THE LILLY EMPLOYEE 401(K) PLAN PROSPECTUS

Transcription

1 THE LILLY EMPLOYEE 401(K) PLAN PROSPECTUS This document constitutes a part of a prospectus covering securities that have been registered under the Securities Act of 1933 April 30, 2014

2 TABLE OF CONTENTS Item 1. Plan Information (a) General Plan Information... 1 (b) Securities to be Offered... 4 (c) Employees Who May Participate in the Plan... 4 (d) Purchase of Securities Pursuant to the Plan and Payment for Securities Offered... 4 (e) Resale Restrictions... 7 (f) Forfeitures of Company Contributions... 8 (g) Withdrawal from the Plan; Assignment of Interest... 8 (h) Tax Effects of Plan Participation (i) Investment of Funds (j) Charges and Deductions and Liens Item 2. Registrant Information and Employee Plan Annual Information i -

3 THE LILLY EMPLOYEE 401(K) PLAN PROSPECTUS Item 1. Plan Information. (a) General Plan Information Eli Lilly and Company (the Company ) established, effective July 1, 1956, The Lilly Employee Savings Plan for the purpose of helping its eligible employees, and the eligible employees of its subsidiary and affiliated companies that adopt such plan, to provide additional security for their retirement by affording such employees the means of making regular savings and by providing employer contributions to be added to such savings. Effective January 1, 2006, the name of the Plan was changed to The Lilly Employee 401(k) Plan (the Plan ). The Plan was amended and restated, effective as of January 1, 1989, to incorporate an employee stock ownership plan (the ESOP ), which is designed to invest primarily in qualifying employer securities. It is the intention of the Company that the non-esop portion of the Plan (the Profit-Sharing Plan ) be a profit-sharing plan that is qualified under Sections 401(a) and 401(k) of the Code of 1986, as amended (the Code ); that the ESOP shall be both a stock bonus plan and an employee stock ownership plan that is qualified under Sections 401(a) and 4975(e)(7) of the Code and described in Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as amended ( ERISA ); that the Profit-Sharing Plan and the ESOP together shall constitute a single plan (the Plan ) under Section 1.414(l)-1(b)(1) of the Treasury regulations; that the Plan shall satisfy the requirements of ERISA; and that the Trust Fund maintained under the Plan shall be tax-exempt under Section 501(a) of the Code. The Plan was amended and restated, generally effective as of January 1, 2002 (unless otherwise noted), to incorporate tax law changes known as GUST and to make other miscellaneous changes. The Plan is now amended and restated, generally effective as of January 1, 2011 (unless otherwise noted), to incorporate Economic Growth and Tax Relief Reconciliation Act (EGTRRA) changes and to make other miscellaneous changes. It is the expectation of the Company that the Plan will continue indefinitely, but the Company reserves the right to amend or modify the Plan in any respect or to terminate it in whole or in part by action of its Board of Directors. Any such termination or modification shall be effective at such date as the Company may determine. The rights to benefits of any eligible employee whose employment terminated prior to the effective date of any amendment shall be determined solely by the provisions of the Plan in effect at the time of such termination of employment, unless specifically otherwise provided herein

4 The Plan is designed to qualify under Section 401(a) and other applicable provisions of the Code and to comply with ERISA. The Company through action of its Board of Directors may make any modifications or amendments to the Plan that are necessary or appropriate to qualify or maintain the Plan as a plan meeting the requirements of Section 401(a) or any other applicable provisions of the Code, ERISA, or other laws, regulations or rulings. The Plan is intended to be a plan described in Section 404(c) of ERISA regarding participant-directed individual account plans. Section 404(c) provides that a plan s fiduciaries may not be held liable for losses attributable to a participant s investment decisions regarding contributions to any of the funds, or transfers of existing account balances into or out of any of the funds, to the extent the participant has exercised investment control. Therefore, participants in the Plan are solely responsible for losses resulting from their investment choices. Under a 404(c) plan, fiduciaries have a responsibility to ensure that participants are provided with, or have the opportunity to obtain, sufficient information to make informed investment decisions with respect to all designated investment alternatives offered by the plan. The Fund Advisory Committee, which is appointed by the Board of Directors of the Company, is the fiduciary responsible for Plan investment matters. The Fund Advisory Committee reviews and designates certain funds as Plan funds to which participants may direct their investments. The Fund Advisory Committee also is the fiduciary responsible for providing certain information automatically to Plan participants and making certain information available upon request and for ensuring the confidentiality of participant and beneficiary decisions to purchase, sell, vote, tender or exercise rights with respect to the Lilly Stock Fund. The Employee Benefits Committee, which is appointed by the Board of Directors of the Company, is the Plan s administrator and fiduciary with respect to the administration of the Plan. The Employee Benefits Committee is the Plan fiduciary who is obligated to receive and follow investment instructions from participants. In the event of a tender offer, the Board of Directors is the fiduciary responsible for appointing an independent fiduciary. Pursuant to certain trust agreements, the Northern Trust Company is a directed trustee to the Plan with responsibility for the custody and administration of the Plan s assets, except for the Company common stock (the Lilly Stock ) held in the Lilly Stock Fund, and PNC Bank, National Association, is the trustee of the Plan with responsibility for the custody and administration of the Lilly Stock Fund. The Fund Advisory Committee has authority to modify the trust agreements. The Employee Benefits Committee has contracted with Hewitt Associates, LLC to assist in the administration of the Plan

