THE LILLY DIRECTORS' DEFERRAL PLAN
(As amended and restated through February 1, 1996)
Section 1. Establishment of the Plan.
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Effective January 1, 1996, there is hereby established a plan whereby
certain Directors of the Company who are not current salaried employees
of the Company may voluntarily defer compensation (the "Deferred
Compensation" portion of the Plan), and certain Directors of the Company
who are not current or former full-time salaried employees of the Company
can share in the long-term growth of the Company by acquiring an
ownership interest in the Company (the "Deferred Stock" portion of the
Plan). Prior to January 1, 1996, the Company maintained the Deferred
Compensation portion of the Plan and the Deferred Stock portion of the
Plan as two separate plans, The Lilly Directors' Deferred Compensation
Plan and The Lilly Non-Employee Directors' Deferred Stock Plan,
respectively (the "Prior Plans"). The Plan is deemed to consist of the
amounts held under the Prior Plans, and any election made by a Director
under the Prior Plans, unless and until amended by the Director in
accordance with this Plan, shall remain in effect under this Plan.
Section 2. Definitions.
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When used in the Plan, the following terms shall have the definitions set
forth in this Section 2:
2.1. Accrual Date. The term "Accrual Date" means the first day in
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December of each calendar year on which the common stock of the
Company is traded, or such other annual date, not earlier than the third
Monday in February, established by the Committee as the date as of which
Shares are allocated to each Share Account.
2.2. Beneficiary. The term "Beneficiary" means the beneficiary or
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beneficiaries (including any contingent beneficiary or beneficiaries)
designated pursuant to subsection 8.3 hereof.
2.3. Board of Directors. The term "Board of Directors" means the
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Board of Directors of the Company.
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2.4. Committee. The term "Committee" refers to the Compensation and
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Management Development Committee of the Board of Directors, provided
that no Participant shall be considered to be a member of the Committee
for purposes of the Plan.
2.5. Company. The term "Company" means Eli Lilly and Company.
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2.6. Company Credit. The term "Company Credit" means an amount
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computed, and credited annually to a Participant's Deferred Compensation
Account at a rate that is two percent (2%) above the rate that the
Treasurer of the Company determines was the prime rate ofinterest
charged by Chemical Bank, New York, New York (the "Bank"), on loans made
on the immediately preceding December 15 or, if the Bank was closed on
December 15, the last day preceding December 15 on which the Bank was
open for business.
2.7. Compensation. The term "Compensation" means the retainer and the
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aggregate of all meeting fees to which a Director is entitled for
services rendered to the Company as a Director.
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2.8. Deferral Allocation Date. The term "Deferral Allocation Date"
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means the third Monday of any month, or if Shares are not traded on
The New York Stock Exchange on such third Monday of the month, the last
day before the third Monday of the month on which Shares are traded on
The New York Stock Exchange, that follows the earlier of (a) the date
on which an amount deferred under the Plan would have been paid in cash
if a deferral election had not been made hereunder, or (b) in the case
of an award of compensation which by its terms is subject to a deferred
payment date, the date of award.
2.9. Deferred Amount. The term "Deferred Amount" means the amount of a
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Deferred Compensation Participant's Compensation that the Participant
elects to defer in accordance with Section 4 hereof.
2.10. Deferred Compensation Participant. The term "Deferred Compensation
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Participant" means a Director who is not a salaried employee of the
Company and who has elected to defer all or part of his Compensation
pursuant to the Plan in accordance with Section 4 hereof.
2.11. Deferred Stock Participant. The term "Deferred Stock Participant"
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means a Director who is not a current or former full-time salaried
employee of the Company and who becomes a Participant in the Plan in
accordance with Section 3 hereof.
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2.12. Director. The term "Director" means each member of the Board of
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Directors.
2.13. Dividend Allocation Date. The term "Dividend Allocation Date"
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means the first Monday that (a) follows a Dividend Payment Date and
(b) is the third Monday of a Month.
2.14. Dividend Payment Date. The term "Dividend Payment Date" means the
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date as of which the Company pays a cash dividend on Shares.
