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1

The significant components of other comprehensive gain (loss) were a gain of $86.8 million and a loss of $38.3 million from foreign currency translation adjustments for the three months and nine months ended September 30, 2001, respectively, as compared to losses of $96.1 million and $216.6 million for the three months and nine months ended September 30, 2000, respectively.

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The company’s charge for acquired in-process technology expense related to the collaboration arrangements with Isis and Bioprojet in the third quarter of 2001 totaled $90.5 million, which decreased earnings per share by approximately $.05 in the third quarter of 2001.

•

The company recognized asset impairments and other site charges totaling $121.4 million in the third quarter of 2001 due to actions taken as a result of the recent assessment of its worldwide manufacturing capacity, which decreased earnings per share by approximately $.07 in the third quarter of 2001.

•

The company recognized an extraordinary charge of $25.6 million ($16.6 million net of income taxes) from the repurchase of higher interest rate debt, which decreased earnings per share by approximately $.02 in the third quarter of 2001.

•

The company recognized a gain of $214.4 million on the sale of its interest in Kinetra LLC to WebMD and the subsequent sale of WebMD stock, which increased earnings per share by approximately $.20 in the first quarter of 2000.

•

The company realized an estimated $91 million of sales as a result of year-2000-related wholesaler buying during the fourth quarter of 1999 that normally would have been realized in the first quarter of 2000, which decreased earnings per share by approximately $.06 in the first quarter of 2000.

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                                                                    Exhibit 10.1

                                      1994
                                LILLY STOCK PLAN,
                               as amended through
                                October 15, 2001

     The 1994 Lilly Stock Plan ("1994 Plan") authorizes the Compensation and
Management Development Committee ("Committee") to provide officers and other key
executive, management, professional, and administrative employees of Eli Lilly
and Company and its subsidiaries with certain rights to acquire shares of Eli
Lilly and Company common stock ("Lilly Stock"). The Company believes that this
incentive program will benefit the Company's shareholders by allowing the
Company to attract, motivate, and retain key employees and by causing those
employees, through stock-based incentives, to contribute materially to the
growth and success of the Company. For purposes of the 1994 Plan, the term
"Company" shall mean Eli Lilly and Company and its subsidiaries, unless the
context requires otherwise.

1. Administration.

     The 1994 Plan shall be administered and interpreted by the Committee
consisting of not less than three persons appointed by the Board of Directors of
the Company from among its members. A person may serve on the Committee only if
he or she (i) is a "Non-employee Director" for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and (ii) satisfies
the requirements of an "outside director" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Committee shall
determine the fair market value of Lilly Stock for purposes of the 1994 Plan.
The Committee may, subject to the provisions of the 1994 Plan, from time to time
establish such rules and regulations and delegate such authority to administer
the 1994 Plan as it deems appropriate for the proper administration of the Plan.
The decisions of the Committee or its authorized delegatees shall be final,
conclusive, and binding with respect to the interpretation and administration of
the 1994 Plan and any Grant made under it.

2. Grants.

     Incentives under the 1994 Plan shall consist of incentive stock options,
nonqualified stock options, performance awards, and restricted stock grants
(collectively, "Grants"). All Grants shall be subject to the terms and
conditions set out herein and to such other terms and conditions consistent with
the 1994 Plan as the Committee deems appropriate. The Committee shall approve
the form and provisions of each Grant. Grants under a particular section of the
1994 Plan need not be uniform and Grants under two or more sections may be
combined in one instrument.

3. Eligibility for Grants.

     Grants may be made to any employee of the Company who is an officer or
other key executive, managerial, professional, or administrative employee,
including a person who is also a member of the Board of Directors ("Eligible
Employee"). The Committee shall select the




persons to receive Grants ("Grantees") from among the Eligible Employees and
determine the number of shares subject to any particular Grant.

4. Shares Available for Grant.

     (a) Shares Subject to Issuance or Transfer. Subject to adjustment as
provided in Section 4(b), the aggregate number of shares of Lilly Stock that may
be issued or transferred under the 1994 Plan is 25,000,000. The shares may be
authorized but unissued shares or treasury shares. The number of shares
available for Grants at any given time shall be 25,000,000, reduced by the
aggregate of all shares previously issued or transferred and of shares which may
become subject to issuance or transfer under then-outstanding Grants. Payment in
cash in lieu of shares shall be deemed to be an issuance of the shares for
purposes of determining the number of shares available for Grants under the 1994
Plan as a whole or to any individual Grantee.

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

5. Stock Options.

     The Committee may grant options qualifying as incentive stock options under
the Code ("Incentive Stock Options"), and nonqualified stock options
(collectively, "Stock Options"). The following provisions are applicable to
Stock Options:

     (a) Option Price. The Committee shall determine the price at which Lilly
Stock may be purchased by the Grantee under a Stock Option ("Option Price")
which shall be not less than the fair market value of Lilly Stock on the date
the Stock Option is granted (the "Grant Date"). In the Committee's discretion,
the Grant Date of a Stock Option may be established as the date on which
Committee action approving the Stock Option is taken or any later date specified
by the Committee.

     (b) Option Exercise Period. The Committee shall determine the option
exercise period of each Stock Option. The period shall not exceed ten years from
the Grant Date.

     (c) Exercise of Option. A Stock Option will be deemed exercised by a
Grantee upon delivery of (i) a notice of exercise to the Company or its
representative as designated by the Committee, and (ii) accompanying payment of
the Option Price if the Stock Option requires such payment at the time of
exercise. The notice of exercise, once delivered, shall be irrevocable.

     (d) Satisfaction of Option Price. A Stock Option may require payment of the
Option Price upon exercise or may specify a period not to exceed 30 days
following exercise within

                                       -2-



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

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

     (f) Limits on Individual Grants. No individual Grantee may be granted Stock
Options under the 1994 Plan for more than 1,500,000 shares of Lilly Stock in any
three consecutive calendar years.

     (g) Limits on Incentive Stock Options. The aggregate fair market value of
the stock covered by Incentive Stock Options granted under the 1994 Plan or any
other stock option plan of the Company or any subsidiary or parent of the
Company that become exercisable for the first time by any employee in any
calendar year shall not exceed $100,000. The aggregate fair market value will be
determined at the Grant Date. An Incentive Stock Option shall not be granted to
any Eligible Employee who, on the Grant Date, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
any subsidiary or parent of the Company.

6. Performance Awards.

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

     (a) Award Period. The Committee shall determine and include in the Grant
the period of time (which shall be four or more consecutive fiscal quarters) for
which a Performance Award is made ("Award Period"). Grants of Performance Awards
need not be uniform with respect to the length of the Award Period. Award
Periods for different Grants may overlap. A Performance Award may not be granted
for a given Award Period after one half (1/2) or more of such period has
elapsed.

                                       -3-



     (b) Performance Goals and Payment. Before a Grant is made, the Committee
shall establish objectives ("Performance Goals") that must be met by the
Business Unit during the Award Period as a condition to payment being made under
the Performance Award. The Performance Goals, which must be set out in the
Grant, are limited to earnings per share, divisional income, net income, or any
of the foregoing before the effect of acquisitions, divestitures, accounting
changes, and restructuring and special charges (determined according to criteria
established by the Committee). The Committee shall also set forth in the Grant
the number of Performance Shares or the amount of payment to be made under a
Performance Award if the Performance Goals are met or exceeded, including the
fixing of a maximum payment (subject to Section 6(f)).

     (c) Computation of Payment. After an Award Period, the financial
performance of the Business Unit during the period shall be measured against the
Performance Goals. If the Performance Goals are not met, no payment shall be
made under a Performance Award. If the Performance Goals are met or exceeded,
the Committee shall certify that fact in writing and certify the number of
Performance Shares or the amount of payment to be made under a Performance Award
in accordance with the grant for each Grantee. The Committee, in its sole
discretion, may elect to pay part or all of the Performance Award in cash in
lieu of issuing or transferring Performance Shares. The cash payment shall be
based on the fair market value of Lilly Stock on the date of payment (subject to
Section 6(f)). The Company shall promptly notify each Grantee of the number of
Performance Shares and the amount of cash, if any, he or she is to receive.

     (d) Revisions for Significant Events. At any time before payment is made,
the Committee may revise the Performance Goals and the computation of payment if
unforeseen events occur during an Award Period which have a substantial effect
on the Performance Goals and which in the judgment of the Committee make the
application of the Performance Goals unfair unless a revision is made; provided,
however, that no such revision shall be made with respect to a Performance Award
to the extent that the Committee determines the revision would cause payment
under the Award to fail to be fully deductible by the Company under Section 162
(m) of the Code.

