UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.     )

	Filed by the Registrant   x
	Filed by a Party other than the Registrant   o
	Check the appropriate box:

ELI LILLY AND COMPANY

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

      Payment of Filing Fee (Check the appropriate box):

	x   No fee required.
	o   Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

	1) Title of each class of securities to which transaction applies:

	2) Aggregate number of securities to which transaction applies:

	3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

	4) Proposed maximum aggregate value of transaction:

	5) Total fee paid:

	o   Fee paid previously with preliminary materials.

	o   Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

	1) Amount Previously Paid:

	2) Form, Schedule or Registration Statement No.:

	3) Filing Party:

	4) Date Filed:

Notice of 20092010 Annual Meeting and Proxy Statement

March 9, 20098, 2010

Dear Shareholder:

You are cordially invited to attend our annual meeting of shareholders on Monday, April 20, 2009,19, 2010, at the Lilly Center Auditorium, Lilly Corporate Center, Indianapolis, Indiana, at 11:00 a.m. EDT.

The notice of meeting and proxy statement that follow describe the business we will consider at the meeting. Your vote is very important. I urge you to vote by mail, by telephone, or on the Internet in order to be certain your shares are represented at the meeting, even if you plan to attend.

Please note our procedures for admission to the meeting described on page 4.

I look forward to seeing you at the meeting.

John C. Lechleiter, Ph.D.

Chairman, President, and Chief Executive Officer

­ ­

Important notice regarding the availability of proxy materials for the shareholder meeting to be held April 20, 2009:19, 2010: The annual report and proxy statement are available athttp://www.lilly.com/pdf/lillyar2008.pdflillyar2009.pdf

­ ­

Notice of Annual Meeting of Shareholders

April 20, 200919, 2010

The annual meeting of shareholders of Eli Lilly and Company will be held at the Lilly Center Auditorium, Lilly Corporate Center, Indianapolis, Indiana, on Monday, April 20, 2009,19, 2010, at 11:00 a.m. EDT for the following purposes:

	•		to elect fourfive directors of the company to serve three-year terms
	•		to ratify the appointment by the audit committee of Ernst & Young LLP as principal independent auditor for the year 20092010
	•		to approve amendments to the articles of incorporation to provide for annual election of all directors
	•
	•	to reapproveapprove amendments to the material termsarticles of performance goals for the Eli Lilly and Company Bonus Planincorporation to eliminate all supermajority voting requirements
	•		to consider and vote on a shareholder proposal requesting that the board eliminate all supermajority voting provisions fromamend the company’s articlesbylaws to allow holders of incorporation and bylaws10 percent of the outstanding shares of stock to call special meetings of shareholders
	•		to consider and vote on a shareholder proposal requesting that the company amend its articlesboard of incorporation to allow shareholders to amenddirectors adopt a policy of prohibiting CEOs from serving on the company’s bylaws by majority votecompensation committee of the board
	•		to consider and vote on a shareholder proposal requesting that the board of directors adopt a policy of asking shareholders to ratify the compensation of named executive officers at the annual meeting of shareholders.shareholders
	•	to consider and vote on a shareholder proposal requesting that the compensation committee of the board of directors establish a policy requiring senior executives to retain equity awards until two years after leaving the company.

Shareholders of record at the close of business on February 13, 2009,12, 2010, will be entitled to vote at the meeting and at any adjournment of the meeting.

Attendance at the meeting will be limited to shareholders, those holding proxies from shareholders, and invited guests from the media and financial community. A page at the back of this proxy statementreport contains an admission ticket. If you plan to attend the meeting, please bring this ticket with you.

This combined proxy statement and annual report to shareholders and the proxy voter card are being mailed on or about March 9, 2009.8, 2010.

By order of the board of directors,

James B. Lootens

Secretary

March 9, 2009
8, 2010

Indianapolis, Indiana

1

3

Board of Directors

Directors’ Biographies

Directors’ BiographiesClass of 2010

Class of 2009
The following fourfive directors’ terms will expire at this year’s annual meeting. Each of these directors has been nominated and is standing for election to serve a term that will expire in 2012.2013. See page 4655 of this proxy statement for more information.

		Martin S. Feldstein, Ph.D.		Age 69		Director since 2002
		George F. Baker Professor of Economics, Harvard University
		Dr. Feldstein is president emeritus of the National Bureau of Economic Research and the George F. Baker Professor of Economics at Harvard University. He became an assistant professor at Harvard in 1967, an associate professor in 1968, and a professor in 1969. From 1982 through 1984, he served as chairman of the Council of Economic Advisers and President Ronald Reagan’s chief economic adviser. President Obama has appointed him as a member of the Economic Recovery Advisory Board. He is a member of the American Philosophical Society, a corresponding fellow of the British Academy, a fellow of the Econometric Society, and a fellow of the National Association for Business Economics. Dr. Feldstein is a member of the executive committee of the Trilateral Commission and a director of American International Group, Inc. and Economic Studies, Inc. He is a member of the American Academy of Arts and Sciences and past president of the American Economic Association.