2.15. Dividend Record Date. The term "Dividend Record Date" means,
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with respect to any Dividend Payment Date, the date established by the
Board of Directors as the record date for determining shareholders
entitled to receive payment of the dividend.
2.16. Individual Accounts. The term "Individual Accounts" or
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"Accounts" means the separate accounts (the Deferred Compensation
Account and the Share Account), described in Section 7 hereof, one or
both of which is established under the Plan for each Participant. When
used in the singular, the term shall refer to one of these two accounts,
as the context requires.
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2.17. Participant. The term "Participant" means a Director who is a
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Deferred Stock Participant, a Deferred Compensation Participant, or both,
as the case may be.
2.18. Plan. The term "Plan" means The Lilly Directors' Deferral Plan,
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as set forth herein and as it may be amended from time to time.
2.19. Share. The term "Share" means a share of common stock of the
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Company.
Section 3. Deferred Stock Participants.
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Each Director who participated in The Lilly Non-Employee Directors'
Deferred Stock Plan immediately before the effective date of this Plan
shall continue as a Deferred Stock Participant on such effective date,
and all elections in effect under The Lilly Non-Employee Directors'
Deferred Stock Plan shall remain in effect under this Plan, unless and
until amended in accordance with this Plan. Each person who is
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thereafter elected or appointed as a Director, and who is not and has
never been a full-time salaried employee of the Company, shall become a
Deferred Stock Participant beginning with the month in which such
Director takes office. A Deferred Stock Participant shall cease to
participate in the Plan when the Participant ceases to be a Director.
For purposes of the Plan, a Deferred Stock Participant shall be deemed to
cease to be a Director on the first day of the month next following the
month in which he last serves as a Director.
Section 4. Deferred Compensation Participants.
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Each Director who participated in The Lilly Directors' Deferred
Compensation Plan immediately before the effective date of the Plan shall
continue as a Deferred Compensation Participant on such effective date,
and all elections in effect under The Lilly Directors' Deferred
Compensation Plan shall remain in effect under this Plan, unless and
until amended in accordance with this Plan. Prior to the beginning of
each calendar year, any Director who is not a salaried employee of the
Company may defer the receipt of Compensation to be earned by the
Director during such year by filing with the Company a written election
that:
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(i) defers payment of a designated amount (of one Thousand
Dollars ($1,000) or more) or percentage of his
Compensation for services attributable to the following
calendar year or portion thereof (the "Deferred Amount");
(ii) specifies the payment option selected by the Participant
pursuant to subsection 8.2 hereof for such Deferred Amount; and
(iii) specifies the option selected by the Participant pursuant
to Section 5 hereof for such Deferred Amount.
The amount deferred may not exceed the Director's Compensation for the
calendar year. Notwithstanding the foregoing, any individual who is
newly elected or appointed to serve as a Director may, not later than
thirty (30) days after his election or appointment becomes effective,
elect in accordance with the preceding provisions of this Section 4, to
defer the receipt of Compensation earned during the portion of the
current calendar year that follows the filing of the election with the
Company. Except as provided in subsections 8.2 and 8.4 hereof, any
elections made pursuant to this Section 4 with respect to a calendar
year shall be irrevocable when made. If a Participant fails to make an
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election under section 5 with respect to his Deferred Amount for a
future calendar year, the Participant's previous election shall remain
in effect, provided that the Participant may amend his election with
regard to a future calendar year at any time.
Section 5. Form of Deferred Compensation Credits.
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5.1. Deferred Compensation Account. Except with respect to the
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deferral of Compensation for a calendar year in which a Deferred
Compensation Participant elects to have all or a percentage of the
Deferred Amount credited in Shares in accordance with subsection 5.2
hereof, the Deferred Amount shall be denominated in U.S. dollars and
credited to the Participant's Deferred Compensation Account pursuant to
subsection 7.1 hereof.
5.2. Shares. Prior to the beginning of each calendar year, a Deferred
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Compensation Participant may elect to have all or a percentage of the
Deferred Amount for the following calendar year credited in Shares and
allocated to the Participant's Share Account pursuant to subsection
7.2 hereof.
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5.3. Transfer of Deferred Compensation Account Balance to Share Account.
