Eli Lilly and Company (LLY)

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On September 7, 2005, Eli Lilly Services, Inc. (the "Issuer"), an indirect wholly owned finance subsidiary, organized in the British Virgin Islands, of Eli Lilly and Company (the "Company"), entered into a Purchase Agreement among the Issuer, the Company and the initial purchasers named therein, pursuant to which the Issuer will issue $1,500,000,000 of its Floating Rate Notes due 2008 (the "Notes"). The Company will fully and unconditionally guarantee payments of the principal of and interest on the Notes. The Notes are expected to be issued on or about September 14, 2005.

The Issuer intends to lend the proceeds from this offering to its direct parent, Eli Lilly S.A., an indirect wholly owned operating subsidiary of the Company through which the Company conducts certain of its international operations. Eli Lilly S.A. intends to use the funds lent by the Issuer to fund dividends ultimately to be paid to or for the benefit of the Company. The Company intends to use any proceeds to it from the offering for general corporate purposes in a manner consistent with the American Jobs Creation Act of 2004.

The Notes and the related guarantees have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Notes were offered only to "qualified institutional buyers" (as defined in Rule 144A under the Securities Act) in compliance with Rule 144A or to persons outside the United States in accordance with Regulation S under the Securities Act.

The Notes will be issued pursuant to an Indenture, dated as of August 9, 2005, by and among the Company, the Issuer and Citibank, N.A., as trustee. The terms of the Notes are governed by the Indenture.

The Notes will mature on September 12, 2008. Interest is payable quarterly in arrears on December 12, March 12, June 12 and September 12 of each year, beginning on December 12, 2005. Interest will accrue on the Notes from and including September 14, 2005 or from and including the last date in respect of which interest has been paid or provided for, as the case may be, to, but excluding, the next interest payment date or maturity date, as the case may be. The Notes will bear interest at a per annum rate equal to the "3-Month LIBOR Rate" (as defined in the Notes) plus 5 basis points (0.05%). The 3-Month LIBOR Rate will be reset quarterly on each interest payment date, beginning on, and including, December 12, 2005. Interest will be computed on the basis of a 360-day year and the actual number of days in each quarterly interest payment period.

At the option of the Issuer, the Notes may from time to time be redeemed, in whole or in part on a pro rata basis, on any interest payment date on or after September 12, 2006, at a redemption price of 100% of principal amount plus accrued and unpaid interest to, but excluding, the redemption date.

In the event of the occurrence of (i) a default in any payment of interest on a Note and the continuation thereof for a period in excess of 30 days; (ii) a default in any payment of principal on a Note; (iii) certain events involving bankruptcy, insolvency or reorganization of the Issuer or the Company; or (iv) a default or breach of certain material covenants or warranties of the Issuer or the Company in the Indenture, and the continuance thereof for 90 days after holders of at least 25% of the outstanding Notes provide notice to the Issuer, Company and trustee (or the trustee provides notice to the Issuer and the Company), then in any such case the trustee or the holders may, by satisfying the notice provisions of the Indenture and the Notes, declare the principal amount of, plus any accrued and unpaid interest on, all the Notes to be due and payable immediately.

The foregoing descriptions of the Notes and the guarantees are qualified in their entirety by reference to the full text of the terms of Notes, the related guarantees and the Indenture.