		J. Erik Fyrwald		Age 49		Director since 2005
		Chairman, President, and Chief Executive Officer, Nalco Holding Company
		Mr. Fyrwald joined Nalco Holding Company (a leading integrated water treatment and process improvement company) as chairman, president, and chief executive officer in February 2008. From 2003 to 2008, Mr. Fyrwald served as group vice president of the agriculture and nutrition division at E.I. du Pont de Nemours and Company. From 2000 until 2003, he was vice president and general manager of DuPont’s Nutrition and Health business. In 1999, Mr. Fyrwald was vice president for corporate strategic planning and business development. At DuPont, Mr. Fyrwald held a broad variety of assignments in a number of divisions covering many industries. He has worked in several locations throughout North America and Asia.

		Ellen R. Marram		Age 62		Director since 2002
		President, The Barnegat Group LLC
		Ms. Marram is the president of The Barnegat Group LLC, a firm that provides business advisory services. She was a managing director at North Castle Partners, LLC from 2000 to 2005 and is currently an advisor to the firm. Prior to joining North Castle, she served as the chief executive officer of a start-up B2B exchange for the food and beverage industry. From 1993 to 1998, Ms. Marram was president and chief executive officer of Tropicana and the Tropicana Beverage Group. From 1988 to 1993, she was president and chief executive officer of the Nabisco Biscuit Company, the largest operating unit of Nabisco, Inc.; from 1987 to 1988, she was president of Nabisco’s Grocery Division; and from 1970 to 1986, she held a series of marketing positions at Nabisco/Standard Brands, Johnson & Johnson, and Lever Brothers. Ms. Marram is a member of the board of directors of Ford Motor Company and The New York Times Company, as well as several private companies. She serves on the boards of Institute for the Future, The New York-Presbyterian Hospital, Lincoln Center Theater, Families and Work Institute, and Citymeals-on-Wheels.

6

		Douglas R. OberhelmanRalph Alvarez		Age 56		54                              Director since 2008
		2009 GroupRetired President Caterpillar Inc.and Chief Operating Officer, McDonald’s Corporation
		Mr. Oberhelman is a groupAlvarez served as president and chief operating officer of McDonald’s Corporation from August 2006 until December 2009. Previously, he served as president of Caterpillar Inc. HeMcDonald’s North America, with responsibility for all the McDonald’s restaurants in the U.S. and Canada. Prior to that, he was president of McDonald’s USA. Mr. Alvarez joined CaterpillarMcDonald’s in 19751994 and has held a variety of leadership roles throughout his career, including chief operations officer and president of the central division, both with McDonald’s USA, and president of McDonald’s Mexico. Prior to joining McDonald’s, he held leadership positions including senior finance representative based in South America for Caterpillar Americas Co; region finance managerat Burger King Corporation and district manager forWendy’s International, Inc. Mr. Alvarez serves on the company’s North American Commercial Division;President’s Council and managing director for strategic planning at Shin Caterpillar Mitsubishi, Caterpillar’s affiliated company in Tokyo, Japan. Mr. Oberhelman was elected a vice president in 1995, serving as Caterpillar’s chief financial officer from 1995 to November 1998. In 1998, he became vice president with responsibility for the engine products divisionInternational Advisory Board of the University of Miami, and he was electedis a group president and member of Caterpillar’s executive office in 2002. Mr. Oberhelman servesthe board of trustees for Chicago’s Field Museum. He previously served on the boards of AmerenMcDonald’s Corporation The Nature Conservancy — Illinois Chapter, the National Association of Manufacturers, the Manufacturing Institute, Easter Seals, and the Wetlands America Trust.KeyCorp. Mr. OberhelmanAlvarez has been serving under interim election since December 2008.April 2009. Board Committees: finance and public policy and compliance

Class of 2010
The following four directors will continue in office until 2010.