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Prior to the effective date of the Plan, a Deferred Compensation
Participant may elect to have all or a portion of his final credited
account balance in The Lilly Directors' Deferred Compensation Plan
converted to Shares and credited to the Participant's Share Account.
Such conversion shall take place as of January 1, 1996 based upon the
combined average of the high and low prices of Shares on The New York
Stock Exchange on each of the last five (5) days of 1995 on which Shares
are traded on The New York Stock Exchange. Such conversion shall,
however, be contingent upon receipt by the Company of (a) a no-action
letter from the Securities and Exchange Commission ("EC"), or (b) an
opinion of counsel satisfactory to the Company, to the effect that
such conversion shall not disqualify the participate from being a "is
interested person" within the meaning of prior SEC Rule 16b-3(d)(3)
and new SEC Rule 16b-3(c)(2)(i) for purposes of administering the
Company's employee stock incentive plans.
Section 6. Allocations to Share Accounts.
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6.1. Allocation of Shares. As of the Accrual Date of each calendar
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year, there shall be allocated to the Share Account of each Deferred
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Stock Participant, as part of the compensation to such Deferred
Stock Participant for service on the Board of Directors, eight hundred
(800) Shares, or, if less, the number of Shares that could be purchased
with the Participant's Compensation for the calendar year, assuming
attendance at eight one-day meetings, at the average of the high and low
prices of Shares on The New York Stock Exchange on the Accrual Date.
Shares allocated to each Deferred Stock Participant's Share Account shall
be hypothetical and not issued or transferred by the Company until
payment is made pursuant to Section 8 hereof.
6.2. Special Allocation. As of February 1, 1996, there shall be
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allocated to the Share Account of each Deferred Stock Participant the
number of Shares having a market value (calculated as set forth below)
equal to the present value as of December 31, 1995 of the accrued benefit
of the Participant in The Lilly Non-Employee Directors' Retirement Plan,
whether or not such Participant was vested in such benefit on that date.
Such present value calculation shall be performed by the Company in its
discretion and shall be converted to Shares based upon the combined
average of the high and low prices of Shares on The New York Stock
Exchange on each of the last five (5) days preceding February 1, 1996 on
which Shares are traded on The New York Stock Exchange. Such conversion
shall, however, be contingent upon receipt by the Company of (a) a
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no-action letter from the Securities and Exchange Commission ("EC"), or
(b) an opinion of counsel satisfactory to the Company, to the effect that
such conversion shall not disqualify the participate from being a "is
interested person" within the meaning of prior SEC Rule 16b-3(d)(3) and
new SEC Rule 16b-3(c)(2)(i) for purposes of administering the Company's
employee stock incentive plans.
Section 7. Individual Accounts.
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The Company shall maintain Individual Accounts for Participants, as
follows:
7.1. Deferred Compensation Account. The Company shall maintain a
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Deferred Compensation Account in the name of each Deferred Compensation
Participant in respect of each calendar year the Deferred Compensation
Participant elects to defer the receipt of Compensation pursuant to
Section 4 hereof and does not elect to have the Deferred Amount for such
calendar year credited in Shares pursuant to subsection 5.2 hereof. The
opening balance of each Deferred Compensation Account on January 1, 1996
shall be equal to the closing balance on December 31, 1995 of the
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corresponding account maintained under The Lilly Directors' Deferred
Compensation Plan, less any portion of such account converted to Shares and
allocated to the Participant's Share Account pursuant to subsection 5.3
hereof. The Deferred Compensation Account shall be denominated in U.S.
dollars, rounded to the nearest whole cent. A Deferred Amount allocated
to a Deferred Compensation Account pursuant to subsection 5.1 hereof
shall be credited to the Deferred Compensation Account as of the Deferral
Allocation Date.
7.2. Share Account. The Company shall maintain a Share Account for each
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Deferred Stock Participant and for each Deferred Compensation Participant
who elects to have a Deferred Amount credited in Shares pursuant to
subsection 5.2 hereof, or who elects to convert all or a portion of his
final account balance under The Lilly Directors' Deferred Compensation
Plan to Shares pursuant to subsection 5.3 hereof. The opening balance of
each Share Account on January 1, 1996, shall be equal to the closing
balance on December 31, 1995, of the corresponding Share Account
maintained under The Lilly Non-Employee Directors' Deferred Stock Plan.