5 Information that is provided automatically to participants includes descriptions of the objectives, risk and return characteristics, and the type and diversification of the assets for each of the Plan funds available to participants. Information is provided to Plan participants through a variety of Plan communications, including Plan enrollment materials, newsletters, fee disclosure notice, fund fact sheet pages, and account valuations on the Lilly Benefits Center website ( or via a toll-free telephone inquiry by calling the Lilly Benefits Center at Participants also receive written summary annual reports. Individualized account statements can be viewed online at the Lilly Benefits Center website. Participants also may request to receive a printed account statement by mail. Information that is available to participants upon request includes a description of the annual operating expenses of each designated Plan fund that reduce the rate of return under that designated Plan fund and the aggregate amount of such expense expressed as a percentage of average net assets of the designated Plan fund. In addition, participants may request copies of any prospectus, financial statement and report, and other material relating to the funds under the Plan to the extent such information is provided to the Plan. Requests may also be made for a list of the Plan assets that comprise the portfolio of each designated fund under the Plan, the value of each such asset and, with respect to any fixed-rate investment contract, the issuer s name, the term of the contract, and the rate of return on the contract. Additionally, participants may request information concerning the values of shares or units in each designated fund under the Plan, as well as the past and current investment performance of the Plan funds, determined, net of expenses, on a reasonable and consistent basis. Information concerning the value of shares or units of each designated Plan fund held in the account of the participant may also be requested. In addition to the designated Plan funds, the Plan also offers a self-directed mutual fund window which allows participants to direct investments to fund(s) that they select. None of the individual funds available through the self-directed mutual fund window have been reviewed or designated as Plan funds by the Fund Advisory Committee. When a participant invests in funds through the self-directed mutual fund window, the participant will be considered a named fiduciary under the Plan. This means that the participant will be responsible for choosing and monitoring the fund(s) in which they invest, directing the Employee Benefits Committee with respect to such fund(s), and exercising voting rights or other rights with respect to the fund(s) that they select. Any participant who wishes to have additional information about the funds should contact The Fund Advisory Committee at Lilly Corporate Center, Indianapolis, Indiana, 46285, Attention: Secretary of Committee; telephone The address of the Employee Benefits Committee is Lilly Corporate Center, Indianapolis, Indiana, 46285, Attention: Vice President, Human Resources; telephone

6 (b) Securities to be Offered 8,550,000 shares of Eli Lilly and Company common stock. (c) Employees Who May Participate in the Plan A common law employee receiving regular compensation from the Company or any of its subsidiary and affiliated companies that adopt the Plan (e.g., Lilly USA, LLC, or ImClone Systems LLC), who is either (1) a citizen of the United States (but not a resident of the Commonwealth of Puerto Rico); (2) employed with a Lilly affiliate in the West Indies; or (3) designated by the Company as an international service employee, and to whom no contributions under a funded plan of deferred compensation are being provided by any person other than the Company, is eligible to participate in the Plan. In addition, a common law employee who is not a citizen of the United States or the Commonwealth of Puerto Rico may participate in the Plan if (1) he or she has been selected for participation in the Plan by the Employee Benefits Committee or its designee, or (2) such person holds a valid H-1B visa, provided such employee does not participate in The Lilly Global Services, Inc. Retirement and Death Benefit Plan for Globalist Employees (or any successor plan) and is not maintained on home country benefits. Notwithstanding anything herein to the contrary, the following categories of employees are not eligible to participate in the Plan: (1) employees whose wages are not effectively connected with the conduct of a trade or business within the United States and includible in the Participant s United States gross income; and (2) members of a recognized collectivebargaining agreement, unless the agreement makes the Plan applicable to members of such unit. Generally, employees are eligible to participate in the Plan as of their date of hire. However, special-status employees must complete 1,000 hours of service within any one period of 12 consecutive months that begins with their date of employment in order to be eligible. Special-status employees generally are employees whose employment status is temporary, seasonal, part-time or otherwise inconsistent with regular employment status. (d) Purchase of Securities Pursuant to the Plan and Payment for Securities Offered Enrollment in the Plan; Contributions Eligible employees can enroll in the Plan by logging onto the Lilly Benefits Center website or by calling the Lilly Benefits Center at An eligible employee must select the percentage of base salary that the participant wishes to contribute to the Plan and the type of contributions to be made -- pre-tax, Roth, or a combination of both. An eligible employee may begin making contributions to the Plan once he or she enrolls and his or her payroll deduction election has been processed. Contributions are made through semimonthly payroll deductions