		Sir Winfried Bischoff		Age 67		Director since 2000
	Retired Chairman, Citigroup Inc.
		Sir Winfried Bischoff                     Age 68                              Director since 2000 Chairman, Lloyds Banking Group plc Sir Winfried Bischoff has been chairman of the board of Lloyds Banking Group plc since September 2009. He served as chairman of Citigroup Inc. from December 2007 until February 2009.2009 and as interim chief executive officer for a portion of 2007. He served as chairman of Citigroup Europe from 2000 to 2007. From 1995 to 2000, he was chairman of Schroders plc. He joined the Schroder Group in 1966 and held a number of positions there, including chairman of J. Henry Schroder & Co. and group chief executive of Schroders plc. He is also a nonexecutive director of The McGraw-Hill Companies, Inc. He previously served on the boards of Citigroup Inc., Prudential plc, Land Securities plc, and Prudential plc.Akbank T.A.S. Board Committees: directors and corporate governance and finance (chair)
		R. David Hoover                        Age 64                              Director since 2009 Chairman and Chief Executive Officer, Ball Corporation Mr. Hoover is chairman and chief executive officer of Ball Corporation. Mr. Hoover joined Ball Corporation in 1970 and has held a variety of leadership roles throughout his career, including vice president and treasurer, senior vice president and chief financial officer, executive vice president, and vice chairman. He is a member of the boards of Ball Corporation; Energizer Holdings, Inc.; and Qwest Communications International Inc. Mr. Hoover previously served on the board of Irwin Financial Corporation. He is the chair of the board of trustees of DePauw University and on the Indiana University Kelley School of Business Dean’s Council. He is also a director of Boulder Community Hospital and a member of the Colorado Forum. Mr. Hoover has been serving under interim election since June 2009. Board Committees: audit and compensation

6

---

		J. Michael Cook		Age 66		Director since 2005
	Retired Chairman and Chief Executive Officer, Deloitte & Touche LLP
	Mr. Cook served as chairman and chief executive officer of Deloitte & Touche LLP from 1989 until his retirement in 1999. He joined Deloitte, Haskins & Sells in 1964 and served as chairman and chief executive from 1986 through 1989. Mr. Cook is an emeritus member of the Advisory Council of the Public Company Accounting Oversight Board and is a trustee of The Scripps Research Institute. He serves on the boards of Comcast Corporation and International Flavors & Fragrances Inc. He is chairman of the Accountability Advisory Council to the Comptroller General of the United States and is chairman of the Department of Defense Audit Advisory Committee. He was a member of the National Association of Corporate Directors Blue Ribbon Panel on Corporate Governance and was named the 62nd member of the Accounting Hall of Fame in 1999. He is past president of the Institute of Outstanding Directors.

		Franklyn G. Prendergast, M.D., Ph.D.						Age 63		65                    Director since 1995
	Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and Professor of Molecular Pharmacology and Experimental Therapeutics, Mayo Medical School; Director, Mayo Clinic Center for Individualized Medicine; and Director Emeritus, Mayo Clinic Cancer Center
	Dr. Prendergast is the Edmond and Marion Guggenheim Professor of Biochemistry and Molecular Biology and Professor of Molecular Pharmacology and Experimental Therapeutics at Mayo Medical School and the director of the Mayo Clinic Center for Individualized Medicine. He has held several other teaching positions at the Mayo Medical School since 1975. Dr. Prendergast serves on the board of trustees of the Mayo Foundation. Board Committees: public policy and compliance and science and technology

7

---

		Kathi P. Seifert						Age 59		60                              Director since 1995
	Retired Executive Vice President, Kimberly-Clark Corporation
	Ms. Seifert served as executive vice president for Kimberly-Clark Corporation until June 2004. She joined Kimberly-Clark in 1978 and served in several capacities in connection with both the domestic and international consumer products businesses. Prior to joining Kimberly-Clark, Ms. Seifert held management positions at Procter & Gamble, Beatrice Foods, and Fort Howard Paper Company. She is chairman of Katapult, LLC. Ms. Seifert serves on the boards of Supervalu Inc.; Revlon Consumer Products Corporation; Lexmark International, Inc.; Appleton Papers Inc.; the U.S. Fund for UNICEF; and the Fox Cities Performing Arts Center. Board Committees: audit and public policy and compliance

In addition, beginning on April 1, 2009, Mr. Alvarez

Class of 2011

The following four directors will serve as a director under interim election for a term that will expirecontinue in 2010.office until 2011.

		Ralph Alvarez		Age 53
		President and Chief Operating Officer, McDonald’s Corporation
		Mr. Alvarez has been president and chief operating officer of McDonald’s Corporation since August 2006. Previously, he served as president of McDonald’s North America, with responsibility for all the McDonald’s restaurants in the U.S. and Canada. Prior to that, he was president of McDonald’s USA. Mr. Alvarez joined McDonald’s in 1994 and has held a variety of leadership roles throughout his career, including chief operations officer and president of the Central Division, both with McDonald’s USA, and president of McDonald’s Mexico. Prior to joining McDonald’s, he held leadership positions at Burger King Corporation and Wendy’s International, Inc. Mr. Alvarez serves on the boards of McDonald’s Corporation and Key-Corp. He currently serves on the President’s Council and the International Advisory Board of the University of Miami, and he is a member of the board of trustees for Chicago’s Field Museum.

