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                                                                    EXHIBIT 10.7

                       THE LILLY DIRECTORS' DEFERRAL PLAN
                (As amended and restated through January 1, 2004)

SECTION 1. ESTABLISHMENT OF THE PLAN AND SHARES AVAILABLE.

         1.1. Establishment of 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 January 1, 2004.

         1.2. Shares Available. Subject to adjustment as provided in Section
7.5, the aggregate number of shares of Eli Lilly and Company common stock that
may be issued or transferred under this Plan after April 28, 2003, is 750,000.
The shares may be authorized and unissued shares or treasury shares.

SECTION 2. DEFINITIONS.

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. For any calendar year or part thereof, an amount
computed, and credited annually to a Participant's Deferred Compensation Account
at an annual rate that is equal to one hundred twenty percent (120%) of the
applicable federal long-term rate, with compounding (as prescribed under Section
1274(d) of the Internal Revenue Code) that was in effect for the month of
December immediately preceding the calendar year.

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         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, and for the
preceding 12 months has not been, a 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 the dividend.

         2.13. Individual Accounts or Accounts. The separate accounts (the
Deferred Compensation Account and the Share Account) described in Section 7
hereof. 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 established from time to time by resolution of the Board of
Directors. For avoidance of doubt, Monthly Compensation does not include stock
options granted to Directors 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.

         2.16. Participant. A Director who is a Deferred Stock Participant, a
Monthly Deferral Participant, or both.

         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.

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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.
Thereafter, each person who becomes a Director, and who is not, and for the
preceding 12 months has not been, a salaried employee of the Company, shall
become a Deferred Stock Participant.

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.

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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 her compensation for service on the Board of
Directors, seven hundred (700) Shares or such other number of Shares, not to
exceed 3,000 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.

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         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 Sections
1.2 and 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.

         8.1. 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

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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
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;

                  (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 Account in a lump sum.

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         8.3. Payment Upon Death. Within a reasonable period of time following
the death of a Participant, the amount credited to the Participant's Deferred
Compensation Account and 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;

                  (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

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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 such attempted 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

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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. Legal Holidays. If any day on which action under the Plan must be
taken falls on a Saturday, Sunday, or legal holiday, such action may be taken on
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.

         11.7. Participant Who Becomes Employee. If a Participant becomes an
employee of the Company but remains a Director, he or she will no longer be
entitled to new deferrals under the Plan as a Deferred Stock Participant or
Monthly Deferral Participant. However, the individual's Account balances will
continue to be administered under the Plan (including eligibility for the
Company Credit and Cash Dividends under Sections 7.3 and 7.4) until they are
paid out in accordance with Section 8.

SECTION 12. TERM, AMENDMENT, SUSPENSION, AND TERMINATION.

The Plan shall remain in effect until terminated by the Board of Directors. The
Board of Directors shall have the right at any time, and from time to time, to
amend, suspend, or terminate the Plan, subject to the following:

                  (i) no amendment or termination shall reduce the number of
Shares or the cash balance in an Individual Account;

                  (ii) the number of Shares allocated annually pursuant to
Section 6 hereof may not be changed more frequently than every calendar year;
and

                  (iii) to the extent required by New York Stock Exchange
listing rules or applicable law, material amendments shall be submitted to the
Company's shareholders for approval.

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.

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