The Share Account shall be denominated in Shares, and shall be maintained
in fractions rounded to three (3) decimal places.
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Shares allocated to a Deferred Compensation Participant's Share Account
in accordance with the Participant's election under subsection 5.2 hereof
shall be credited to the Participant's Share Account as of the Deferral
Allocation Date. Shares and, if necessary, fractional Shares, shall be
credited to a Participant's Share Account based upon the average of the
high and low price of Shares on The New York Stock Exchange on the
Deferral Allocation Date.
7.3. Former Interest Account. All balances in the Account known
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previously as the "Interest Account" under The Lilly NonEmployee
Directors' Deferred Stock Plan shall be transferred to the Share Account
effective on January 1, 1996, utilizing the same price of Shares set
forth in subsection 5.3 hereof for purposes of the calculation.
7.4. Accrual of Company Credit. The Treasurer of the Company shall
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determine the annual rate of Company Credit on or before December 31 of
each calendar year. This rate shall be effective for the following
calendar year. The Company Credit shall accrue monthly, at one-twelfth
of the applicable annual rate, on all amounts credited to a Participant's
Deferred Compensation Account, including the Company Credits for prior
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years. The Company Credit shall not accrue on any amount distributed to
a Participant (or to the Participant's Beneficiary) during the month for
which the accrual is determined, except where an amount is distributed to
a Beneficiary in the month of the Participant's death. The Company
Credit for each year shall be credited to each Deferred Compensation
Account as of December 31 of that year and shall be compounded monthly.
7.5. Cash Dividends. Cash dividends paid on Shares shall be deemed to
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have been paid on the Shares allocated to each Participant's Share
Account as if the allocated Shares were actual Shares issued and
outstanding on the Dividend Record Date. An amount equal to the amount
of such dividends shall be credited in Shares to each Share Account as of
each Dividend Allocation Date based upon the average of the high and low
prices for Shares on The New York Stock Exchange on the Divided
Allocation Date, or, if Shares are not traded on the Divided Allocation
Date, the next day on which Shares are traded.
7.6. Capital Adjustments. The number of Shares referred to in Section 6
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hereof and the number of Shares allocated to each Share Account shall be
adjusted by the Committee, as it deems appropriate, to reflect stock
dividends, stock splits, reclassifications, spinoffs, and other
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extraordinary distributions, as if those Shares were actual Shares.
7.7. Account Statements. Within a reasonable time following the end of
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each calendar year, the Company shall render an annual statement to each
Participant. The annual statement for each Deferred Stock Participant
shall report the number of Shares credited to the Participant's Share
Account as of December 31 of that year. The annual statement for each
Deferred Compensation Participant shall report the dollar amount credited
to the Participant's Deferred Compensation Account as of December 31 of
that year, and, if the Deferred Compensation Participant elects to invest
a Deferred Amount in Shares pursuant to subsection 5.2 hereof, or if the
Deferred Compensation Participant elects to convert his final account
balance under The Lilly Directors' Deferred Compensation Plan to Shares
pursuant to subsection 5.3 hereof, the number of Shares credited to the
Participant's Share Account as of December 31 of that year.
Section 8. Payment Provisions.
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8.l. Method of Payment. All payments to a Participant (or to a
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Participant's Beneficiary) with respect to the Participant's Deferred
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Compensation Account shall be paid in cash. All payments to a
Participant (or to a Participant's Beneficiary) with respect to the
Participant's Share Account shall be paid in Shares, at which time the
Shares shall be issued or transferred on the books of the Company. All
Shares to be transferred hereunder shall be transferred out of treasury
shares to the extent available. Fractional Shares shall not be
transferred to a Participant, provided that in the case of a final
payment under the Plan with respect to a Participant, any fractions
remaining in the Participant's Share Account shall be rounded up to the
next whole Share and that number of whole Shares shall be transferred to
the Participant (or, after the Participant's death, to the Participants's
Beneficiary). If Shares are not traded on The New York Stock Exchange on
any day on which a payment of Shares is to be made under the Plan, then
that payment shall be made on the next day on which Shares are traded on
The New York Stock Exchange.