7 Employees who do not enroll in the Plan within 60 days of employment will begin contributing six percent of their base salary to the Plan automatically. Employees may, however, choose not to participate in the auto-enrollment feature by opting out of the Plan on the Lilly Benefits Center website ( Employees who elect not to participate in the Plan may change their minds and begin participating at a later date. The amount a participant contributes to the Plan must be a whole percentage amount within the range of 1 to 50 percent of his or her semi-monthly base salary, up to a maximum annual contribution limit prescribed by law (e.g., $17,500 in 2014). If a participant is age 50 or over, the participant may also make catch-up contributions to the Plan, subject to IRS limits (e.g., $5,500 in 2014). These catch-up contributions are additional contributions and are not eligible for the Company matching contributions described below. Base salary includes certain military differential payments to an eligible employee who does not currently perform services for the Company by reason of qualified military service. Contributions deducted from a participant s paychecks are contributed to the Plan as soon as administratively feasible after they are so deducted. A participant s percentage from the prior year will carry over unless he or she requests a change. A participant is permitted to make unlimited changes in his or her contribution percentage during the year. If a participant does make a change in contribution percentage during the year, the change will apply only to future contributions and become effective as soon as administratively practicable. If a participant s base salary changes during the year, the participant s contribution will be automatically adjusted based on the percent the participant elected to contribute to the Plan. The Internal Revenue Code and the Plan contain rules that may limit contributions for certain participants. Generally, such rules restrict or prohibit contributions by certain highly compensated employees. If a participant is affected, the participant will be notified. If an employee elects to make contributions to the Plan, as described above, the Company makes a matching pre-tax contribution at the end of each month to the participant s Plan account equal to 100% of the first 6 percent of the participant s monthly base salary that he or she contributes. This Company contribution is allocated based on the investment selection the participant makes for his own contributions to the Plan. Matching contributions generally are paid to the Plan on a monthly basis. Investments under the Plan Each participant invests his or her contributions and account balances among investment alternatives offered under the Plan, including the Plan s funds and self-directed mutual fund window, which are described under Item 1(i), below. Investments in the Plan s funds, except for the self-directed mutual fund window, are expressed in units. The term unit price refers to the worth of one unit. Unit price (also called Net Asset Value or NAV) is - 5 -

8 calculated by adding the value of the fund s assets, subtracting the liabilities, and then dividing the results by the number of units outstanding. Total assets total liabilities Number of units outstanding = unit price Unit price is determined after the close of business of the New York Stock Exchange ( NYSE ). The unit price of Plan funds invested in bonds and/or stocks can fluctuate daily, increasing as interest or dividends are earned on securities held by the fund, and increasing or decreasing with changes in the market value of the individual securities held by the fund. Each time a participant makes a contribution to one of the Plan s funds or transfers an existing balance from one fund to another fund, the participant s account is credited with as many full and/or fractional units as can be purchased with the amount of the contribution or transferred funds. Valuation occurs the same business day for requests made prior to market close or the next business day for requests made after market close. The trustee calculates all daily prices. For funds using Plan-specific prices, the trustee transmits the current-day NAV and prior day unit positions to the recordkeeper via an electronic file transmission each business day. The recordkeeper is responsible for transmitting the daily buy/sell instructions to the Plan trustee. If the New York Stock Exchange communicates a planned early close for the market or, due to unexpected circumstances the market closes, the recordkeeper modifies its system to accurately date activity to the next available business day if requested after the market close. One of the investment options available through the Plan is a self-directed mutual fund window. A transfer to the self-directed mutual fund window must be at least $1,000, with a minimum of $5,000 remaining in Plan funds after the transfer. To participate in the selfdirected mutual fund window, a participant must direct the transfer of some or all of his or her existing balances in other Plan fund(s) to the participant s self-directed mutual fund account. The self-directed mutual fund account is subject to a separate quarterly fee for participation. Participants can execute transactions in their self-directed mutual fund account on any business day on which the stock market is open. On the business day after a participant requests that money from other Plan funds be transferred to his or her self-directed mutual fund account, the money will be initially invested in the Hewitt Money Market Fund within the self-directed mutual fund account. Participants may direct transactions the same business day with Hewitt Financial Services. A participant can transfer money from his or her self-directed mutual fund account back into the Plan funds at any time. To transfer money back into the Plan funds, a participant must first sell the mutual funds held within the self-directed mutual fund account. The - 6 -

