Document:

exv10w4

Exhibit 10.4

Loan Number: 2757504497

UNCONDITIONAL GUARANTY

     THIS UNCONDITIONAL GUARANTY is executed by the undersigned on this 28th day of October, 2008.

     LYLE BERMAN (the “Guarantor”), hereby requests and authorizes FIRST STATE BANK (“Lender”) to
extend credit to LAKES ENTERTAINMENT, INC. (the “Borrower”), an affiliate of the Guarantor,
pursuant to the terms and conditions of, among other documents:

	 	(a)	 	that $8,000,000 Secured Line of Credit Promissory Note;
	 
	 	(b)	 	that Mortgage, Security Agreement, and Absolute Assignment of Rents (the
“Mortgage”);
	 
	 	(c)	 	that Secured Line of Credit Loan Agreement;
	 
	 	(d)	 	that Regulatory Indemnification Agreement;
	 
	 	(e)	 	that Collateral Assignment of Life Insurance Policy; and
	 
	 	(f)	 	that Absolute Assignment of Leases, Rents, Contracts, Permits and Agreements, all of
even date herewith

all of the above-referenced documents, along with all other documents executed by Borrower and
Guarantor to and in favor of Lender, being collectively referred to herein as the “Loan Agreement.”

     It is recognized and agreed that Guarantor is a key employee, shareholder, and chief executive
officer of Borrower and will receive substantial financial consideration, benefit and gain as a
result of Lender’s extension of credit to Borrower and Guarantor’s execution of this document.

     In consideration of the granting of said financial and credit accommodations by Lender to
Borrower, and for other good and valuable consideration, and recognizing that Lender would not
otherwise advance a loan to Borrower absent the execution of this Unconditional Guaranty by
Guarantor, Guarantor hereby covenant and agrees with Lender as follows:

     1. Performance. Guarantor hereby guarantees the prompt payment and performance, on
demand, of:

	 	(a)	 	All of Borrower’s financial and other obligations and liabilities of every
nature as are set forth and specified in the Loan Agreement and in all other documents
referenced in the Loan Agreement or otherwise pertaining to the subject financial
transaction;
	 
	 	(b)	 	All of Borrower’s present and future obligations and indebtedness incurred or
created with respect to the Loan Agreement or which otherwise may be created and
reduced to writing by and between Lender and Borrower; and
	 
	 	(c)	 	Any and all obligations of Borrower under the terms of the Loan Agreement or
any instrument evidencing, securing or pertaining thereto.

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Loan Number: 2757504497

Time is of the essence in connection with the performance of Guarantor’s obligations hereunder.
Payment shall be made in any certified and readily-available funds that, at the time of payment,
are legal tender in the United States of America for public and private debts. Guarantor’s
obligations hereunder are unconditional and irrevocable.

     2. Change of Terms. In such manner, upon such terms, and at such times as Lender
deems best, and without notice to the undersigned, by agreement between them, Lender and Borrower
may alter, compromise, accelerate, extend, or change the time or manner for the payment of the
indebtedness hereunder or the performance of any other obligation hereby guaranteed; release
Borrower, by acceptance of a deed in lieu of foreclosure or otherwise, as to all or any portion of
the indebtedness; release, substitute, or add any one or more guarantors or endorsers; accept
additional or substituted security therefor; or exchange, release, surrender, realize upon, or
subordinate any security therefor or deal with it in any manner that Lender may determine. No
exercise or non-exercise by Lender of any right hereby given Lender, no dealing by Lender with
Borrower or guarantor, endorser, or any other person, and no change, impairment, or suspension of
any right or remedy of Lender shall in any way affect any of the obligations of Guarantor hereunder
or any security furnished by Guarantor or give Guarantor any recourse against Lender.

     3. Continuing Guaranty. This is a continuing guaranty relating to any and all
indebtedness extended by Lender to Borrower in connection with the Loan Agreement from time to
time. This continuing guaranty shall ensure the payment and performance by Guarantor of all
renewals, modifications and/or extensions of the Loan Agreement.

     4. All Liability Included. The guaranteed debt includes, without limit, all liability
of the Borrower to the Lender, whether now or hereafter incurred under the Loan Agreement, and any
other document executed in connection therewith or otherwise executed by Borrower or its affiliates
in favor of Lender up to a principal amount of $8,000,000 plus all other amounts owed pursuant to
the Loan Agreement. Termination of this Guaranty shall be effective only as to that portion of the
debt incurred after written notice of termination has been received by an officer of Lender, and
this Guaranty shall remain in full force and effect as to all debt incurred before that time
including loan commitments. Regardless of when a renewal, extension, or pre-termination of the
debt guaranteed hereby occurs (with or without adjustment of interest rate or other terms), the
debt is deemed to have been incurred prior to termination to the extent of the renewal or extension
and to be fully covered by this Guaranty.

     5. Security Interest. In addition to all liens and rights of setoff given to Lender
by law against any property of Borrower or of Guarantor, Lender shall have a general lien on and
security interest in and a right of setoff against all property of Guarantor now or hereafter in
the physical possession of or on deposit with Lender, whether held in a general or special account,
on deposit or for safekeeping or otherwise. Each such lien, security interest, and right of setoff
may be enforced or exercised without demand upon or notice to Guarantor (unless such notice or
demand is required by statute), shall continue in full force unless specifically waived or released
by Lender in writing and shall not be deemed waived by any conduct of Lender, by any failure of
Lender to exercise any
such right of setoff or to enforce any such lien or security interest or by any neglect or
delay in so doing.

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Loan Number: 2757504497

     6. Waiver. Guarantor hereby waives and agrees not to assert or take advantage of:

	 	(a)	 	Any right to require Lender to proceed against Borrower or any other person or
to proceed against or exhaust any security held by Lender at any time or to pursue any
other remedy in Lender’s power before proceeding against Guarantor;
	 
	 	(b)	 	The defense of the statute of limitations in any action hereunder or in any
action for the collection of the Loan Agreement or the performance of any other
obligation hereby guaranteed;
	 
	 	(c)	 	Any defense that may arise by reason of the incapacity, illegality, lack of
authority, death or disability of any other person or persons or the failure of Lender
to file or enforce a claim against the estate (in administration, bankruptcy or any
other proceeding) of any other person or persons;
	 
	 	(d)	 	Demand, protest, and notice of any kind including, without limiting the
generality of the foregoing, notice of the existence, creation, or incurring of any new
or additional indebtedness or obligation or of any action or non-action on the part of
Borrower, Lender, and endorser or creditor of Borrower or Guarantor or on the part of
any other person whomsoever under this or any other instrument in connection with any
obligation or evidence of indebtedness held by Lender as collateral or in connection
with the Loan Agreement or any other obligation hereby guaranteed;
	 
	 	(e)	 	Any defense based upon an election of remedies by Lender, including without
limitation an election to proceed by non-judicial rather than judicial foreclosure,
which destroys or otherwise impairs the subrogation rights of Guarantor or the rights
of Guarantor to proceed against Borrower for reimbursement, or both; and
	 
	 	(f)	 	Any duty on the part of Lender to disclose to Guarantor any facts Lender may
now or hereafter know about Borrower, regardless of whether Lender has reason to
believe that any such facts materially increase the risk beyond that which Guarantor
intends to assume or has reason to believe that such facts are unknown to Guarantor or
has a reasonable opportunity to communicate such facts to Guarantor, it being
understood and agreed that Guarantor is fully responsible and has the means available
for being and keeping informed of the financial condition of Borrower and of all
circumstances bearing on the risk of non-payment of the Loan Agreement or
nonperformance of any other obligation hereby guaranteed.

