ .62 $ .53 Weighted average shares used to calculate earnings per common share amounts Basic . . . . . . . . . . . . . . . . . . 1,261 1,262 Diluted . . . . . . . . . . . . . . . . . 1,311 1,315 Cash dividends per common share. . . . . . . . $ .22 $ .19 </TABLE> See accompanying Notes to Condensed Consolidated Financial Statements. <TABLE> PFIZER INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEET <CAPTION> (millions of dollars) April 4, Dec. 31, March 29, 1999* 1998** 1998* ASSETS <S> <C> <C> <C> Current Assets Cash and cash equivalents. . . . . . . . . . $ 1,166 $ 1,552 $ 1,053 Short-term investments . . . . . . . . . . . 3,039 2,377 795 Accounts receivable, less allowance for doubtful accounts: $73, $67 and $39. . . . 3,470 2,914 2,609 Short-term loans . . . . . . . . . . . . . . 325 150 99 Inventories Finished goods . . . . . . . . . . . . . . 618 697 482 Work in process. . . . . . . . . . . . . . 809 890 833 Raw materials and supplies . . . . . . . . 277 241 212 Total inventories. . . . . . . . . . . . 1,704 1,828 1,527 Prepaid expenses, taxes and other assets . . . . . . . . . . . . . 1,045 1,110 680 Net assets of discontinued operations. . . . -- -- 1,236 Total current assets . . . . . . . . . . 10,749 9,931 7,999 Long-term loans and investments. . . . . . . . 1,548 1,756 1,350 Property, plant and equipment, less accumulated depreciation: $2,493, $2,429 and $2,128. . . . . . . . . 4,531 4,415 3,815 Goodwill, less accumulated amortization: $109, $109 and $94 . . . . . . . . . . . . . 788 813 970 Other assets, deferred taxes and deferred charges . . . . . . . . . . . . . . 1,409 1,387 1,488 Total assets . . . . . . . . . . . . . . $19,025 $18,302 $15,622 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term borrowings, including current portion of long-term debt: $3, $4 and $3. . . . . . . . . . . . . . $ 4,296 $ 2,729 2,508 Accounts payable . . . . . . . . . . . . . . 656 971 606 Dividends payable. . . . . . . . . . . . . . -- 285 -- Income taxes payable . . . . . . . . . . . . 1,093 1,162 688 Accrued compensation and related items . . . 430 614 486 Other current liabilities. . . . . . . . . . 1,277 1,431 1,096 Total current liabilities. . . . . . . . 7,752 7,192 5,384 Long-term debt . . . . . . . . . . . . . . . . 525 527 724 Postretirement benefit obligation other than pension plans . . . . . . . . . . . . . 358 359 392 Deferred taxes on income . . . . . . . . . . . 164 197 125 Other noncurrent liabilities . . . . . . . . . 1,181 1,217 808 Total liabilities. . . . . . . . . . . . 9,980 9,492 7,433 Shareholders' Equity Preferred stock. . . . . . . . . . . . . . . -- -- -- Common stock . . . . . . . . . . . . . . . . 71 70 70 Additional paid-in capital . . . . . . . . . 6,331 5,646 4,126 Retained earnings. . . . . . . . . . . . . . 12,254 11,439 9,796 Accumulated other comprehensive expense. . . (370) (234) (172) Employee benefit trusts. . . . . . . . . . . (4,204) (4,200) (3,445) Treasury stock, at cost. . . . . . . . . . . (5,037) (3,911) (2,186) Total shareholders' equity . . . . . . . 9,045 8,810 8,189 Total liabilities and shareholders' equity. . . . . . . . . $19,025 $18,302 $15,622 </TABLE> * Unaudited. ** Condensed from audited financial statements. See accompanying Notes to Condensed Consolidated Financial Statements. <TABLE> PFIZER INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) <CAPTION> (millions of dollars) Three Months Ended April 4, March 29, 1999 1998 <S> <C> <C> Operating Activities Income from continuing operations . . . . . . . . $ 815 $ 535 Adjustments to reconcile income from continuing operations to net cash (used in)/provided by operating activities: Depreciation and amortization . . . . . . . . . 128 118 Other . . . . . . . . . . . . . . . . . . . . . (5) 7 Changes in assets and liabilities . . . . . . . (1,062) (465) Net cash (used in)/provided by operating activities. . . . . . . . . . . . . . . . . . . . (124) 195 Investing Activities Purchases of property, plant and equipment. . . . (352) (190) Purchases net of maturities of short-term investments. . . . . . . . . . . . . . . . . . . (1,910) (669) Proceeds from redemptions of short-term investments . . . . . . . . . . . . . . . . . . 1,246 586 Purchases of long-term investments. . . . . . . . (41) (17) Proceeds from sale of business. . . . . . . . . . -- 425 Other investing activities. . . . . . . . . . . . 34 24 Net cash (used in)/provided by investing activities. . . . . . . . . . . . . . . (1,023) 159 Financing Activities Repayments of long-term debt. . . . . . . . . . . (3) (2) Increase in short-term debt-net . . . . . . . . . 1,596 262 Purchases of common stock . . . . . . . . . . . . (689) (201) Cash dividends paid . . . . . . . . . . . . . . . (285) (245) Stock option transactions . . . . . . . . . . . . 143 83 Other financing activities. . . . . . . . . . . . 9 14 Net cash provided by/(used in) financing activities. . . . . . . . . . . . . . . 771 (89) Net cash used in discontinued operations. . . . . . -- (84) Effect of exchange-rate changes on cash and cash equivalents. . . . . . . . . . . . . . . . . (10) (5) Net (decrease)/increase in cash and cash equivalents. . . . . . . . . . . . . . . . . (386) 176 Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . 1,552 877 Cash and cash equivalents at end of period. . . . . $1,166 $1,053 Supplemental Cash Flow Information Cash paid during the period for: Income taxes. . . . . . . . . . . . . . . . . . . $ 422 $ 355 Interest. . . . . . . . . . . . . . . . . . . . . 39 30 </TABLE> See accompanying Notes to Condensed Consolidated Financial Statements. PFIZER INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1: Basis of Presentation We prepared the condensed financial statements following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP (generally accepted accounting principles) can be condensed or omitted. The financial statements include the assets and liabilities and the operating results of subsidiaries operating outside the U.S. Balance sheet amounts for these subsidiaries are as of February 28, 1999 and February 22, 1998. The operating results for these subsidiaries are for the three month periods ending on the same dates. As a result of the 1998 divestiture, the Valleylab, Schneider, American Medical Systems and Howmedica businesses which comprised the Medical Technology Group (MTG) are presented as "discontinued operations" in the 1998 financial statements. Note 2: Responsibility for Interim Financial Statements We are responsible for the unaudited financial statements included in this document. The financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read the financial statements and notes in our company's latest Form 10-K. Revenues, expenses, assets and liabilities can vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be the same as those for the full year. Note 3: Change in Method of Inventory Accounting During the first quarter of 1999, we changed the method of determining the cost of all of our remaining inventories previously on the "Last-in, first- out" (LIFO) method to the "First-in, first-out" (FIFO) method. Those inventories consisted of U.S. sourced pharmaceuticals and part of animal health inventories. We believe that the change in accounting for inventories from LIFO to FIFO is preferable because inventory costs are stable and substantially unaffected by inflation. Accordingly, the inventory carrying amount on the balance sheet dated April 4, 1999, as reflected using FIFO, is more meaningful to users of our financial statements. The change in the method of inventory costing resulted in a pre-tax benefit of $6.6 million recorded in "Cost of sales." PFIZER INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 4: Restructuring During the fourth quarter 1998, we recorded restructuring charges of $177 million. These charges provided for plant and product line rationalizations, including the exit from certain product lines associated with our animal health business and certain of our fermentation businesses. During the first quarter 1999, cash outlays associated with these charges were $9 million. The components of the charges for the activities under the restructuring program and the subsequent utilization through the end of the first quarter of 1999 follow: <TABLE> <CAPTION> Utilization Charges First Reserve in Quarter April 4, 1998 1998 1999 1999 <S> <C> <C> <C> <C> Property, plant and equipment $ 49 $ 49 $-- $-- Write-down of intangibles 44 44 -- -- Employee termination costs 40 12 6 22 Other 44 11 3 30 $177 $116 $ 9 $52 </TABLE> We expect to complete the restructuring activities by the end of 1999. As a result of the restructuring, the work force will be reduced by 520 manufacturing, sales and corporate personnel. Notifications to personnel have been made. Cumulative terminations were 134 at December 31, 1998 and 196 at the end of the first quarter 1999. Note 5: Comprehensive Income <TABLE> <CAPTION> Three Months Ended (millions of dollars) April 4, March 29, 1999 1998 <S> <C> <C> Net income $ 815 $ 692 Other comprehensive expense: Currency translation adjustment (114) (92) Net unrealized (loss)/gain on investment securities (22) 5 (136) (87) Total comprehensive income $ 679 $ 605 </TABLE> Changes in the currency translation adjustment included in "Accumulated other comprehensive expense" for the first quarter of 1999 and 1998 were: <TABLE> <CAPTION> (millions of dollars) 1999 1998 <S> <C> <C> Opening balance $(153) $ (79) Translation adjustments and hedges (114) (92) Ending balance $(267) $(171) </TABLE> PFIZER INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 6: Segment Information For the three months ended April 4, 1999 and March 29, 1998: <TABLE> <CAPTION> (millions of Pharma- Animal Corporate/ dollars) ceutical Health Other Consolidated <S> <C> <C> <C> <C> <C> Total revenues 1999 $3,641 $286 $ -- $3,927 1998 2,746 290 -- 3,036 Segment profit 1999 1,317 12 (180)(1) 1,149 (2) 1998 892 20 (170)(1) 742 (2) </TABLE> (1) Includes interest income/(expense) and corporate expenses. Also includes other income/(expense) of the financial subsidiaries. (2) Consolidated total equals income from continuing operations before provision for taxes on income and minority interests. Note 7: Employee Benefit Trust In February 1999, the Pfizer Inc. Grantor Trust transferred all of its remaining 33,609,756 shares to us at the fair market value of $130 7/8 per share. The Trust satisfied the remaining $450 million note due to us using these shares resulting in an increase in Pfizer Inc. treasury shares, and Pfizer Inc. funded a new trust. The new trust, the Pfizer Inc. Employee Benefit Trust, was funded with 30,170,264 shares from Pfizer at fair market value. The new trust will be used primarily to fund our benefit plans including the stock option plan and global stock option plan. Note 8: Subsequent Events On April 22, our shareholders voted to increase - -- the number of authorized common shares from three billion to nine billion - -- the number of shares of common stock authorized to be issued under the Stock and Incentive Plan by 55 million shares and to extend the term of the Plan to December 31, 2008 PFIZER INC. AND SUBSIDIARY COMPANIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Also on April 22, the Board of Directors: - -- approved a three-for-one stock split in the form of a 200% stock dividend to all shareholders who own shares on June 2, 1999. The par value will remain at $.05 per share. We will issue the additional shares on June 30, 1999. Common share and per share amounts in the financial statements do not reflect the impact of the stock split. If restated for the split, figures in this filing would be: <TABLE> <CAPTION> Three Months Ended April 4, March 29, 1999 1998 <S> <C> <C> Weighted average number of common shares and common share equivalents outstanding (millions, except per share data): As reported - basic 1,261 1,262 Split basis - basic 3,783 3,785 As reported - diluted 1,311 1,315 Split basis - diluted 3,932 3,945 Earnings per common share As reported - basic $.65 $.55 Split basis - basic .22 .18 As reported - diluted $.62 $.53 Split basis - diluted .21 .18 </TABLE> - -- declared a $.22 per share second-quarter cash dividend on a pre-split basis. The dividend is payable on June 10, 1999 to all shareholders who owned shares on May 7, 1999 - -- approved a global stock option program under which we granted options for 150 shares of Pfizer stock at a price of $126.21 per share to every eligible employee worldwide INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of Pfizer Inc.: We have reviewed the condensed consolidated balance sheet of Pfizer Inc. and subsidiary companies as of April 4, 1999 and March 29, 1998, and the related condensed consolidated statements of income and cash flows for the three month periods then ended. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Pfizer Inc. and subsidiary companies as of December 31, 1998, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated February 25, 1999, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1998, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. KPMG LLP New York, New York May 18, 1999 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The components of the Statement of Income follow: <TABLE> <CAPTION> (millions of dollars, except per share data) First Quarter 1999 1998* % Change+ <S> <C> <C> <C> Net sales $3,524 $2,886 22 Alliance revenue 403 150 168 Total revenues $3,927 $3,036 29 Cost of sales $ 546 $ 443 23 Selling, informational and administrative expenses $1,570 $1,199 31 % of total revenues 40.0% 39.5% R&D expenses $ 655 $ 481 36 % of total revenues 16.7% 15.8% Other deductions-net $ 7 $ 171 (96) Income from continuing operations before taxes $1,149 $ 742 55 % of total revenues 29.3% 24.4% Taxes on income $ 333 $ 206 62 Effective tax rate 29.0% 27.8% Income from continuing operations $ 815 $ 535 52 % of total revenues 20.8% 17.6% Discontinued operations-net of tax -- 157 ** Net income $ 815 $ 692 18 % of total revenues 20.8% 22.8% Earnings per common share - basic Income from continuing operations $ .65 $ .42 55 Discontinued operations-net of tax -- .13 ** Net income $ .65 $ .55 18 Earnings per common share - diluted Income from continuing operations $ .62 $ .41 51 Discontinued operations-net of tax -- .12 ** Net income $ .62 $ .53 17 Cash dividends per common share $ .22 $ .19 16 </TABLE> * The 1998 results of MTG are presented in "Discontinued operations-net of tax." ** Calculation not meaningful. + Percentages may reflect rounding adjustments. TOTAL REVENUES The components of the total revenue increase were as follows: <TABLE> <CAPTION> % Change from 1998 First Quarter <S> <C> Volume 28.1% Price 1.0 Currency 0.3 Total revenue increase 29.4% </TABLE> Wider acceptance of our major pharmaceutical products and our copromotion products as well as the introductions of our new products, Trovan, Viagra and Celebrex, contributed to the volume increase. In February 1999, we launched Celebrex with G.D. Searle & Co., the pharmaceutical division of Monsanto Company, which discovered and developed the drug. Celebrex is for the relief of symptoms of adult rheumatoid arthritis and osteoarthritis. The change in currency was due to the strengthening of the Japanese yen and European currencies offset by the weakening of currencies in Latin America and Canada. Total revenues for the first quarter by segment and the increases over last year were as follows: <TABLE> <CAPTION> % of % of Total Total (millions of dollars) 1999 Revenues 1998 Revenues % Change* <S> <C> <C> <c <C> <C> Pharmaceutical U.S. $2,346 59.7 $1,731 57.0 35 International 1,295 33.0 1,015 33.4 28 Worldwide 3,641 92.7 2,746 90.4 33 Animal Health 286 7.3 290 9.6 (1) Total $3,927 100.0 $3,036 100.0 29 </TABLE> * Percentages may reflect rounding adjustments. The following is a discussion of total revenues by business segment: Pharmaceutical Worldwide pharmaceutical revenues by category were as follows: <TABLE> <CAPTION> First Quarter % 1999 1998 Change* <S> <C> <C> <C> Cardiovascular $1,100 $ 969 13 Infectious diseases 938 757 24 Central nervous system disorders 553 476 16 Erectile dysfunction 193 0 -- Diabetes 76 71 8 Allergy 128 84 52 Arthritis/Inflammatories 50 52 (4) Alliance revenue 403 150 168 Consumer health care 147 137 8 Other 53 50 4 Total $3,641 $2,746 33 </TABLE> *Percentages may reflect rounding adjustments. Sales of the following pharmaceutical products accounted for 72% of pharmaceutical revenues and 67% of total company revenues in the first quarter of 1999. Individual product sales for the first quarter of 1999 and a brief discussion of each follow: <TABLE> <CAPTION> % Change Product Category (millions) from 1998 <S> <C> <C> <C> Norvasc Cardiovascular $703 24 Procardia XL Cardiovascular 141 (27) Cardura Cardiovascular 194 15 Zithromax Infectious Diseases 441 44 Diflucan Infectious Diseases 245 7 