9 money from the sale will be transferred into the Hewitt Money Market Fund in the self-directed mutual fund account, generally within one to three business days depending on the settlement period of the mutual fund(s) that were sold. After the mutual fund sale transaction is complete, a participant can transfer the money from the self-directed mutual fund account back to the participant s account for investment in one or more Plan funds. Any money transferred or reallocated out of the Stable Income Fund, including gains and losses, must be invested in a Plan investment other than the self-directed mutual fund window for a minimum of 90 days after the transfer or reallocation. Lilly Stock Participants may invest contributions and existing account balances in the Lilly Stock Fund. Investments in the Lilly Stock Fund are expressed in units (like the Plan s other funds, other than the self-directed mutual fund window). Lilly stock may be either purchased or sold on the open market by the Trustee based on the net daily flows in or out of this investment option. Commissions on these trades will be paid from the assets for the Lilly Stock Fund. All dividends to be paid on shares of Lilly Stock held in the Lilly Stock Fund are credited to participant accounts as of the paid date and added to the number of units in the participant s account. Reports to Participants Participants may request information (including a written statement) about their current account balances at any time by logging on to the Lilly Benefits Center website ( or by calling the Lilly Benefits Center ( ). Representatives are available generally between 9 a.m. and 5 p.m., Eastern Time, Monday through Friday. The automated phone system is available 24 hours a day, Monday through Saturday, and after 1 p.m., Eastern Time, on Sunday. Participants will be provided quarterly a written statement of their personal accounts based on the account value on the last day of the quarter. These personal statements show a breakdown of the contributions to the participant s account and the value of those contributions. They also include information about any withdrawals, distributions, loans, and self-directed mutual fund account information. In addition, individualized account statements can be viewed online at the Lilly Benefits Center website. (e) Resale Restrictions Participants generally may transfer their account balances invested in the Lilly Stock Fund to another investment alternative available under the Plan at any time. Participants may withdraw from the Plan and receive the value of their Plan account as further described in Item (f). Participants may elect to receive an in-kind distribution of some or all of their account balance in the Lilly Stock Fund in shares of Lilly Stock

10 In general, the Company does not impose any restrictions on resale of the shares of Lilly Stock that are distributed to participants from the Plan. However, under Federal securities law, Plan participants deemed to be Affiliates of the Company may not sell shares of Lilly Stock acquired under the Plan unless such shares are registered under the Securities Act of 1933, as amended (the 1933 Act ) for the purpose of such sale or are sold pursuant to an exemption from registration. Rule 405 under the 1933 Act defines Affiliates as persons who, directly or indirectly, through one or more intermediaries, control or are controlled by, or are under common control with, an issuer of securities. Plan participants who are not Affiliates of the Company generally may reoffer or resell shares of Lilly Stock distributed from the Plan without further registration of such shares. Employees should ensure that their transactions involving interests in the Lilly Stock Fund or Lilly Stock distributed from the Plan comply with the Company s insider trading policies. Transactions in the Lilly Stock Fund or Lilly Stock distributed from the Plan by executive officers of the Company may also be subject to the insider trading rules under Section 16 of the Securities Exchange Act of Employees with questions about the Company s policies with respect to insider trading should contact the corporate secretary s office at (317) (f) Forfeitures of Company Contributions Active participants in the Plan become fully vested in the event of any of the following: Completion of two years of service Death Disabled under The Lilly Extended Disability Plan Retirement under The Lilly Retirement Plan Attainment of age 65 Nonvested balances are forfeited at the earlier of distribution or the last day of the month following termination from employment. The nonvested balance of an eligible employee s account may be permanently forfeited only when the participant incurs five consecutive one-year breaks in service. (g) Withdrawal from the Plan; Assignment of Interest How Withdrawals Work While Working for the Company The Plan s primary purpose is to provide benefits when a participant retires. A participant can, however, withdraw money from his or her account under certain circumstances while still working

11 Four types of in-service withdrawals are available: Hardship Withdrawals Nonhardship Withdrawals Age 59-1/2 Withdrawals Military Leave Withdrawal The amount available to a participant and the way the withdrawal affects the participant s account depends on the type of withdrawal the participant requests. There is no minimum withdrawal amount. Depending on the type of withdrawal, a participant may be able to roll over the withdrawal to another eligible retirement plan or individual retirement account ( IRA ). There is no limit to the number of in-service withdrawals that can be taken within any calendar year. The amount a participant can withdraw depends on the amount available to the participant. After Leaving the Company Participants can request a final settlement distribution from the Plan if: The participant leaves the Company The participant becomes totally and permanently disabled Participants distribution options, and the amount eligible to be received, depend on their vested account balances at the time they leave the Company. If there is money in a participant s account when he or she dies, the beneficiary receives the vested portion of the participant s account balance. Requesting a Withdrawal To request a withdrawal, follow the withdrawal procedures. Special tax rules apply when a participant takes a withdrawal. Depending on the type of withdrawal a participant takes, a participant may be able to defer taxes by rolling over the withdrawal to another eligible employer plan or an IRA. If a Participant Has a Self-Directed Mutual Fund Account Although the balance of a participant s self-directed mutual fund account is included in the total amount the participant may withdraw, a participant cannot take a withdrawal directly from a self-directed mutual fund account. A participant can access this money for a withdrawal, however, by transferring the amount desired to be withdrawn from the self-directed mutual fund account to the Plan s funds