     (e) Requirement of Employment. To be entitled to receive payment under a
Performance Award, a Grantee must remain in the employment of the Company to the
end of the Award Period, except that the Committee may provide for partial or
complete exceptions to this requirement as it deems equitable in its sole
discretion.

     (f) Maximum Payment. No individual may receive Performance Award payments
in respect of Stock Performance Awards in excess of 60,000 shares of Lilly Stock
in any calendar year or payments in respect of Dollar Performance Awards in
excess of $2,000,000 in any calendar year. No individual may receive both a
Stock Performance Award and a Dollar Performance Award for the same Award
Period.

7. Restricted Stock Grants.

                                       -4-



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

     (a) Requirement of Employment. If the Grantee's employment terminates
during the period designated in the Grant as the "Restriction Period," the
Restricted Stock Grant terminates. However, the Committee may provide for
partial or complete exceptions to this requirement as it deems equitable.

     (b) Restrictions on Transfer. During the Restriction Period, a Grantee may
not sell, assign, transfer, pledge, or otherwise dispose of the shares of Lilly
Stock except to a Successor Grantee under Section 10(a). Each certificate for
shares issued or transferred under a Restricted Stock Grant shall be held in
escrow by the Company until the expiration of the Restriction Period.

     (c) Withholding Tax. Before delivering the certificate for shares of Lilly
Stock to the Grantee, Lilly may require the Grantee to pay to the Company any
required withholding tax. The Committee may, in its discretion and subject to
such rules as the Committee may adopt, permit or require the Grantee to satisfy,
in whole or in part, any withholding tax requirement by having the Company
withhold shares of Lilly Stock from the Grant having a fair market value equal
to the amount of the withholding tax. In the event the Grantee fails to pay the
withholding tax within the time period specified in the Grant, the Committee may
take whatever action it deems appropriate, including withholding or selling
sufficient shares from the Grant to pay the tax and assessing interest or late
fees to the Grantee.

     (d) Lapse of Restrictions. All restrictions imposed under the Restricted
Stock Grant shall lapse (i) upon the expiration of the Restriction Period if all
conditions stated in Sections 7(a), (b) and (c) have been met or (ii) as
provided under Section 9(a)(ii). The Grantee shall then be entitled to delivery
of the certificate.

8. Amendment and Termination of the 1994 Plan.

     (a) Amendment. The Company's Board of Directors may amend or terminate the
1994 Plan, but no amendment shall withdraw from the Committee the right to
select Grantees under Section 3.

     (b) Termination of 1994 Plan. The 1994 Plan shall terminate on the fifth
anniversary of its effective date unless terminated earlier by the Board or
unless extended by the Board.

     (c) Termination and Amendment of Outstanding Grants. A termination or
amendment of the 1994 Plan that occurs after a Grant is made shall not result in
the termination or amendment of the Grant unless the Grantee consents or unless
the Committee acts under Section 10(e). The termination of the 1994 Plan shall
not impair the power and authority of the Committee with respect to outstanding
Grants. Whether or not the 1994 Plan has terminated, an outstanding Grant may be
terminated or amended under Section 10(e) or may be amended (i) by agreement of
the Company and the Grantee consistent with the 1994 Plan or (ii) by action of
the Committee

                                       -5-



provided that the amendment is consistent with the 1994 Plan and is found by the
Committee not to impair the rights of the Grantee under the Grant.

9. Change in Control.

(a)   Effect on Grants. Unless the Committee shall otherwise expressly provide
in the agreement relating to a Grant, upon the occurrence of a Change in Control
(as defined below):

(i)   In the case of Stock Options, (y) each outstanding Stock Option that is
not then fully exercisable shall automatically become fully exercisable until
the termination of the option exercise period of the Stock Option (as modified
by subsection (i)(z) that follows), and (z) in the event the Grantee's
employment is terminated within two years after a Change in Control, his or her
outstanding Stock Options at that date of termination shall be immediately
exercisable for a period of three months following such termination, provided,
however, that, to the extent the Stock Option by its terms otherwise permits a
longer option exercise period after such termination, such longer period shall
govern, and provided further that in no event shall a Stock Option be
exercisable more than 10 years after the Grant Date;

(ii)  The Restriction Period on all outstanding Restricted Stock Grants shall
automatically expire and all restrictions imposed under such Restricted Stock
Grants shall immediately lapse; and

(iii) Each Grantee of a Performance Award for an Award Period that has not been
completed at the time of the Change in Control shall be deemed to have earned a
minimum Performance Award equal to the product of (y) such Grantee's maximum
award opportunity for such Performance Award, and (z) a fraction, the numerator
of which is the number of full and partial months that have elapsed since the
beginning of such Award Period to the date on which the Change in Control
occurs, and the denominator of which is the total number of months in such Award
Period.

(b)   Change in Control. For purposes of the 1994 Plan, a Change in Control
shall mean the happening of any of the following events:

(i)   The acquisition by any "person," as that term is used in Sections 13(d)
and 14(d) of the 1934 Act (other than (w) the Company, (x) any subsidiary of the
Company, (y) any employee benefit plan or employee stock plan of the Company or
a subsidiary of the Company or any trustee or fiduciary with respect to any such
plan when acting in that capacity, or (z) Lilly Endowment, Inc.,) of "beneficial
ownership," as defined in Rule 13d-3 under the 1934 Act, directly or indirectly,
of 15% or more of the shares of the Company's capital stock the holders of which
have general voting power under ordinary circumstances to elect at least a
majority of the Board of Directors of the Company (or which would have such
voting power but for the application of the Indiana Control Share Statute)
("Voting Stock"); provided, however, that an acquisition of Voting Stock
directly from the Company shall not constitute a Change in Control;

(ii)  the first day on which less than two-thirds of the total membership of the
Board of Directors of the Company shall be Continuing Directors (as that term is
defined in Article 13(f) of the Company's Articles of Incorporation);

                                       -6-



(iii) consummation of a merger, share exchange, or consolidation of the Company
(a "Transaction"), other than a Transaction which would result in the Voting
Stock of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the Voting Stock of the
Company or such surviving entity immediately after such Transaction; or

(iv)  a complete liquidation of the Company or a sale or disposition of all or
substantially all the assets of the Company, other than a sale or disposition of
assets to any subsidiary of the Company.

10. General Provisions.

     (a)  Prohibitions Against Transfer. (i) Except as provided in part (ii) of
this subparagraph, only a Grantee or his or her authorized legal representative
may exercise rights under a Grant. Such persons may not transfer those rights.
The rights under a Grant may not be disposed of by transfer, alienation, pledge,
encumbrance, assignment, or any other means, whether voluntary, involuntary, or
by operation of law, and any such attempted disposition shall be void; provided,
however, that when a Grantee dies, the personal representative or other person
entitled under a Grant under the 1994 Plan to succeed to the rights of the
Grantee ("Successor Grantee") may exercise the rights. A Successor Grantee must
furnish proof satisfactory to the Company of his or her right to receive the
Grant under the Grantee's will or under the applicable laws of descent and
distribution.

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

     (b)  Substitute Grants. The Committee may make a Grant to an employee of
another corporation who becomes an Eligible Employee by reason of a corporate
merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company in substitution for a stock option,
performance award, or restricted stock grant granted by such other corporation
("Substituted Stock Incentive"). The terms and conditions of the substitute
Grant may vary from the terms and conditions that would otherwise be required by
the 1994 Plan and from those of the Substituted Stock Incentives. The Committee
shall prescribe the exact provisions of the substitute Grants, preserving where
possible the provisions of the Substituted Stock Incentives. The Committee shall
also determine the number of shares of Lilly Stock to be taken into account
under Section 4.

     (c)  Subsidiaries. The term "subsidiary" means a corporation of which Eli
Lilly and Company owns directly or indirectly 50% or more of the voting power.

                                       -7-



     (d) Fractional Shares. Fractional shares shall not be issued or transferred
under a Grant, but the Committee may pay cash in lieu of a fraction or round the
fraction.

     (e) Compliance with Law. The 1994 Plan, the exercise of Grants, and the
obligations of the Company to issue or transfer shares of Lilly Stock under
Grants shall be subject to all applicable laws and regulations and to approvals
by any governmental or regulatory agency as may be required. The Committee may
revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory law or government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payment to
Grantees.

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

     (g) No Right to Employment. The 1994 Plan and the Grants under it shall not
confer upon any Grantee the right to continue in the employment of the Company
or affect in any way the right of the Company to terminate the employment of a
Grantee at any time, with or without notice or cause.