Trovan Infectious Diseases 62 51 Viagra Erectile Dysfunction 193 -- Zoloft Central Nervous System 527 14 Zyrtec Allergy 126 54 </TABLE> - -- Norvasc's sales increased because of the favorable benefits Norvasc provides to patients--once-daily dosing, 24-hour control for hypertension and angina, and tolerability. - -- Sales of Procardia XL decreased due in part to the increasing usage and medical acceptance of Norvasc. - -- Cardura's sales increased as the group of drugs it belongs to, alpha blockers, is recognized as an effective therapy for the treatment of high blood pressure and enlarged prostate. Cardura XL is a dosage form that uses the GITS delivery system and may reduce the need for dose alterations. We are currently selling Cardura XL in Germany, Norway and Denmark. - -- Zithromax's sales increased as a result of increased physician recognition of the product's effectiveness, convenient dosage and favorable side-effect profile. - -- Sales growth of Diflucan reflects the product's continuing acceptance as the therapy of choice for a wide range of fungal infections. - -- Trovan's sales continue to increase as a result of increasing physician recognition in the U.S. - -- Viagra, the first effective oral treatment for erectile dysfunction, reported sales in the first quarter of 1999 of $193 million including $149 million in the U.S. and $44 million in international markets. Viagra is available in most large markets, including the U.S., the U.K., Germany, France, Italy, Spain, Brazil and Australia. Second quarter sales will include the impact of recent launches in Japan and Canada. - -- Zoloft continues to benefit from introductions in international markets, new uses and increased sales force and selling efforts. - -- Zyrtec is the first once-daily prescription antihistamine for the treatment of seasonal and year-round allergies and hives in children ages 2 to 5. It was previously approved for these uses in patients over the age of 5. The product provides strong, rapid and long-lasting relief for seasonal and year-round allergies and hives with once-daily dosing. Alliance revenue reflects revenue associated with the copromotion of Lipitor, Aricept and Celebrex. Alliance revenue increased 168% due to recent introductions of Lipitor and Aricept in international markets as well as the U.S. introduction of Celebrex. In March 1999, we received an approvable letter from the U.S. Food and Drug Administration (FDA) to market Tikosyn for use in the treatment of atrial fibrillation, a type of heart rhythm disorder. Regulatory review in Europe is continuing. Animal Health Animal Health sales for the first quarter decreased 1%. Overall performance was negatively affected by a difficult operating environment, including a weak livestock market in the U.S. and Europe, as well as foreign exchange. Sales of virginiamycin, an antibiotic for poultry, cattle and swine, decreased as a result of an impending ban of the product in the European Union. Sales of companion animal products rose 12% in the quarter. Revenues by Country Total revenues in the U.S. increased largely due to pharmaceutical sales growth and alliance revenue, as described above. Total revenues by country were as follows: <TABLE> <CAPTION> (millions of dollars) First Quarter % of % of Total Total 1999 Revenues 1998 Revenues* % Change <S> <C> <C> <C> <C> $2,463 62.7 $1,845 60.8 United States 33 272 6.9 230 7.6 Japan 18 1,192 30.4 961 31.6 All Other 24 $3,927 100.0 $3,036 100.0 Consolidated 29 </TABLE> *Percentages may reflect rounding adjustments. COSTS AND EXPENSES During the fourth quarter 1998, we recorded restructuring charges of $177 million. These charges provided for plant and product line rationalizations, including the exit from certain product lines associated with our animal health business and certain of our fermentation businesses. During the first quarter 1999, cash outlays associated with these charges were $9 million. The components of the charges for the activities under the restructuring program and the subsequent utilization through the end of the first quarter of 1999 follow: <TABLE> <CAPTION> Utilization Charges First Reserve in Quarter April 4, 1998 1998 1999 1999 <S> <C> <C> <C> <C> Property, plant and equipment $ 49 $ 49 $-- $-- Write-down of intangibles 44 44 -- -- Employee termination costs 40 12 6 22 Other 44 11 3 30 $177 $116 $ 9 $52 </TABLE> We expect to complete the restructuring activities by the end of 1999. As a result of the restructuring, the work force will be reduced by 520 manufacturing, sales and corporate personnel. Notifications to personnel have been made. Cumulative terminations were 134 at December 31, 1998 and 196 at the end of the first quarter 1999. Cost of Sales Cost of sales increased 23% in the first quarter of 1999 over the prior year period. The increase in cost of sales is primarily due to the increase in sales and the impact of foreign exchange. The first quarter of 1999 reflected the strengthening of the Japanese yen relative to the U.S. dollar. Included in cost of sales in the first quarter of 1999 is a benefit of $6.6 million related to the change in accounting for inventories from LIFO to FIFO. Excluding the impact of foreign exchange and the benefit from the accounting change, cost of sales increased 19% in the first quarter of 1999 over the prior year period. Selling, Informational and Administrative Expenses Selling, informational and administrative expenses in the first quarter of 1999 increased 31% over the prior year period. Support for previously introduced products and launches of new products led to the increase. This support includes substantial global investments in our pharmaceutical sales force such as the creation of a new primary-care sales force, a new specialty sales force dedicated to rheumatology and personnel increases in other specialty sales forces. About 3,000 Pfizer and G.D. Searle sales representatives are involved in the U.S. launch of Celebrex. Research and Development Expenses Research and development expenses increased 36% in the first quarter of 1999 over the prior year period. We expect total spending to be about $2.8 billion in 1999 to discover new chemical compounds and advance others in development which include: - -- Relpax, for the treatment of migraine headaches. Regulatory review is advancing in Europe and the U.S.; - -- Alond, for the treatment of nervous system, kidney and cardiovascular disorders related to diabetes; - -- voriconazole and UK-292,663, for the treatment of fungal infections; - -- darifenacin, for the treatment of urinary urge incontinence; - -- droloxifene and lasofoxifene (CP 336,156) for prevention and treatment of osteoporosis, treatment of atherosclerosis and prevention of breast cancer; - -- ezlopitant, for the treatment of chemotherapy-induced nausea and vomiting in cancer patients; - -- Zeldox, for the treatment of psychotic disorders. As previously announced, we are undertaking additional clinical work on this product to answer questions raised by the FDA in its nonapprovable letter; - -- an inhaled form of insulin under codevelopment with Hoechst Marion Roussel and Inhale Therapeutic Systems and - -- valdecoxib, a second-generation arthritis compound under codevelopment with G.D. Searle. We are also developing new uses or dosages for Norvasc, Zyrtec, Zoloft, Lipitor, Zithromax, Trovan, Viagra and Celebrex. Other (income)/deductions-net The following components were included in "Other deductions-net" in the first quarters of 1999 and 1998: <TABLE> <CAPTION> (millions of dollars) First Quarter % 1999 1998 Change* <S> <C> <C> <C> Interest income $(66) $(36) 84 Interest expense 41 27 50 Copromotion payments to Searle -- 100 -- Brand-name prescription drug antitrust litigation settlement 2 40 (94) Amortization of goodwill and other intangibles 11 12 (10) Foreign exchange (7) (5) 49 Other, net 26 33 (20) Other deductions-net $ 7 $171 (96) </TABLE> * Percentages may reflect rounding adjustments. Interest income increased in the first quarter of 1999 as a result of an increase in short-term investments purchased in large part from cash received from the MTG divestiture. Interest expense increased as a result of a higher average level of short-term borrowings in the first quarter of 1999. INCOME BEFORE TAXES Income before taxes increased 55% in the first quarter of 1999. Excluding certain 1998 significant charges, income before taxes increased 28% in the first quarter of 1999. These charges consist of: - -- payments to G.D. Searle of $100 million related to the development and copromotion of Celebrex and its second-generation compound for the treatment of arthritis and pain - -- legal settlements of $40 million involving the brand-name prescription drug antitrust litigation - -- other charges of $15 million TAXES ON INCOME The estimated full-year 1999 effective tax rate of 29% is higher than the 28% rate recorded for full-year 1998 results excluding the impact of certain significant charges and the MTG divestiture, due largely to the expiration of the R&D tax credit in June 1999. Discontinued Operations For the quarter ended April 4, 1999, we recorded no income from discontinued operations. In the comparable period of the prior year, we reported income from discontinued operations of $157 million-net of tax, consisting of: - -- $140 million gain-net of tax on disposal of Valleylab - -- $ 17 million income from operations of discontinued businesses-net of tax The income from operations of discontinued businesses consisted of the results of the Valleylab (prior to its sale in the first quarter of 1998), Schneider, American Medical Systems and Howmedica businesses, which comprised MTG. NET INCOME Net income for the first quarter of 1999 increased 18% over the prior year period. First quarter 1999 diluted earnings per share were $.62, an increase of 17% over the prior year period. If the discontinued operations-net of tax and certain 1998 significant charges were excluded, the following would have been the net income and diluted earnings per share: <TABLE> <CAPTION> First Quarter 1999 1998 <S> <C> <C> Net income as reported $815 $692 Excluding effects of: Discontinued operations-net of tax -- (157) Certain significant charges-net of tax* -- 106 Net income from continuing operations excluding discontinued operations and certain significant charges $815 $641 Diluted earnings per share on the same basis $.62 $.49 </TABLE> *Consists of payments to G.D. Searle for Celebrex, legal settlements involving the brand-name prescription drug antitrust litigation and other charges. OUTLOOK Our financial performance for 1999 will depend on such factors as the sales of new, existing and alliance products; the size and timing of investments; the impact of foreign exchange; the effective tax rate; and changes in trade buying patterns, including the potential impact of buying patterns which could be impacted by the Year 2000 issue. Our rate of earnings growth in the second quarter compared to the same period in 1998 will be significantly affected by the large initial trade stocking and sales of Viagra, which occurred in the second quarter of 1998 when the product was first launched and continued strong investment in R&D and product support. Despite the unique circumstances that we believe will affect second-quarter growth, our full-year 1999 growth prospects remain solid. For the full year 1999, we are comfortable with the current range of the majority of analysts' estimates for diluted earnings per share of $2.40 to $2.50 for the year, representing 20% to 25% growth relative to 1998 diluted earnings per share excluding the impact of certain significant charges and the MTG divestiture. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The net financial asset position was as follows: <TABLE> <CAPTION> (millions of dollars) April 4, Dec. 31, March 29, 1999 1998 1998 <S> <C> <C> <C> Financial assets* $6,078 $5,835 $3,297 Short-term borrowings and long-term debt 4,821 3,256 3,232 Net financial assets $1,257 $2,579 $ 65 </TABLE> * Consists of cash and cash equivalents, short-term investments and loans and long-term loans and investments. To fund investing and financing activities, commercial paper and short-term borrowings are used to complement operating cash flows. In maintaining this financial flexibility, levels of debt and investments will vary depending on operating results. Selected measures of our financial strength are as follows: <TABLE> <CAPTION> April 4, Dec. 31, March 29, 1999 1998 1998 <S> <C> <C> <C> Working capital (millions of dollars) $ 2,997 $ 2,739 $ 2,615 Current ratio 1.39:1 1.38:1 1.49:1 Debt to total capitalization (percentage)* 35% 27% 28% Shareholders' equity per common share** $ 7.18 $ 7.00 $ 6.49 </TABLE> * Represents total short-term borrowings and long-term debt divided by the sum of total short-term borrowings, long-term debt and total shareholders' equity. ** Represents total shareholders' equity divided by the actual number of common shares outstanding. The increase in working capital from December 31, 1998 to April 4, 1999 was primarily due to the following: - -- an increase in accounts receivable, which includes higher alliance revenue receivables, due to growth in sales volume and the contractual payment terms of alliance revenue receivables - -- a decrease in accounts payable primarily due to the timing of payments - -- lower compensation-related accruals offset by: - -- an increase in short-term borrowings to fund common stock purchases and dividends The increase in working capital from March 29, 1998 to April 4, 1999 was primarily due to the following: - -- an increase in cash and cash equivalents and short-term investments due to the receipt of cash from the MTG divestiture - -- an increase in accounts receivable, which includes higher alliance revenue receivables, due to growth in sales volume and the contractual payment terms of alliance revenue receivables offset by: - -- a decrease in net assets of discontinued operations due to the sale of the MTG businesses - -- an increase in short-term borrowings due to an increase in funding for common stock purchases at a higher average price Net Cash Used in/Provided by Operating Activities During the first quarter of 1999, operating activities used net cash of $124 million, an increase of $319 million from the 1998 period. The change was primarily due to an increase in certain working capital items. Net Cash Used in/Provided by Investing Activities In the first quarter of 1999, investing activities used net cash of $1,023 million, an increase of $1,182 million over the 1998 period. This change was primarily attributable to short-term investments primarily purchased with cash from foreign operations, an increase in capital expenditures and an absence of proceeds from the sale of businesses in 1999. Net Cash Provided by/Used in Financing Activities In the first quarter of 1999, net cash provided by financing activities was $771 million, an increase of $860 million over the 1998 period. This was primarily due to an increase in short-term borrowings, the proceeds of which were partially used to purchase common stock. We purchased approximately 5.2 million shares of common stock on the open market at an average price of about $132 per share. Through the end of the first quarter 1999, we purchased approximately 10.1 million shares at a total cost of about $1.2 billion under the current share-purchase program. Dividends paid increased due to the increase in the first quarter 1999 dividend per common share compared to the prior year period. During the first quarter 1999, we increased our available lines of credit by $200 million, for a total of $1.5 billion in major unused lines of credit. CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS Our disclosure and analysis in this report contain some "forward-looking statements". Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies, such as legal proceedings, and financial results. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any other public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may vary materially. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our 10-Q, 8-K and 10-K reports to the SEC. Our Form 10-K filing for the 1998 fiscal year listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Part I of that filing under the heading "Cautionary Factors That May Affect Future Results." We incorporate that section of that Form 10-K in this filing and investors should refer to it. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. YEAR 2000 COMPUTER SYSTEMS COMPLIANCE Many older computer software programs refer to years in terms of their final two digits only. Such programs may interpret the year 2000 to mean the year 1900, or another year instead. If not corrected, those programs could cause date-related or operational transaction failures. We developed a Compliance Assurance Process to address the Year 2000 issue in four phases: Inventory, Assessment and Planning, Implementation and Certification. No significant information technology projects have been deferred as a result of our efforts on Year 2000. Phase Status at End of First Quarter 1999 Inventory Completed Assessment & Planning Completed Implementation 80% complete (will overlap with certification phase) -- Critical systems - substantially remediated or replaced -- Remaining systems (including embedded systems) - will be modified by the end of the third quarter of 1999 Certification Critical systems - expect to substantially complete testing by June 30, 1999 Remaining systems (embedded technology) - expect to substantially complete testing by end of the third quarter of 1999 Because the company's Year 2000 compliance is dependent upon key third parties also being Year 2000 compliant on a timely basis, there can be no guarantee that the company's efforts will prevent a material adverse impact on its results of operations, financial condition or cash flows. We have requested our critical vendors, major customers, service suppliers, communication providers, product alliance partners and banks to verify their Year 2000 readiness. We continue to monitor the readiness of our critical trading partners. If our systems or those of key third parties are not fully Year 2000 functional, we estimate that up to a two-week disruption in operations could occur. Such a disruption could result in delays in the distribution of finished goods or receipt of raw materials, errors in customer order taking, disruption of clinical activities or delays in product development. These consequences could have a material adverse impact on our results of operations, financial condition and cash flows if we are unable to substantially conduct our business in the ordinary course. We believe that our efforts, including the development of a contingency plan, will significantly reduce the adverse impact that any disruption in business might have. As part of the contingency plan being developed, Business Continuity Plans (the Plans) will address critical areas of our business. The Plans will be designed to mitigate serious disruptions to our business flow beyond the end of 1999 and operate independent of our external providers' Year 2000 compliance. The Plans will likely provide for maintaining increased inventory to meet customer needs, an analysis of changes in buying patterns, protecting the integrity of ongoing activities, identifying and securing alternate sources of critical services, materials and utilities when possible and establishing crisis teams to address unexpected problems. Preliminary plans are essentially complete and we expect to complete final plans by the end of the second quarter of 1999. Since we completed our preliminary Business Continuity Plans, we now estimate that the total cost involved in our Year 2000 program is approximately $150 million, of which $60 million has been incurred to date. The total project cost reflects an increase in costs associated with business continuity plans and embedded technology. The remaining costs are associated with the final stages of our Year 2000 project which include business continuity planning, embedded technology and final implementation, testing and certification of systems. These costs are expensed as incurred, except for capitalizable hardware of $5 million in 1998, $2.6 million in the first quarter of 1999 and $8.9 million estimated for the remainder of 1999, and are being funded through operating cash flows. Such costs do not include normal system upgrades and replacements. Both our cost estimates and completion timeframes will be influenced by our ability to successfully identify Year 2000 problems, the nature and amount of programming required to fix the programs, the availability and cost of personnel trained in this area and the Year 2000 compliance success that key third parties attain. As the development of contingency plans continues, the costs to complete our Year 2000 program may increase. While these and other unforeseen factors could have a material adverse impact on our results of operations or financial condition, we believe that our ongoing efforts to address the Year 2000 issue will minimize possible negative consequences to our company. FORM 10-Q PART II - OTHER INFORMATION Item 1: Legal Proceedings The Company is involved in a number of claims and litigations, including product liability claims and litigations considered normal in the nature of its businesses. These include suits involving various pharmaceutical and hospital products that allege either reaction to or injury from use of the product. In addition, from time to time the Company is involved in, or is the subject of, various governmental or agency inquiries or investigations relating to its businesses. On June 9, 1997, the Company received notice of the filing of an Abbreviated New Drug Application (ANDA) by Mylan Pharmaceuticals for a sustained-release nifedipine product asserted to be bioequivalent to Procardia XL. Mylan's notice asserted that the proposed formulation does not infringe relevant licensed Alza and Bayer patents and thus that approval of their ANDA should be granted before patent expiration. On July 18, 1997, the Company, together with Bayer AG and Bayer Corporation, filed a patent-infringement suit against Mylan Pharmaceuticals Inc. and Mylan Laboratories Inc. in the United States District Court for the Western District of Pennsylvania with respect to Mylan's ANDA. Suit was filed under Bayer AG's U.S. Patent No. 5,264,446, licensed to the Company, relating to nifedipine of a specified particle size range. Mylan has filed its answer denying infringement and a scheduling order has been entered. Final discovery has been extended to May 3, 1999, with dispositive motions to be filed by May 21, 1999. On March 15, 1999, Mylan received tentative approval from the FDA for its 30 mg. extended release nifedipine tablet. On March 16, 1999, the United States District Court granted Mylan's motion to file an amended answer and antitrust counterclaims. All discovery on the antitrust counterclaims in stayed pending resolution of the patent misuse claims. On March 29, 1999, Mylan filed a motion for summary judgment based on an adverse decision against Bayer in Bayer's litigation against Elan which involved the same nifedipine particle size patent. On or about February 23, 1998, Bayer AG received notice that Biovail Laboratories Incorporated had filed an ANDA for a sustained-release nifedipine product asserted to be bioequivalent to one dosage strength (60 mg.) of Procardia XL. The notice was subsequently received by the Company as well. The notice asserts that the Biovail product does not infringe Bayer's U.S. Patent No. 5,264,446. On March 26, 1998, the Company received notice of the filing of an ANDA by Biovail Laboratory of a 30 mg. dosage formulation of nifedipine alleged to be bioequivalent to Procardia XL. On April 2, 1998, Bayer and Pfizer filed a patent-infringement action against Biovail, relating to their 60 mg. nifedipine product, in the United States District Court for the District of Puerto Rico. On May 6, 1998, Bayer and Pfizer filed a second patent infringement action in Puerto Rico against Biovail under the same patent with respect to Biovail's 30 mg. nifedipine product. These actions have been consolidated for discovery and trial. On April 24, 1998, Biovail Laboratories Inc. brought suit in the United States District Court for the Western District of Pennsylvania against the Company and Bayer seeking a declaratory judgment of invalidity of and/or non- infringement of the 5,264,446 nifedipine patent as well as a finding of violation of the antitrust laws. Biovail has also moved to transfer the patent infringement actions from Puerto Rico to the Western District of Pennsylvania. Pfizer has opposed this motion to transfer and on June 19, 1998, moved to dismiss Biovail's declaratory judgment action and antitrust action in the Western District of Pennsylvania, or in the alternative to stay the action pending the outcome of the infringement actions in Puerto Rico. On January 4, 1999, the District Court in Pennsylvania granted Pfizer's motion for a stay of the antitrust action pending the outcome of the infringement actions in Puerto Rico. On January 29, 1999, the District Court in Puerto Rico denied Biovail's motion to transfer the patent infringement actions from Puerto Rico to the Western District of Pennsylvania. On April 12, 1999, Biovail filed a motion for summary judgment also based in part on the summary judgment motion granted to Elan in the Bayer vs. Elan litigation in the Northern District of Georgia. Pfizer and Bayer's response was filed on April 26, 1999. On April 2, 1998, the Company received notice from Lek U.S.A. Inc. of its filing of an ANDA for a 60 mg. formulation of nifedipine alleged to be bioequivalent to Procardia XL. On May 14, 1998, Bayer and Pfizer commenced suit against Lek for infringement of Bayer's U.S. Patent No. 5,264,446, as well as for infringement of a second Bayer patent, No. 4,412,986 relating to combinations of nifedipine with certain polymeric materials. On September 14, 1998, Lek was served with the summons and complaint. Plaintiffs amended the complaint on November 10, 1998, limiting the action to infringement of U.S. Patent 4,412,986. On January 19, 1999, Lek filed a motion to dismiss the complaint alleging infringement of U.S. Patent 4,412,986. Pfizer responded to this motion and oral argument is scheduled for May 10, 1999. On February 10, 1999, the Company received a notice from Lek U.S.A. of its filing of an ANDA for a 90 mg. forumlation of nifedipine alleged to be bioequivalent to Procardia XL. On March 25, 1999, Bayer and Pfizer commenced suit against Lek for infringement of the same two Bayer patents originally asserted against Lek's 60 mg. formulation. On November 9, 1998, Pfizer received an ANDA notice letter from Martec Pharmaceutical, Inc. for generic versions (30 mg., 60 mg., 90 mg.) of Procardia XL. On or about December 18, 1998, Pfizer received a new ANDA certification letter stating that the ANDA had actually been filed in the name of Martec Scientific, Inc. On December 23, 1998, Pfizer brought an action against Martec Pharmaceutical, Inc. and Martec Scientific, Inc. in the Western District of Missouri for infringement of Bayer's patent relating to nifedipine of a specific particle size. On January 26, 1999, a second complaint was filed against Martec Scientific in the Western District of Missouri based on Martec's new ANDA certification letter. Pfizer filed suit on July 8, 1997, against the FDA in the United States District Court for the District of Columbia, seeking a declaratory judgment and injunctive relief enjoining the FDA from processing Mylan's ANDA or any other ANDA submission referencing Procardia XL that uses a different extended- release mechanism. Pfizer's suit alleges that extended-release mechanisms that are not identical to the osmotic pump mechanism of Procardia XL constitute different dosage forms requiring the filing and approval of suitability petitions under the Food Drug and Cosmetics Act before the FDA can accept an ANDA for filing. Mylan intervened in Pfizer's suit. On March 31, 1998, the U.S. District Judge granted the government's motion for summary judgment against the Company. Pfizer has appealed that decision to the D.C. Court of Appeals and arguments in the case were heard on February 1, 1999. We are awaiting the decision. On March 31, 1999, the Company received notice from TorPharm of its filing, through its U.S. agent Apotex Corp., of an ANDA for 1 mg., 2 mg., 4 mg. and 8 mg. tablets alleged to be bioequivalent to Cardura (doxazosin mesylate). That notice is under review. As previously disclosed, a number of lawsuits and claims have been brought against the Company and Shiley Incorporated, a wholly owned subsidiary, alleging either personal injury from fracture of 60 or 70 Shiley Convexo Concave ("C/C") heart valves, or anxiety that properly functioning implanted valves might fracture in the future, or personal injury from a prophylactic replacement of a functioning valve. In an attempt to resolve all claims alleging anxiety that properly functioning valves might fracture in the future, the Company entered into a settlement agreement in January 1992 in Bowling v. Shiley, et al., a case brought in the United States District Court for the Southern District of Ohio, that established a worldwide settlement class of people with C/C heart valves and their spouses, except those who elected to exclude themselves. The settlement provided for a Consultation Fund of $90 million, which was fixed by the number of claims filed, from which valve recipients received payments that are intended to cover their cost of consultation with cardiologists or other health care providers with respect to their valves. The settlement agreement established a second fund of at least $75 million to support C/C valve-related research, including the development of techniques to identify valve recipients who may have significant risk of fracture, and to cover the unreimbursed medical expenses that valve recipients may incur for certain procedures related to the valves. The Company's obligation as to coverage of these unreimbursed medical expenses is not subject to any dollar limitation. Following a hearing on the fairness of the settlement, it was approved by the court on August 19, 1992, and all appeals have been exhausted. Generally, the plaintiffs in all of the pending heart valve litigations seek money damages. Based on the experience of the Company in defending these claims to date, including insurance proceeds and reserves, the Company is of the opinion that these actions should not have a material adverse effect on the financial position or the results of operations of the Company. Litigation involving insurance coverage for the Company's heart valve liabilities has been resolved. The Company's operations are subject to federal, state, local and foreign environmental laws and regulations. Under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA" or "Superfund"), the Company has been designated as a potentially responsible party by the United States Environmental Protection Agency with respect to certain waste sites with which the Company may have had direct or indirect involvement. Similar designations have been made by some state environmental agencies under applicable state superfund laws. Such designations are made regardless of the extent of the Company's involvement. There are also claims that the Company may be a responsible party or participant with respect to several waste site matters in foreign jurisdictions. Such claims have been made by the filing of a complaint, the issuance of an administrative directive or order, or the issuance of a notice or demand letter. These claims are in various stages of administrative or judicial proceedings. They include demands for recovery of past governmental costs and for future investigative or remedial actions. In many cases, the dollar amount of the claim is not specified. In most cases, claims have been asserted against a number of other entities for the same recovery or other relief as was asserted against the Company. The Company is currently participating in remedial action at a number of sites under federal, state, local and foreign laws. To the extent possible with the limited amount of information available at this time, the Company has evaluated its responsibility for costs and related liability with respect to the above sites and is of the opinion that the Company's liability with respect to these sites should not have a material adverse effect on the financial position or the results of operations of the Company. In arriving at this conclusion, the Company has considered, among other things, the payments that have been made with respect to the sites in the past; the factors, such as volume and relative toxicity, ordinarily applied to allocate defense and remedial costs at such sites; the probable costs to be paid by the other potentially responsible parties; total projected remedial costs for a site, if known; existing technology; and the currently enacted laws and regulations. The Company anticipates that a portion of these costs and related liability will be covered by available insurance. The Company has entered into a consent decree, which has been approved by the court, settling all matters with the United States Environmental Protection Agency-Region I and the Department of Justice arising primarily out of a December 1993 multimedia environmental inspection, as well as certain state inspections, of the Company's Groton, Connecticut facility. The settlement provides for the payment of $625,000 in fines, undertaking of an