The foregoing is not to be construed as a waiver of any notice requirement explicitly set forth in
the Loan Agreement or related documents.

     7. Guarantor Information. Guarantor warrants to Lender that he has adequate means to
obtain from Borrower, on a continuing basis, information concerning the financial condition of
Borrower and that he is not relying on Lender to provide such information either now or in the

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Loan Number: 2757504497

future. Guarantor shall supply to Lender his financial statement on Lender’s written request and
in no event more frequently than on each anniversary date of this Loan Agreement and otherwise as
reasonably requested by Lender. Guarantor covenants and agrees that he will always be fully
informed regarding the status of the Loan Agreement, all advances of principal under the Loan
Agreement, the in-balance or out-of-balance nature of the Loan Agreement, and all other financial
and other aspects of every nature pertaining to the Loan Agreement. Lender will possess no
obligation of any nature to provide Guarantor with any information regarding the status of the Loan
Agreement.

     8. Subrogation. Until all obligations outstanding in connection with the Loan
Agreement have been paid in full, Guarantor shall have no right of subrogation and waives any right
to enforce any remedy that Lender now has or may hereafter have against Borrower and any benefit
of, and any right to participate in, any security now or hereafter held by Lender. Until all
obligations outstanding in connection with the Loan Agreement have been paid in full, Guarantor
shall not be a creditor with respect to this Guaranty in any bankruptcy proceeding by or against
Borrower. Instead, Guarantor shall be an “entity” under the bankruptcy code in any such
proceeding. Until all obligations outstanding in connection with the Loan Agreement have been paid
in full, Guarantor shall have neither a contingent nor a non-contingent claim against Borrower
under this Guaranty.

     9. Subordination. Except as otherwise provided in this Paragraph, all existing and
future indebtedness of Borrower to Guarantor or to any person owned in whole or in part by
Guarantor and, if Borrower is a partnership, the right of Guarantor to cause or permit any person
owned in whole or in part by Guarantor to withdraw any capital invested by such person in Borrower,
is hereby subordinated to the obligations under the Loan Agreement and, following an Event of
Default (as defined in the Loan Agreement) without the prior written consent of Lender, such
subordinated indebtedness shall not be paid or withdrawn in whole or in part nor will Guarantor
cause or permit any person owned in whole or in part by Guarantor to accept any payment of or on
account of any such indebtedness or as a withdrawal of capital while this Guaranty is in effect.
At Lender’s request, Guarantor shall cause Borrower to pay to Lender all or any part of such
subordinated indebtedness and any capital which any such person owned by any Guarantor is entitled
to withdraw. Each such payment by Borrower in violation of this Guaranty following an Event of
Default shall be received by the person to whom paid in trust for Lender, and Guarantor shall cause
the same to be paid to Lender immediately on account of the indebtedness.

     10. Bankruptcy. Except as provided in Paragraph 8 above, Guarantor shall file in any
bankruptcy or other proceeding in which the filing of claims is required by law, all claims which
Guarantor may have against Borrower relating to any indebtedness of Borrower to Guarantor and will
assign to Lender all rights of Guarantor thereunder. If Guarantor does not file any such claim,
Lender, as attorney-in-fact for Guarantor, is hereby authorized to do so in the name of Guarantor
or, in Lender’s discretion, to assign the claim to a nominee and to cause proof of claim to be
filed in the name of Lender’s nominee. In all such cases, whether in administration, bankruptcy or
otherwise, the person or persons authorized to pay such claim shall pay to Lender the full amount
hereof and, to
the full extent necessary for that purpose; Guarantor hereby assigns to Lender all of
Guarantor’s rights to any such payment or distributions to which Guarantor would otherwise be
entitled.

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Loan Number: 2757504497

     11. Application of Payment. With or without notice to Guarantor, Lender, in Lender’s
sole discretion and at any time and from time to time and in such manner and upon such terms as
Lender deems fit, may apply any or all payments or recoveries from Borrower or from any other
Guarantor or endorser under any other instrument or realized from any security, in such manner and
order of priority as Lender may determine, to any indebtedness of Borrower to Lender, whether or
not such indebtedness is guaranteed hereby or is otherwise secured or is due at the time of such
application. Any recovery realized from any other Guarantor under any other instrument shall be
first credited upon that portion (if any) of the indebtedness of Borrower to Lender that is not
guaranteed hereby.

     12. Cumulative Rights. The amount of Guarantor’s liability and all rights, powers and
remedies of Lender hereunder and under any other agreement now or at any time hereafter in force
between Lender and Guarantor, including any other guarantee executed by Guarantor relating to any
indebtedness of Borrower to Lender, shall be cumulative and not alternative and such rights, powers
and remedies shall be in addition to all rights, powers and remedies given to Lender by law. This
Guaranty is in addition to and exclusive of the guarantee of any other Guarantor of any
indebtedness of Borrower to Lender.

     13. Independent Obligations. The obligations of Guarantor hereunder are independent
of the obligations of Borrower and, in the event of any default hereunder, a separate action or
actions may be brought and prosecuted against Guarantor whether or not Borrower is joined therein
or a separate action or actions are brought against Borrower. In this regard, Guarantor waives any
right to require Lender to (a) proceed against Borrower, (b) proceed against or exhaust any
security held by Lender for payment of the note executed by Borrower pursuant to the Loan
Agreement, or (c) pursue any other remedy that Lender has or to which it may be entitled. Without
limiting the foregoing, Guarantor waives any necessity or requirement, substantive or procedural,
that an action previously be commenced or a judgment previously be rendered against Borrower or any
other person or entity or that any other person or entity be joined in such cause or that a
separate action be brought against Borrower or any other person or entity. Lender may maintain
successive actions for other defaults. Lender’s rights hereunder shall not be exhausted by its
exercise of any of its rights or remedies or by any such action or by any number of successive
actions until and unless all sums owing to Lender in connection with the Loan Agreement have been
paid in full and all other obligations hereby guaranteed have been fully performed.

     14. Costs and Fees. Guarantor shall pay to Lender, promptly upon demand, reasonable
attorneys’ fees and all costs and other expenses that Lender expends or incurs in collecting or
compromising the indebtedness under the Loan Agreement or any other obligation hereby guaranteed or
in enforcing this Guaranty against Guarantor whether or not suit is filed, expressly including
without limitation all costs, attorneys’ fees and expenses incurred by Lender in connection with
any insolvency, bankruptcy, reorganization, arrangement or similar proceedings involving Guarantor
that in any way affect the exercise by Lender of its rights and remedies hereunder.

     15. Severability. Should any one or more provisions of this Guaranty be determined to
be illegal or unenforceable, all other provisions shall nevertheless be effective.

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Loan Number: 2757504497

     16. Binding Effect. This Guaranty shall inure to the benefit of Lender, its
successors and assigns, including the assignees of any indebtedness hereby guaranteed, and shall
bind the heirs, executors, administrators, successors and assigns of Guarantor. This Guaranty may
be assigned by Lender with respect to all or any portion of the Loan Agreement, and when so
assigned Guarantor shall be liable under this Guaranty to the assignee(s) of the portion(s) of the
Loan Agreement so assigned without in any manner affecting the liability of Guarantor hereunder to
Lender with respect to any portion of the Loan Agreement retained by Lender.

     17. Expiration. Upon the payment in full to Lender of all sums owing to Lender in
connection with the Loan Agreement and the full performance of all other obligations of Borrower to
Lender hereby guaranteed, this Guaranty shall be of no further force or effect.

     18. Reasonableness. Guarantor warrants and agrees that each of the waivers set forth
in this Guaranty are made with Guarantor’s full knowledge of their significance and consequences,
and that under the circumstances, the waivers are reasonable and not contrary to public policy or
law. No provisions of this Guaranty or right of Lender hereunder can be waived nor can Guarantor
be released from his obligations hereunder except by a writing duly executed by an authorized
officer of Lender.

