EXHIBIT 10. THE LILLY DIRECTORS’ DEFERRAL PLAN

(As amended and restated through November 1, 2002)

Section 1. Establishment of the Plan.

This Plan was established effective January 1, 1996, to permit Directors of the
Company who are not salaried employees of the Company to voluntarily defer
receipt of some or all of their meeting fees and retainer and to share in the
long-term growth of the Company by acquiring, on a deferred basis, an ownership
interest in the Company. This amended and restated Plan is effective November 1,
2002.

Section 2. Definitions.

When used in the Plan, the following terms shall have the definitions set forth
in this Section 2:

     2.1. Annual Allocation Date. The last Business Day in November of each
calendar year, 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 in accordance with Section 6.

     2.2. Beneficiary. The beneficiary or beneficiaries (including any
contingent beneficiary or beneficiaries) designated pursuant to subsection 8.3
hereof.

     2.3 Business Day. A day on which the Company’s corporate headquarters are
open for regular business.

     2.4. Board of Directors. The Board of Directors of the Company.

     2.5. Committee. The Directors and Corporate Governance Committee of the
Board of Directors, or any successor committee of the Board of Directors that is
charged with matters relating to the compensation of non-employee directors.

     2.6. Company. Eli Lilly and Company.

     2.7. Company Credit. An amount 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
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.

     2.8. Deferred Amount. The amount of a Monthly Deferral Participant’s
Monthly Compensation that the Participant elects to defer in accordance with
Section 4 hereof.

     2.9. Deferred Stock Participant. 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.

     2.10. Director. A member of the Board of Directors.

     2.11. Dividend Payment Date. The date as of which the Company pays a cash
dividend on Shares.

     2.12. Dividend Record Date. 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.

     2.13. Individual Accounts or Accounts. 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.

     2.14. Monthly Compensation. For any month, the monthly retainer and the
aggregate of all meeting fees, committee fees and committee chairperson fees to
which a Director is entitled for services rendered to the Company as a Director
during the month, as such retainer and fees are established from time to time by
resolution of the Board of Directors. For avoidance of doubt, Monthly
Compensation does not include stock options or the Shares allocated pursuant to
Section 6 of this Plan.

     2.15. Monthly Deferral Participant. A Director who is not a salaried
employee of the Company and who has elected to defer all or part of his or her
Compensation pursuant to the Plan in accordance with Section 4 hereof.

 

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     2.16. Participant. A Director who is a Deferred Stock Participant, a
Monthly Deferral Participant, or both, as the case may be.

     2.17. Plan. The Lilly Directors’ Deferral Plan, as set forth herein and as
it may be amended from time to time.

     2.18. Share. A share of common stock of the Company.

     2.19. Valuation Date. For any month, the third Monday of the month, or if
Shares are not traded on the New York Stock Exchange on such third Monday, the
next day on which Shares are traded on the New York Stock Exchange.

Section 3. Deferred Stock Participants.

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
he or she ceases to be a Director.

Section 4. Monthly Deferral Participants.

Each Director who participated in The Lilly Directors’ Deferred Compensation
Plan immediately before the effective date of the Plan shall continue as a
Monthly Deferral 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 Monthly 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 Monthly 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 aggregate Monthly 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 Monthly 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.

     5.1. Deferred Compensation Account. Except with respect to Deferred Amounts
which a Monthly Deferral Participant elects to have 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 Monthly
Deferral 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. Annual Allocations to Share Accounts.

     6.1. Annual Allocation of Shares. As of the Annual Allocation Date of each
calendar year, there shall be allocated to the Share Account (as described in
Section 7.2 below) of each Deferred Stock Participant who is a Director on that
date, as part of his or

 

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her compensation 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).

Section 7. Individual Accounts.