     (h) Foreign Jurisdictions. The Committee may adopt, amend, and terminate
such arrangements and make such Grants, not inconsistent with the intent of the
1994 Plan, as it may deem necessary or desirable to make available tax or other
benefits of the laws of foreign jurisdictions to Grantees who are subject to
such laws. The terms and conditions of such foreign Grants may vary from the
terms and conditions that would otherwise be required by the 1994 Plan.

     (i) Governing Law. The 1994 Plan and all Grants made under it shall be
governed by and interpreted in accordance with the laws of the State of Indiana,
regardless of the laws that might otherwise govern under applicable Indiana
conflict-of-laws principles.

     (j) Effective Date of the 1994 Plan. The 1994 Plan shall become effective
upon its approval by the Company's shareholders at the annual meeting to be held
on April 18, 1994, or any adjournment of the meeting.

                                      * * *

                                       -8-

                                                                    Exhibit 10.2
                                                                    ------------

                                      1998
                                LILLY STOCK PLAN
               As amended and restated effective October 15, 2001


     The 1998 Lilly Stock Plan ("1998 Plan") authorizes the Board of Directors
of Eli Lilly and Company ("Board") and the Compensation Committee of the Board
("Committee"), as applicable, to provide officers and other employees of Eli
Lilly and Company and its subsidiaries and Nonemployee directors of Eli Lilly
and Company ("Non-employee Directors") with certain rights to acquire shares of
Eli Lilly and Company common stock ("Lilly Stock"). The Company believes that
this incentive program will benefit the Company's shareholders by allowing the
Company to attract, motivate, and retain employees and directors and by
providing those employees and directors stock-based incentives to strengthen the
alignment of interests between those persons and the shareholders. For purposes
of the 1998 Plan, the term "Company" shall mean Eli Lilly and Company and its
subsidiaries, unless the context requires otherwise.

1.  Administration.

     (a) Grants to Eligible Employees. With respect to Grants to Eligible
Employees (as those terms are defined in Sections 2 and 3(a), respectively), the
1998 Plan shall be administered and interpreted by the Committee consisting of
not less than two persons appointed by the Board from among its members. A
person may serve on the Committee for purposes of administration and
interpretation of the 1998 Plan only if he or she (i) is a "Non-employee
Director" for purposes of Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and (ii) satisfies the requirements of an "outside
director" for purposes of Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code"). The Committee shall determine the fair market value of
Lilly Stock for purposes of the 1998 Plan. The Committee may, subject to the
provisions of the 1998 Plan, from time to time establish such rules and
regulations and delegate such authority to administer the 1998 Plan as it deems
appropriate for the proper administration of the Plan, except that no such
delegation shall be made in the case of awards intended to be qualified under
Section 162(m) of the Code. The decisions of the Committee or its authorized
delegatees shall be final, conclusive, and binding with respect to the
interpretation and administration of the 1998 Plan and any Grant made under it.

     (b) Grants to Nonemployee Directors. With respect to Stock Option Grants
made to Nonemployee Directors pursuant to Section 8, the Board shall serve to
administer and interpret the 1998 Plan and any such Grants, and all duties,
powers and authority given to the Committee in subsection (a) above or elsewhere
in the 1998 Plan in connection with Grants to Eligible Employees shall be deemed
to be given to the Board in connection with Stock Option Grants to Nonemployee
Directors.

2.  Grants.

     Incentives under the 1998 Plan shall consist of incentive stock options or
other forms of tax-qualified stock options under the Code, nonqualified stock
options, performance awards, and restricted stock grants (collectively,
"Grants"). The Committee shall approve the form and provisions of each Grant to
Eligible Employees and the Board shall approve the form and



provisions of each Stock Option Grant to Nonemployee Directors. All Grants shall
be subject to the terms and conditions set out herein and to such other terms
and conditions consistent with the 1998 Plan as the Committee or Board, as
applicable, deems appropriate. Grants under a particular section of the 1998
Plan need not be uniform and Grants under two or more sections may be combined
in one instrument.

3.  Eligibility for Grants.

     (a) Grants to Eligible Employees. Grants may be made to any employee of the
Company, including a person who is also a member of the Board of Directors
("Eligible Employee"). The Committee shall select the persons to receive Grants
("Grantees") from among the Eligible Employees and determine the number of
shares subject to any particular Grant.

     (b) Grants to Nonemployee Directors. Grants of Stock Options may be made to
any member of the Board who is not an employee of the Company (a "Nonemployee
Director"). The Board shall select the persons who will receive Stock Options
("Grantees") from among the Nonemployee Directors and determine the number of
shares subject to any particular Stock Option.

4.  Shares Available for Grant.

     (a) Shares Subject to Issuance or Transfer. Subject to adjustment as
provided in Section 4(b), the aggregate number of shares of Lilly Stock that may
be issued or transferred under the 1998 Plan is 55,000,000. The shares may be
authorized but unissued shares or treasury shares. The number of shares
available for Grants at any given time shall be 55,000,000, reduced by the
aggregate of all shares previously issued or transferred and of shares which may
become subject to issuance or transfer under then-outstanding Grants.

     (b) Adjustment Provisions. If any subdivision or combination of shares of
Lilly Stock or any stock dividend, reorganization, recapitalization, or
consolidation or merger with Eli Lilly and Company as the surviving corporation
occurs, or if additional shares or new or different shares or other securities
of the Company or any other issuer are distributed with respect to the shares of
Lilly Stock through a spin-off or other extraordinary distribution, the
Committee shall make such adjustments as it determines appropriate in the number
of shares of Lilly Stock that may be issued or transferred in the future under
Sections 4(a), 5(f), 6(f), and 7(e). The Committee shall also adjust as it
determines appropriate the number of shares and Option Price in outstanding
Grants made before the event.

5.  Stock Option Grants to Eligible Employees.

     The Committee may grant to Eligible Employees options qualifying as
incentive stock options under the Code ("Incentive Stock Options"), other forms
of tax-favored stock options under the Code, and nonqualified stock options
(collectively, "Stock Options"). The following provisions are applicable to
Stock Options granted to Eligible Employees:

     (a) Option Price. The Committee shall determine the price or prices at
which Lilly Stock may be purchased by the Grantee under a Stock Option ("Option
Price") which shall be not less

                                      -2-



than the fair market value of Lilly Stock on the date the Stock Option is
granted (the "Grant Date"). In the Committee's discretion, the Grant Date of a
Stock Option may be established as the date on which Committee action approving
the Stock Option is taken or any later date specified by the Committee. Once
established, the Option Price may not be reduced except in the case of
adjustments under Section 4(b).

     (b) Option Exercise Period. The Committee shall determine the option
exercise period of each Stock Option. The period shall not exceed ten years from
the Grant Date.

     (c) Exercise of Option. A Stock Option will be deemed exercised by a
Grantee upon delivery of (i) a notice of exercise to the Company or its
representative as designated by the Committee, and (ii) accompanying payment of
the Option Price if the Stock Option requires such payment at the time of
exercise. The notice of exercise, once delivered, shall be irrevocable.

     (d) Satisfaction of Option Price. A Stock Option may require payment of the
Option Price upon exercise or may specify a period not to exceed 30 days
following exercise within which payment must be made ("Payment Period"). The
Grantee shall pay or cause to be paid the Option Price in cash, or with the
Committee's permission, by delivering (or providing adequate evidence of
ownership of) shares of Lilly Stock already owned by the Grantee and having a
fair market value on the date of exercise equal to the Option Price, or a
combination of cash and such shares. If the Grantee fails to pay the Option
Price within the Payment Period, the Committee shall have the right to take
whatever action it deems appropriate, including voiding the option exercise or
voiding that part of the Stock Option for which payment was not timely received.
The Company shall not deliver shares of Lilly Stock upon exercise of a Stock
Option until the Option Price and any required withholding tax are fully paid.

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

     (f) Limits on Individual Grants. No individual Grantee may be granted Stock
Options under the 1998 Plan for more than 1,500,000 shares of Lilly Stock in any
period of three consecutive calendar years.

     (g) Limits on Incentive Stock Options. The aggregate fair market value of
the stock covered by Incentive Stock Options granted under the 1998 Plan or any
other stock option plan of the Company or any subsidiary or parent of the
Company that become exercisable for the first time by any employee in any
calendar year shall not exceed $100,000. The aggregate fair market value will be
determined at the Grant Date. An Incentive Stock Option shall not be granted to
any Eligible Employee who, on the Grant Date, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the Company or
any subsidiary or parent of the Company.