Class of 2011
The following four directors will continue in office until 2011.

		Michael L. Eskew		Age 59		60                              Director since 2008
		Former Chairman and Chief Executive Officer, United Parcel Service, Inc.
		Mr. Eskew served as chairman and chief executive officer of United Parcel Service, Inc., from January 2002 until December 2007. He continues to serve on the UPS board of directors. Mr. Eskew began his UPS career in 1972 as an industrial engineering manager and held various positions of increasing responsibility, including time with UPS’s operations in Germany and with UPS Airlines. In 1993, Mr. Eskew was named corporate vice president for industrial engineering. Two years later he became group vice president for engineering. In 1998, he was elected to the UPS board of directors. In 1999, Mr. Eskew was named executive vice president and a year later was given the additional title of vice chairman. Mr. EskewHe serves as chairman of the board of trustees of theThe Annie E. Casey Foundation. HeMr. Eskew also serves on the boards of 3M Corporation and IBM Corporation. Board Committees: audit (chair) and compensation

8

---

		Alfred G. Gilman, M.D., Ph.D.		Age 67		68                              Director since 1995
		Executive Vice President for Academic AffairsChief Scientific Officer, Cancer Prevention and Provost, The UniversityResearch Institute of Texas Dr. Gilman is the chief scientific officer of the Cancer Prevention and Research Institute of Texas Southwestern Medical Centerand regental professor of pharmacology emeritus at Dallas; Dean, Southwestern Medical School; and Regental Professor of Pharmacology and Director of the Cecil and Ida Green Center for Molecular, Computational, and Systems Biology, The University of Texas Southwestern Medical Center
		Dr. Gilman has served as executive vice president for academic affairs and provost of the University of Texas Southwestern Medical Center at Dallas and dean of the University of Texas Southwestern Medical School since 2005 and professor of pharmacology at the University of Texas Southwestern Medical Center since 1981. He holds the Raymond and Ellen Willie Distinguished Chair of Molecular Neuropharmacology, the Nadine and Tom Craddick Distinguished Chair in Medical Science, and the Atticus James Gill, M.D., Chair in Medical Science at the university and was named a regental professor in 1995.Dallas. Dr. Gilman was on the faculty of the University of Virginia School of Medicine from 1971 to 1981 and was named a professor of pharmacology there in 1977. He previously served as executive vice president for academic affairs and provost of the University of Texas Southwestern Medical Center at Dallas, dean of the University of Texas Southwestern Medical School, and professor of pharmacology at the University of Texas Southwestern Medical Center. He held the Raymond and Ellen Willie Distinguished Chair of Molecular Neuropharmacology; the Nadine and Tom Craddick Distinguished Chair in Medical Science; and the Atticus James Gill, M.D., Chair in Medical Science at the university and was named a regental professor in 1995. He is a director of Regeneron Pharmaceuticals, Inc. Dr. Gilman was a recipient of the Nobel Prize in Physiology or Medicine in 1994. Board Committees: public policy and compliance and science and technology (chair)

7

---

		Karen N. Horn, Ph.D.						Age 65		66                              Director since 1987
	Retired President, Private Client Services, and Managing Director, Marsh, Inc.
	Ms. Horn serves as the board’s lead director. She served as president of Private Client Servicesprivate client services and managing director of Marsh, Inc. from 1999 until her retirement in 2003. Prior to joining Marsh, she was senior managing director and head of international private banking at Bankers Trust Company; chairman and chief executive officer of Bank One, Cleveland, N.A.; president of the Federal Reserve Bank of Cleveland; treasurer of Bell Telephone Company of Pennsylvania; and vice president of First National Bank of Boston. Ms. Horn serves as director of T. Rowe Price Mutual Funds; The U.S. Russia Investment Fund, a presidential appointment; Simon Property Group, Inc.; and Norfolk Southern Corporation and vice chairman of theU.S.-Russia Investment Foundation. She previously served on the board of Fannie Mae and Georgia-Pacific Corporation. Ms. Horn has been senior managing director of Brock Capital Group since 2004. Board Committees: compensation (chair) and directors and corporate governance

