Exhibit 10.5
THE LILLY DIRECTORS' DEFERRAL PLAN
(As amended and restated through December 20, 1999)
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 Board of
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Directors of the Company.
2.4. Committee. The term "Committee" refers to the Directors and
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Corporate Governance Committee of the Board of Directors.
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 computed,
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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 of interest charged by Chemical Bank, New York,
New York or its successor bank (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.
2.8. Deferral Allocation Date. The term "Deferral Allocation Date" means
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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.
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" means
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the first Monday that (a) follows a Dividend Payment Date and (b) is the third
Monday of a Month.
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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, with
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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 "Accounts"
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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.
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, as
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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 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 or she 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
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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:
(i) defers payment of a designated amount (of one Thousand Dollars
($1,000) or more) or percentage of his or her 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 election
under section 5 with respect to his or her Deferred Amount for a future calendar
year, the Participant's previous election shall remain in effect, provided that
the Participant may amend his or her 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 deferral
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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.
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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.
Section 6. Allocations to Share Accounts.
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6.1. Allocation of Shares. As of the Accrual Date of each calendar year,
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there shall be allocated to the Share Account of each Deferred Stock
Participant, as part of the compensation to such Deferred Stock Participant for
service on the Board of Directors, seven hundred (700) Shares (or such other
number of Shares as may be specified from time to time by resolution of the
Board of Directors), 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.
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 Deferred
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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 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 or her final account
balance under The Lilly Directors' Deferred Compensation Plan to Shares pursuant
to subsection 5.3 hereof. 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 Non-Employee 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 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 extraordinary
distributions, as if those Shares were actual Shares.
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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 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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8.1. 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
Compensation Account shall be paid in cash. Except as provided in Section 8.5,
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
Participant'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 one or both of the Participant's Individual
Accounts from the following payment elections:
(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) a lump sum in January of the second calendar year following
the calendar year in which the Participant ceases to be a Director;
(iii) 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; or
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(iv) 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 second calendar year following the calendar year in which the
Participant ceases to be a director.
If the payment option described in paragraphs (i) or (ii), 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 paragraphs (iii) or (iv), 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 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 the
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death of a Participant, the amount credited to a Participant's Deferred
Compensation Account and all of the Shares credited to the 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
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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 Committee may, in its sole
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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 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.
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.
8.5. Payment of Cash in Lieu of Shares. If at any time the Committee
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shall determine that payment of Shares to a Participant (or a Participant's
Beneficiary) or the ownership or subsequent disposition of such Shares by such
Participant or Beneficiary may violate or conflict with any applicable law or
regulation, the Committee may, in its discretion, pay all or a portion of the
Participant's Share Account in cash. In this case, the amount of cash
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shall be determined with reference to the average of the high and low trading
price for Shares on the December 31 next preceding the date of payment, or if
Shares are not traded on that day, the next preceding trading day.
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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 of
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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 Plan
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shall be administered by the Committee, which shall have the final authority to
adopt rules and regulations for carrying out the Plan, and to interpret,
construe, and implement the provisions of the Plan.
11.3. Legal Opinions. The Committee may consult with legal counsel, who
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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,
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.
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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 to
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benefits under the Plan is unable to care for his or her 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.
11.7. Inability to Locate. If the Committee is unable to locate a person
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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 under
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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 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.
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