                                      -3-



6.  Performance Awards to Eligible Employees.

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

     (a) Award Period. The Committee shall determine and include in the Grant
the period of time (which shall be four or more consecutive fiscal quarters) for
which a Performance Award is made ("Award Period"). Grants of Performance Awards
need not be uniform with respect to the length of the Award Period. Award
Periods for different Grants may overlap. A Performance Award may not be granted
for a given Award Period after one half (1/2) or more of such period has
elapsed, or in the case of an Award intended to be qualified under Section
162(m) of the Code, after 90 days or more of such period has elapsed.

     (b) Performance Goals and Payment. Before a Grant is made, the Committee
shall establish objectives ("Performance Goals") that must be met by the
Business Unit during the Award Period as a condition to payment being made under
the Performance Award. The Performance Goals, which must be set out in the
Grant, are limited to earnings per share; divisional income; net income; return
on equity; economic value added (EVA); market value added (MVA); any of the
foregoing before the effect of acquisitions, divestitures, accounting changes,
and restructuring and special charges (determined according to criteria
established by the Committee at or within 90 days after the time of grant);
total shareholder return; or stock price goals. The Committee shall also set
forth in the Grant the number of Performance Shares or the amount of payment to
be made under a Performance Award if the Performance Goals are met or exceeded,
including the fixing of a maximum payment (subject to Section 6(f)).

     (c) Computation of Payment. After an Award Period, the financial
performance of the Business Unit during the period shall be measured against the
Performance Goals. If the minimum Performance Goals are not met, no payment
shall be made under a Performance Award. If the minimum Performance Goals are
met or exceeded, prior to payment the Committee shall certify that fact in
writing and certify the number of Performance Shares or the amount of payment to
be made under a Performance Award in accordance with the grant for each Grantee.
The Committee, in its sole discretion, may elect to pay part or all of the
Performance Award in cash in lieu of issuing or transferring Performance Shares.
The cash payment shall be based on the fair market value of Lilly Stock on the
date of payment (subject to Section 6(f)). The Company shall promptly notify
each Grantee of the number of Performance Shares and the amount of cash, if any,
he or she is to receive.

     (d) Revisions for Significant Events. At any time before payment is made,
the Committee may revise the Performance Goals and the computation of payment if
unusual events occur during an Award Period which have a substantial effect on
the Performance Goals and

                                      -4-



which in the judgment of the Committee make the application of the Performance
Goals unfair unless a revision is made; provided, however, that no such revision
shall be permissible with respect to a Performance Award intended to qualify for
exemption under under Section 162 (m) of the Code, except that the Committee (i)
may provide in the terms of any such Performance Award that revisions to the
Performance Goals shall be made on a non-discretionary basis upon the occurrence
of one or more specific objective events, the occurrence of which are
substantially uncertain at the time of grant, and (ii) may in its discretion
make a revision with respect to such Performance Award that results in a lesser
payment than would have occurred without the revision or in no payment at all.

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

     (f)  Maximum Payments. (i) No individual may receive Performance Award
payments in respect of Stock Performance Awards in excess of 100,000 shares of
Lilly Stock in any calendar year or payments in respect of Dollar Performance
Awards in excess of $4,000,000 in any calendar year. For purposes of determining
the maximum payment under this subsection, payment in cash of all or part of a
Stock Performance Award will be deemed an issuance of the number of shares with
respect to which such cash payment is made. No individual may receive both a
Stock Performance Award and a Dollar Performance Award for the same Award
Period.

     (ii) Not more than 18,000,000 shares of Lilly Stock may be issued or
transferred under the 1998 Plan in the form of Performance Awards.

7.  Restricted Stock Grants to Eligible Employees.

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

     (a)  Requirement of Employment. If the Grantee's employment terminates
during the period designated in the Grant as the "Restriction Period," the
Restricted Stock Grant terminates. However, the Committee may provide for
partial or complete exceptions to this requirement as it deems equitable.

     (b)  Restrictions on Transfer. During the Restriction Period, a Grantee may
not sell, assign, transfer, pledge, or otherwise dispose of the shares of Lilly
Stock except to a Successor Grantee under Section 10(a). Each certificate for
shares issued or transferred under a Restricted Stock Grant shall be held in
escrow by the Company until the expiration of the Restriction Period.

                                      -5-



     (c) Withholding Tax. Before delivering the certificate for shares of Lilly
Stock to the Grantee, Lilly may require the Grantee to pay to the Company any
required withholding tax. The Committee may, in its discretion and subject to
such rules as the Committee may adopt, permit or require the Grantee to satisfy,
in whole or in part, any withholding tax requirement by having the Company
withhold shares of Lilly Stock from the Grant having a fair market value equal
to the amount of the withholding tax. In the event the Grantee fails to pay the
withholding tax within the time period specified in the Grant, the Committee may
take whatever action it deems appropriate, including withholding or selling
sufficient shares from the Grant to pay the tax and assessing interest or late
fees to the Grantee.

     (d) Lapse of Restrictions. All restrictions imposed under the Restricted
Stock Grant shall lapse (i) upon the expiration of the Restriction Period if all
conditions stated in Sections 7(a), (b) and (c) have been met or (ii) as
provided under Section 9(a)(ii). The Grantee shall then be entitled to delivery
of the certificate.

     (e) Total Number of Shares Granted. Not more than 2,000,000 shares of Lilly
Stock may be issued or transferred under the 1998 Plan in the form of Restricted
Stock Grants.

8.  Stock Option Grants to Nonemployee Directors

     The Board may grant Stock Options to Nonemployee Directors pursuant to the
following provisions:

     (a) Option Price. The Board shall determine the price or prices at which
Lilly Stock may be purchased by the Nonemployee Director under a Stock Option
("Option Price") which shall be not less than the fair market value of Lilly
Stock on the date the Stock Option is granted (the "Grant Date"). In the Board's
discretion, the Grant Date of a Stock Option may be established as the date on
which Board action approving the Stock Option is taken or any later date
specified by the Board. Once established, the Option Price may not be reduced
except in the case of adjustments under Section 3(b).

     (b) Option Exercise Period. The Board shall determine the option exercise
period of each Stock Option. The period shall not exceed ten years from the
Grant Date. Unless the Board shall otherwise expressly provide in a Stock Option
agreement, in the event a Grantee's service on the Board is terminated, any
Stock Option held by such Grantee shall remain exercisable for five years after
such termination (or until the end of the option exercise period, if earlier).
In the event a Nonemployee Director is removed from the Board for "cause" (as
determined in accordance with applicable state law and the Articles of
Incorporation of Lilly), any Stock Option held by that Nonemployee Director
shall terminate immediately.

     (c) Exercise of Option. A Stock Option will be deemed exercised by a
Nonemployee Director upon delivery of (i) a notice of exercise to Lilly or its
representative as designated by the Board, and (ii) accompanying payment of the
Option Price if the Stock Option requires such payment at the time of exercise.
The notice of exercise, once delivered, shall be irrevocable.

     (d) Satisfaction of Option Price. A Stock Option may require payment of the
Option Price upon exercise or may specify a period not to exceed 30 days
following exercise within

                                      -6-



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

9.  Amendment and Termination of the 1998 Plan.

     (a)   Amendment. The Board may amend or terminate the 1998 Plan, but no
amendment shall (i) allow the repricing of Stock Options; (ii) allow the grant
of Stock Options at an Option Price below the fair market value of Lilly Stock
on the Grant Date; (iii) increase the number of shares authorized for issuance
or transfer pursuant to Sections 4(a), 6(f)(ii), or 7(e); or (iv) increase the
maximum limitations on Grants imposed under Sections 5(f) or 6(f)(i), unless in
any case such amendment receives approval of the shareholders of the Company.

     (b)   Termination of 1998 Plan. The 1998 Plan shall terminate on the fifth
anniversary of its effective date unless terminated earlier by the Board.

     (c)   Termination and Amendment of Outstanding Grants. A termination or
amendment of the 1998 Plan that occurs after a Grant is made shall not result in
the termination or amendment of the Grant unless the Grantee consents or unless
the Committee acts under Section 11(e). The termination of the 1998 Plan shall
not impair the power and authority of the Committee or its delegatees with
respect to outstanding Grants. Whether or not the 1998 Plan has terminated, an
outstanding Grant may be terminated or amended under Section 11(e) or may be
amended (i) by agreement of the Company and the Grantee consistent with the 1998
Plan or (ii) by action of the Committee provided that the amendment is
consistent with the 1998 Plan and is found by the Committee not to impair the
rights of the Grantee under the Grant.