environmental project at a cost of $150,000 and certain other operational provisions, the implementation of which will not have a material adverse effect on the operations of the Company. Through the early 1970s, Pfizer Inc. (Minerals Division) and Quigley Company, Inc. ("Quigley"), a wholly owned subsidiary, sold a minimal amount of one construction product and several refractory products containing some asbestos. These sales were discontinued thereafter. Although these sales represented a minor market share, the Company has been named as one of a number of defendants in numerous lawsuits. These actions, and actions related to the Company's sale of talc products in the past, claim personal injury resulting from exposure to asbestos-containing products, and nearly all seek general and punitive damages. In these actions, the Company or Quigley is typically one of a number of defendants, and both are members of the Center for Claims Resolution (the "CCR"), a joint defense organization of nineteen defendants that is defending these claims. The Company and Quigley are responsible for varying percentages of defense and liability payments for all members of the CCR. A number of cases alleging property damage from asbestos-containing products installed in buildings have also been brought against the Company, but most have been resolved. On January 15, 1993, a class action complaint and settlement agreement were filed in the United States District Court for the Eastern District of Pennsylvania involving all personal injury claims by persons who have been exposed to asbestos-containing products but who have not yet filed a personal injury action against the members of the CCR (the "Future Claims Settlement"). The District Court determined that the Future Claims Settlement was fair and reasonable. Subsequently, the United States Court of Appeals for the Third Circuit reversed the order of the District Court and on June 27, 1997, the U.S. Supreme Court affirmed the Third Circuit's order and decertified the class. The overturning of the settlement is not expected to have a material impact on the Company's exposure or on the availability of insurance for the vast majority of such cases. It is expected, too, that the CCR will attempt to resolve cases in the same manner as heretofore. At approximately the time it filed the Future Claims Settlement class action, the CCR settled approximately 16,360 personal injury cases on behalf of its members, including the Company and Quigley. The CCR has continued to settle remaining and opt-out cases and claims on a similar basis to past settlements. As of March 27, 1999, there were 61,298 personal injury claims pending against Quigley (excluding those which are inactive or have been settled in principle), 35,265 such claims against the Company, and 67 talc cases against the Company. The Company believes that its costs incurred in defending and ultimately disposing of the asbestos personal injury claims, as well as the property damage and talc claims, will be largely covered by insurance policies issued by several primary insurance carriers and a number of excess carriers that have agreed to provide coverage, subject to deductibles, exclusions, retentions and policy limits. Litigation is pending against several excess insurance carriers seeking damages and/or declaratory relief to secure their coverage obligations. Based on the Company's experience in defending the claims to date and the amount of insurance coverage available, the Company is of the opinion that the actions should not ultimately have a material adverse effect on the financial position or the results of operations of the Company. The Company was named, together with numerous other manufacturers of brand- name prescription drugs and certain companies that distribute brand-name prescription drugs, in suits in federal and state courts brought by various groups of retail pharmacy companies. The federal cases consist principally of a class action by retail pharmacies (including approximately 30 named plaintiffs), as well as additional actions by approximately 3,500 individual retail pharmacies and a group of chain and supermarket pharmacies (the "individual actions"). These cases, which were transferred to the United States District Court for the Northern District of Illinois and coordinated for pretrial purposes, allege that the defendant drug manufacturers violated the Sherman Act by unlawfully agreeing with each other (and, as alleged in some cases, with wholesalers) not to extend to retail pharmacy companies the same discounts allegedly extended to mail order pharmacies, managed care companies and certain other customers, and by unlawfully discriminating against retail pharmacy companies by not extending them such discounts. On November 15, 1994, the federal court certified a class (the "Federal Class Action") consisting of all persons or entities who, since October 15, 1989, bought brand-name prescription drugs from any manufacturer or wholesaler defendant, but specifically excluding government entities, mail order pharmacies, HMOs, hospitals, clinics and nursing homes. Fifteen manufacturer defendants, including the Company, agreed to settle the Federal Class Action subject to court approval. The Company's share pursuant to an Agreement as of January 31, 1996, was $31.25 million, payable in four annual installments without interest. The Company continues to believe that there was no conspiracy and specifically denied liability in the Settlement Agreement, but had agreed to settle to avoid the monetary and other costs of litigation. The settlement was filed with the Court on February 9, 1996 and went through preliminary and final fairness hearings. By orders of April 4, 1996, the Court: (1) rejected the settlement; (2) denied the motions of the manufacturers (including the Company) for summary judgment; (3) granted the motions of the wholesalers for summary judgment; and (4) denied the motion to exclude purchases by other than direct purchasers. On August 15, 1997, the Court of Appeals (1) reversed the denial of summary judgment for the manufacturers excluding purchases by other than direct purchasers; (2) reversed the grant of summary judgment dismissing the wholesalers; and (3) took action regarding Alabama state cases, and DuPont-Merck. In May 1996, thirteen manufacturer defendants, including the Company, entered into an Amendment to the Settlement Agreement which was filed with the Court on May 6, 1996. The Company's financial obligations under the Settlement Agreement were not increased. The Settlement Agreement, as amended, received final approval on June 21, 1996. Appeals from this decision were dismissed by the U.S. Court of Appeals for the Seventh Circuit in May 1997. Trial began in September 1998 for the class case against the non-settlers, and the District Court also permitted the opt-out plaintiffs to add the wholesalers as named defendants in their cases. The District Court dismissed the case at the close of the plaintiffs' evidence. The plaintiffs have appealed. Retail pharmacy cases have also been filed in state courts in Alabama, California, Minnesota, Mississippi and Wisconsin. Pharmacy classes have been certified in California. The Company's motion to dismiss was granted in the Wisconsin case, and that dismissal is under appeal. Consumer class actions have been filed in Alabama, Arizona, California, the District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, New York, North Carolina, North Dakota, Tennessee, Washington and Wisconsin alleging injury to consumers from the failure to give discounts to retail pharmacy companies. The New York and Washington state cases were dismissed, and an appeal is pending in New York. A case filed in Colorado state court was dismissed without appeal. A consumer class has been certified in California, and a limited consumer class has been certified in the District of Columbia. Class certification was denied in the Michigan state case, and plaintiffs' subsequent petition for review was denied. Class certification also was denied in the Maine case. In addition to its settlement of the retailer Federal Class Action (see above), the Company has also settled several major opt-out retail cases, and along with other manufacturers: (1) has entered into an agreement to settle all outstanding consumer class actions (except Alabama, California and North Dakota), which settlement is going through the approval process in the various courts in which the actions are pending; and (2) has entered into an agreement to settle the California consumer case, which has been approved by the Court there. The Company believes that these brand-name prescription drug antitrust cases, which generally seek damages and certain injunctive relief, are without merit. The Federal Trade Commission is conducting an investigation focusing on the pricing practices at issue in the above pharmacy antitrust litigation. In July 1996, the Commission issued a subpoena for documents to the Company, among others, to which the Company has responded. A second subpoena was issued to the Company for documents in May 1997 and the Company has responded. This investigation continues. FDA administrative proceedings relating to Plax are pending, principally an industry-wide call for data on all anti-plaque products by the FDA. The call for data notice specified that products that have been marketed for a material time and to a material extent may remain on the market pending FDA review of the data, provided the manufacturer has a good faith belief that the product is generally recognized as safe and effective and is not misbranded. The Company believes that Plax satisfied these requirements and prepared a response to the FDA's request, which was filed on June 17, 1991. This filing, as well as the filings of other manufacturers, is still under review and is currently being considered by an FDA Advisory Committee. The Committee has issued a draft report recommending that plaque removal claims should not be permitted in the absence of data establishing efficacy against gingivitis. The process of incorporating the Advisory Committee recommendations into a final monograph is expected to take several years. If the draft recommendation is ultimately accepted in the final monograph, although it would have a negative impact on sales of Plax, it will not have a material adverse effect on the sales, financial position or operations of the Company. On January 15, 1997, an action was filed in Circuit Court, Chambers County, Alabama, purportedly on behalf of a class of consumers, variously defined by the laws or types of laws governing their rights and encompassing residents of up to 47 states. The complaint alleges that the Company's claims for Plax were untrue, entitling them to a refund of their purchase price for purchases since 1988. A hearing on Plaintiffs' motion to certify the class was held on June 2, 1998. We are awaiting the Court's decision. The Company believes the complaint is without merit. The Federal Trade Commission conducted an investigation of the advertising of Rid, which was resolved by a Consent Decree made final in December, 1998. At the same time, the New York State Attorney General's office is investigating the same or similar matters. Since December 1998, three actions have been filed, in state courts in Houston, San Francisco, and Chicago, purportedly on behalf of statewide (California) or nationwide (Houston) classes of consumers who allege that the Company's and other manufacturers' advertising and promotional claims for Rid and other pediculicides were untrue, entitling them to refunds, other damages and/or injunctive relief. The Houston and San Francisco cases have been removed to federal court; no proceedings have yet occurred in the other cases. The Company believes the complaints are without merit. In March 1999, the Company received notice from a California public interest group alleging that the labeling of Desitin violates California's "Proposition 65" by failing to warn of the presence of lead, which is alleged to be a contaminant in the product. Several other manufacturers of zinc oxide- containing topical diaper rash products have received similar notices. Any public prosecutor in California has the option to take over the case. If no public prosecutor does so within a specific period, the public interest group may maintain an action in the public interest. The Company believes that the labeling for Desitin complies with applicable legal requirements. In April 1996, the Company received a Warning Letter from the FDA relating to the timeliness and completeness of required post-marketing reports for pharmaceutical products. The letter did not raise any safety issue about Pfizer drugs. The Company has been implementing remedial actions designed to remedy the issues raised in the letter. During 1997, the Company met with the FDA to apprise them of the scope and status of these activities. A full examination of the progress made by the Company in this area will occur in 1999. During 1998, the Company completed the sale of all of the businesses and companies that were part of the Medical Technology Group. As part of the sale provisions, the Company has retained responsibility for certain items, including matters related to the sale of MTG products sold by the Company before the sale of the MTG businesses. A number of cases have been brought against Howmedica Inc. (some of which also name the Company) alleging that P.C.A. one-piece acetabular hip prostheses sold from 1983 through 1990 were defectively designed and manufactured and pose undisclosed risks to implantees. The Company believes that most if not all of these cases are without merit. Between 1994 and 1996, seven class actions alleging various injuries arising from implantable penile prostheses manufactured by American Medical Systems were filed and ultimately dismissed or discontinued. Thereafter, between late 1996 and early 1998, approximately 700 former members of one or more of the purported classes, represented by some of the same lawyers who filed the class actions, filed individual suits in Circuit Court in Minneapolis alleging damages from their use of implantable penile prostheses. The Company believes that most if not all of these cases are without merit. In June 1993, the Ministry of Justice of the State of Sao Paulo, Brazil, commenced a civil public action against the Company's Brazilian subsidiary, Laboratorios Pfizer Ltda. ("Pfizer Brazil") asserting that during a period in 1991, Pfizer Brazil withheld sale of the pharmaceutical product Diabinese in violation of antitrust and consumer protection laws. The action seeks the award of moral, economic and personal damages to individuals and the payment to a public reserve fund. On February 8, 1996, the trial court issued a decision holding Pfizer Brazil liable. The award of damages to individuals and the payment into the public reserve fund will be determined in a subsequent phase of the proceedings. The trial court's opinion sets out a formula for calculating the payment into the public reserve fund which could result in a sum of approximately $88 million. The total amount of damages payable to eligible individuals under the decision would depend on the number of persons eventually making claims. Pfizer Brazil is appealing this decision. The Company believes that this action is without merit and should not have a material adverse effect on the financial position or the results of operations of the Company. Tax Matters The Internal Revenue Service (IRS) has completed its examination of income tax returns through 1992. In November 1994, Belgian tax authorities notified Pfizer Research and Development Company N.V./S.A. ("PRDCO"), an indirect wholly owned subsidiary of our company, of a proposed adjustment to the taxable income of PRDCO for fiscal year 1992. The proposed adjustment arises from an assertion by the Belgian tax authorities of jurisdiction with respect to income resulting primarily from certain transfers of property by our non-Belgian subsidiaries to the Irish branch of PRDCO. In January 1995, PRDCO received an assessment from the tax authorities for additional taxes and interest of approximately $432 million and $97 million, respectively, relating to these matters. In January 1996, PRDCO received an assessment from the tax authorities, for fiscal year 1993, for additional taxes and interest of approximately $86 million and $18 million, respectively. The additional assessment arises from the same assertion by the Belgian tax authorities of jurisdiction with respect to all income of the Irish branch of PRDCO. Based upon the relevant facts regarding the Irish branch of PRDCO and the provisions of Belgian tax laws and the written opinions of outside legal counsel, we believe that the assessments are without merit. We believe