12 Nonhardship Withdrawals Rules for Nonhardship Withdrawals A participant can take a nonhardship withdrawal of amounts listed on the chart below for any reason. A participant can roll over the withdrawal to another eligible employer plan or IRA. Withdrawal Sources The money in a participant s account is divided into categories. A participant must completely withdraw the available money in each category in the following order before withdrawing money from the next category, to the extent a withdrawal is permissible from such subaccount: Order in Which Contributions are Withdrawn After-tax contributions (pre-1983) Rollover contributions PAYSOP contributions Company contributions Roth rollover contributions Amount Available A participant can withdraw all after-tax contributions and associated investment earnings. A participant can withdraw all rollover contributions and associated investment earnings. A participant can withdraw all vested PAYSOP contributions and associated investment earnings. A participant can withdraw all vested Company contributions and associated investment earnings. A participant can withdraw all Roth rollover contributions and associated investment earnings. Order in Which Contributions are Withdrawn Note: If a participant has less than 5 years of service, the participant may not withdraw Company contributions made within the past 2 years. All of the available money in the first subaccount must be depleted before money is taken from the next subaccount. For example, the amount available in a participant s after-tax contributions subaccount must be fully depleted before money may be taken from the rollover contributions subaccount. How Withdrawals Affect Investment Fund Balances If a participant is 100% vested, withdrawals can be paid in cash, shares, or a combination of both. If a participant elects to take shares, the Lilly Stock Fund will be depleted first. If a participant is less than 100% vested, the withdrawal will be paid completely in cash. The amount taken from each investment fund reflects how a participant s subaccounts are invested. For example, if all of the money for a participant s withdrawal is taken from the after-tax contributions subaccount, and 10% of that subaccount is invested in the Stable Income Fund, 10% of the withdrawal amount will be taken from that fund. The percentage taken from each fund is based on the actual subaccount balance invested in that fund, not the participant s investment choices for future contributions

13 Age 59-1/2 Withdrawals Rules for Age 59-1/2 Withdrawals Once a participant reaches age 59-1/2, the participant can take a withdrawal for any reason, including a withdrawal of pre-tax or Roth contributions. Withdrawal Sources The money in a participant s account is divided into categories. A participant must completely withdraw the available money in each category in the following order before they may withdraw money from the next category, to the extent a withdrawal is permissible from such subaccount: Order in Which Contributions are Withdrawn After-tax contributions (pre-1983) Rollover contributions PAYSOP contributions Company contributions Pre-tax contributions Roth rollover contributions Roth contributions Amount Available A participant can withdraw all after-tax contributions and associated investment earnings. A participant can withdraw all rollover contributions and associated investment earnings. A participant can withdraw all vested PAYSOP contributions and associated investment earnings. A participant can withdraw all vested Company contributions and associated investment earnings. A participant can withdraw all pre-tax contributions and associated investment earnings. A participant can withdraw all Roth rollover contributions and associated investment earnings. A participant can withdraw all Roth contributions and associated investment earnings. Except with respect to any Roth subaccount, all of the available money in the first subaccount must be depleted before money is taken from the next subaccount. For example, the amount available in a participant s after-tax contributions subaccount must be fully depleted before money is taken from the rollover contributions subaccount. For a participant with a Roth subaccount and any other subaccount(s), the participant may elect to take a withdrawal from a Roth subaccount listed above before withdrawing monies from any non-roth subaccount. If a participant is 100% vested, withdrawals can be paid in cash, shares, or a combination of both. If a participant is less than 100% vested, the withdrawal will be paid completely in cash. All or a portion of the withdrawal may be directly transferred to an IRA or other qualified plan

14 How Withdrawals Affect Investment Fund Balances The amount taken from each investment fund reflects how the participant s subaccounts are invested. For example, if all of the money for a participant s withdrawal is taken from his or her after-tax contributions subaccount, and 10% of that subaccount is invested in the Stable Income Fund, 10% of the withdrawal amount will be taken from that fund. The percentage taken from each fund is based on the actual subaccount balance invested in that fund, not the participant s investment choices for future contributions. Hardship Withdrawals Rules for Hardship Withdrawals In certain situations, a participant can take a hardship withdrawal from his or her pre-tax or Roth contributions. To take a hardship withdrawal: The participant must have an immediate and heavy financial need The withdrawal must be necessary to satisfy that need The participant must provide documentation to prove his or her financial hardship The participant must take any non-hardship amounts available to satisfy the immediate and heavy financial need prior to requesting a hardship withdrawal The participant must have an outstanding Plan loan to be eligible In most cases, a participant must incur the expense before requesting the withdrawal. However, a participant cannot pay the expense and then request a hardship withdrawal for reimbursement. The money a participant withdraws for hardship must be used to pay for that expense. If a participant s hardship request is approved, the Plan will suspend the participant s contributions for 6 months after the withdrawal. A participant s contributions will automatically restart after the suspension period. Amount A Participant Can Withdraw A participant can withdraw up to the amount of the immediate financial need or the maximum amount available, whichever is less. However, a participant can request that the amount of a hardship withdrawal be increased to cover any federal, state, or local income taxes or penalties reasonably anticipated to result from the withdrawal. Federal law prohibits the withdrawal of earnings related to any pretax contributions credited to a participant s account after December 31, A participant cannot roll over the withdrawal to another eligible retirement plan, IRA or Roth IRA