		John C. Lechleiter, Ph.D.		Age 55		56                              Director since 2005
		Chairman, President, and Chief Executive Officer
		Dr. Lechleiter becameis chairman, of Eli Lilly and Company on January 1, 2009. Dr. Lechleiter was named president, and chief executive officer of the company in April 2008.Eli Lilly and Company. He served as president and chief operating officer from 2005 to 2008. He joined Lilly in 1979 as a senior organic chemist and has held management positions in England and the U.S. He was named vice president of pharmaceutical product development in 1993 and vice president of regulatory affairs in 1994. In 1996, he was named vice president for development and regulatory affairs. Dr. Lechleiter became senior vice president of pharmaceutical products in 1998 and executive vice president offor pharmaceutical products and corporate development in 2001. He was named executive vice president offor pharmaceutical operations in 2004. He is a member of the American Chemical Society.Society, Business Roundtable, and Business Council. Dr. Lechleiter serves as a member ofon the executive committee of the board of directorsboards of Pharmaceutical Research and Manufacturers of America (PhRMA); Xavier University (Cincinnati, Ohio); Fairbanks Institute (Indianapolis); Indianapolis Downtown, Inc.; the Central Indiana Corporate Partnership; and the United Way of Central Indiana. He also serves on the board of Nike, Inc. and previously served on the board of Great Lakes Chemical Corporation. Board Committees: none

Class of 2012

The following four directors will continue in office until 2012.

		Martin S. Feldstein, Ph.D.                Age 70                              Director since 2002 George F. Baker Professor of Economics, Harvard University Dr. Feldstein is the George F. Baker Professor of Economics at Harvard University and president emeritus of the National Bureau of Economic Research. From 1982 through 1984, he served as chairman of the Council of Economic Advisers and President Ronald Reagan’s chief economic adviser. Dr. Feldstein served as president and chief executive officer of the National Bureau of Economic Research from 1977 to 1982 and 1984 to 2008. In 2009, President Obama appointed him to the President’s Economic Recovery Advisory Board. He is a member of the American Philosophical Society, a corresponding fellow of the British Academy, a fellow of the Econometric Society, and a fellow of the National Association for Business RoundtableEconomics. Dr. Feldstein is a trustee of the Council on Foreign Relations and the Business Council. He also serves as a member of the Visiting CommitteeTrilateral Commission, the Group of Harvard Business School30, the American Academy of Arts and Sciences, and the Council of Academic Advisors of the American Enterprise Institute and past president of the American Economic Association. He previously served on the boards of American International Group, Inc. and HCA Inc. Board Committees: audit, finance, and public policy and compliance (chair)

8

---

		J. Erik Fyrwald                            Age 50                              Director since 2005 Chairman, President, and Chief Executive Officer, Nalco Company Mr. Fyrwald joined Nalco Company (a leading integrated water treatment and process improvement company) as chairman, president, and chief executive officer in February 2008 following a27-year career at DuPont. From 2003 to 2008, Mr. Fyrwald served as group vice president of the agriculture and nutrition division at DuPont. From 2000 until 2003, he was vice president and general manager of DuPont’s nutrition and health business. In 1999, Mr. Fyrwald was vice president for corporate strategic planning and business development. At DuPont, he held a broad variety of assignments in a number of divisions covering many industries. He has worked in several locations throughout North America and Asia. In addition to serving as chairman of Nalco’s board of directors, Mr. Fyrwald serves as a director of the Society of Chemical Industry and the American Chemistry Council and is a trustee of the Field Museum of Chicago. Board Committees: compensation and science and technology
		Ellen R. Marram                          Age 63                              Director since 2002 President, The Barnegat Group LLC Ms. Marram is the president of The Barnegat Group LLC, a firm that provides business advisory services. She was a managing director at North Castle Partners, LLC from 2000 to 2005 and is currently an advisor to the firm. She served as the chief executive officer of aprivately-heldstart-up B2B exchange for the food and beverage industry, efdex, Inc., from August 1999 to May 2000 (efdex never became fully operational and in September 2000 commenced liquidation in the U.K. due to its insolvency). From 1993 to 1998, Ms. Marram was president and chief executive officer of Tropicana and the Tropicana Beverage Group. From 1988 to 1993, she was president and chief executive officer of the Nabisco Biscuit Company, the largest operating unit of Nabisco, Inc.; from 1987 to 1988, she was president of Nabisco’s grocery division; and from 1970 to 1986, she held a series of marketing positions at Nabisco/Standard Brands, Johnson & Johnson, and Lever Brothers. Ms. Marram is a member of the board of trusteesdirectors of Xavier University (Cincinnati, Ohio).Ford Motor Company and The New York Times Company, as well as several private companies. She previously served on the board of Cadbury plc. She also serves on the boards of Institute for the Future, New York-Presbyterian Hospital, Lincoln Center Theater, and Families and Work Institute. Board Committees: compensation and directors and corporate governance (chair)
		Douglas R. Oberhelman                Age 57                              Director since 2008 Vice Chairman and Chief Executive Officer-Elect, Caterpillar Inc. Mr. Oberhelman is vice chairman and chief executive officer-elect of Caterpillar Inc. He will join the Caterpillar board and become chief executive officer on July 1, 2010 and chairman on November 1, 2010. He joined Caterpillar in 1975 and has held a variety of positions, including senior finance representative based in South America for Caterpillar Americas Co; region finance manager and district manager for the company’s North American commercial division; and managing director and vice general manager for strategic planning at Caterpillar Japan Ltd. Mr. Oberhelman was elected a vice president in 1995, serving as Caterpillar’s chief financial officer from 1995 to November 1998. In addition,1998, he serves asbecame vice president with responsibility for the engine products division and he was elected a distinguished advisor to The Children’s Museum of Indianapolisgroup president and a member of Caterpillar’s executive office in 2002. Mr. Oberhelman serves on the United Wayboards of Central Indiana boardAmeren Corporation, The Nature Conservancy–Illinois Chapter, the National Association of directors.Manufacturers, the Manufacturing Institute, and the Wetlands America Trust. Board Committees: audit and finance