that our accrued tax liabilities are adequate for all years. Item 4: Submission of Matters to a Vote of Security Holders The shareholders of the Company voted on four items at the Annual Meeting of Shareholders held on April 22, 1999: 1. the election of five directors, to terms ending in 2002; 2. a proposal to approve the appointment of KPMG LLP as independent auditors for 1999; 3. a proposal to amend the Company's Restated Certificate of Incorporation to increase the number of authorized shares of the Company's common stock; and 4. a proposal to amend the Stock and Incentive Plan to increase the number of shares of common stock authorized to be issued under the Plan and to extend the term of the Plan to December 31, 2008. Votes were cast for election of directors as follows: Nominee Votes For Votes Withheld Michael S. Brown 1,100,399,320 9,158,803 Constance J. Horner 1,103,372,223 6,185,900 Thomas G. Labrecque 1,100,490,277 9,067,846 Franklin D. Raines 1,102,941,082 6,617,041 Jean-Paul Valles 1,103,294,193 6,263,930 The appointment of KPMG LLP as auditors for 1999 was approved as follows: -- 1,103,069,167 votes for approval; -- 2,085,400 votes against; and -- 4,403,556 abstentions The amendment of the Company's Restated Certificate of Incorporation to increase the number of authorized shares of the Company's common stock was approved as follows: -- 1,071,479,558 votes for approval; -- 33,964,664 votes against; and -- 4,113,901 abstentions The amendment of the Stock and Incentive Plan to increase the number of shares of common stock authorized to be issued under the Plan and to extend the term of the Plan to December 31, 2008 was approved as follows: -- 841,893,616 votes for approval; -- 69,731,287 votes against; -- 8,676,299 abstentions; and -- 189,256,921 broker non-votes Item 6: Exhibits and Reports on Form 8-K (a) Exhibits 1) Exhibit 3(i) - Restated Certificate of Incorporation dated April 22, 1999 2) Exhibit 15 - Accountants' Acknowledgment 3) Exhibit 18 - Accountants Letter re: change in accounting principle 4) Exhibit 27 - Financial Data Schedule 5) Exhibit 27.1 - Financial Data Schedule restated for period ended March 29, 1998. (b) Reports on Form 8-K No reports on Form 8-K were filed during the first quarter ended April 4, 1999. PFIZER INC. AND SUBSIDIARY COMPANIES SIGNATURES Under the requirements of the Securities Exchange Act of 1934, this report was signed on behalf of the Registrant by the authorized person named below. Pfizer Inc. (Registrant) /s/ H. V. Ryan Dated: May 18, 1999 H. V. Ryan, Vice President; Controller (Principal Accounting Officer and Duly Authorized Officer) Exhibit 3(i) RESTATED CERTIFICATE OF INCORPORATION OF PFIZER INC. Pfizer Inc., a corporation organized and existing under the laws of the State of Delaware, HEREBY CERTIFIES AS FOLLOWS: 1. The name of the corporation is Pfizer Inc. The name under which it was originally incorporated was Chas. Pfizer & Co., Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was June 2, 1942. 2. This Restated Certificate of Incorporation was duly adopted in accordance with Section 245 of the General Corporation Law of Delaware. 3. This Restated Certificate of Incorporation only restates and integrates and does not further amend the provisions of the Certificate of Incorporation as amended or supplemented heretofore and there is no discrepancy between this Restated Certificate of Incorporation and the text of the Certificate of Incorporation as amended or supplemented heretofore. 4. The text of the Certificate of Incorporation as amended or supplemented heretofore is hereby restated without further amendments or changes to read as herein set forth in full: FIRST: The name of the Corporation is and shall be Pfizer Inc. (hereinafter in this Restated Certificate of Incorporation called the "Corporation"). SECOND: The principal office and place of business of the Corporation in the State of Delaware is located at 1209 Orange Street, in the City of Wilmington, County of New Castle; and the name and post office address of the registered agent of the Corporation in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware. THIRD: The nature of the business, or objects or purposes to be transacted, promoted or carried on are as follows: To carry on the business of chemists, druggists, chemical manufacturers, importers, exporters, manufacturers of and dealers in chemical, pharmaceutical, medicinal, and other preparations and chemicals. To engage in, conduct, perform or participate in every kind of commercial, agricultural, mercantile, manufacturing, mining, transportation, industrial or other enterprise, business, work, contract, undertaking, venture or operation. To buy, sell, manufacture, refine, import, export and deal in all products, goods, wares, merchandise, substances, apparatus, and property of every kind, nature and description, and to construct, maintain, and alter any buildings, works or mines. To enter into, make and perform contracts of every kind with any person, firm or corporation. To take out patents, trade-marks, trade names and copyrights, acquire those taken out by others, acquire or grant licenses in respect of any of the foregoing, or work, transfer, or do whatever else with them may be thought fit. To acquire the good-will, property, rights, franchises, contracts and assets of every kind and undertake the liabilities of any person, firm, association or corporation, either wholly or in part, and pay for the same in the stock, bonds or other obligations of the Corporation or otherwise. To purchase, hold, own, sell, assign, transfer, mortgage, pledge or otherwise dispose of shares of the capital stock of any other corporation or corporations, association or associations, of any state, territory or country, and while owner of such stock, to exercise all the rights, powers and privileges of ownership including the right to vote thereon. To issue bonds, debentures or obligations of the Corporation, at the options of the Corporation, secure the same by mortgage, pledge, deed of trust or otherwise, and dispose of and market the same. To purchase, hold and re-issue the shares of its capital stock and its bonds and other obligations. To do all and everything necessary, suitable, convenient or proper for the accomplishment of any of the purposes or the attainment of one or more of the objects herein enumerated, or of the powers herein named, or which shall at any time appear conducive to or expedient for the protection, or benefit of the Corporation, either as holder of, or interested in, any property or otherwise, to the same extent as natural persons might or could do, in any part of the world. To conduct any of its business in the State of Delaware and elsewhere, including in the term "elsewhere" any of the states, districts, territories, colonies or dependencies of the United States, and in any and all foreign countries and to have one or more offices, and to hold, purchase, mortgage and convey real and personal property, without limit as to amount, within or (except as and when forbidden by local laws) without the State of Delaware. To carry on any other business to any extent and in any manner not prohibited by the laws of Delaware or, where the Corporation may seek to do such business elsewhere, by local laws. The foregoing clauses shall be construed both as objects and powers, but no recitation or declaration of specific or special objects or powers herein enumerated shall be deemed to be exclusive; but in each and every instance it is hereby expressly declared that all other powers, not inconsistent therewith, now or hereafter permitted or granted under the laws of Delaware, or by the laws of any other state or country into which the Corporation may go or seek to do business, are hereby expressly included as if such other or general powers were herein set forth. FOURTH: A. Authorized Shares and Classes of Stock. The total number of shares and classes of stock that the Company shall have authority to issue is nine billion twelve million (9,012,000,000) shares, which shall be divided into two classes, as follows: twelve million (12,000,000) shares of Preferred Stock, without par value, and nine billion (9,000,000,000) shares of Common Stock of the par value of $.05 per share. B. Designations, Powers, Preferences and Rights, in Respect of the Shares of Preferred Stock. (1) Shares of the Preferred Stock may be issued in one or more series at such time or times and for such consideration or considerations as the Board of Directors may determine. All shares of any one series shall be of equal rank and identical in all respects. (2) Authority is hereby expressly granted to the Board of Directors to fix from time to time, by resolution or resolutions providing for the issue of any series of Preferred Stock, the designation of such series, and the powers, preferences and rights of the shares of such series, and the qualifications, limitations or restrictions thereof, including the following: (a) The distinctive designation and number of shares comprising such series, which number may (except where otherwise provided by the Board of Directors in creating such series) be increased or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors; (b) The dividend rate or rates on the shares of such series and the preferences, if any, over any other series (or of any other series over such series) with respect to dividends, the terms and conditions upon which and the periods in respect of which dividends shall be payable, whether and upon what conditions such dividends shall be cumulative and, if cumulative, the date or dates from which dividends shall accumulate; (c) Whether or not the shares of such series shall be redeemable, the limitations and restrictions with respect to such redemptions, the time or times when, the price or prices at which and the manner in which such shares shall be redeemable, including the manner of selecting shares of such series for redemption if less than all shares are to be redeemed; (d) The rights to which the holders of shares and such series shall be entitled, and the preferences, if any, over any other series (or of any other series over such series), upon the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, which rights may vary depending on whether such liquidation, dissolution, distribution or winding-up is voluntary or involuntary, and, if voluntary, may vary at different dates; (e) Whether or not the shares of such series shall be subject to the operation of a purchase, retirement or sinking fund, and, if so, whether and upon what conditions such purchase, retirement or sinking fund shall be cumulative or noncumulative, the extent to which and the manner in which such fund shall be applied to the purchase or redemption of the shares of such series for retirement or to other corporate purposes and the terms and provisions relative to the operation thereof; (f) Whether or not the shares of such series shall be convertible into or exchangeable for shares of stock of any other class or classes, or any other series of the same class and, if so convertible or exchangeable, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of such conversion or exchange; (g) The voting powers, full and/or limited, if any, of the shares of such series; and whether or not and under what conditions the shares of such series (alone or together with the shares of one or more other series having similar provisions) shall be entitled to vote separately as a single class, for the election of one or more additional directors of the Corporation in case of dividend arrearages or other specified events, or upon other matters; (h) Whether or not the issuance of any additional shares of such series, or of any shares of any other series, shall be subject to restrictions as to issuance, or as to the powers, preferences or rights of any such other series; (i) Whether or not the holders of shares of such series shall be entitled, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class or of securities convertible into stock of any class and, if so entitled, the qualifications, conditions, limitations and restrictions of such right; and (j) Any other preferences, privileges and powers, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions of such series, as the Board of Directors may deem advisable and as shall not be inconsistent with the provisions of this Certificate of Incorporation. (3) The shares of each series of Preferred Stock shall entitle the holders thereof to receive, when, as and if declared by the Board of Directors out of funds legally available for dividends, cash dividends at the rate, under the conditions, for the periods and on the dates fixed by the resolution or resolutions of the Board of Directors pursuant to authority granted in this Section B, for each series, and no more, before any dividends on the Common Stock, other than dividends payable in Common Stock, shall be paid or set apart for payment. No dividends shall be paid or declared or set apart for payment on any particular series of Preferred Stock in respect of any period unless dividends shall be or have been paid, or declared and set apart for payment, pro rata on all shares of Preferred Stock at the time outstanding of each other series which ranks equally as to dividends with such particular series, so that the amount of dividends declared on such particular series shall bear the same ratio to the amount declared on each such other series as the dividend rate of such particular series shall bear to the dividend rate of such other series. No dividends shall be deemed to have accrued on any share of Preferred Stock of any series with respect to any period prior to the date of original issue of such share or the dividend payment date immediately preceding or following such date of original issue, as may be provided in the resolution or resolutions creating such series. The Preferred Stock shall not be entitled to participate in any dividends declared and paid on the Common Stock, whether payable in cash, stock or otherwise. Accruals of dividends shall not bear interest. (4) Any redemption of Preferred Stock shall be effected by notice duly given as hereinafter specified and by payment at the redemption price of the Preferred Stock to be redeemed. In case of redemption of a part only of a series of the Preferred Stock at the time outstanding, the selection of shares for redemption may be made either by lot or pro rata or in such other manner as shall be determined by the Board of Directors. Notice of every such redemption, stating the redemption date and price, the place of payment, and the expiration date of then existing rights, if any, of conversion or exchange, shall be given by publication, not less than 30 nor more than 60 days prior to the date fixed for redemption, at least twice in a newspaper customarily published at least once a day for at least five days in each calendar week and of general circulation in New York, New York, whether or not published on Saturdays, Sundays, or holidays. Notice of such redemption may also be mailed not less than 30 nor more than 60 days prior to the date fixed for redemption to the holders of record of the shares so to be redeemed at their respective addresses as the same shall appear on the books of the Corporation, but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of such redemption proceedings. If (a) such notice of redemption by publication shall have been duly given or the Corporation shall have given to a bank or trust company in New York, New York designated by the Board of Directors and having capital and surplus of at least Two Million Dollars ($2,000,000), irrevocable authorization promptly to give such notice; and (b) on or before the redemption date specified in such notice the funds or other property necessary for such redemption shall have been deposited by the Corporation with such bank or trust company, designated in such notice, in trust for the pro rata benefit of the holders of the shares so called for redemption, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, from and after the time of such deposit all shares of the Preferred Stock so called for redemption shall no longer be deemed to be outstanding and all rights with respect to such shares shall forthwith cease and terminate, except only (i) the right of the holders thereof to receive from such bank or trust company the funds or other property so deposited, without interest, upon surrender (and endorsement, if required by the Board of Directors) of the certificates for such shares, and (ii) the rights of conversion or exchange, if any, not theretofore expired. Any funds or other property so deposited and unclaimed at the end of six years from such redemption date shall be released or repaid to the Corporation, after which the holders of the shares so called for redemption shall