15 How Withdrawals Affect Investment Fund Balances The amount taken from each investment fund reflects how a participant s subaccounts are invested. For example, if all of the money for the withdrawal is taken from a participant s after-tax contributions subaccount, and 10% of that subaccount is invested in the Stable Income Fund, 10% of the withdrawal amount will be taken from that fund. The percentage taken from each fund is based on the actual subaccount balances invested in that fund, not the participant s investment choices for future contributions. Hardship Withdrawal Requirements Events That Qualify as a Hardship If a participant has already paid an expense, it is no longer a financial need and does not qualify for a hardship withdrawal. A participant can apply for a hardship withdrawal only if his or her financial need is for one of these reasons: Costs directly related to buying a primary residence (excluding mortgage payments) Payments necessary to prevent the eviction from his or her primary residence or foreclosure on the mortgage on that residence Unreimbursed medical care expenses that can be deducted on the participant s income tax return which either: The participant, his or her spouse, or a dependent (as defined by the Code) previously incurred, or Were necessary for the participant, his or her spouse, or dependent to receive medical care Payment of tuition, related educational fees, or room and board expenses for the current semester, quarter, or year of post-secondary education for the participant, his or her spouse, children, or dependent (as defined by the Code) Payment of funeral expenses for the participant s parents, spouse, child, or other dependent (as defined by the Code) Costs to repair his or her primary residence due to a disaster A participant will be required to submit documentation supporting a hardship request. Meeting the Financial Need Requirement A hardship withdrawal request is deemed necessary if: The withdrawal does not exceed the amount of the immediate and heavy financial need. The participant has obtained all other withdrawals, distributions, and nontaxable loans available from the Company s plans. The participant stops contributing to the Plan and to all other plans maintained by the employer for at least 6 months after the hardship withdrawal

16 Note: If a participant takes a hardship withdrawal, the participant s contributions to the Plan will be automatically suspended for 6 months. The contribution rate that a participant chooses will be kept on file during that time. After the 6-month suspension, a participant s contributions will begin again automatically at the same rate. Hardship Documentation - To be approved for a hardship withdrawal, a participant must send supporting documents to the Lilly Benefits Center. (A) Purchase of A Participant s Primary Residence For costs directly related to buying a participant s primary residence, submit a copy of one of these: Signed purchase contract Intent-to-purchase agreement (Good Faith Estimate) If building, the builder s contract The contract or agreement must be dated within the last 30 days and reflect all of the following: The participant s name as the buyer Address of the residence being purchased Purchase price Down payment amount A closing date no more than 6 months in the future Signatures of both buyer and seller (B) Prevent Mortgage Foreclosure or Eviction To prevent a participant s eviction from a primary residence or foreclosure on a mortgage, submit a copy of one of these: Bank/mortgage statement Letter from bank/mortgage company Letter from landlord Court document substantiating the eviction or foreclosure legal proceedings The letter, statement, or court document must: Be dated within the past 30 days Contain the participant s name Reflect the amount necessary to prevent foreclosure or eviction Show an eviction or foreclosure date in the future Threaten eviction or foreclosure, if statement or letter

17 (C) Unreimbursed Medical Expenses For expenses that have not been reimbursed by the participant s medical insurance, submit a copy of each of these: An Explanation of Benefits ( EOB ) from the participant s medical insurer The corresponding bill from the provider If the participant does not have medical insurance, submit both of these: An itemized bill from the provider A letter from the provider stating that the participant, spouse, or dependent is not insured For services to be provided at a future date, submit a bill from the provider stating the prepayment required for the service. The EOB must be dated within the last 6 months and reflect: Amount paid by the insurance company Amount owed by the insured The provider s bill must be dated within the past 6 months and indicate the amount still due. (D) Post-Secondary Education Expenses For post-secondary education tuition, related educational fees, or room and board expenses for the current semester, quarter, or year, submit a copy of one of these: Itemized tuition bill Room and board expense statement from the school Book expenses cannot be used to qualify for a hardship withdrawal. The bill or statement must: Show the name of the school Be dated within the past 90 days Be dated within 2 months before or after the beginning of the quarter or semester