     19. Terminology. When the context and construction so require, all words used in the
singular herein shall be deemed to have been used in the plural and the masculine shall include the
feminine and neuter and vice versa. The word “person” as used herein shall include any individual,
company, firm, association, partnership, corporation, trust or other legal entity of any kind
whatsoever.

     20. Exclusive Statement. This writing is intended by the parties as a final
expression of this Unconditional Guaranty and is also intended as a complete and exclusive
statement of the terms hereof. No course of dealing, course of performance or trade usage, and no
parol evidence of any nature shall be used to supplement or modify any terms. Nor are there any
conditions to the full effectiveness of this agreement.

     21. Joint and Several Liability. If two or more persons are signing this Guaranty as
Guarantor, then all such persons shall be jointly and severally liable for the obligations of
Guarantor hereunder.

     22. Waiver of Change. Guarantor hereby expressly waives (a) any renewals or
extensions of time for payment of the guaranteed debt (b) any changes in the terms of the
guaranteed debt including increase or decrease in installment payments or any interest rate
adjustments, or (c) any other change in the guaranteed debt including a change in the business
structure of the Borrower.

     23. Dealing with Security Interest. The undersigned Guarantor hereby expressly waives
(a) surrender, release, exchange, substitution, dealing with or taking any additional collateral,
(b) abstaining from taking advantage of or realizing upon any security interest, or other
guarantee, (c) any impairment of collateral by Lender including but not limited to, failure to
perfect a security

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Loan Number: 2757504497

interest in the collateral, and (d) any impairment by Lender of Guarantor’s
rights of recourse against other parties.

     24. Unconditional Liability. Guarantor has signed this Unconditional Guaranty and has
unconditionally delivered it to Lender, and failure to sign this or any other guaranty by any other
person shall not discharge the liability of any signer. The unconditional liability of the signers
applies whether signer is jointly and severally liable for the entire amount of the debt, or for
only a pro rata portion.

     25. Errors and Omissions. Guarantor hereby waives all errors and omissions in
connection with Lender’s administration of the guaranteed debt, except behavior which amounts to
bad faith.

     26. Remedies. As a condition of the payment or performance by Guarantor, Lender is
not required to enforce any remedies against Borrower or any other party liable to Lender on
account of the guaranteed debt. Nor is Lender required to seek to enforce or resort to any
remedies with respect to any security interest, lien or encumbrance to Lender by the Borrower or
any other party.

     27. Enforceability. This Unconditional Guaranty remains fully enforceable
irrespective of any defenses which Borrower may assert on the underlying debt, including but not
limited to failure of consideration, breach of warranty, payment, statute of frauds, statute of
limitations, accord and satisfaction, and usury.

     28. Liability for Full Amount. Guarantor agrees that, if at any time all or any part
of any payment previously applied by Lender to any of the guaranteed debt must be returned by
Lender for any reason, whether by court order, or settlement, the Guarantor remains liable for the
full amount returned as if such amount had never been received by Lender notwithstanding any
termination of the guaranty agreement or cancellation of any note or other agreement evidencing the
obligation of Borrower.

     29. Governing Law. This Guaranty shall be governed by and construed in accordance
with the laws of the State of Arkansas. Except as provided in any other written agreement now or
at any time hereafter in force between Lender and Guarantor, this Guaranty shall constitute the
entire agreement of Guarantor with Lender with respect to the subject matter hereof, and no
representation, understanding, promise or condition concerning the subject matter hereof shall be
binding upon Lender unless expressed herein. Guarantor hereby irrevocably consents to the
exclusive jurisdiction of the courts of the State of Arkansas with respect to any action or
proceedings arising between the parties and expressly covenants and agrees that the exclusive
jurisdiction for all disputes and enforcement actions arising hereunder shall occur in Faulkner
County, Arkansas.

     30. JURY WAIVER. GUARANTOR HEREBY WAIVES GUARANTOR’S RIGHT TO A JURY TRIAL IN THE
EVENT OF ANY DISPUTE OR LITIGATION ARISING HEREUNDER OR UNDER ANY RELATED DOCUMENTS EXECUTED IN
CONNECTION HEREWITH.

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Loan Number: 2757504497

     31. Multiple Counterpart Execution. It is expressly agreed and understood that this
document is being executed in multiple counterparts and with multiple signature pages and that all
signature pages, when attached to and assembled with this document, shall constitute and comprise a
single document that is enforceable against all parties on all signature pages in accordance with
this document’s terms.

     32. Notices. All notices or other written communications hereunder shall be deemed to
have been properly given (a) upon delivery, if delivered in person or by facsimile transmission
with receipt acknowledged by the recipient thereof, (b) one (1) Business Day (defined below) after
having been deposited for overnight delivery with any reputable overnight courier service, or (c)
three (3) Business Days after having been deposited in any post office or mail depository regularly
maintained by the U.S. Postal Service and sent by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:

If to Guarantor:

LYLE BERMAN

c/o Berman Consulting Corp.

130 Cheshire Lane, Suite 101

Minnetonka, Minnesota 55305-1062

With a copy to:

MASLON EDELMAN BORMAN & BRAND, LLP

3300 Wells Fargo Center

90 South Seventh Street

Minneapolis, Minnesota 55402

Attn: Neil I. Sell

If to Lender:

FIRST STATE BANK

Attn: Randy Sims

620 Chestnut Street

Conway, Arkansas 72032

With a copy to:

GILL ELROD RAGON OWEN & SHERMAN, P.A.

Attn: Daniel Goodwin

425 West Capitol Avenue, Suite 3801

Little Rock, Arkansas 72201

or addressed as such party may from time to time designate by written notice to the other parties.

     Either party by notice to the other may designate additional or different addresses for
subsequent notices or communications.

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Loan Number: 2757504497

     For purposes of this Subsection, “Business Day” shall mean a day on which commercial banks are
authorized to conduct business or Lender is open for business in the State of Arkansas.

[The remainder of this page intentionally left blank;

signatures appear on next page.]

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Loan Number: 2757504497

[Unconditional Guaranty Signature Page]

     THIS UNCONDITIONAL GUARANTY is executed on the date set forth in the preface.

	 	 	 	 	 
	 	GUARANTOR:
 	 
	 	/s/ Lyle Berman 	 
	 	Lyle Berman 	 
	 	 	 
	 

ACKNOWLEDGMENT

STATE OF MINNESOTA )

                                              )ss.

COUNTY OF HENNEPIN )

     On the 27 day of October, 2008, personally appeared before me, the undersigned
authority, duly commissioned and qualified in and for said county and state, the within named LYLE
BERMAN, duly identified before me, who acknowledged that he is the Guarantor in the foregoing
Unconditional Guaranty.

     WITNESS my hand and official seal at my office in the state and county aforesaid on this 27 day of October, 2008.

	 	 	 	 	 
		 	 
	
/s/ Damon E. Schramm 	 
	Notary Public
 	 
	My Commission expires:

Jan 31, 2001 	 
	 

10exv10w1

Exhibit 10.1

2002

LILLY STOCK PLAN

As amended effective January 1, 2009

The 2002 Lilly Stock Plan (“2002 Plan”) authorizes the Board of Directors of Eli Lilly and Company
(“Board”) and the Compensation Committee of the Board, as applicable, to provide officers and other
employees of Eli Lilly and Company and its subsidiaries and nonemployee directors of Eli Lilly and
Company (“Nonemployee Directors”) with certain rights to acquire shares of Eli Lilly and Company
common stock (“Lilly Stock”). The Company believes that this incentive program will benefit the
Company’s shareholders by allowing the Company to attract, motivate, and retain employees and
directors and by providing those employees and directors stock-based incentives to strengthen the
alignment of interests between those persons and the shareholders. For purposes of the 2002 Plan,
the term “Company” shall mean Eli Lilly and Company and its subsidiaries, unless the context
requires otherwise.