look only to the Corporation for payment thereof. (5) Shares of Preferred Stock which have been redeemed or converted, or which have been issued and reacquired in any manner and retired, shall have the status of authorized and unissued Preferred Stock and may be reissued by the Board of Directors as shares of the same or any other series. (6) In the event of any voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the holders of the shares of each series of Preferred Stock then outstanding shall be entitled to receive out of the net assets of the Corporation, but only in accordance with the preference, if any, provided for such series, before any distribution or payment shall be made to the holders of the Common Stock, the amount per share fixed by the resolution or resolutions of the Board of Directors to be received by the holders of shares of each such series on such voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, as the case may be. If such payment shall have been made in full, to the holders of all outstanding Preferred Stock of all series, or duly provided for, the remaining assets of the Corporation shall be available for distribution among the holders of the Common Stock. If upon any such liquidation, dissolution, distribution, of assets or winding-up, the net assets of the Corporation available for distribution among the holders of any one or more series of the Preferred Stock which (a) are entitled to a preference over the holders of the Common Stock upon such liquidation, dissolution, distribution of assets or winding-up, and (b) rank equally in connection therewith, shall be insufficient to make payment in full of the preferential amount to which the holders of such shares shall be entitled, then such assets shall be distributed among the holders of each such series of the Preferred Stock ratably according to the respective amounts to which they would be entitled in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. Neither the consolidation or merger of the Corporation, nor the sale, lease or conveyance of all or part of its assets, shall be deemed a liquidation, dissolution, distribution of assets or winding-up of the Corporation within the meaning of the foregoing provisions. (7) Unless and except to the extent otherwise required by law or provided in the resolution or resolutions of the Board of Directors pursuant to this Section B, the shares of Preferred Stock shall have no voting power with respect to any matter whatsoever, including, but not limited to, any action to (a) increase the authorized number of shares of the Preferred Stock or of any series thereof, (b) create shares of stock of any class ranking prior to or on a parity with any series of the Preferred Stock with respect to any preferences or voting powers, and (c) authorize a new series of the Preferred Stock having preferences or voting powers ranking prior to or on a parity with any series of the Preferred Stock with respect to any preferences or voting powers. In no event shall the Preferred Stock be entitled to more than one vote in respect of each share of stock. C. Limitations, Relative Rights and Powers in Respect of Shares of Common Stock. (l) After the requirements with respect to preferential dividends, if any, on the Preferred Stock (fixed pursuant to Section B) shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as purchase, retirement or sinking funds (fixed pursuant to Section B), then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. (2) After distribution in full of the preferential amount, if any, (fixed pursuant to Section B) to be distributed to the holders of Preferred Stock in the event of the voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up of the Corporation, the holders of the Common Stock shall be entitled to receive all the remaining assets of the Corporation of whatever kind available for the distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (3) Except as may be otherwise required by law or by this Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him on all matters voted upon by the stockholders. D. Other Provisions. (l) Except as may be provided in the resolution or resolutions of the Board of Directors pursuant to Section B with respect to any series of Preferred Stock, no holder of stock of any class of the Corporation shall be entitled as of right to purchase or subscribe for any part of any unissued stock of any class, or of any additional stock of any class of Capital Stock of the Corporation, or to any bonds, certificates of indebtedness, debentures, or other securities convertible into stock of the Corporation, now or hereafter authorized, but any such stock or other securities convertible into stock may be issued and disposed of pursuant to resolution by the Board of Directors to such persons, firms, corporations or associations and upon such terms and for such consideration as the Board of Directors in the exercise of its discretion may determine and as may be permitted by law. Any and all shares of stock so issued for which the consideration so fixed has been paid or delivered to the Corporation shall be fully paid and not liable to any further call. (2) In no case shall fractions of shares of any class of stock be issued by the Corporation, but in lieu thereof the Corporation shall, at its option, make a cash adjustment or issue fractional Scrip Certificates, in such form and in such denominations as shall from time to time be determined by the Board of Directors. Such Scrip Certificates shall be exchangeable on or before such date or dates as the Board of Directors may determine, when surrendered with other similar Scrip Certificates in sufficient aggregate amounts, for certificates for fully paid and non-assessable full shares of the respective stocks for which such Scrip Certificates are exchangeable, and new Scrip Certificates of a like tenor for the remaining fraction of a share, if any. Such Scrip Certificates shall not entitle any holder thereof to voting rights, dividend rights or any other rights of a stockholder or any rights other than the rights therein set forth, and no dividend or interest shall be payable or shall accrue with respect to Scrip Certificates or the interests represented thereby. All such Scrip Certificates which are not surrendered in exchange for shares of stock on or before their respective expiration dates shall thereafter be void and of no effect whatever. (3) The minimum amount of capital with which the Corporation will commence business is $1,000. SERIES A JUNIOR PREFERRED STOCK Pursuant to authority conferred by this Article FOURTH upon the Board of Directors of the Corporation, the Board of Directors, pursuant to the Amended and Restated Certificate of Designations filed in the Office of the Secretary of State of the State of Delaware on October 9, 1997, has provided for a series of Preferred Stock of the Corporation and has stated the designation and number of shares, and has fixed the relative rights, preferences, and limitations thereof as follows: Series A Junior Preferred Stock: Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Junior Preferred Stock" (referred to herein as the "Series A Preferred Stock") and the number of shares constituting such series shall be 3,000,000. The Board of Directors of the Company may increase or decrease such number form time to time as they deem appropriate, subject to the then-current limitations of the Restated Certificate of Incorporation and applicable law. Section 2. Dividends and Distributions. (A) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, (i) in the event the Board of Directors of the Company shall, at any time after the issuance of any share of Series A Preferred Stock, declare a cash dividend payable on any class or series of the Common Stock of the Company (the "Common Stock"), a preferential cash dividend in an amount per share (rounded to the nearest cent) equal to 1000 times the per share amount of such cash dividend declared on a share of the Common Stock and (ii) a preferential cash dividend (a "Preferential Dividend"), if any, on the first day of January, April, July and October of each year (each a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction or a share of Series A Preferred Stock, in an amount equal to $100 per share of Series A Preferred Stock less the per share amount of all cash dividends declared on the Series A Preferred Stock pursuant to clause (i) of this sentence since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share of Series A Preferred Stock. In the event the Board of Directors of the Company shall, at any time after the issuance of any share of Series A Preferred Stock, declare a distribution on the shares of Common Stock of the Company, whether by way of a dividend or a reclassification of stock, a recapitalization, reorganization or partial liquidation of the Company or otherwise, which is payable in cash or any debt security, debt instrument, real or personal property or any other property (other than cash dividends subject to the immediately preceding sentence), a distribution of shares of Common Stock or other capital stock of the Company or a distribution of rights or warrants to acquire any such share (including any debt security convertible into or exchangeable for any such share), at a price less than the Fair Market Value of such share, then and in each such event each holder of Series A Preferred Stock shall be entitled to receive when, as and if declared by the Board of Directors, out of funds and assets legally available for the purpose, a preferential distribution on each then outstanding share of Series A Preferred Stock of the Company, in like kind, in an amount equal to 1000 times the amount of such distribution paid on a share of Common Stock (subject to the provisions for adjustment hereinafter set forth). The dividends and distributions on the Series A Preferred Stock to which holders thereof are entitled pursuant to clause (i) of the first sentence of this paragraph and pursuant to the second sentence of this paragraph are hereinafter referred to as "Series A Dividends" and the multiple of such cash and non-cash dividends on the Common Stock applicable to the determination of the Series A Dividends, which shall be 1000 initially but shall be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Dividend Multiple". In the event the Company shall at any time after October 5, 1997 declare or pay any dividend or make any distribution on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case the Dividend Multiple thereafter applicable to the determination of the amount of the Series A Dividends which holders of shares of Series A Preferred Stock shall be entitled to receive shall be the Dividend Multiple applicable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) So long as any shares of Series A Preferred Stock are outstanding, no dividend or other distribution (other than a dividend or distribution paid in shares of Common Stock) shall be paid or set apart for payment by the Company on the Common Stock, unless, in each case, the full dividends on all outstanding shares of Series A Preferred Stock to which the holders thereof are entitled shall have been paid. No dividends shall be paid or declared or set apart for payment on the Series A Preferred Stock in respect of any period unless dividends shall be or have been paid, or declared and set apart for payment, pro rata on all shares of Preferred Stock at the time outstanding of each other series which ranks equally as to dividends with the Series A Preferred Stock so that the amount of dividends declared on the Series A Preferred Stock shall bear the same ratio to the amount declared on each such other series as the accrued dividends on the Series A Preferred Stock shall bear to the accrued dividends on each such other series. Holders of shares of Series A Preferred Stock shall not be entitled to any dividend, whether payable in cash, property or stock, in excess of full dividends, as herein provided, on shares of Series A Preferred Stock. Accruals of dividends shall not bear interest. (C) Preferential Dividends shall begin to accrue on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issuance of any shares of Series A Preferred Stock. Accrued but unpaid Preferential Dividends shall cumulate but shall not bear interest. Preferential Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (A) Each share of Series A Preferred Stock shall entitle the holder thereof to 1 vote on all matters submitted to a vote of the stockholders of the Company. Except as otherwise provided herein, in the Restated Certificate of Incorporation or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company. (B) In the event that the Preferential Dividends accrued on the Series A Preferred Stock for four or more quarterly dividend periods, whether consecutive or not, shall not have been declared and paid or set apart for payment, the holders of record of the Series A Preferred Stock, together with any other series of Preferred Stock in respect of which the following right is expressly granted by the authorizing resolutions included in the Certificate of Designations therefor, shall have the right, at the next meeting of stockholders called for the election of directors, to elect two members to the Board of Directors, which directors shall be in addition to the number required by the By- laws prior to such event, to serve until the next Annual Meeting and until their successors are elected and qualified or their earlier resignation, removal or incapacity or until such earlier time as all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full. The holders of shares of Series A Preferred Stock shall continue to have the right to elect directors as provided by the immediately preceding sentence until all accrued and unpaid Preferential Dividends upon the outstanding shares of Series A Preferred Stock shall have been paid (or set aside for payment) in full. Such directors may be removed and replaced by such stockholders, and vacancies in such directorships may be filled only by such stockholders (or by the remaining director elected by such stockholders, if there be one) in the manner permitted by law; provided, however, that any such action by stockholders shall be taken at a meeting of stockholders and shall not be taken by written consent thereto. (C) Except as otherwise required by the Restated Certificate of Incorporation or by law or set forth herein, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for the taking of any corporate action. Section 4. Certain Restrictions. (A) Whenever Preferential Dividends or the Series A Dividends are in arrears or the Company shall be in default of payment thereof, thereafter and until all accrued and unpaid Preferential Dividends and the Series A Dividends, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid or set aside for payment in full, and in addition to any and all other rights which any holder of shares of Series A Preferred Stock may have in such circumstances, the Company shall not: (i) declare or pay dividends on, make any other distributions on (other than a dividend or distribution paid in shares of Common Stock), or redeem or purchase or otherwise acquire for consideration, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity as to dividends with the Series A Preferred Stock, unless dividends are paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled if the full dividends accrued thereon were to be paid; (iii) except as permitted by subparagraph (iv) of this paragraph 4(A), redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (both as to dividends and upon liquidation, dissolution or winding-up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock or any shares of stock ranking on a parity with the Series A Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), except in accordance with a purchase offer made to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine will result in fair and equitable treatment among the respective series or classes. (B) The Company shall not permit any subsidiary (as hereinafter defined) of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. A "Subsidiary" of the Company shall mean any corporation or other entity of which securities or other ownership interests having ordinary voting power sufficient to elect a majority of the board of directors or other persons performing similar functions are beneficially owned, directly or indirectly, by the Company or by any corporation or other entity that that is otherwise controlled by the Company. (C) The Company shall not issue any shares of Series A Preferred Stock except upon exercise of Rights issued pursuant to the Company's Rights Agreement dated as of October 6, 1997, as it may be amended and restated from time to time, a copy of which as is then currently in effect shall kept on file with the Secretary of the Company at its principal executive office and shall be made available to stockholders of record without charge upon written request therefor addressed to said Secretary. Notwithstanding the foregoing sentence, nothing contained in the provisions hereof shall prohibit or restrict the Company from issuing for any purpose any series of Preferred Stock with rights and privileges similar to, different from, or greater than, those of the Series A Preferred Stock. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares upon their retirement and cancellation shall become authorized but unissued shares of Preferred Stock, without designation as to series, and such shares maybe reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors. Section 6. Liquidation, Dissolution or Winding Up. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distribution shall be made (i) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless the holders of shares of Series A Preferred Stock shall have received, subject to adjustment as hereinafter provided, (A) $275 per one thousandth share plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (B) if greater than the amount specified in clause (i)(A) of this sentence, an amount equal to 1000 times the aggregate amount to be distributed per share to holders of Common Stock, as the same may be adjusted as hereinafter provided, and (ii) to the holders of stock ranking on a parity upon liquidation, dissolution or winding up with the Series A Preferred Stock, unless simultaneously therewith distributions are made ratably on the Series A Preferred Stock and all other shares of such parity stock in proportion to the total amounts to which the holders of shares of Series A Preferred Stock are entitled under clause (1)(A) of this sentence and to which the holders of such parity shares are entitled, in each case upon such liquidation, dissolution or winding up. The amount to which holders of Series A Preferred Stock may be entitled upon liquidation, dissolution or winding up of the Company pursuant to clause (i)(B) of the foregoing sentence is hereinafter referred to as the "Participating Liquidation Amount" and the multiple of the amount to be distributed to holders of shares of Common Stock upon the liquidation, dissolution or winding up of the Company applicable pursuant to said clause to the determination of the Participating Liquidation Amount, as said multiple may be adjusted from time to time as hereinafter provided, is hereinafter referred to as the "Liquidation Multiple". In the event the Company shall at any time after October 5, 1997 declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or split or a combination, consolidation or reverse split of the outstanding shares of Common Stock into a greater or lesser number of shares of Common Stock, then in each such case, the Liquidation Multiple thereafter applicable to the determination of the Participating Liquidation Amount to which holders of Series A Preferred Stock shall be entitled after such event shall be the Liquidation Multiple applicable immediately prior to such event multiplied by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Certain Reclassifications and other Events. (A) In the event that holders of shares of Common Stock of the Company receive after October 5, 1997 in respect of their shares of Common Stock any share of capital stock of the Company (other than any share of Common Stock of the Company), whether by way of reclassification, recapitalization, reorganization, dividends or other distribution or otherwise (a "Transaction"), then and in each such event the dividend rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall be adjusted so that after such event the holders of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such adjustment, to (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such Transaction multiplied by the additional dividends which the holder of a share of Common Stock shall be entitled to receive by virtue of the receipt in the Transaction of such capital stock and (ii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such Transaction multiplied by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company by virtue of the receipt in the Transaction of such capital stock, as the case may be, all as provided by the terms of such capital stock. (B) In the event that holders of shares or Common Stock of the Company receive after October 5, 1997 in respect of their shares of Common Stock any right or warrant to purchase Common Stock (including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for Common Stock) at a purchase price per share less than the Fair Market Value (as hereinafter defined) of a share of Common Stock on the date of issuance of such right or warrant, then and in each such event the dividend rights and rights upon the liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event the Dividend Multiple and the Liquidation Multiple shall each be the product of the Dividend Multiple and the Liquidation Multiple, as the case may be, in effect immediately prior to such event multiplied by a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the maximum number of shares of Common Stock which could be acquired upon exercise in full of all such rights or warrants and the denominator of which shall be the number of shares of Common Stock outstanding immediately before such issuance of rights or warrants plus the number of shares of Common Stock which could be purchased, at the Fair Market Value of the Common Stock at the time of such issuance, by the maximum aggregate consideration payable upon exercise in full of all such rights or warrants. (C) In the event that holders of shares of Common Stock of the Company receive after October 5, 1997 in respect of their shares of Common Stock any right or warrant to purchase capital stock of the Company (other than shares of Common Stock), including as such a right, for all purposes of this paragraph, any security convertible into or exchangeable for capital stock of the Company (other than Common Stock), at a purchase price per share less than the Fair Market Value of such shares of capital stock on the date of issuance of such right or warrant, then and in each such event the dividend rights and rights upon liquidation, dissolution or winding up of the Company of the shares of Series A Preferred Stock shall each be adjusted so that after such event each holder of a share of Series A Preferred Stock shall be entitled, in respect of each share of Series A Preferred Stock held, in addition to such rights in respect thereof to which such holder was entitled immediately prior to such event, to receive (i) such additional dividends as equal the Dividend Multiple in effect immediately prior to such event multiplied, first, by the additional dividends to which the holder of a share of Common Stock shall be entitled upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction (as hereinafter defined) and (ii) such additional distributions upon liquidation, dissolution or winding up of the Company as equal the Liquidation Multiple in effect immediately prior to such event multiplied, first, by the additional amount which the holder of a share of Common Stock shall be entitled to receive upon liquidation, dissolution or winding up of the Company upon exercise of such right or warrant by virtue of the capital stock which could be acquired upon such exercise and multiplied again by the Discount Fraction. For purposes of this paragraph, the "Discount Fraction" shall be a fraction the numerator of which shall be the difference between the Fair Market Value of a share of the capital stock subject to a right or warrant distributed to holders of shares of Common Stock of the Company as contemplated by this paragraph immediately after the distribution thereof and the purchase price per share for such share of capital stock pursuant to such right or warrant and the denominator of which shall be the Fair Market Value of a share of such capital stock immediately after the distribution of such right or warrant. (D) For purposes of this Section 7, the "Fair Market Value" of a share of capital stock of the Company (including a share of Common Stock) on any date shall be deemed to be the average of the daily closing price per share thereof over the 30 consecutive Trading Days (as such term is hereinafter defined) immediately prior to such date; provided, however, that, in the event that such Fair Market Value or any such share or capital stock is determined during a period which includes any date that is within 30 Trading Days after (i) the ex-dividend date for a dividend or distribution on stock payable in shares of such stock or securities convertible into shares or such stock, or (ii) the effective date of any subdivision, split, combination, consolidation, reverse stock split or reclassification of such stock, then, and in each such case, the Fair Market Value shall be appropriately adjusted by the Board or Directors of the Company to take into account ex-dividend or post-effective date trading. The closing price for any day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average or the closing bid and asked prices, regular way (in either case, as reported in the applicable transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange), or, if the shares are not listed or admitted to trading on the New York Stock Exchange, as reported in the applicable transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares are listed or admitted to trading or, if the shares are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such other-system then in use, or if on any such date the shares are not quoted by any such organization, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the shares selected by the Board of Directors of the Company. The term "Trading Day" shall mean a day on which the principal national securities exchange on which the shares are listed or admitted to trading is open for the transaction of business or, if the shares are not listed or admitted to trading on any national securities exchange, on which the New York Stock Exchange or such other national securities exchange as may be selected by the Board of Directors of the Company is open. If the shares are not publicly held or not so listed or traded on any day within the period of 30 Trading Days applicable to the determination of Fair Market Value thereof as aforesaid, "Fair Market Value" shall mean the fair market value thereof per share as determined by the Board of Directors of the Company. In either case referred to in the foregoing sentence, the determination of Fair Market Value shall be described in a statement filed with the Secretary of the Company. Section 8. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each outstanding share of Series A Preferred Stock shall at the same time be similarly exchanged for or changed into the aggregate amount of stock, securities, cash and/or other property (payable in like kind), as the case may be, for which or into which each share of Common Stock is changed or exchanged, multiplied by the higher of the Dividend Multiple or the Liquidation Multiple in effect immediately prior to such event. Section 9. Effective Time of Adjustments. (A) Adjustments to the Series A Preferred Stock required by the provisions hereof shall be effective as of the time at which the event requiring such adjustments occurs. (B) The Company shall give prompt written notice to each holder of a share of Series A Preferred Stock of the effect of any adjustment to the dividend rights or rights upon liquidation, dissolution or winding up of the Company of such shares required by the provisions hereof. Notwithstanding the foregoing sentence, the failure of the Company to give such notice shall not affect the validity of or the force or effect of or the requirement for such adjustment. Section 10. No Redemption. The shares of Series A Preferred Stock shall not be redeemable at the option of the Company or any holder thereof. Notwithstanding the foregoing sentence of this Section, the Company may acquire shares of Series A Preferred Stock in any other manner permitted by law, the provisions hereof and the Restated Certificate of Incorporation of the Company. Section 11. Ranking. Unless otherwise provided in the Restated Certificate of Incorporation of the Company or a Certificate of Designations relating to a subsequent series of preferred stock of the Company, the Series A Preferred Stock shall rank junior to all other series of the Company's Preferred Stock as to the payment or dividends and the distribution of assets on liquidation, dissolution or winding up, and senior to the Common Stock. Section 12. Amendment. The provisions hereof and the Restated Certificate of Incorporation of the Company shall not be amended in any manner which would adversely affect the rights, privileges or powers of the Series A Preferred Stock without, in addition to any other vote of stockholders required by law, the affirmative vote of the holders of two-thirds or more of the outstanding shares of Series A Preferred Stock, voting together as a single class. FIFTH: The private property of the stockholders shall not be subject to the payment of corporate debts to any extent whatever. SIXTH: The Corporation shall have perpetual existence. SEVENTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and it is expressly provided that the same are intended to be in furtherance and not in limitation or exclusion of the powers conferred by statute: (1) The number of directors of the Corporation (exclusive of directors (the "Preferred Stock Directors") who may be elected by the holders of any one or more series of Preferred Stock which may at any time be outstanding, voting separately as a class or classes) shall not be less than ten nor more than eighteen, the exact number within said limits to be fixed from time to time solely by resolution of the Board of Directors, acting by not less than a majority of the directors then in office. (2) The Board of Directors (exclusive of Preferred Stock Directors) shall be divided into three classes, with the term of office of one class expiring each year. At the annual meeting of shareholders in 1985, five directors of the first class shall be elected to hold office for a term expiring at the annual meeting of shareholders in 1986, six directors of the second class shall be elected to hold office for a term expiring at the annual meeting of shareholders in 1987 and six directors of the third class shall be elected to hold office for a term expiring at the annual meeting of shareholders in 1988. Commencing with the annual meeting of shareholders in 1986, directors of each class the term of which shall then expire shall be elected to hold office for a three-year term and until the election and qualification of their respective successors in office. In case of any increase in the number of directors (other than Preferred Stock Directors), the number of directors in each class shall be as nearly equal as possible. Election of directors need not be by ballot unless the By-laws so provide. (3) Subject to the rights of the holders of any one or more series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by the Board of Directors, acting by not less than a majority of the Directors then in office. Any director so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director. (4) Subject to the rights of the holders of any one or more series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of at least 80% of all of the outstanding shares of capital stock of the Corporation as are entitled to vote generally in the election of directors ("Voting Stock"), voting together as a single class. (5) The By-laws may prescribe the number of directors necessary to constitute a quorum and such number may be less than a majority of the total number of directors, but shall not be less than one-third of the total number of directors. (6) Both shareholders and directors shall have power, if the By-laws of the Corporation so provide, to hold their meetings either within or without the State of Delaware, to have one or more offices in addition to the principal office in the State of Delaware, and to keep the books of the Corporation (subject to the provisions of the statutes) outside of the State of Delaware at such places as may from time to time be designated by them. (7) The Board of Directors shall have power to determine from time to time whether and if allowed under what conditions and regulations the accounts, and except as otherwise provided by statute or by this Certificate of Incorporation, the books of the Corporation shall be open to the inspection of the shareholders, and the shareholders' rights in this respect are and shall be restricted or