10. Change in Control.

     (a)   Effect on Grants. Unless the Committee shall otherwise expressly
provide in the agreement relating to a Grant, upon the occurrence of a Change in
Control (as defined below):

     (i)   In the case of Stock Options, each outstanding Stock Option that is
not then fully exercisable shall automatically become fully exercisable and
shall remain so for the period permitted in the agreement relating to the Grant;

     (ii)  The Restriction Period on all outstanding Restricted Stock Grants
shall automatically expire and all restrictions imposed under such Restricted
Stock Grants shall immediately lapse; and

     (iii) Each Grantee of a Performance Award for an Award Period that has not
been completed at the time of the Change in Control shall be deemed to have
earned a minimum

                                      -7-



Performance Award equal to the product of (y) such Grantee's maximum award
opportunity for such Performance Award, and (z) a fraction, the numerator of
which is the number of full and partial months that have elapsed since the
beginning of such Award Period to the date on which the Change in Control
occurs, and the denominator of which is the total number of months in such Award
Period; provided, however, that nothing in this subsection shall prejudice the
right of the Grantee to receive a larger payment under such Performance Award
pursuant to the terms of the Award or under any other plan of the Company.

     (b)   Change in Control. For purposes of the 1998 Plan, a Change in Control
shall mean the happening of any of the following events:

     (i)   The acquisition by any "person," as that term is used in Sections
13(d) and 14(d) of the 1934 Act (other than (w) the Company, (x) any subsidiary
of the Company, (y) any employee benefit plan or employee stock plan of the
Company or a subsidiary of the Company or any trustee or fiduciary with respect
to any such plan when acting in that capacity, or (z) Lilly Endowment, Inc.,) of
"beneficial ownership," as defined in Rule 13d-3 under the 1934 Act, directly or
indirectly, of 15% or more of the shares of the Company's capital stock the
holders of which have general voting power under ordinary circumstances to elect
at least a majority of the Board of Directors of the Company (or which would
have such voting power but for the application of the Indiana Control Share
Statute) ("Voting Stock"); provided, however, that an acquisition of Voting
Stock directly from the Company shall not constitute a Change in Control;

     (ii)  the first day on which less than two-thirds of the total membership
of the Board of Directors of the Company shall be Continuing Directors (as that
term is defined in Article 13(f) of the Company's Articles of Incorporation);

     (iii) consummation of a merger, share exchange, or consolidation of the
Company (a "Transaction"), other than a Transaction which would result in the
Voting Stock of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the Voting Stock of the
Company or such surviving entity immediately after such Transaction; or

     (iv)  a complete liquidation of the Company or a sale or disposition of all
or substantially all the assets of the Company, other than a sale or disposition
of assets to any subsidiary of the Company.

11.  General Provisions.

     (a)  Prohibitions Against Transfer. (i) Except as provided in part (ii) of
this subparagraph, only a Grantee or his or her authorized legal representative
may exercise rights under a Grant. Such persons may not transfer those rights.
The rights under a Grant may not be disposed of by transfer, alienation, pledge,
encumbrance, assignment, or any other means, whether voluntary, involuntary, or
by operation of law, and any such attempted disposition shall be void; provided,
however, that when a Grantee dies, the personal representative or other person
entitled under a Grant under the 1998 Plan to succeed to the rights of the
Grantee ("Successor Grantee") may exercise the rights. A Successor Grantee must
furnish proof satisfactory to the

                                      -8-



Company of his or her right to receive the Grant under the Grantee's will or
under the applicable laws of descent and distribution.

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

     (b)  Substitute Grants. The Committee may make a Grant to an employee of
another corporation who becomes an Eligible Employee by reason of a corporate
merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company in substitution for a stock option,
performance award, or restricted stock grant granted by such other corporation
("Substituted Stock Incentive"). The terms and conditions of the substitute
Grant may vary from the terms and conditions that would otherwise be required by
the 1998 Plan and from those of the Substituted Stock Incentives. The Committee
shall prescribe the exact provisions of the substitute Grants, preserving where
practical the provisions of the Substituted Stock Incentives. The Committee
shall also determine the number of shares of Lilly Stock to be taken into
account under Section 4.

     (c)  Subsidiaries. The term "subsidiary" means a corporation, limited
liability company or similar form of entity of which Eli Lilly and Company owns
directly or indirectly 50% or more of the voting power.

     (d)  Fractional Shares. Fractional shares shall not be issued or
transferred under a Grant, but the Committee may pay cash in lieu of a fraction
or round the fraction.

     (e)  Compliance with Law. The 1998 Plan, the exercise of Grants, and the
obligations of the Company to issue or transfer shares of Lilly Stock under
Grants shall be subject to all applicable laws and regulations and to approvals
by any governmental or regulatory agency as may be required. The Committee may
revoke any Grant if it is contrary to law or modify a Grant to bring it into
compliance with any valid and mandatory law or government regulation. The
Committee may also adopt rules regarding the withholding of taxes on payment to
Grantees.

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

     (g)  No Right to Employment or to Future Grants. The 1998 Plan and the
Grants under it shall not confer upon any Grantee the right to continue in the
employment of the Company or as a member of the Board or affect in any way (i)
the right of the Company to terminate the employment of a Grantee at any time,
with or without notice or cause, or (ii) any right of the

                                      -9-



Company or its shareholders to terminate the Grantee's service on the Board. The
receipt of one or more Grants by a Grantee shall not confer upon the Grantee any
rights to future Grants.

     (h) Foreign Jurisdictions. The Committee may adopt, amend, and terminate
such arrangements and make such Grants, not inconsistent with the intent of the
1998 Plan, as it may deem necessary or desirable to make available tax or other
benefits of the laws of foreign jurisdictions to Grantees who are subject to
such laws. The terms and conditions of such foreign Grants may vary from the
terms and conditions that would otherwise be required by the 1998 Plan.

     (i) Governing Law. The 1998 Plan and all Grants made under it shall be
governed by and interpreted in accordance with the laws of the State of Indiana,
regardless of the laws that might otherwise govern under applicable Indiana
conflict-of-laws principles.

     (j) Effective Date of the 1998 Plan. The 1998 Plan was originally effective
on April 20, 1998. As amended and restated, the 1998 Plan is effective on
October 15, 2001.

                                                     * * *

                                      -10-

                                                                    Exhibit 10.3

                              ELI LILLY AND COMPANY

                      CHANGE IN CONTROL SEVERANCE PAY PLAN
                              FOR SELECT EMPLOYEES
                (amended and restated effective October 15, 2001)

     1.   PURPOSE

This Eli Lilly and Company Change in Control Severance Pay Plan For Select
Employees has been established by the Company to provide for the payment of
severance pay and benefits to Eligible Employees whose employment with a
Participating Employer terminates due to certain conditions created by a Change
in Control of the Company. The purpose of the Plan is to assure a continuity in
operations of the Company during a period of Change in Control by allowing
employees to focus on their responsibilities to the Company knowing that they
have certain financial security in the event of their termination of employment.
The accomplishment of this purpose is in the best interests of the Company and
its shareholders. The Plan was originally adopted by the Board on March 1, 1995,
and has been amended and restated by action of the Board effective as of October
15, 2001.

     2.   DEFINITIONS

The terms defined in this Section 2 shall have the meanings given below:

     (a)  "Annual Base Salary" means the amount of the Eligible Employee's
          Monthly Base Salary multiplied by twelve (12).

     (b)  "Board" means the Board of Directors of the Company.

     (c)  "Change in Control" has the meaning given in Section 3.

     (d)  "Code" means the Internal Revenue Code of 1986, as amended.

     (e)  "Committee" means the Compensation Committee of the Board, or such
          other committee appointed by the Board to perform the functions of the
          Committee under the Plan, provided that at all times the Committee
          shall be constituted solely of directors who are Continuing Directors
          (as defined in Section 3) to the extent any such directors remain on
          the Board and are willing to serve in such capacity.

     (f)  "Covered Termination" has the meaning given in Section 6.

     (g)  "Company" means Eli Lilly and Company, an Indiana corporation.








     (h)  "Eligible Employee" means a Tier I Employee or a Tier II Employee.

     (i)  "ERISA" means the Employee Retirement Income Security Act of 1974, as
          amended.

     (j)  "Exchange Act" means the Securities Exchange Act of 1934, as amended.

     (k)  "EVA Plan" means the Eli Lilly and Company EVA Bonus Plan, as in
          effect from time to time, or any similar bonus plan adopted by the
          Board.