1. Administration.

	 	(a)	 	Grants to Eligible Employees. With respect to Grants to Eligible Employees (as those
terms are defined in Sections 2 and 3(a), respectively), the 2002 Plan shall be administered
and interpreted by the Compensation Committee of the Board consisting of not less than two
independent directors appointed by the Board from among its members. A person may serve on
the Compensation Committee for purposes of administration and interpretation of the 2002
Plan only if he or she (i) is a “Non-employee Director” for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the “1934 Act”), (ii) satisfies the
requirements of an “outside director” for purposes of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the “Code”), and (iii) satisfies the New York Stock Exchange rules
for independence. The Compensation Committee may, subject to the provisions of the 2002
Plan, from time to time establish such rules and regulations and delegate such authority to
administer the 2002 Plan as it deems appropriate for the proper administration of the Plan,
except that no such delegation shall be made in the case of awards intended to be qualified
under Rule 16b-3 of the 1934 Act or Section 162(m) of the Code. The decisions of the
Compensation Committee or its authorized designees (the “Committee”) shall be made in its
sole discretion and shall be final, conclusive, and binding with respect to the
interpretation and administration of the 2002 Plan and any Grant made under it.
	 
	 	(b)	 	Grants to Nonemployee Directors. With respect to Stock Option Grants made to Nonemployee
Directors pursuant to Section 8, the Board shall serve to administer and interpret the 2002
Plan and any such Grants, and all duties, powers and authority given to the Committee in
subsection (a) above or elsewhere in the 2002 Plan in connection with Grants to Eligible
Employees shall be deemed to be given to the Board in its sole discretion in connection with
Stock Option Grants to Nonemployee Directors.

2. Grants.

Incentives under the 2002 Plan shall consist of incentive stock options or other forms of
tax-qualified stock options under the Code, nonqualified stock options, performance awards, stock
appreciation rights, stock unit awards, and restricted stock grants (collectively,

 

 

“Grants”). The Committee shall approve the form and provisions of each Grant to Eligible Employees
and the Board shall approve the form and provisions of each Stock Option Grant to Nonemployee
Directors. All Grants shall be subject to the terms and conditions set out herein and to such other
terms and conditions consistent with the 2002 Plan as the Committee or Board, as applicable, deems
appropriate. Grants under a particular section of the 2002 Plan need not be uniform and Grants
under two or more sections may be combined in one instrument. The Committee shall determine the
fair market value of Lilly Stock for purposes of the 2002 Plan.

3. Eligibility for Grants.

	 	(a)	 	Grants to Eligible Employees. Grants may be made to any employee of the Company,
including a person who is also a member of the Board of Directors (“Eligible Employee”). The
Committee shall select the persons to receive Grants (“Grantees”) from among the Eligible
Employees and determine the number of shares subject to any particular Grant.
	 
	 	(b)	 	Grants to Nonemployee Directors. Grants may be made to any member of the Board who is not
an employee of the Company (a “Nonemployee Director”). The Board shall select the persons
who will receive Grants (“Grantees”) from among the Nonemployee Directors and determine the
number of shares subject to any particular Grant.

4. Shares Available for Grant.

	 	(a)	 	Shares Subject to Issuance or Transfer. Subject to adjustment as provided in Section
4(b), the aggregate number of shares of Lilly Stock that may be issued or transferred under
the 2002 Plan shall be the sum of the following amounts:

	 	(i)	 	119,000,000 shares;
	 
	 	(ii)	 	Any shares of Lilly Stock subject to an award hereunder or under the 1989, 1994
or 1998 Lilly Stock Plans (the “Prior Shareholder-Approved Plans”) which, after the
effective date of the 2002 Plan:

	 	a.	 	are not issued or transferred in connection with a Stock Option, Stock
Appreciation Right or Stock Unit Award due to termination, lapse, surrender or
forfeiture;
	 
	 	b.	 	are not issued or transferred in connection with the payment of a
Performance Award due to termination, lapse, surrender, forfeiture, failure to
achieve Performance Goals, or payment in cash in lieu of shares pursuant to Section
6(c); or
	 
	 	c.	 	are forfeited under a Restricted Stock Grant.

	 	(iii)	 	Upon the termination or expiration of the 1998 Lilly Stock Plan, any shares of
Lilly Stock that remained available for grant under that plan at the time of termination
or expiration; and

	 	(iv)	 	The number of shares of Lilly Stock exchanged by a Grantee as full or partial
payment to the Company of the exercise price of a Stock Option that was granted

 

 

	 	 	 	hereunder or under a Prior Shareholder-Approved Plan or withheld for taxes under Sections
5(e), 7(c), 9(e) or 10(c).

The shares may be authorized but unissued shares or treasury shares.

	 	(b)	 	Adjustment Provisions. If any subdivision or combination of shares of Lilly Stock or any
stock dividend, reorganization, recapitalization, or consolidation or merger with Eli Lilly
and Company as the surviving corporation occurs, or if additional shares or new or different
shares or other securities of the Company or any other issuer are distributed with respect
to the shares of Lilly Stock through a spin-off or other extraordinary distribution, the
Committee shall make such adjustments as it determines appropriate in the number of shares
of Lilly Stock that may be issued or transferred in the future under Sections 4(a), 5(f) and
(g), 6(f), and 9(d). The Committee shall also adjust as it determines appropriate the number
of shares and Option Price or base price as applicable in outstanding Grants made before the
event. It is intended that any such adjustment shall, to the extent necessary, be
structured for compliance with the requirements of Section 409A of the Code.

5. Stock Option Grants to Eligible Employees.

The Committee may grant to Eligible Employees options qualifying as incentive stock options under
the Code (“Incentive Stock Options”), other forms of tax-favored stock options under the Code, and
nonqualified stock options (collectively, “Stock Options”). All Stock Options granted under the
Plan are intended to comply with the requirements for exemption under Section 409A of the Code.
The Committee shall determine the terms and conditions applicable to Stock Options granted to
Eligible Employees consistent with the following:

	 	(a)	 	Option Price. The Committee shall determine the price or prices at which Lilly Stock may
be purchased by the Grantee under a Stock Option (“Option Price”) which shall be not less
than the fair market value of Lilly Stock on the date the Stock Option is granted (the
“Grant Date”). In the Committee’s discretion, the Grant Date of a Stock Option may be
established as the date on which Committee action approving the Stock Option is taken or any
later date specified by the Committee. Once established, the Option Price may not be reduced
except in the case of adjustments under Section 4(b).
	 
	 	(b)	 	Option Exercise Period. The Committee shall determine the option exercise period of each
Stock Option. The period shall not exceed ten years from the Grant Date in the case of an
Incentive Stock Option, and eleven years in the case of any other Stock Option.
	 
	 	(c)	 	Exercise of Option. A Stock Option will be deemed exercised by a Grantee upon delivery of
(i) a notice of exercise to the Company or its representative as designated by the
Committee, and (ii) accompanying payment of the Option Price if the Stock Option requires
such payment at the time of exercise. The notice of exercise, once delivered, shall be
irrevocable.