9

9

---

 

Highlights of the Company’s Corporate Governance Guidelines

The board of directors has established guidelines that it follows in matters of corporate governance. The following summary provides highlights of those guidelines. A complete copy of the guidelines is available online athttp://investor.lilly.com/governance.cfmor in paper form upon request to the company’s corporate secretary.

I. Role of the Board

I.	Role of the Board

The directors are elected by the shareholders to oversee the actions and results of the company’s management. Their responsibilities include:

	•		providing general oversight of the business
	•		approving corporate strategy
	•		approving major management initiatives
	•		providing oversight of legal and ethical conduct
	•		overseeing the company’s management of significant business risks
	•		selecting, compensating, and evaluating directors
	•		evaluating board processes and performance
	•		selecting, compensating, evaluating, and, when necessary, replacing the chief executive officer, and compensating other executive officerssenior executives
	•		ensuring that a succession plan is in place for all senior executives.

II.	Composition of the Board

II. Composition of the Board
Mix of Independent Directors andOfficer-Directors

There should always be a substantial majority (75 percent or more) of independent directors. The chief executive officer should be a board member. Other officers may, from time to time, be board members, but no officer other than the chief executive officer should expect to be elected to the board by virtue of his or her office.position in the company.

Selection of Director Candidates

The board is responsible for selecting candidates for board membership and for establishing the criteria to be used in identifying potential candidates. The board delegates the screening process to the directors and corporate governance committee. For more information on the director nomination process, including the current selection criteria, see “Directors and Corporate Governance Committee Matters” on
pages 18-19.21-23.

Independence Determinations

The board annually determines and discloses the independence of directors based on a review by the directors and corporate governance committee. No director is considered independent unless the board has determined that he or she has no material relationship with the company, either directly or as a partner, significant shareholder, or officer of an organization that has a material relationship with the company. Material relationships can include commercial, industrial, banking, consulting, legal, accounting, charitable, and familial relationships, among others. To evaluate the materiality of any such relationship, the board has adopted categorical independence standards consistent with the New York Stock Exchange (NYSE) listing guidelines.standards, except that the “look-back period” for determining whether a director’s prior relationship with the company impairs independence is extended from three to four years.

Specifically, a director is not considered independent if (i) the director or an immediate family member is a current partner of Lilly’sthe company’s independent auditor (currently Ernst & Young LLP); (ii) the director is a current employee of such firm; (iii) the director has an immediate family member who is a current employee of such firm and who participates in the firm’s audit, assurance, or tax compliance (but not tax planning) practice; or (iv) the director or an immediate family member was within the last threefour years (but is no longer) a partner or employee of such firm and personally worked on the listed company’sour audit within that time.

In addition, a director is not considered independent if any of the following relationships existed within the previous threefour years:

a director who is an employee of Lilly, or whose immediate family member is an executive officer of Lilly. Temporary service by an independent director as interim chairman or chief executive officer will not disqualify the director from being independent following completion of that service.

	•	a director who is an employee of the company, or whose immediate family member is an executive officer of the company. Temporary service by an independent director as interim chairman or chief executive officer will not disqualify the director from being independent following completion of that service.

	•	a director who receives any direct compensation from Lillythe company other than the director’s normal director compensation, or whose immediate family member receives more than $120,000 per year in direct compensation from Lillythe company other than for service as a nonexecutive employee.