limited accordingly, and no shareholder shall have any right to inspect any account or book or document of the Corporation except as conferred by statute or by this Certificate of Incorporation, or authorized by the Board of Directors or by a resolution of the shareholders. (8) The Board of Directors shall have the power to adopt, amend or repeal the By-laws of the Corporation. (9) The Board of Directors acting by a majority of the whole board shall have power to appoint three or more of their number to constitute an Executive Committee, which Committee shall, when the Board of Directors is not in session and subject to the By-laws, have and exercise any or all of the powers of the Board of Directors in the management of the business and affairs of the Corporation and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. The Board of Directors acting by a majority of the whole board shall also have power to appoint any other committee or committees, such committees to have and exercise such powers as shall be conferred by the Board of Directors or be authorized by the By-laws. (10) Except as may be otherwise provided by statute or in this Certificate of Incorporation, the business and affairs of this Corporation shall be managed under the direction of the Board of Directors. (11) Directors, for their services as such, may be paid such compensation as may be fixed from time to time by the Board of Directors. (12) The Board of Directors shall have power from time to time to fix and determine and vary the amount of the working capital of the Corporation and, subject to any restrictions contained in the Certificate of Incorporation, to direct and determine the use and disposition of any surplus over and above the capital stock paid in, and in its discretion to use and apply any such surplus in purchasing or acquiring property, bonds or other obligations of the Corporation or shares of its own capital stock, to such extent and in such manner and upon such terms as the Board of Directors shall deem expedient, but any shares of such capital stock so purchased or acquired may be resold unless such shares shall have been retired in the manner provided by law for the purpose of decreasing the Corporation's capital stock. (13) Notwithstanding any other provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class of Voting Stock required by law or this Certificate of Incorporation, the affirmative vote of the holders of at least 80% of all of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend or repeal paragraphs (1), (2), (3), (4), (5), (8), (10) or this paragraph (13) of this Article SEVENTH. (14) The liability of the Corporation's Directors to the Corporation or its shareholders shall be eliminated to the fullest extent permitted by the Delaware General Corporation Law as amended from time to time. No amendment to or repeal of this paragraph (14) of Article SEVENTH shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. Notwithstanding any other provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class of Voting Stock required by law or this Certificate of Incorporation, the affirmative vote of the holders of at least 80% of all of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend or repeal this paragraph (14) of this Article SEVENTH. (15) Any action required or permitted to be taken by the shareholders of the Corporation must be effected solely at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. EIGHTH: A. Applicability of Article. Except as otherwise expressly provided in Section C of this Article EIGHTH, none of the actions or transactions listed below shall be effected by the Corporation, or approved by the Corporation as a shareholder of any majority-owned subsidiary of the Corporation if, as of the record date for the determination of the shareholders entitled to vote thereon, any Related Person (as hereinafter defined) exists, unless the applicable requirements of Sections B, C, D, E and F of this Article EIGHTH are fully complied with: (1) any merger or consolidation of the Corporation or any of its subsidiaries into or with such Related Person; (2) any sale, lease, exchange or other disposition of all or any substantial part of the assets of the Corporation or any of its majority-owned subsidiaries to or with such Related Person; (3) the issuance or delivery of any Voting Stock, or securities convertible into or exchangeable or exercisable for any Voting Stock, or of voting securities of any of the Corporation's majority-owned subsidiaries to such Related Person in exchange for cash, other assets or securities, or a combination thereof; or (4) any voluntary dissolution or liquidation of the Corporation. B. Stockholder Vote Required. The actions and transactions described in Section A of this Article EIGHTH shall have been authorized by the affirmative vote of at least 80% of all of the outstanding shares of Voting Stock, voting together as a single class. C. Minimum Price Required. Notwithstanding Section B hereof, the 80% voting requirement shall not be applicable if (1) any action or transaction specified in Section A hereof is approved by the Corporation's Board of Directors and by a majority of the Continuing Directors (as hereinafter defined); provided, however, that if there are not at least five Continuing Directors this exception for approval by the Board of Directors shall not be applicable or (2) in the case of any action or transaction pursuant to which the holders of the capital stock of the Corporation are entitled to receive cash, property, securities or other consideration, the cash or fair market value of the property, securities or other consideration to be received per share by holders of the capital stock of the Corporation in such action or transaction is not less than the higher of (a) the highest price per share paid by the Related Person in acquiring any of its holdings of capital stock of the Corporation, or (b) the highest closing sale price on any day either since the Related Person acquired its first share of capital stock of the Corporation which it continues to own or control or during the five years preceding the date of consideration of the action or transaction by the Corporation's Board of Directors, whichever period is shorter; such highest closing sale price shall be determined by the reports of closing sale prices on the Composite Tape for New York Exchange Listed Stocks or, if such stock is not quoted on the Composite Tape on the New York Stock Exchange or other principal United States securities exchange on which such stock is listed or, for any period when such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock on the National Association of Securities Dealers, Inc. Automated Quotation System; such price, in either case (a) or (b), to be proportionately adjusted for any subsequent increase or decrease in the number of issued shares of the Corporation's capital stock resulting from a subdivision or consolidation of shares or any other capital adjustments, the payment of a stock dividend, or other increase or decrease in such shares of capital stock effected without receipt of consideration by the Corporation. D. Restrictions on Certain Actions. After becoming a Related Person and prior to consummation of such action or transaction (1) such Related Person shall not have acquired from the Corporation or any of its majority-owned subsidiaries any newly issued or treasury shares of capital stock or any newly issued securities convertible into or exchangeable for capital stock of the Corporation or any of its majority-owned subsidiaries, directly or indirectly (except upon conversion or exchange of convertible or exchangeable securities acquired by it prior to becoming a Related Person or as a result of a pro rata stock dividend or stock split or other distribution of stock to all shareholders pro rata); (2) such Related Person shall not have received the benefit directly or indirectly (except proportionately as a shareholder) of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the Corporation or any of its majority-owned subsidiaries, or made any major changes in the Corporation's or any of its majority-owned subsidiaries' businesses or capital structures or reduced the current rate of dividends payable on the Corporation's capital stock below the rate in effect immediately prior to the time such Related Person became a Related Person (the current rate of dividends being the ratio of the current dividend to the net income of the Corporation for the full fiscal quarter immediately preceding the quarter in which such dividend is paid; and the rate of dividends in effect immediately prior to the time such Related Person became a Related Person being the ratio of (a) the aggregate dividends paid during the four full fiscal quarters immediately preceding the time such Related Person became a Related Person to (b) the aggregate net income of the Corporation for the four successive full fiscal quarters immediately preceding the last quarter in which such dividends were paid); and (3) such Related Person shall have taken all required actions to ensure that the Corporation's Board of Directors includes representation by Continuing Directors (as hereinafter defined) at least proportionate to the stockholdings of the Corporation's remaining public shareholders (as hereinafter defined), with a Continuing Director to occupy any Board position resulting from a fraction and, in any event, with at least one Continuing Director to serve on the Board so long as there are any remaining public shareholders. E. Proxy Statement Required. A proxy statement responsive to the requirements of the Securities Exchange Act of 1934, as amended, whether or not the Corporation is then subject to such requirements, shall be mailed to the shareholders of the Corporation for the purpose of soliciting shareholder approval of such action or transaction and shall contain at the front thereof, in a prominent place, any recommendations as to the advisability or inadvisability of the action or transaction which the Continuing Directors may choose to state. F. Certain Definitions. For the purpose of this Article EIGHTH, (1) the term "Related Person" shall mean any other corporation, person or entity (including any Affiliate thereof), other than this Corporation, any of its subsidiaries or any officer or employee thereof who holds only voting power pursuant to proxies which beneficially owns or controls, directly or indirectly, 10% or more of the outstanding shares of Voting Stock, (2) a Related Person shall be deemed to own or control, directly or indirectly, any outstanding shares of Voting Stock owned by it of record or beneficially, including without limitation shares (a) which it has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise or (b) which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause (a) above), by any other corporation, person or other entity (x) with which it or its Affiliate or Associate (as hereinafter defined) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of Voting Stock or (y) which is its "Affiliate" (other than the Corporation) or "Associate" (other than the Corporation) as those terms are defined in the General Rules and Regulations under the Securities Exchange Act of 1934, as amended; (3) the term "Voting Stock" shall mean such shares of capital stock of the Corporation as are entitled to vote generally in the election of directors; (4) the term "Continuing Director" shall mean a director who was a member of the Board of Directors of the Corporation immediately prior to the time that any Related Person involved in the proposed action or transaction became a Related Person or a director nominated by a majority of the remaining Continuing Directors; and (5) the term "remaining public shareholders" shall mean the holders of the Corporation's capital stock other than the Related Person. G. Determinations by the Board of Directors. The Board of Directors of the Corporation shall have the power and duty to determine for the purposes of this Article EIGHTH, on the basis of information then known to the Board of Directors, whether (1) any Related Person exists or is an Affiliate or an Associate of another and (2) any proposed sale, lease, exchange, or other disposition of part of the assets of the Corporation or any majority-owned subsidiary involves a substantial part of the assets of the Corporation or any of its subsidiaries. Any such determination by the Board of Directors shall be conclusive and binding for all purposes. H. Alteration, Amendment or Repeal. Notwithstanding any other provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class of Voting Stock required by law or this Certificate of Incorporation, the affirmative vote of the holders of at least 80% of all of the then outstanding shares of Voting Stock, voting together as a single class, shall be required to alter, amend or repeal this Article EIGHTH. NINTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute and all rights conferred upon the stockholders herein are granted subject to this reservation. IN WITNESS WHEREOF, said PFIZER INC. has caused its corporate seal to be hereunto affixed and this certificate to be signed by C. L. Clemente its Senior Vice President and attested by Terence J. Gallagher, its Assistant Secretary, this 22nd day of April, 1999. PFIZER INC. PFIZER INC. Corporate Seal 1942 Delaware By: /s/ C. L. Clemente -------------------------- Senior Vice President ATTEST: By: /s/ Terence J. Gallagher - ----------------------------- Assistant Secretary Exhibit 15 ACCOUNTANTS' ACKNOWLEDGMENT To the Shareholders and Board of Directors of Pfizer Inc.: We hereby acknowledge the incorporation by reference of our report dated May 18, 1999, included within the Quarterly Report on Form 10Q of Pfizer Inc. for the quarter ended April 4, 1999, in the following Registration Statements: - - Form S-15 dated December 13, 1982 (File No. 2-80884), - - Form S-8 dated October 27, 1983 (File No. 2-87473), - - Form S-8 dated March 22, 1990 (File No. 33-34139), - - Form S-8 dated January 24, 1991 (File No. 33-38708), - - Form S-8 dated November 18, 1991 (File No. 33-44053), - - Form S-3 dated May 27, 1993 (File No. 33-49629), - - Form S-8 dated May 27, 1993 (File No. 33-49631), - - Form S-8 dated May 19, 1994 (File No. 33-53713), - - Form S-8 dated October 5, 1994 (File No. 33-55771), - - Form S-3 dated November 14, 1994 (File No. 33-56435), - - Form S-8 dated December 20, 1994 (File No. 33-56979), - - Form S-4 dated February 14, 1995 (File No. 33-57709), - - Form S-8 dated March 29, 1996 (File No. 33-02061), - - Form S-8 dated September 25, 1997 (File No. 333-36371), - - Form S-8 dated April 23, 1998 (File No. 333-50899), and - - Form S-8 dated April 22, 1999 (File No. 333-76839) Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not considered a part of a registration statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of the Act. KPMG LLP New York, New York May 18, 199 Exhibit 18 Pfizer Inc. New York, NY Ladies and Gentlemen: We have been furnished with a copy of Form 10-Q of Pfizer Inc. for the quarterly period ended April 4, 1999 and have read the Company's statements contained in Note 3 to the condensed consolidated financial statements included therein. As stated in Note 3, the Company changed all of its remaining inventories previously on LIFO to the FIFO method. Those inventories consisted of U.S. sourced pharmaceutical and part of animal health inventories. The newly adopted accounting principle is preferable in the circumstances because inventory costs are stable and substantially unaffected by inflation. In accordance with your request, we have reviewed and discussed with Company officials the circumstances and business judgment and planning upon which the decision to make this change in the method of accounting was based. We have not audited any financial statements of the Company as of any date or for any period subsequent to December 31, 1998, nor have we audited the information set forth in the aforementioned Note 3 to the condensed consolidated financial statements; accordingly, we do not express an opinion concerning the factual information contained therein. With regard to the aforementioned accounting change, authoritative criteria have not been established for evaluating the preferability of one acceptable method of accounting over another acceptable method. However, for purposes of the Company's compliance with the requirements of the Securities and Exchange Commission, we are furnishing this letter. Based on our review and discussion, with reliance on management's business judgment and planning, we concur that the newly adopted method of accounting is preferable in the Company's circumstances. /s/ KPMG LLP ----------------------------------------------------- KPMG LLP Short Hills, NJ May 11, 1999 - - 56 -