18 (E) Funeral Expenses For funeral/burial expenses for the participant s parent, spouse, children, or other dependents, submit a copy of the funeral/burial billing statement, including all of the following: Name of deceased Dates of services provided within the past 6 months Party liable for expenses Itemized funeral/burial expenses (F) Primary Residence Repairs Due to Disaster For repair expenses of unforeseen damage to the participant s primary residence not paid for by insurance, submit one of the following: Insurance report that includes: Address of the property damaged Date of damage within the past 90 days Cause of damage, if available Amount paid or to be paid by the insurance company Amount owed by the participant A letter from the participant stating that he or she has no insurance, which includes address of the property damage, cause of damage, date of damage within the past 90 days and a statement from the participant that the property is not insured In addition, the participant must submit an estimate or bill of itemized repairs that includes all of the following: The participant s name Address of the damaged property Date when the estimate or bill was calculated Document explaining the cause of the damage, if the participant s insurance report does not include it (police or fire report, newspaper story, or a letter from the participant, for example) Proof that the participant owns or rents the residence (property tax bill, mortgage statement, property deed, or lease agreement, for example), which reflects: Address of property damaged The participant is the owner or renter of the property The participant is liable if they rent to the owner for damages Note: All bills must be unpaid to qualify for a hardship withdrawal. If a bill has already been paid, the hardship withdrawal does not apply

19 Special Withdrawal Option for Eligible Employees on Military Leave As part of the Heroes Earnings Assistance and Relief Tax Act of 2008 ( HEART Act ), a participant on a qualifying military leave of more than 30 days is eligible to withdraw his or her pre-tax or Roth contributions and earnings. A participant cannot make additional contributions to the Plan for six months after receiving a payment made under the HEART Act. For more information, contact the Lilly Benefits Center. How to Request a Withdrawal A participant can request a withdrawal on the Lilly Benefits Center website or by contacting the Lilly Benefits Center. The amount available for withdrawal is based on a participant s account value at the close of each business day (4:00 p.m., Eastern time, or when the stock market closes, if earlier). While Working for the Company If a participant requests more than the amount available for withdrawal when a request is processed, he or she will receive only the amount available. Hardship Withdrawals For a hardship withdrawal, the participant can initiate the request online at the Lilly Benefits Center website or by calling the Lilly Benefits Center at The participant must return a signed hardship withdrawal form to the Lilly Benefits Center with supporting documentation before the hardship withdrawal can be approved. A hardship form is generally reviewed within 2 business days of when it is received. Participants can track the status of their request on the Lilly Benefits Center website. If a participant s form and supporting documentation are completed correctly and the participant qualifies, the hardship withdrawal will be posted to his or her account on this site. If there is a problem with the materials a participant sent or the participant did not qualify, the participant will be notified. Timing for Receiving Payments When a participant requests a withdrawal, he or she can choose to have the payment either: Direct deposited to the participant s account at a financial institution Mailed to the participant. If the participant s hardship withdrawal is approved, the payment will be direct deposited within 2 to 3 business days or mailed within 2 business days depending on the participant s choice

20 How Distributions Work If a participant retires or becomes disabled, he or she may request one of the following distribution options: Lump-Sum Distributions A participant can request a lump-sum distribution of Roth and/or non-roth accounts anytime after the participant separates from employment with the Company. When a participant takes a lump-sum distribution, the participant may receive his or her entire Roth, non-roth or entire account balance. The payment can be in cash or a combination of cash and shares of Lilly stock. The participant may elect to receive a lump sum distribution of the Roth account, if applicable, at a different time than the lump sum distribution from the non-roth accounts. A participant may be able to roll over a lump-sum distribution into another eligible retirement plan, IRA or Roth IRA. Partial Distributions If a participant defers payment of his or her account after the participant retires or the participant is receiving installments, the participant may choose to take partial distributions. A participant may take partial distributions at any time. There is no minimum amount required. Partial distributions can be paid in cash, shares of Lilly stock, or a combination of both. If the participant elects to take shares, the Lilly Stock Fund will be depleted before all other funds. The participant must file a separate payment election for Roth accounts and non-roth accounts. A participant may be able to roll over a partial distribution to another eligible retirement plan, IRA or Roth IRA. Installments When a participant separates from employment, the participant can receive his or her account balance in installments. These payments are made in cash. Note: Once a participant begins receiving installments, the participant is restricted from opening a self-directed mutual fund account. Also, if a participant currently has a self-directed mutual fund account, that amount will be excluded from the installment calculation

