Eli Lilly and Company (LLY)

Item 1.01 Entry into a Material Definitive Agreement.

The company has reached resolution with the United States Attorney for the Eastern District of Pennsylvania (EDPA) and the Office of Consumer Litigation of the Department of Justice regarding the previously-reported government investigation into the company's past U.S. marketing and promotional practices for the antipsychotic medication Zyprexa(R) (olanzapine). As part of this resolution, the company has entered into the following agreements.

1. Plea Agreement
Under this agreement, the company agreed to plead guilty to one misdemeanor violation of the Food, Drug, and Cosmetic Act. The misdemeanor plea is for the off-label promotion of Zyprexa between September of 1999 and March of 2001. Specifically, the plea states that Lilly promoted Zyprexa in elderly populations as treatment for dementia, including Alzheimer's dementia, although Zyprexa is not approved for such uses. As part of this agreement, the company has agreed to pay $615 million. The plea agreement was approved by the federal court in Philadelphia on January 30, 2009.

2. Settlement Agreement
The company entered into a settlement agreement resolving the federal government's civil investigation. Even though the company disagrees with and does not admit to the civil allegations, the company has agreed to settle the dispute over these allegations. Under terms for the resolution of the civil investigations, the company has agreed to make payments totaling nearly $800 million. Approximately $438 million has been paid to the federal government and approximately $362 million will be made available for payment to settling states. The settlement agreement would have been null and void had the federal court in Philadelphia not accepted the plea agreement described above.

3. Corporate Integrity Agreement
The company entered into a corporate integrity agreement with the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS). This agreement requires Lilly to maintain its compliance program and to undertake a set of defined corporate integrity obligations for five years. The terms of the corporate integrity agreement are largely consistent with the company's existing compliance program. They also provide for an independent third-party review organization to assess and report on the company's systems, processes, policies, procedures and practices. The effective date of the corporate integrity agreement is February 13, 2009.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Item 1.01 Entry into a Material Definitive Agreement.

Definitive Zyprexa® Product Liability Settlement Agreement.
On September 16, 2005, Eli Lilly and Company (the "Company") and certain plaintiffs’ counsel representing Zyprexa product liability claimants, including all plaintiffs’ counsel who are members of the Plaintiffs’ Steering Committee ("PSC") appointed in In re Zyprexa Products Liability Litigation, MDL No. 1596, in the United States District Court for the Eastern District of New York (the "MDL") and other plaintiffs’ counsel representing Zyprexa claimants, entered into a definitive Master Settlement Agreement ("Agreement") regarding the Zyprexa claims handled or controlled by the participating counsel. The material terms of the Agreement are essentially the same as those contained in the agreement in principle that was entered into and disclosed by the Company in June 2005.

The Agreement is being entered into solely by way of compromise and settlement and is not in any way an admission of liability or fault by the Company. The Company intends to continue to vigorously defend the remaining Zyprexa product liability cases.

The Agreement covers approximately 8,000 claimants, representing approximately 70 percent of the U.S. Zyprexa product liability claims known to the Company. The claims included in the settlement are:

• A large number of the previously filed lawsuits pending in various state and federal courts, including the MDL;
• Two proposed nationwide class action lawsuits pending in the MDL (Ortiz et al. v. Eli Lilly and Company et al. and Tringali et al. v. Eli Lilly and Company et al.), neither of which has been certified by a judge;
• A proposed class action on behalf of Iowa residents pending in the MDL (Dau v. Eli Lilly and Company), which has not been certified by a judge;
• The majority of the over 6,000 potential claims that were subject to agreements tolling the statute of limitations; and
• A number of other informally asserted claims.

Under the Agreement, the Company will pay $700 million into a settlement fund held in escrow by Citibank, N.A., as escrow agent. Of the total, $690 million will be used for resolution of the claims of the participating claimants and $10 million will be paid to cover administrative expenses, costs, and services in connection with the claims resolution process. The Company will pay $500 million into the escrow account in the third quarter of 2005 and the remaining $200 million in the fourth quarter of 2005.

The claims process will be administered by four Special Settlement Masters appointed by the Honorable Jack Weinstein of the Eastern District of New York. The Special Settlement Masters shall establish a claims administration process that shall include guidelines and procedures for administering the settlement. The Agreement and the distribution of funds to participating claimants are conditioned upon, among other things, the Company obtaining full releases from no fewer than 7,193 claimants.

Distribution of funds to any individual is conditioned upon a full release and a dismissal with prejudice of the entire action or claim as to all named defendants, including physicians and other health care providers. Prior to receiving an award, an individual claimant shall represent and warrant that liens, assignment rights, or other claims that are identified in the claims administration process have been or will be satisfied by the individual claimant.

The amount of settlement awards to participating claimants, the claims evaluation process and procedures used in conjunction with award distributions, and the negotiations leading to the settlement shall be kept confidential by all parties and their counsel.

Compensation of Named Executive Officers.
On September 19, 2005, the board of directors of the Company elected John C. Lechleiter, Ph.D., as president and chief operating officer and a member of the board of directors, effective October 1, 2005, and approved other senior management organizational changes. In connection with these changes, the compensation committee of the board approved the following salary and annual cash bonuses for Dr. Lechleiter and for Steven M. Paul, M.D., Executive Vice President, Science and Technology:


John C. Lechleiter, Ph.D.:
Annual Base Salary-$1,100,000; Annual Bonus*-$1,100,000


Steven M. Paul, M.D.:
Annual Base Salary-$875,000; Annual Bonus*-$743,750


* The bonus amounts represent the target bonus under the Eli Lilly and Company Bonus Plan, assuming the listed salary was paid for the entire calendar year. Actual bonuses earned for a given calendar year will be calculated on base salary actually paid for the year and may vary from zero to 200 percent of the target amount, depending on the company’s results relative to predetermined corporate performance measures that are based 25 percent on sales growth and 75 percent on earnings-per-share growth (adjusted for unusual items in accordance with predetermined criteria).