	•		a director who is employed (or whose immediate family member is employed as an executive officer) by another company where any Lilly executive officer serves on the compensation committee of that company’s board.

10

---

 

	•		a director who is employed by, who is a 10 percent shareholder of, or whose immediate family member is an executive officer of a company that makes payments to or receives payments from Lilly for property or services that exceed the greater of $1 million or two percent of that company’s gross revenuesrevenue in a single fiscal year.

	•		a director who is an executive officer of a nonprofit organization that receives grants or contributions from Lillythe company in a single fiscal year exceeding the greater of $1 million or two percent of that organization’s gross revenuesrevenue in a single fiscal year.

 

Members of the audit, compensation, and directors and corporate governanceboard committees must meet all applicable independence tests of the New York Stock Exchange,NYSE, Securities and Exchange Commission (SEC), and Internal Revenue Service.Service (IRS).

In February 2009,2010, the directors and corporate governance committee reviewed directors’ responses to a questionnaire asking about their relationships with the company (and those of their immediate family members) and other potential conflicts of interest, as well as material provided by management related to transactions, relationships, or arrangements between the company and the directors or parties related to the directors. The committee determined that all 1112 nonemployee directors listed below are independent, and that the members of the audit, compensation, and directors and corporate governance committeeseach committee also meet the independence testsstandards referenced above. The committee recommended this conclusion to the board and explained the basis for its decision, and this conclusion was adopted by the full board. The committee and the board determined that none of the 1112 directors listed below has had during the last threefour years (i) any of the relationships listed above or (ii) any other material relationship with the company that would compromise his or her independence. The table below includes a description of categories or types of transactions, relationships, or arrangements considered by the board (in addition to those listed above) in reaching its determination that the directors are independent. All of these relationships and transactions were entered into at arm’s length in the normal course of business and, to the extent they are commercial relationships, have standard commercial terms. None of these relationships or transactions exceeded the thresholds described above or otherwise compromisecompromises the independence of the named director.directors.

Name			Independent			Transactions/Relationships/Arrangements
Mr. Alvarez			Yes			None
Sir Winfried Bischoff			Yes			Commercial banking, capital markets, and indenture trustee relationships between Lilly and various Citigroup banks-immaterialbanks—immaterial
Mr. CookEskew			Yes			Lilly’s purchase of shipping, courier, and post office services from UPS—immaterial
Dr. Feldstein			Yes			None
Mr. EskewFyrwald			Yes		None
Dr. Feldstein		Yes		Lilly grants and contributions to Harvard University-immaterial
Mr. Fyrwald		Yes		Lilly'sLilly’s purchase of DuPont and Nalco products and services-immaterialservices—immaterial
Dr. Gilman			Yes			Lilly grants and contributions to the University of Texas Southwestern Medical Center-immaterialCenter—immaterial
Mr. Hoover			Yes			None
Ms. Horn			Yes			None
Ms. Marram			Yes			None
Mr. Oberhelman			Yes			None
Dr. Prendergast			Yes			Lilly grants and contributions to Mayo Clinic and Mayo Foundation-immaterialFoundation—immaterial
Ms. Seifert			Yes			None

Director Tenure and Retirement Policy

Subject to the company’s charter documents, the governance guidelines establishfollowing are the followingboard’s expectations for director tenure:

	•		A companyofficer-director, including the chief executive officer, will resign from the board at the time he or she retires or otherwise ceases to be an active employee of the company.
	•		Nonemployee directors will retire from the board not later than the annual meeting of shareholders that follows their seventy-second birthday.
	•		Directors may stand for reelection even though the board’s retirement policy would prevent them from completing a full three-year term.
	•		A nonemployee director who retires or changes principal job responsibilities will offer to resign from the board. The directors and corporate governance committee will assess the situation and recommend to the board whether to accept the resignation.

Other Board Service

Effective November 1, 2009, no new director may serve on more than three other public company boards, and no incumbent director may accept new positions on public company boards that would result in service on more than three other public company boards. The directors and corporate governance committee or the chair of that committee may approve exceptions to this limit upon a determination that such additional service will not impair the director’s effectiveness on the company board.

11

---

Voting for Directors

In an uncontested election, any nominee for director who fails to receive a majority of the votes cast shall promptly tender his or her resignation following certification of the shareholder vote. The directors and corporate governance

11

---

committee will consider the resignation offer and recommend to the board whether to accept it. The board will act on the committee’s recommendation within 90 days following certification of the shareholder vote. Board action on the matter will require the approval of a majority of the independent directors.