	 	(d)	 	Satisfaction of Option Price. A Stock Option may require payment of the Option Price upon
exercise or may specify a period not to exceed 30 days following exercise within which
payment must be made (“Payment Period”). The Grantee shall pay or cause to be

 

 

	 	 	 	paid the Option Price in cash, or with the Committee’s permission, by delivering (or providing
adequate evidence of ownership of) shares of Lilly Stock already owned by the Grantee and
having a fair market value on the date of exercise equal to the Option Price, or a combination
of cash and such shares. If the Grantee fails to pay the Option Price within the Payment
Period, the Committee shall have the right to take whatever action it deems appropriate,
including voiding the option exercise or voiding that part of the Stock Option for which
payment was not timely received. The Company shall not deliver shares of Lilly Stock upon
exercise of a Stock Option until the Option Price and any required withholding tax are fully
paid.

	 	(e)	 	Share Withholding. With respect to any Stock Option, the Committee may, in its discretion
and subject to such rules as the Committee may adopt, permit or require the Grantee to
satisfy, in whole or in part, any withholding tax obligation which may arise in connection
with the exercise of the nonqualified option by having the Company withhold shares of Lilly
Stock having a fair market value equal to the amount of the withholding tax.
	 
	 	(f)	 	Limits on Individual Grants. No individual Grantee may be granted Stock Options or Stock
Appreciation Rights, considered together, under the 2002 Plan for more than 3,500,000 shares
of Lilly Stock in any period of three consecutive calendar years.
	 
	 	(g)	 	Limits on Incentive Stock Options. The aggregate fair market value of the stock covered
by Incentive Stock Options granted under the 2002 Plan or any other stock option plan of the
Company or any subsidiary or parent of the Company that become exercisable for the first
time by any employee in any calendar year shall not exceed $100,000 (or such other limit as
may be established by the Code). The aggregate fair market value for this purpose will be
determined at the Grant Date. An Incentive Stock Option shall not be granted to any Eligible
Employee who, on the Grant Date, owns stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or any subsidiary or parent of
the Company. Not more than 30,000,000 shares of Lilly Stock may be issued or transferred
under the 2002 Plan in the form of Incentive Stock Options.

6. Performance Awards to Eligible Employees.

The Committee may grant to Eligible Employees Performance Awards, which shall be denominated at the
time of grant in shares of Lilly Stock. Payment under a Performance Award shall be made, at the
discretion of the Committee, in shares of Lilly Stock (“Performance Shares”), or in cash or in any
combination thereof, if the financial or market performance of the Company or any subsidiary,
division, or other unit of the Company (“Business Unit”) selected by the Committee meets certain
goals established by the Committee for the Award Period. The following provisions are applicable to
Performance Awards:

	 	(a)	 	Award Period. The Committee shall determine and include in the Grant the period of time
(which shall be four or more consecutive fiscal quarters) for which a Performance Award is
made (“Award Period”). Grants of Performance Awards need not be uniform with respect to the
length of the Award Period. Award Periods for different Grants may

 

 

	 	 	 	overlap. A Performance Award may not be granted for a given Award Period after one half (1/2)
or more of such period has elapsed, or in the case of an Award intended to be qualified under
Section 162(m) of the Code, after 90 days or more of such period has elapsed.

	 	(b)	 	Performance Goals and Payment. Before a Grant is made, the Committee shall establish
objectives (“Performance Goals”) that must be met by the Business Unit during the Award
Period as a condition to payment being made under the Performance Award. The Performance
Goals, which must be set out in the Grant, are limited to earnings per share; divisional
income; net income; return on equity; sales; divisional sales; economic value added (EVA);
market value added (MVA); any of the foregoing before the effect of acquisitions,
divestitures, accounting changes, restructuring and special charges, and other unusual gains
or losses (determined according to criteria established by the Committee at or within 90
days after the time of grant); total shareholder return; or stock price goals. The Committee
shall also set forth in the Grant the number of Performance Shares to be made under a
Performance Award if the Performance Goals are met or exceeded, including the fixing of a
maximum payment (subject to Section 6(f)). A Performance Award shall become payable to a
Grantee at the time or times determined by the Committee and set forth in the award
agreement, which may be upon or following the vesting of the award. The payment terms under
a Performance Award shall be established in compliance with the requirements of Section 409A
of the Code.
	 
	 	(c)	 	Computation of Payment. After an Award Period, the performance of the Business Unit
during the period shall be measured against the Performance Goals. Prior to payment the
Committee shall certify in writing as to the performance achieved against the Performance
Goals and certify the number of Performance Shares, if any, or the amount of payment, if
any, to be made under a Performance Award in accordance with the grant for each Grantee. The
Committee, in its sole discretion, may elect to pay part or all of the Performance Award in
cash in lieu of issuing or transferring Performance Shares. The cash payment shall be based
on the fair market value of Lilly Stock on the date of payment (subject to Section 6(f)).
The Company shall promptly notify each Grantee of the number of Performance Shares and the
amount of cash, if any, he or she is to receive.
	 
	 	(d)	 	Revisions for Significant Events. At any time before payment is made, the Committee may
revise the Performance Goals and the computation of payment if unusual events occur during
an Award Period which have a substantial effect on the Performance Goals and which in the
judgment of the Committee make the application of the Performance Goals unfair unless a
revision is made; provided, however, that no such revision shall be permissible with respect
to a Performance Award intended to qualify for exemption under Section 162(m) of the Code,
except that the Committee (i) may provide in the terms of any such Performance Award that
revisions to the Performance Goals shall be made on a non-discretionary basis upon the
occurrence of one or more specific objective events, the occurrence of which are
substantially uncertain at the time of grant, and (ii) may in its discretion make a revision
with respect to such Performance Award that results in a lesser payment than would have
occurred without the revision or in no payment at all.

	 	(e)	 	Requirement of Employment. To be entitled to receive payment under a Performance

 

 

	 	 	 	Award, a Grantee must remain in the employment of the Company to the end of the Award Period,
except that the Committee may provide for partial or complete exceptions to this requirement
as it deems equitable in its sole discretion, consistent with maintaining the exemption under
Section 162(m) of the Code. The Committee may impose additional conditions on the Grantee’s
entitlement to receive payment under a Performance Award.

	 	(f)	 	Maximum Payments. No individual may receive Performance Award payments in respect of
Performance Awards in excess of 600,000 shares of Lilly Stock in any calendar year. For
purposes of determining the maximum payment under this subsection, payment in cash of all or
part of a Performance Award will be deemed an issuance of the number of shares with respect
to which such cash payment is made.

7. Restricted Stock Grants to Eligible Employees.

The Committee may issue or transfer shares of Lilly Stock to an Eligible Employee under a
Restricted Stock Grant. Upon the issuance or transfer, the Grantee shall be entitled to vote the
shares and to receive any dividends paid. The following provisions are applicable to Restricted
Stock Grants:

	 	(a)	 	Requirement of Employment. If the Grantee’s employment terminates during the period
designated in the Grant as the “Restriction Period,” the Restricted Stock Grant terminates
and the shares immediately revert to the Company. However, the Committee may provide for
partial or complete exceptions to this requirement as it deems equitable.
	 
	 	(b)	 	Restrictions on Transfer. During the Restriction Period, a Grantee may not sell, assign,
transfer, pledge, or otherwise dispose of the shares of Lilly Stock except to a Successor
Grantee under Section 13(a). Each certificate for shares issued or transferred under a
Restricted Stock Grant shall be held in escrow by the Company until the expiration of the
Restriction Period.
	 
	 	(c)	 	Withholding Tax. Before delivering the certificate for shares of Lilly Stock to the
Grantee, Lilly may require the Grantee to pay to the Company any required withholding tax.
The Committee may, in its discretion and subject to such rules as the Committee may adopt,
permit or require the Grantee to satisfy, in whole or in part, any withholding tax
requirement by having the Company withhold shares of Lilly Stock from the Grant having a
fair market value equal to the amount of the withholding tax. In the event the Grantee fails
to pay the withholding tax within the time period specified in the Grant, the Committee may
take whatever action it deems appropriate, including withholding or selling sufficient
shares from the Grant to pay the tax and assessing interest or late fees to the Grantee.
	 