8.2. Payment Options. Prior to each calendar year, or within 30 days
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after becoming a Participant, the Participant shall select a payment
election with respect to the payment of any one or all of the
Participant's Individual Accounts from the following payment elections:
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(i) a lump sum in January of the calendar year immediately
following the calendar year in which the Participant ceases
to be a Director; or
(ii) annual (or, in the case of the Deferred Compensation
Account only, monthly) installments over a period of two to ten
years commencing in January of the calendar year following the
calendar year during which the Participant ceases to be a
Director.
If the payment option described in paragraph (i), above, has been
elected, the amount of the lump sum with respect to the Participant's
Deferred Compensation Account shall be equal to the amount credited to
the Participant's Deferred Compensation Account as of the December 31
next preceding the date of the payment, and the amount of the lump sum
with respect to the Participant's Share Account shall be equal to the
number of Shares credited to the Share Account as of the December 31 next
preceding the date of payment. If the payment option described in
paragraph (ii), above, has been elected, the amount of each installment
with respect to the Participant's Deferred Compensation Account shall be
equal to the amount credited to the Participant's Deferred Compensation
Account as of the last day of the month next preceding the date of a
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monthly installment payment, or the December 31 next preceding the date
of an annual installment payment, divided by the number of installment
payments that have not yet been made. The amount of each installment
with respect to the Participant's Share Account shall be equal to the
number of Shares credited to the Participant's Share Account as of the
December 31 next preceding the date of an annual installment payment,
divided by the number of installment payments that have not yet been made.
A Participant may elect that his final payment election may control
over all prior payment elections. If the Participant fails to elect a
payment option, the amount credited to the Participant's Individual
Account shall be distributed in a lump sum in accordance with the payment
option described in paragraph (i), above. If the amount credited to a
Participant's Deferred Compensation Account or the value of Shares
credited to a Participant's Share Account is less than $25,000, the
Committee, in its sole discretion, may pay out the amount credited to the
Participant's Individual Account in a lump sum.
8.3. Payment Upon Death. Within a reasonable period of time following
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the death of a Participant, the amount credited to a Participant's
Deferred Compensation Account and all of the Shares credited to the
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Participant's Share Account shall be paid by the Company in a lump sum
to the Participant's Beneficiary. For purposes of this subsection 8.3,
the amount credited to the Participant's Deferred Compensation Account
and the number of Shares credited to the Participant's Share Account
shall be determined as of the date of payment. A Participant may
designate the Beneficiary, in writing, in a form acceptable to the
Committee before the Participant's death. A Participant may, before the
Participant's death, revoke a prior designation of Beneficiary and may
also designate a new Beneficiary without the consent of the previously
designated Beneficiary, provided that such revocation and new designation
(if any) are in writing, in a form acceptable to the Committee, and filed
with the Committee before the Participant's death. If the Participant
does not designate a Beneficiary, or if no designated Beneficiary
survives the Participant, any amount not distributed to the Participant
during the Participant's life shall be paid to the Participant's estate
in a lump sum in accordance with this subsection 8.3.
8.4. Payment on Unforeseeable Emergency. The Administrator may, in
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its sole discretion, direct payment to a Participant of all or of any
portion of the Participant's Individual Account balance, notwithstanding
an election under subsection 8.2 above, at any time that it determines
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that such Participant has an unforeseeable emergency, and then only to
the extent reasonably necessary to meet the emergency. For purposes of
this section, "unforeseeable emergency" means severe financial hardship
to the Participant resulting from a sudden and unexpected illness or
accident of the Participant or of a dependent of the Participant, loss
of the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant. The circumstances that
will constitute an unforeseeable emergency will depend upon the facts of
each case, but, in any case, payment may not be made to the extent that
such hardship is, or may be, relieved --
(i) Through reimbursement or compensation by insurance or
otherwise,
(ii) By liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe
financial hardship, or
(iii) By cessation of deferrals under the Plan.