The company will disclose the board’s decision on aForm 8-K furnished to the Securities and Exchange CommissionSEC within four business days after the decision, including a full explanation of the process by which the decision was reached and, if applicable, the reasons why the board rejected the director’s resignation. If the resignation is accepted, the directors and corporate governance committee will recommend to the board whether to fill the vacancy or reduce the size of the board.

Any director who tenders his or her resignation under this provision will not participate in the committee or board deliberations regarding whether to accept the resignation offer. If each memberall members of the directors and corporate governance committee failsfail to receive a majority of the votes cast at the same election, then the independent directors who did receive a majority of the votes cast will appoint a committee amongst themselves to consider the resignation offers and recommend to the board whether to accept them.

III. Director Compensation and Equity Ownership

III.	Director Compensation and Equity Ownership

The directors and corporate governance committee annually reviews board compensation. Any recommendations for changes are made to the full board by the committee.

Directors should hold meaningful equity ownership positions in the company; accordingly, a significant portion of overall director compensation is in the form of company equity. Directors are required to hold Lillycompany stock valued at a minimum ofnot less than five times their annual cash retainer; new directors are allowed five years to reach this ownership level.

IV.	Key Responsibilities of the Board

IV. Key Responsibilities of the Board
Selection of Chairman and Chief Executive Officer; Succession Planning

The board customarilycurrently combines the rolesrole of chairman andof the board with the role of chief executive officer, believingcoupled with a lead director position to further strengthen the governance structure. The board believes this generally provides the mostan efficient and effective leadership model for the company. Combining the chairman and CEO roles fosters clear accountability, effective decision-making, and alignment on corporate strategy. To assure effective independent oversight, the board has adopted a number of governance practices, including:

	•	a strong, independent, clearly-defined lead director role (see below for a full description of the role)

	•	executive sessions of the independent directors after every board meeting

	•	annual performance evaluations of the chairman and CEO by the independent directors.

However, no single leadership model is right for all companies and at all times. The board anticipatesrecognizes that in certaindepending on the circumstances, and particularly during relatively short periodsother leadership models, such as a separate independent chairman of the board, might be appropriate. Accordingly, the board periodically reviews its leadership transition, these roles may be assigned to two different persons. structure.

The presidinglead director recommends to the board an appropriate process by which a new chairman and chief executive officer will be selected. The board has no required procedure for executing this responsibility because it believes that the most appropriate process will depend on the circumstances surrounding each such decision.

A key responsibility of the CEO and the board is ensuring that an effective process is in place to provide continuity of leadership over the long term at all levels in the company. Each year, succession planningsuccession-planning reviews are held at every significant organizational level of the company, culminating in a full review of senior leadership talent by the independent directors. During this review, the CEO and the independent directors discuss future candidates for senior leadership positions, succession timing for those positions, and development plans for the highest-potential candidates. This process ensures continuity of leadership over the long term, and it forms the basis on which the company makes ongoing leadership assignments. It is a key success factor in managing the long planning and investment lead times of our business.

In addition, the CEO maintains in place at all times, and reviews with the independent directors, a confidential plan for the timely and efficient transfer of his or her responsibilities in the event of an emergency or his or her sudden incapacitation or departure.

Evaluation of Chief Executive Officer

The presidinglead director leadsis responsible for leading the independent directors annually in assessingexecutive session to assess the performance of the chief executive officer.officer at least annually. The results of this reviewassessment are discussedreviewed with the chief executive officer and considered by the compensation committee in establishing his or herthe chief executive officer’s compensation for the next year.

Succession Management and Election of Officers

The independent directors are responsible for overseeing the succession and management development program for senior leadership. The chief executive officer develops and maintains a process for advising the board on succession planning for the chief executive officer and other key senior leadership positions. The chief executive officer reviews this plan with the independent directors at least annually.

12

---

Consistent with the succession-management plan, the chief executive officer recommends to the board candidates for the company’s principal corporate offices.

Corporate Strategy

Once each year, the board devotes an extended meeting to an update from management regarding the strategic issues and opportunities facing the company, allowing the board an opportunity to provide direction for the corporate strategic plan. These strategy sessions also provide the board an opportunity to interact extensively with the company’s senior leadership team. This assists the board in its succession-management responsibilities.

Throughout the year, significant corporate strategy decisions are brought to the board for approval.

Code of Ethics

The board approved the company’s code of ethics, which complies with the requirements of the New York Stock ExchangeNYSE and the Securities and Exchange Commission.SEC. This code is set out in:

	•		The Red Book, a comprehensive code of ethical and legal business conduct applicable to all employees worldwide and to our board of directors
	•
	the company’s•	Code of Ethical Conduct for Lilly Financial Management,a supplemental code for our chief executive

12