     (l)  "Monthly Base Salary" means an Eligible Employee's gross monthly base
          salary before any deductions, exclusions or any deferrals or
          contributions under any Participating Employer plan or program, but
          excluding bonuses, incentive awards or compensation, employee benefits
          or any other non-salary form of compensation.

     (m)  "Participating Employer" has the meaning given in Section 4.

     (n)  "Plan" means this Eli Lilly and Company Change in Control Severance
          Pay Plan for Select Employees.

     (o)  "Severance Multiple" means the number of years represented by the
          Severance Period for the Eligible Employee.

     (p)  "Severance Period" means (i) in the case of Tier I Employees, the
          three (3) year period immediately following a Covered Termination and
          (ii) in the case of Tier II Employees, the two (2) year period
          immediately following a Covered Termination.

     (q)  "Tier I Employees" and "Tier II Employees" have the meanings given in
          Section 5.


     3.   CHANGE IN CONTROL

For purposes of the Plan, a "Change in Control" of the Company shall be deemed
to have occurred upon:

          (a)  the acquisition by any "person," as that term is used in Sections
     13(d) and 14(d) of the Exchange Act (other than (i) the Company, (ii) any
     subsidiary of the Company, (iii) any employee benefit plan or employee
     stock plan of the Company or a subsidiary of the Company or any trustee or
     fiduciary with respect to any such plan when acting in that capacity, or
     (iv) Lilly Endowment, Inc.) of "beneficial ownership," as defined in Rule
     13d-3 under the Exchange Act, directly or indirectly, of 15% or more of the
     shares of the Company's capital stock the holders of which have general
     voting power under ordinary circumstances to elect at least a majority of
     the Board (or which would have such voting power but for the application of
     the Indiana Control Shares Statute) ("Voting Stock"); provided, however,
                                                           --------  -------
     that an acquisition of Voting Stock directly from the Company shall not
     constitute a Change in Control under this Section 3(a);

                                        2



          (b)  the first day on which less than two-thirds of the total
     membership of the Board shall be Continuing Directors (as that term is
     defined in Article 13(f) of the Company's Articles of Incorporation);

          (c)  consummation of a merger, share exchange, or consolidation of the
     Company (a "Transaction"), other than a Transaction which would result in
     the Voting Stock of the Company outstanding immediately prior thereto
     continuing to represent (either by remaining outstanding or by being
     converted into voting securities of the surviving entity) more than 60% of
     the Voting Stock of the Company or such surviving entity immediately after
     such Transaction;

          (d)  a complete liquidation of the Company or a sale or disposition of
     all or substantially all the assets of the Company, other than a sale or
     disposition of assets to any subsidiary of the Company;

          (e)  either (i) the Company shall have entered into a definitive
     agreement with any Person, which, if consummated, would result in a Change
     in Control as specified in paragraphs (a) through (d) of this Section 3 or
     (ii) any Person initiates a tender offer or exchange offer to acquire
     shares of the Voting Stock which, if consummated, would result in a Change
     in Control as specified in paragraphs (a) through (d) of this Section 3;
     provided, however, that if the Board shall make a final determination that
     --------  -------
     such agreement, tender offer or exchange offer will not be consummated, the
     occurrence of any such event shall cease to constitute a Change in Control
     and the termination of employment of an Eligible Employee after such
     determination shall not be treated as a Covered Termination on the basis of
     such event; or

          (f)  the Board adopts a resolution to the effect that any Person has
     taken actions which, if consummated, would result in its having acquired
     effective control of the business and affairs of the Company; provided,
                                                                   --------
     however, that if the Board shall make a final determination that such
     -------
     actions will not be consummated, the occurrence of any such event shall
     cease to constitute a Change in Control and the termination of employment
     of an Eligible Employee after such determination shall not be treated as a
     Covered Termination on the basis of such event.

For purposes of this Section 3 only, the term "subsidiary" means a corporation
or limited liability company of which the Company owns directly or indirectly
fifty (50) percent or more of the voting power.

     4.   PARTICIPATING EMPLOYERS

A.   Designation of Participating Employers. The Company and each subsidiary
corporation of which the Company owns directly or indirectly one-hundred (100)
percent of the voting power at the time of the Change in Control shall be
Participating Employers under the Plan. In addition, the Committee may designate
other affiliates of the Company as Participating Employers under the

                                       3



Plan, from time to time and under such terms and conditions, as shall be
specified by an action in writing by the Committee. Such terms and conditions
may impose limitations on the extent to which any such affiliate participates in
the Plan (including but not limited to the duration of any such participation),
but shall not provide rights or benefits to Eligible Employees that are broader
than those set forth in the Plan. Any entity that is a Participating Employer at
the time of a Change in Control shall continue to be a Participating Employer
following a Change in Control, and any person, firm or business that is a
successor to the business or interests of a Participating Employer following a
Change in Control shall be treated as a Participating Employer under the Plan.

B.   Limitations in Foreign Jurisdictions. Notwithstanding the foregoing or
anything elsewhere in the Plan to the contrary, the Committee shall have the
discretionary authority, as specified below, to exclude from participation or
limit the participation of any Participating Employer with respect to its
Eligible Employees employed outside of the United States. The Committee shall
exercise this authority only by an action in writing taken prior to a Change in
Control on the basis of a good faith determination that, as a result of the
specific effect of applicable local law or practice with respect to the Plan, it
would be in the best interests of the Company to so exclude or limit such
participation. In addition, to the extent specified by an action in writing
prior to a Change in Control, the Committee may offset the benefits provided
under the Plan to any such Eligible Employee by benefits under severance
arrangements that exist by reason of applicable local law or practice.

     5.   ELIGIBLE EMPLOYEES

The following individuals shall be eligible to participate in the Plan and shall
be considered an Eligible Employee for all purposes hereunder:

          (i)  "Tier I Employees" - the Chief Executive Officer of the Company
                ----------------
     immediately prior to the Change in Control, and all members of the Senior
     Management Forum (or a successor committee) of the Company appointed by the
     Chief Executive Officer, as constituted immediately prior to the Change in
     Control; and

          (ii) "Tier II Employees" - all employees of the Participating
                -----------------
     Employers (other than Tier I Employees) who are classified by the Company
     as G-6 level (Executive Director) or above (or any successor
     classifications) immediately prior to the Change in Control.

Any person who is an Eligible Employee in accordance with the foregoing shall
continue to be an Eligible Employee (and shall retain his/her status as a Tier I
or Tier II Employee for purposes of the Plan) notwithstanding any change in
his/her position or classification following a Change in Control, subject to
Section 6 hereof relating to certain terminations of employment. The Committee
shall notify each Eligible Employee of his/her participation in the Plan and
status as a Tier I or Tier II Employee at the time of the Change in Control.

                                        4



     6.   COVERED TERMINATIONS

A.   General. An Eligible Employee shall be treated as having suffered a
"Covered Termination" hereunder under the following circumstances:

               1.   Tier I Employees. The termination of employment of a Tier I
                    ----------------
     Employee shall be treated as a Covered Termination if his/her employment is
     terminated under one of the following circumstances:

          (i)  at any time within two (2) years following the date of a Change
     in Control, termination of employment by a Participating Employer other
     than for "Cause" or by the Eligible Employee for "Good Reason"; or

          (ii) beginning with the one (1) year anniversary of the date of a
     Change in Control and for a period of thirty (30) calendar days thereafter,
     termination of employment by a Participating Employer other than for
     "Cause" or by the Eligible Employee for any reason (whether or not for
     "Good Reason").

               2.   Tier II Employees. The termination of employment of a Tier
                    -----------------
     II Employee shall be treated as a Covered Termination if his/her employment
     is terminated, within a period of two (2) years following the date of a
     Change in Control, by a Participating Employer other than for "Cause" or by
     the Eligible Employee for "Good Reason."

For purposes of the foregoing, the time periods specified above within which a
termination of employment may be treated as a Covered Termination shall commence
on the date the Change in Control becomes effective and, with respect to a
Change in Control under paragraphs (e) and (f) of Section 3, shall recommence
(for the full applicable period) on the date of consummation of the underlying
actions; provided, however, that in the event of a Change in Control under
         --------  -------
paragraphs (e) and (f) of Section 3, the time period within which a Covered
Termination under clause (ii) of paragraph 1 above may occur shall be measured
only from the date of consummation of the underlying actions (and not from any
earlier date). For purposes of the Plan, a termination of employment shall be
effective as of the last date of the Eligible Employee's employment with the
Participating Employer.