	 	(d)	 	Lapse of Restrictions. All restrictions imposed under the Restricted Stock Grant shall
lapse (i) upon the expiration of the Restriction Period if all conditions stated in Sections
7(a), (b) and (c) have been met or (ii) as provided under Section 12(a)(ii). The Grantee
shall then be entitled to delivery of the certificate.

8. Stock Option Grants to Nonemployee Directors

 

 

The Board may grant Stock Options to Nonemployee Directors and may determine the terms and
conditions applicable to such Stock Options consistent with the following provisions:

	 	(a)	 	Option Price. The Board shall determine the price or prices at which Lilly Stock may be
purchased by the Nonemployee Director under a Stock Option (“Option Price”) which shall be
not less than the fair market value of Lilly Stock on the date the Stock Option is granted
(the “Grant Date”). In the Board’s discretion, the Grant Date of a Stock Option may be
established as the date on which Board action approving the Stock Option is taken or any
later date specified by the Board. Once established, the Option Price may not be reduced
except in the case of adjustments under Section 4(b).
	 
	 	(b)	 	Option Exercise Period. The Board shall determine the option exercise period of each
Stock Option. The period shall not exceed ten years from the Grant Date. Unless the Board
shall otherwise expressly provide in a Stock Option agreement, in the event a Grantee’s
service on the Board is terminated, any Stock Option held by such Grantee shall remain
exercisable for five years after such termination (or until the end of the option exercise
period, if earlier). In the event a Nonemployee Director is removed from the Board for
“cause” (as determined in accordance with applicable state law and the Articles of
Incorporation of Lilly), any Stock Option held by that Nonemployee Director shall terminate
immediately.
	 
	 	(c)	 	Exercise of Option. A Stock Option will be deemed exercised by a Nonemployee Director
upon delivery of (i) a notice of exercise to Lilly or its representative as designated by
the Board, and (ii) accompanying payment of the Option Price if the Stock Option requires
such payment at the time of exercise. The notice of exercise, once delivered, shall be
irrevocable.
	 
	 	(d)	 	Satisfaction of Option Price. A Stock Option may require payment of the Option Price upon
exercise or may specify a period not to exceed 30 days following exercise within which
payment must be made (“Payment Period”). The Grantee shall pay or cause to be paid the
Option Price in cash, or with the Board’s permission, by delivering (or providing adequate
evidence of ownership of) shares of Lilly Stock already owned by the Grantee and having a
fair market value on the date of exercise equal to the Option Price, or a combination of
cash and such shares. If the Grantee fails to pay the Option Price within the Payment
Period, the Board shall have the right to take whatever action it deems appropriate,
including voiding the option exercise or voiding that part of the Stock Option for which
payment was not timely received. Lilly shall not deliver shares of Lilly Stock upon exercise
of a Stock Option until the Option Price and any required withholding tax are fully paid.
All Stock Options granted to Nonemployee Directors under the Plan are intended to comply
with the requirements for exemption under Section 409A of the Code.

9. Stock Appreciation Rights to Eligible Employees.

The Committee may grant Stock Appreciation Rights to Eligible Employees. A Stock Appreciation Right
is an award in the form of a right to receive, upon exercise or settlement of the right but without
other payment, an amount based on appreciation in the fair market

 

 

value of shares of Lilly Stock over a base price established for the Award. Stock Appreciation
Rights shall be settled or exercisable at such time or times and upon conditions as may be approved
by the Committee, provided that the Committee may accelerate the exercisability of a Stock
Appreciation Right at any time. All Stock Appreciation Rights granted under the Plan are intended
to comply with the requirements for exemption under Section 409A of the Code. The following
provisions are applicable to Stock Appreciation Rights:

	 	(a)	 	Freestanding Stock Appreciation Rights. A Stock Appreciation Right may be granted without
any related Stock Option, and in such case, will be settled or exercisable at such time or
times as determined by the Committee, but in no event after eleven years from the Grant
Date. The Committee shall determine the base price of a Stock Appreciation Right granted
without any related Option, provided, however, that such base price per share shall not be
less than the fair market value of Lilly Stock on the Grant Date.
	 
	 	(b)	 	Tandem Stock Appreciation Rights. A Stock Appreciation Right may be granted in connection
with a Stock Option, either at the time of grant or at any time thereafter during the term
of the Stock Option. A Stock Appreciation Right granted in connection with a Stock Option
will entitle the holder, upon exercise, to surrender the Stock Option or any portion thereof
to the extent unexercised, with respect to the number of shares as to which such Stock
Appreciation Right is exercised, and to receive payment of an amount computed as described
in Section 9(c). The Stock Option will, to the extent and when surrendered, cease to be
exercisable. A Stock Appreciation Right granted in connection with a Stock Option hereunder
will have a base price per share equal to the per share exercise price of the Stock Option,
will be exercisable at such time or times, and only to the extent, that the related Stock
Option is exercisable, and will expire no later than the related Stock Option expires. If a
related Stock Option is exercised in whole or in part, then the SAR related to the shares
purchased terminates as of the date of such exercise.
	 
	 	(c)	 	Payment of Stock Appreciation Rights. A Stock Appreciation Right will entitle the holder,
upon settlement or exercise, as applicable, to receive payment of an amount determined by
multiplying: (i) the excess of the fair market value of a share of Lilly Stock on the date
of settlement or exercise of the Stock Appreciation Right over the base price of the Stock
Appreciation Right, by (ii) the number of shares as to which the Stock Appreciation Right is
settled or exercised. Payment of the amount determined under the foregoing will be made in
shares of Lilly Stock valued at their fair market value on the date of settlement or
exercise, as applicable, subject to applicable tax withholding requirements.
	 
	 	(d)	 	Limits on Individual Grants. No individual Grantee may be granted Stock Options or Stock
Appreciation Rights, considered together, under the 2002 Plan for more than 3,500,000 shares
of Lilly Stock in any period of three consecutive calendar years.

	 	(e)	 	Share Withholding. With respect to any Stock Appreciation Right, the Committee may, in
its discretion and subject to such rules as the Committee may adopt, permit or require the
Grantee to satisfy, in whole or in part, any withholding tax obligation which may arise in
connection with the exercise or settlement of the right by having the Company withhold
shares of Lilly Stock having a fair market value equal to the amount of the

 

 

	 	 	 	withholding tax.

10. Stock Unit Awards to Eligible Employees.

The Committee may grant Stock Unit Awards to Eligible Employees. A Stock Unit Award is an award of
a number of hypothetical share units with respect to shares of Lilly Stock that are granted subject
to such vesting and transfer restrictions and conditions of payment as the Committee shall
determine and set forth in an award agreement. The value of each unit under a Stock Unit Award is
equal to the fair market value of the Lilly Stock on any applicable date of determination. A Stock
Unit Award shall be subject to such restrictions and conditions as the Committee shall determine. A
Stock Unit Award may be granted, at the discretion of the Committee, together with a dividend
equivalent right with respect to the same number of shares of Lilly Stock. The following provisions
are applicable to Stock Unit Awards:

	 	(a)	 	Vesting of Stock Unit Awards. On the Grant Date, the Committee shall determine any
vesting requirements with respect to a Stock Unit Award, which shall be set forth in the
award agreement, provided that the Committee may accelerate the vesting of a Stock Unit
Award at any time. Vesting requirements may be based on the continued employment of the
Grantee with the Company for a specified time period or periods. Vesting requirements may
also be based on the attainment of specified performance goals or measures established by
the Committee. A Stock Unit Award may also be granted on a fully vested basis, with a
deferred payment date.
	 