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Examples of what are not considered to be unforeseeable emergencies
include the need to send a Participant's child to college or the desire
to purchase a home.
Section 9. Ownership of Shares.
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A Participant shall have no rights as a shareholder of the Company with
respect to any Shares until the Shares are transferred to the Participant
on the books of the Company.
Section 10. Prohibition Against Transfer.
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The right of a Participant to receive payments of Shares and cash under
the Plan may not be transferred except by will or applicable laws of
descent and distribution. A Participant may not assign, sell, pledge, or
otherwise transfer Shares or cash to which he is entitled hereunder prior
to transfer or payment thereof to the Participant.
Section 11. General Provisions.
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11.1. Director's Rights Unsecured. The Plan is unfunded. The right
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of any Participant to receive payments of cash or Shares under
the provisions of the Plan shall be an unsecured claim against the
general assets of the Company.
11.2. Administration. Except as otherwise provided in the Plan, the
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Plan shall be administered by the Committee, which shall have the
authority to adopt rules and regulations for carrying out the Plan,
and which shall interpret, construe, and implement the provisions of the
Plan.
11.3. Legal Opinions. The Committee may consult with legal counsel,
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who may be counsel for the Company or other counsel, with respect to its
obligations and duties under the Plan, or with respect to any action,
proceeding, or any questions of law, and shall not be liable with
respect to any action taken, or omitted, by it in good faith pursuant to
the advice of such counsel.
11.4. Liability. Any decision made or action taken by the Board of
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Directors, the Committee, or any employee of the Company or any of its
subsidiaries, arising out of or in connection with the construction,
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administration, interpretation, or effect of the Plan, shall be
absolutely discretionary, and shall be conclusive and binding on all
parties. Neither the Committee nor a member of the Board of Directors
and no employee of the Company or any of its subsidiaries shall be liable
for any act or action hereunder, whether of omission or commission, by
any other member or employee or by any agent to whom duties in connection
with the administration of the Plan have been delegated or, except in
circumstances involving bad faith, for anything done or omitted to be
done.
11.5. Withholding. The Company shall have the right to deduct from all
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payments hereunder any taxes required by law to be withheld from such
payments. The recipients of such payments shall bear all taxes on
amounts paid under the Plan to the extent that no taxes are withheld
thereon, irrespective of whether withholding is required.
11.6. Incapacity. If the Committee determines that any person entitled
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to benefits under the Plan is unable to care for his or here affairs
because of illness or accident, any payment due (unless a duly qualified
guardian or other legal representative has been appointed) may be paid
for the benefit of such person to such person's spouse, parent, brother,
sister, or other party deemed by the Committee to have incurred expenses
for such person.
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11.7. Inability to Locate. If the Committee is unable to locate a
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person to whom a payment is due under the plan for a period of twelve
(12) months, commencing with the first day of the month as of which the
payment becomes payable, the total amount payable to such person shall
be forfeited.
11.8. Legal Holidays. If any day on (or on or before) which action
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under the Plan must be taken falls on a Saturday, Sunday, or legal
holiday, such action may be taken on (or on or before) the next
succeeding day that is not a Saturday, Sunday, or legal holiday;
provided, that this subsection 11.8 shall not permit any action that must
be taken in one calendar year to be taken in any subsequent calendar
year.
Section 12. Amendment, Suspension, and Termination.
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The Board of Directors shall have the right at any time, and from time
to time, to amend, suspend, or terminate the Plan, provided that no
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amendment or termination shall reduce the number of Shares or the cash
balance in an Individual Account, and provided further that the number of
Shares allocated annually pursuant to Section 6 hereof may not be changed
more frequently than every calendar year.
Section 13. Applicable Law.
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The Plan shall be governed by, and construed in accordance with, the
laws of the State of Indiana, except to the extent that such laws are
preempted by Federal law.
Section 14. Effective Date.
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The effective date of this Plan is January 1, 1996. Nothing herein shall
invalidate or adversely affect any previous election, designation,
deferral, or accrual in accordance with the terms of The Lilly Directors'
Deferred Compensation Plan or The Lilly Non-Employee Directors' Deferred
Stock Plan that were in effect prior to the effective date of this Plan.