An Eligible Employee shall not be treated as having suffered a Covered
Termination in the event of (1) death, (2) total disability (within the meaning
of the Company's Extended Disability Plan), (3) transfer of employment among
Participating Employers (unless such transfer gives rise to a "Good Reason"),
(4) involuntary termination by the Participating Employer for "Cause", (5)
voluntary termination by the Eligible Employer other than for Good Reason or
other than as provided in Section 6.A.1(ii) for Tier I Employees or (6) a
termination of employment for any reason by either the Participating Employer or
the Eligible Employee that does not occur during the time periods specified
above.

B.   Termination For Cause.  For purposes  hereof,  the termination of an
Eligible Employee's employment shall be deemed to be a termination for "Cause"
if as a result of:

                                       5



          (i)  the willful refusal of the Eligible Employee to perform, without
     legal cause, his/her material duties to the Participating Employer,
     resulting in demonstrable economic harm to any Participating Employer,
     which the Eligible Employee has failed to cure after thirty (30) calendar
     days' advance written notice from the Company; or

          (ii) the conviction of the Eligible Employee by a court of competent
     jurisdiction of any crime (or the entering of a plea of guilty or nolo
                                                                       ----
     contendere to a charge of any crime) constituting a felony.
     ----------

A termination for Cause shall be communicated to the Eligible Employee in
writing by the Participating Employer and shall specify the provisions of the
Plan and factual matters relied upon in making the Cause determination.

C.   Termination for Good Reason. For purposes hereof, an Eligible Employee may
terminate his/her employment for "Good Reason" as a result of:

          (i)   a material diminution in the nature or status of the Eligible
     Employee's position, title, reporting relationship, duties,
     responsibilities or authority, or the assignment to him/her of additional
     responsibilities that materially increase his/her workload;

          (ii)  any reduction in the Eligible Employee's then-current Monthly
     Base Salary;

          (iii) a material reduction in the Eligible Employee's opportunities to
     earn incentive bonuses below those in effect for the year most recently
     completed before the date of the Change in Control, taking into account all
     material bonus factors such as targeted bonus amounts and corporate
     performance measures;

          (iv)  a material reduction in the Eligible Employee's employee
     benefits and coverages (including, without limitation, pension, profit
     sharing and all welfare, retiree welfare and fringe benefits) that are
     provided to the Eligible Employee from the benefit levels in effect
     immediately prior to the Change in Control;

          (v)   the failure to grant to the Eligible Employee stock options,
     performance shares or similar equity incentive rights during each twelve
     (12) month period following the Change in Control on the basis of a number
     of shares or units and all other material terms (including vesting
     requirements) at least as favorable to the Eligible Employee as those
     rights granted to him/her on an annualized average basis for the three (3)
     year period immediately prior to the Change in Control; or

          (vi)  relocation of the Eligible Employee by more than fifty (50)
     miles from his/her regularly assigned workplace existing on the date of the
     Change in Control.

A termination for Good Reason shall be communicated to the Participating
Employer in writing by the Eligible Employee and shall specify the provisions of
the Plan and the factual matters relied upon in making the Good Reason
determination.

                                        6



     7.   SEVERANCE PAYMENT

The amount of the severance payment to be received by an Eligible Employee whose
employment is terminated under conditions constituting a Covered Termination
shall equal the applicable Severance Multiple for the Eligible Employee
multiplied by the sum of:

          (i)  the Eligible Employee's Annual Base Salary at the time of Covered
     Termination (calculated without regard to any reduction in Monthly Base
     Salary that results in a Good Reason termination) or, if greater, at the
     time of the Change in Control, plus

          (ii) the greater of (a) the amount of the Eligible Employee's target
     incentive bonus for the year of Covered Termination or (b) the amount of
     the Eligible Employee's incentive bonus earned for the year immediately
     prior to the Change in Control.

The severance payment to be made hereunder shall be paid to the Eligible
Employee in a single lump-sum cash payment, less any required tax withholding,
within fifteen (15) calendar days after the date of the Eligible Employee's
Covered Termination. Any payment required under this Section 7 or any other
provision of the Plan that is not made in a timely manner shall bear interest at
a rate equal to one hundred twenty (120) percent of the monthly compounded
applicable federal rate, as in effect under Section 1274(d) of the Code for the
month in which the payment is required to be made.

     8.   OTHER SEVERANCE BENEFITS

In addition to the severance payment provided under Section 7, an Eligible
Employee shall be entitled to the following benefits and other rights in the
event of his/her Covered Termination:

A.   Welfare Benefits. The Eligible Employee shall be entitled to continued
coverage and benefits for the duration of the applicable Severance Period, at
the Company's sole expense for coverage, under all employee welfare benefit
plans (including, without limitation, medical, dental, group life, death
benefit, dependent life, supplemental life, accidental death and dismemberment,
short-term disability and long-term disability plans, health care reimbursement
account and dependent day care reimbursement account) of a Participating
Employer for which he/she was eligible at the time of Covered Termination (or,
if it would provide benefits or other terms more favorable to the Eligible
Employee, at the time of the Change in Control), as though his/her termination
of employment had not occurred (the "Welfare Continuation Coverages"). All
Welfare Continuation Coverages shall apply to the Eligible Employee and any of
his/her dependents who would have been eligible for coverage if the Eligible
Employee remained employed for the applicable Severance Period. The Company may
provide the Eligible Employee with the Welfare Continuation Coverages under
arrangements other than its generally applicable welfare benefit plans, provided
that the benefit coverages so provided are at least as favorable to the Eligible
Employee as coverage under the otherwise applicable Welfare Continuation
Coverages, on a

                                       7



coverage by coverage basis, and taking into account all tax consequences to the
Eligible Employee. At the expiration of the applicable Severance Period, the
Eligible Employee shall be treated as a then terminating employee with respect
to the right to elect continued medical and dental coverages in accordance with
Section 4980B of the Code (or any successor provision thereto).

B.  Retiree Welfare Benefits. Following a Covered Termination, the Participating
Employer shall continue to provide to the Eligible Employee (subject to normal
eligibility requirements as supplemented in the last sentence of this
paragraph), and shall not be permitted to terminate or amend in any manner
adverse to the Eligible Employee, all retiree medical and dental benefit plans
("Retiree Welfare Plans") that are in effect at the time of Covered Termination
(or, if it would provide benefits or other terms more favorable to the Eligible
Employee, at the time of the Change in Control). For purposes of determining
eligibility for the Retiree Welfare Plans, the Eligible Employee shall receive
additional credit for the number of years equal to the Severance Period
applicable to the Eligible Employee for purposes of both age and service
requirements under the Retiree Welfare Plans.

C.  Pension Supplement. The Eligible Employee shall be entitled to the
additional pension benefits that would be payable to him/her, under all defined
benefit pension plans of a Participating Employer in which he/she is
participating at the time of Covered Termination (or, if it would provide
benefits or other terms more favorable to the Eligible Employee, at the time of
the Change in Control), including all such tax-qualified and supplemental plans,
by taking into account under such plans (i) an additional number of years equal
to the Severance Period applicable to the Eligible Employee for purposes of the
age and service credit of the Eligible Employee under such plans and (ii) the
amount of the severance payment to which the Eligible Employee is entitled under
Section 7, expressed on an annualized basis for the number of years equal to the
Severance Period applicable to the Eligible Employee, for purposes of the
compensation credit of the Eligible Employee under such plans (but only to the
extent such additional credit would produce a higher benefit for the Eligible
Employee than if it were not taken into account). The additional pension
benefits provided hereby shall be paid pursuant to a supplemental pension plan
of the Company, at the same time and in the same form as pension benefits are
otherwise payable to the Eligible Employee (subject to clause (iii) of Section
8.E).

D.  Equity Incentives. Immediately upon a Covered Termination, (i) any stock
options or similar equity-based incentive rights granted to the Eligible
Employee under a stock incentive plan of a Participating Employer that are not
then fully vested and exercisable shall become fully vested and immediately
exercisable, (ii) the Eligible Employee shall be entitled to exercise any stock
options or similar equity-based incentive rights until the expiration of their
original full term (without regard to any earlier termination otherwise
applicable in the event of termination of employment), and (iii) any performance
shares or shares of restricted stock granted to the Eligible Employee under a
stock incentive plan of a Participating Employer that remain subject to
forfeiture, performance conditions or transfer restrictions at such time shall
become fully and immediately vested and all such conditions and restrictions
shall immediately lapse. In addition, as to any other types of equity-based
incentive awards granted to the Eligible Employee under a stock incentive plan
of a Participating Employer prior to the date of Covered Termination, any
restrictions on exercise, payment or transfer shall immediately lapse, and the
Eligible Employee shall have all rights associated with such awards as of the
date of Covered Termination. The

                                       8



provisions of this Section 8.D shall apply equally to any awards or rights into
which the equity incentive rights described herein are converted or for which
such rights are substituted in connection with a Change in Control.