The Company shall maintain Individual Accounts for Participants as follows:

     7.1. Deferred Compensation Account. The Company shall maintain a Deferred
Compensation Account in the name of each Monthly Deferral Participant who elects
to defer the receipt of Monthly Compensation pursuant to Section 4 hereof for a
calendar year 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. For each month, Deferred Amounts allocated to a Deferred
Compensation Account pursuant to subsection 5.1 hereof shall be credited to the
Deferred Compensation Account as of the last Business Day of the month.

     7.2. Share Account. The Company shall maintain a Share Account for each
Deferred Stock Participant and for each Monthly Deferral Participant who elects
to have a Deferred Amount credited in Shares pursuant to subsection 5.2 hereof.
The Share Account shall be denominated in Shares and maintained in fractions
rounded to three (3) decimal places. Shares allocated to each Share Account
shall be hypothetical and not issued or transferred by the Company until payment
is made pursuant to Section 8 hereof.

     For each month, Deferred Amounts allocated to a Share Account pursuant to
subsection 5.2 hereof shall be credited to the Share Account as of the last
Business Day of the month. Shares and, if necessary, fractional Shares, shall be
credited based upon the average of the high and low price of Shares on the New
York Stock Exchange on the Valuation Date for that month.

     7.3. Accrual of Company Credit. The Treasurer of the Company shall
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.

     7.4. Cash Dividends. Cash dividends paid on Shares shall be deemed to 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 the last Business Day of each month in
which a Dividend Payment Date occurs, based upon the average of the high and low
prices for Shares on the New York Stock Exchange on the Valuation Date for that
month.

     7.5. Capital Adjustments. The number of Shares referred to in Section 6
hereof and the number of Shares allocated to each Share Account shall be
adjusted by the Committee, as it deems appropriate in its discretion, in the
event of any subdivision or combination of Shares or any stock dividend, stock
split, reorganization, recapitalization, or consolidation or merger with Eli
Lilly and Company as the surviving corporation, or if additional shares or new
or different shares or other securities of the Company or any other issuer are
distributed with respect to Shares through a spin-off or other extraordinary
distribution.

     7.6. Account Statements. Within a reasonable time following the end of each
calendar year, the Company shall render an annual statement to each Participant.
The annual statement shall report the number of Shares credited to the
Participant’s Share Account as of December 31 of that year and the dollar
amount, if any, credited to the Participant’s Deferred Compensation Account as
of December 31 of that year.

Section 8. Payment Provisions.

     8.l. Method of Payment. All payments to a Participant (or to a
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 issued or transferred hereunder may be newly issued or treasury shares.
Fractional Shares shall not be issued or transferred to a Participant, provided
that in the case of a final payment under the Plan with respect to a
Participant, any fraction remaining in the Participant’s Share Account shall be
rounded up to the next whole Share and that number of whole Shares shall be
issued or transferred. 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.

 

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     8.2. Payment Options. Prior to each calendar year, or within 30 days 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

          (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 a 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 immediately 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 immediately preceding the date of
payment. If a 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
immediately preceding the date of a monthly installment payment, or the
December 31 immediately 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 immediately 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 or her 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. At the time of any scheduled payment, 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
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 later of the date
of death or the last Business Day of the month prior to the month in which the
payment occurs.

     A Participant may designate the Beneficiary, in writing, in a form
acceptable to the Committee before the Participant’s death. A Participant may
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
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,

 

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          (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 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 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.

Section 9. Ownership of Shares.

A Participant shall have no rights as a shareholder of the Company with respect
to any Shares until the Shares are issued or transferred to the Participant on
the books of the Company.

Section 10. Prohibition Against Transfer.

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, and any attempted such assignment, sale, pledge or
transfer shall be void.

Section 11. General Provisions.

     11.1. Director’s Rights Unsecured. The Plan is unfunded. The right 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 Plan
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 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
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.

     11.5. Withholding. The Company shall have the right to deduct from all
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
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.

 

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     11.7. Inability to Locate. If the Committee is unable to locate a 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 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.

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.

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.

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.