	 	(b)	 	Payment of Stock Unit Awards. A Stock Unit Award shall become payable to a Grantee at the
time or times determined by the Committee and set forth in the award agreement, which may be
upon or following the vesting of the award. The payment with respect to each share unit
under a Stock Unit Award shall be determined by reference to the fair market value of Lilly
Stock on each applicable payment date. Payment will be made in shares of Lilly Stock or cash
at the discretion of the Committee. The payment terms under a Restricted Stock Unit shall be
established in compliance with the requirements of Section 409A of the Code.
	 
	 	(c)	 	Share Withholding. With respect to any Stock Unit Award, the Committee may, in its
discretion and subject to such rules as the Committee may adopt, permit or require the
Grantee to satisfy, in whole or in part, any withholding tax obligation which may arise in
connection with the payment of the award by having the Company withhold shares of Lilly
Stock having a fair market value equal to the amount of the withholding tax.

11. Amendment and Termination of the 2002 Plan.

	 	(a)	 	Amendment. The Board may amend or terminate the 2002 Plan, but no amendment shall (i)
allow the repricing of Stock Options or Stock Appreciation Rights at a price below the
original Option Price or base price as applicable; (ii) allow the grant of Stock Options or
Stock Appreciation Rights at an Option Price (or base price as applicable) below the fair
market value of Lilly Stock on the Grant Date; (iii) increase the number of shares
authorized for issuance or transfer pursuant to Section 4(a); or (iv) increase the maximum
limitations on the number of shares subject to Grants imposed under Sections 5(f), 5(g),
6(f), or 9(d), unless in any case such amendment receives approval of the

 

 

	 	 	 	shareholders of the Company.

	 	(b)	 	Termination of 2002 Plan; Resubmission to Shareholders. The 2002 Plan shall remain in
effect until April 20, 2020 or until earlier terminated by the Board. To the extent required
under Section 162(m) of the Code, the material terms of the 2002 Plan will be submitted to
the shareholders of the Company for reapproval not later than the annual meeting of
shareholders that occurs in 2013 if the Plan has not been terminated at that time.
	 
	 	(c)	 	Termination and Amendment of Outstanding Grants. A termination or amendment of the 2002
Plan that occurs after a Grant is made shall not result in the termination or amendment of
the Grant unless the Grantee consents or unless the Committee acts under Section 13(e). The
termination of the 2002 Plan shall not impair the power and authority of the Committee with
respect to outstanding Grants. Whether or not the 2002 Plan has terminated, an outstanding
Grant may be terminated or amended under Section 13(e) or may be amended (i) by agreement of
the Company and the Grantee consistent with the 2002 Plan or (ii) by action of the Committee
provided that the amendment is consistent with the 2002 Plan and is found by the Committee
not to impair the rights of the Grantee under the Grant.

12. Change in Control.

	 	(a)	 	Effect on Grants. The Committee may provide in the agreement relating to a Grant or at
any later date, that upon the occurrence of a Change in Control (as defined below) the
following shall occur:

	 	(i)	 	In the case of Stock Options, each outstanding Stock Option that is not then
fully exercisable shall automatically become fully exercisable and shall remain so for
the period permitted in the agreement relating to the Grant;
	 
	 	(ii)	 	The Restriction Period on all outstanding Restricted Stock Grants shall
automatically expire and all restrictions imposed under such Restricted Stock Grants
shall immediately lapse;
	 
	 	(iii)	 	Each Grantee of a Performance Award for an Award Period that has not been
completed at the time of the Change in Control shall be deemed to have earned a minimum
Performance Award equal to the product of (y) such Grantee’s maximum award opportunity
for such Performance Award, and (z) a fraction, the numerator of which is the number of
full and partial months that have elapsed since the beginning of such Award Period to
the date on which the Change in Control occurs, and the denominator of which is the
total number of months in such Award Period; provided, however, that nothing in this
subsection shall prejudice the right of the Grantee to receive a larger payment under
such Performance Award pursuant to the terms of the Award or under any other plan of
the Company;

	 	(iv)	 	Each outstanding Stock Appreciation Right that is not then fully exercisable
shall automatically become fully exercisable and shall remain so for the period

 

 

	 	 	 	permitted in the agreement relating to the Grant; and

	 	(v)	 	Each outstanding Stock Unit Award shall fully and immediately vest and become
payable.

	 	(b)	 	Change in Control. “Change in Control” shall mean: (A) a change in ownership of the
Company under paragraph (i) below, or (B) a change in effective control of the Company under
paragraph (ii) below, or (C) a change in the ownership of a substantial portion of the assets of
the Company under paragraph (iii) below.

	 	(i)	 	Change in the Ownership of the Company. A change in the ownership of the
Company shall occur on the date that any one person, or more than one person acting as
a group (as defined in paragraph (iv), acquires ownership of stock of the Company
that, together with stock held by such person or group, constitutes more than 50
percent of the total fair market value or total voting power of the stock of the
Company. However, if any one person or more than one person acting as a group, is
considered to own more than 50 percent of the total fair market value or total voting
power of the stock of the Company, the acquisition of additional stock by the same
person or persons is not considered to cause a change in the ownership of the Company
(or to cause a change in the effective control of the corporation (within the meaning
of paragraph (ii) below). An increase in the percentage of stock owned by any one
person, or persons acting as a group, as a result of a transaction in which the Company
acquires its stock in exchange for property will be treated as an acquisition of stock
for purposes of this section. This paragraph (i) applies only when there is a transfer
of stock of the Company and stock in the Company remains outstanding after the
transaction.
	 
	 	(ii)	 	Change in the Effective Control of the Company. A change in the effective
control of the Company shall occur on the date that either (a) any one person, or more
than one person acting as a group (as defined in paragraph (iv)), acquires (or has
acquired during the 12-month period ending on the date of the most recent acquisition
by such person or persons) ownership of stock of the Company possessing 30 percent or
more of the total voting power of the stock of the Company (or which would have such
voting power but for the application of the Indiana Control Share Statute), provided,
however, that an acquisition of Voting Stock directly from the Company shall not
constitute a change in effective control of the Company; or (b) a majority of members
of the Company’s board of directors is replaced during any 12-month period by directors
whose appointment or election is not endorsed by a majority of the members of the
Company’s board of directors prior to the date of the appointment or election.

	 	(iii)	 	Change in the Ownership of a Substantial Portion of the Company’s Assets. A
change in the ownership of a substantial portion of the Company’s assets shall

 

 

	 	 	 	occur on the date that any one person, or more than one person acting as a group (as
defined in paragraph (iv)), acquires (or has acquired during the 12-month period
ending on the date of the most recent acquisition by such person or persons) assets
from the Company that have a total gross fair market value equal to or more than 40%
of the total gross fair market value of all of the assets of the Company immediately
prior to such acquisition or acquisitions. For this purpose, gross fair market value
means the value of the assets of the Company, or the value of the assets being
disposed of, determined without regard to any liabilities associated with such assets.
There is no Change in Control event under this paragraph (iii) when there is a
transfer to an entity that is controlled by the shareholders of the transferring
corporation immediately after the transfer. A transfer of assets by the Company is not
treated as a change in the ownership of such assets if the assets are transferred to
(a) a shareholder of the Company (immediately before the asset transfer) in exchange
for or with respect to its stock, (b) an entity, 50 percent or more of the total value
or voting power of which is owned, directly or indirectly, by the Company, (c) a
person, or more than one person acting as a group, that owns, directly or indirectly,
50 percent or more of the total value or voting power of all the outstanding stock of
the Company, or (d) an entity, at least 50 percent of the total value or voting power
of which is owned, directly or indirectly, by a person described in paragraph (iv).
For purposes of this paragraph (iii), a person’s status is determined immediately
after the transfer of the assets.