21 There are 2 types of installments available under the Plan. Calculated Installments With this option, a participant can choose to receive payments based on his or her life expectancy or, if married, based on the joint life expectancy of the participant and his or her spouse. Each calculated installment depends on: The participant s account balance The length of the participant s payment period, which cannot exceed the participant s life expectancy, or the joint life expectancy of the participant and the participant s beneficiary Investment earnings during the payment period Other payments the participant takes during the payment period To estimate the amount of the participant s first payment, divide the participant s total account balance, not including any unpaid loan balances, by the number of payments the participant chooses. Future payments are calculated by dividing the participant s account balance at the time the payment is made, including investment earnings, by the number of installment payments remaining. Fixed Installments With this option, payments are calculated based on a participant s account balance when payments begin and his or her life expectancy. The length of time a participant is likely to receive payments depends on: The participant s account balance The participant s installment amount Investment earnings during the payment period Other payments the participant takes during the payment period After the participant chooses an installment amount, the Plan calculates how long the payments are expected to last. This calculation is based on an interest rate provided by the Plan administrator. A participant s installments end automatically when they have received the entire account balance. Changes to A Participant s Installments After a participant starts receiving installments, the participant can change his or her tax withholding election at any time. A participant may also change the frequency of payments once each year in December. The change applies to the next calendar year. A participant can choose to receive payments monthly, quarterly, semiannually, or annually. A participant can stop receiving installments by calling the Lilly Benefits Center

22 Rolling Over Installments Installments that are scheduled or expected to last for less than 10 years may be eligible for rollover to another eligible retirement plan, IRA or Roth IRA. Installments that are scheduled or expected to last 10 years or more are not eligible for rollover. Required Minimum Distributions Required minimum distributions must be paid from a participant s account, beginning in the year he or she retires or reaches age 70-1/2, whichever is later. A participant must receive the first required minimum distribution no later than April 1 of the calendar year following the year in which the participant retires or reaches age 70-1/2, whichever is later. A participant must receive the second required minimum distribution no later than December 31 of the calendar year following the year in which the participant retires or reaches age 70-1/2, whichever is later. This means the participant may receive the first 2 required minimum distributions in the same tax year. A participant must receive the subsequent required minimum distributions by December 31 of each following year. To calculate the minimum amount a participant must receive each year, the Plan determines the closing account balance for December 31 of the prior year and divides that amount by a life expectancy factor set by the Internal Revenue Service. If a participant receives or requests a payment during a year in which the participant is required to receive a minimum distribution: That payment will count toward the participant s required minimum distribution for the year. If the payment is not enough to satisfy the participant s required minimum distribution for the year, the participant will automatically receive payment for the remaining amount before the end of the year. However, it is the participant s responsibility to make sure he or she receives the entire amount of the required minimum distribution by December 31 each year. Special payment rules apply for the participant s beneficiaries. How to Request a Distribution A participant can request most types of distributions on the Lilly Benefits Center website. However, if a participant wants to request installments, the participant must call the Lilly Benefits Center. The amount available for distribution is determined at the close of each business day (4:00 p.m. Eastern time, or when the stock market closes)

23 After the participant s request is processed, the payment will be direct deposited within 2 to 3 business days or mailed within 2 business days, depending on the participant s choice. If the participant requests shares of Lilly stock, they will be issued within 2 to 3 weeks. Note: If a participant wants to receive a distribution check via overnight delivery, the participant must provide the Lilly Benefits Center with a street address and a Federal Express billing number. Checks cannot be sent via Federal Express to a P.O. Box. In-Plan Roth Conversions If a participant is eligible to take a withdrawal or distribution from his or her account, the participant may choose to convert any pre-tax amounts to a Roth account within the Plan. No assets are actually sold and no withholding is applied to the amount converted. All amounts not previously taxed will be included in the participant s gross income and the participant will pay tax on the income generated by the conversion when filing a tax return for the year in which the conversion occurred. In general, the amount the participant converts and any earnings on that amount can be distributed to the participant without additional tax once the participant is at least age 59-1/2 and the Roth account in the Plan has been open for at least five years. Roth in-plan conversions can be processed at the Lilly Benefits Center website. Non-Assignment of Benefits The Plan provides that a participant s account may not be assigned or transferred to another except in case of a qualified domestic relations order. (h) Tax Effects of Plan Participation The Plan is qualified under Section 401(a) of the Code. As a result, participants pre-tax contributions and the Company s matching contributions are not taxable at the time they are contributed to the Plan. This reduces participants taxable income and, in turn, reduces the amount of taxes they currently have to pay. By contributing on a before-tax basis, participants defer paying taxes. These amounts are taxed as ordinary income when they are distributed to the participants. In addition, earnings and investment gains on contributions to participants accounts will be taxed when they are distributed to them. For a participant s Roth contributions, taxes are paid before being contributed to the participant s account. In that case, the contributions and earnings generally are not taxable when withdrawn if the participant has had the Roth account for at least five years and is age 59-1/2 or older. A withdrawal of any taxable amounts is subject to regular taxation in the year received unless a participant rolls over the amount into a traditional IRA or qualified plan (including a governmental 457 plan or a 403(b) annuity). A participant may also roll over after-tax contributions to a traditional IRA or a defined contribution plan that accepts the contributions. Roth contributions may only be rolled over to a Roth-IRA or a defined contribution plan that accepts Roth contributions. In addition, if a participant is under age