	 	(iv)	 	Persons Acting As a Group. For the purposes of paragraphs (i), (ii), and
(iii), persons will not be considered to be acting as a group solely because they
purchase or own assets or stock of the same corporation at the same time, or as a
result of the same public offering. However, persons will be considered to be acting as
a group if they are owners of a corporation that enters into a merger, consolidation,
purchase or acquisition of assets or stock, or similar business transaction with the
corporation. If a person, including an entity, owns stock in both corporations that
enter into a merger, consolidation, purchase or acquisition of assets or stock, or
similar transaction, such shareholder is considered to be acting as a group with other
shareholders in a corporation only with respect to the ownership in that corporation
before the transaction giving rise to the change and not with respect to the ownership
interest in the other corporation.

(e) Each of the sub-paragraphs (i) through (iv) above shall be construed and interpreted consistent
with the requirements of Section 409A of the Code and any Treasury regulations or other guidance
issued thereunder.

13. General Provisions.

	 	(a)	 	Prohibitions Against Transfer.

	 	(i)	 	Except as provided in part (ii) of this subparagraph, during a Grantee’s
lifetime, only the Grantee or his or her authorized legal representative may exercise
rights

 

 

	 	 	 	under a Grant. Such persons may not transfer those rights. The rights under a Grant may
not be disposed of by transfer, alienation, pledge, encumbrance, assignment, or any
other means, whether voluntary, involuntary, or by operation of law, and any such
attempted disposition shall be void; provided, however, that when a Grantee dies, the
personal representative or other person entitled under a Grant under the 2002 Plan to
succeed to the rights of the Grantee (“Successor Grantee”) may exercise the rights. A
Successor Grantee must furnish proof satisfactory to the Company of his or her right to
receive the Grant under the Grantee’s will or under the applicable laws of descent and
distribution.

	 	(ii)	 	Notwithstanding the foregoing, the Committee may, in its discretion and subject
to such limitations and conditions as the Committee deems appropriate, grant
nonqualified stock options (or amend previously-granted options) on terms which permit
the Grantee to transfer all or part of the stock option, for estate or tax planning
purposes or for donative purposes, and without consideration, to a member of the
Grantee’s immediate family (as defined by the Committee), a trust for the exclusive
benefit of such immediate family members, or a partnership, corporation, limited
liability company or similar entity the equity interests of which are owned exclusively
by the Grantee and/or one or more members of his or her immediate family. No such stock
option or any other Grant shall be transferable incident to divorce. Subsequent
transfers of a stock option transferred under this part (ii) shall be prohibited except
for transfers to a Successor Grantee upon the death of the transferee.

	 	(b)	 	Substitute Grants. In the event of a business combination in which another corporation is
combined with the Company by reason of a corporate merger, consolidation, acquisition of
stock or property, reorganization or liquidation in which the Company is the surviving
entity, the Committee may make Grants to individuals who are or were employees, directors,
or consultants to such other corporation in substitution for stock options, performance
awards, restricted stock grant, stock appreciation rights, or stock unit awards granted to
such individuals by such other corporation that are outstanding at the time of the business
combination (“Substituted Stock Incentives”). The terms and conditions of the substitute
Grants may vary from the terms and conditions that would otherwise be required by the 2002
Plan and from those of the Substituted Stock Incentives. The Committee shall prescribe the
exact provisions of the substitute Grants, preserving where practical the provisions of the
Substituted Stock Incentives. The Committee shall also determine the number of shares of
Lilly Stock to be taken into account under Section 4.
	 
	 	(c)	 	Subsidiaries. The term “subsidiary” means a corporation, limited liability company or
similar form of entity of which Eli Lilly and Company owns directly or indirectly 50 percent
or more of the voting power.
	 
	 	(d)	 	Fractional Shares. Fractional shares shall not be issued or transferred under a Grant,
but the Committee may pay cash in lieu of a fraction or round the fraction.

	 	(e)	 	Compliance with Law. The 2002 Plan, the exercise of Grants, and the obligations of the
Company to issue or transfer shares of Lilly Stock under Grants shall be subject to

 

 

	 	 	 	all applicable laws and regulations and to approvals by any governmental or regulatory
agency as may be required. The Committee may revoke any Grant if it is contrary to law or
modify a Grant to bring it into compliance with any valid and mandatory law or government
regulation. The Committee may also adopt rules regarding the withholding of taxes on payment
to Grantees.

	 	(f)	 	Ownership of Stock. A Grantee or Successor Grantee shall have no rights as a shareholder
of the Company with respect to any shares of Lilly Stock covered by a Grant until the shares
are issued or transferred to the Grantee or Successor Grantee on the Company’s books.

	 	(g)	 	No Right to Employment or to Future Grants. The 2002 Plan and the Grants under it shall
not confer upon any Eligible Employee or Grantee the right to continue in the employment of
the Company or as a member of the Board or affect in any way (i) the right of the Company to
terminate the employment of an Eligible Employee or Grantee at any time, with or without
notice or cause, or (ii) any right of the Company or its shareholders to terminate the
Grantee’s service on the Board. Neither the status of an individual as an Eligible Employee
nor the receipt of one or more Grants by a Grantee shall confer upon the Eligible Employee
or Grantee any rights to future Grants.

	 	(h)	 	Foreign Jurisdictions. The Committee may adopt, amend, and terminate such arrangements
and make such Grants, not inconsistent with the intent of the 2002 Plan, as it may deem
necessary or desirable to make available tax or other benefits of the laws of foreign
jurisdictions to Grantees who are subject to such laws. The terms and conditions of such
foreign Grants may vary from the terms and conditions that would otherwise be required by
the 2002 Plan.

	 	(i)	 	Governing Law. The 2002 Plan and all Grants made under it shall be governed by and
interpreted in accordance with the laws of the State of Indiana, regardless of the laws that
might otherwise govern under applicable Indiana conflict-of-laws principles.

	 	(j)	 	Effective Date of the Amended 2002 Plan. The amended 2002 Plan is effective January 1,
2009.

	 	(k)	 	Section 409A Compliance. To the extent applicable, it is intended that the Plan and all
Awards hereunder comply with the requirements of Section 409A of the Code and the Treasury
Regulations and other guidance issued thereunder, and that the Plan and all award agreements
shall be interpreted and applied by the Committee in a manner consistent with this intent in
order to avoid the imposition of any additional tax under Section 409A of the Code. In the
event that any provision of the Plan or an award agreement is determined by the Committee to
not comply with the applicable requirements of Section 409A of the Code and the Treasury
Regulations and other guidance issued thereunder, the Committee shall have the authority to
take such actions and to make such changes to the Plan or an award agreement as the
Committee deems necessary to comply with such requirements. Notwithstanding the foregoing
or anything elsewhere in the Plan or an award agreement to the contrary, if a Grantee is a
“specified employee” as defined in Section 409A of the Code, as determined by the

 

 

	 	 	 	Company in accordance with its procedures, at the time of termination of Service with
respect to an Award, then solely to the extent necessary to avoid the imposition of any
additional tax under Section 409A of the Code, the commencement of any payments or benefits
under the Award shall be deferred until the date that is six months following the Grantee’s
termination of Service (or such other period as required to comply with Section 409A). In
no event whatsoever shall the Company be liable for any additional tax, interest or
penalties that may be imposed on a Grantee by Section 409A of the Code or any damages for
failing to comply with Section 409A of the Code.

* * *

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