E.  Accrued Rights. The Eligible Employee shall be entitled to the following
payments and benefits in respect of accrued compensation rights at the time of a
Covered Termination, in addition to all other rights provided under the Plan:
(i) immediate payment of any accrued but unpaid Annual Base Salary through the
date of Covered Termination; (ii) payment within fifteen (15) calendar days of
Covered Termination of the accrued bonus for the year in effect on the date of
the Covered Termination, determined on the basis of the bonus earned under terms
of the applicable bonus plan through the date of termination or, if greater, the
pro-rata amount of the target bonus for the period of such year through the date
of termination; (iii) payment within fifteen (15) calendar days of Covered
Termination of all non-tax-qualified deferred compensation rights, in lieu of
payment in respect of such rights that would otherwise be made at a later date
in accordance with the terms of such arrangements, except to the extent such
rights are funded by amounts held under an irrevocable grantor trust or other
irrevocable commitment of funds by the Company; and (iv) all benefits and rights
accrued under the employee benefit plans, fringe benefit programs and payroll
practices of a Participating Employer (other than those described in clause
(iii) above) in accordance with their terms (including, without limitation,
employee pension, employee welfare, incentive bonus and stock incentive plans).

F.  EVA Plan. Notwithstanding any provision of this Plan or the EVA Plan to the
contrary, the following provisions of this Section 8.F shall apply with respect
to any interest of an Eligible Employee under the EVA Plan, without duplication
by any otherwise applicable provision of this Section 8. The Eligible Employee
shall be entitled to the following payments within fifteen (15) days of a
Covered Termination: (i) payment of the positive balance, if any, of the amount
credited to his/her "Bonus Bank" (or similar bonus bank) under the EVA Plan
immediately prior to the Covered Termination, and (ii) payment of the amount of
his/her "Target Bonus Amount" (or similar target bonus) for the year in which
the Covered Termination occurs, prorated for any partial year of service prior
to the Covered Termination. The foregoing payments shall be made without offset
of one against the other and without regard to any negative balance that may
exist in the Bonus Bank immediately prior to the Covered Termination.

G.  Outplacement; Relocation. The Eligible Employee shall be provided, at the
Company's sole expense, with professional outplacement services selected by the
Eligible Employee consistent with his/her duties or profession and of a type and
level customary for persons in his/her position; provided, however, that the
                                                 --------  -------
Company shall not be required to pay fees in connection with the foregoing in an
amount greater than fifteen (15) percent of the Eligible Employee's Annual Base
Salary for purposes of clause (i) of Section 7. The Company shall honor any
prior agreement or understanding with an Eligible Employee who has suffered a
Covered Termination to reimburse his/her relocation expenses to the
Indianapolis, Indiana metropolitan area or, if it does not result in a greater
cost to the Company, to such other location selected by the Eligible Employee.

H.  Indemnification. With respect to any Eligible Employee who is, immediately
prior to a Change in Control or a Covered Termination, indemnified by the
Company for his/her service as a director, officer or employee of a
Participating Employer, the Company shall indemnify such

                                       9



Eligible Employee to the fullest extent permitted by applicable law, and the
Company shall maintain in full force and effect, for the duration of all
applicable statute of limitation periods, insurance policies at least as
favorable to the Eligible Employee as those maintained by the Company for the
benefit of its directors and officers at the time of Change in Control, with
respect to all costs, charges and expenses whatsoever (including payment of
expenses in advance of final disposition of a proceeding) incurred or sustained
by the Eligible Employee in connection with any action, suit or proceeding to
which he/she may be made a party by reason of being or having been a director,
officer or employee of a Participating Employer or serving or having served any
other enterprise as a director, officer or employee at the request of a
Participating Employer.

I.  Retention Bonuses and Loans. Immediately upon a Covered Termination, there
shall automatically be forgiven any repayment obligation of the Eligible
Employee to the Participating Employer that arises under any retention bonus
agreement, forgivable loan or similar arrangement that provides for the lapse of
the Eligible Employee's repayment obligation over time based on continued
employment or other conditions (but not under any other loan obligations of the
Eligible Employee that do not include forgiveness provisions).

     9.   EXCISE TAX REIMBURSEMENT

In the event it shall be determined that any payment, right or distribution by
the Company or any other person or entity to or for the benefit of an Eligible
Employee is a "parachute payment" within the meaning of Section 280G of the
Code, pursuant to the terms of this Plan or otherwise, in connection with, or
arising out of, his/her employment with a Participating Employer or a change in
ownership or effective control of the Company or a substantial portion of its
assets (a "Payment"), and would be subject to the excise tax imposed by Section
4999 of the Code (the "Excise Tax"), concurrent with the making of such Payment,
the Company shall pay to the Eligible Employee an additional payment (the
"Gross-Up Payment") in an amount such that the net amount retained by the
Eligible Employee, after deduction of any Excise Tax on such Payment and any
federal, state or local income tax and Excise Tax on the Gross-Up Payment shall
equal the amount of such Payment. In the event the Internal Revenue Service
subsequently may assess or seek to assess from the Eligible Employee an amount
of Excise Tax in excess of that determined in accordance with the foregoing, the
Company shall pay to the Eligible Employee an additional Gross-Up Payment,
calculated as described above in respect of such excess Excise Tax, including a
Gross-Up Payment in respect of any interest or penalties imposed by the Internal
Revenue Service with respect to such excess Excise Tax. The rights of the
Eligible Employee to a Gross-Up Payment under this Section 9 shall apply without
regard to whether the Eligible Employee has incurred a Covered Termination and
shall apply to all payments whether or not in connection with a Covered
Termination.

                                       10



10.    NO MITIGATION OR OFFSET

The Eligible Employee shall be under no obligation to minimize or mitigate
damages by seeking other employment, and the obtaining of any such other
employment shall in no event effect any reduction of the Company's obligation to
make the payments and provide the benefits required under the Plan. In addition,
the Company's obligation to make the payments and provide the benefits required
under the Plan shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other rights which
a Participating Employer may have against the Eligible Employee.

       11.    UNFUNDED STATUS

The Plan is intended to constitute an employee pension benefit plan under ERISA
which is unfunded and is maintained primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees, and shall be interpreted and administered accordingly. The payments
and benefits provided hereunder shall be paid from the general assets of the
Company. Nothing herein shall be construed to require the Company to maintain
any fund or to segregate any amount for the benefit of any employee, and no
employee or other person shall have any right against, right to, or security or
other interest in any fund, account or asset of the Company from which the
payment pursuant to the Plan may be made. Consistent with the foregoing, the
Company may, in its sole discretion, deposit funds in a grantor trust or
otherwise establish arrangements to pay amounts that become due under the Plan,
and, notwithstanding anything elsewhere in the Plan to the contrary, the
payments and benefits due under the Plan shall be reduced to reflect the amount
of any payment made in respect of any Eligible Employee from a grantor trust or
other arrangement established for this purpose.

       12.    ADMINISTRATION

The Committee shall be the named fiduciary of the Plan and the plan
administrator for purposes of ERISA. The Committee shall be responsible for the
overall operation of the Plan and shall have the fiduciary responsibility for
the general operation of the Plan. The Committee may allocate to any one or more
of the Company's employees any responsibility the Committee may have under the
Plan and may designate any other person or persons to carry out any of the
Committee's responsibilities under the Plan. As plan administrator, the
Committee shall maintain records pursuant to the Plan's provisions and shall be
responsible for the handling, processing and payment of any claims for benefits
under the Plan.

       13.    CLAIMS AND DISPUTES

Within fifteen (15) calendar days of a Covered Termination, the Company shall
notify each Eligible Employee whom the Company determines is entitled to
payments and benefits under the Plan of his/her entitlement to such payments and
benefits. An Eligible Employee who is not so notified may submit a claim for
payments and benefits under the Plan in writing to the Company

                                       11



within ninety (90) calendar days after becoming entitled to such benefits as
described in Section 6. All such claims shall be approved or denied in writing
by the Company within fifteen (15) calendar days after submission.

Any denial of a claim by the Company shall be in writing and shall include: (i)
the reason or reasons for the denial; (ii) reference to the pertinent Plan
provisions on which the denial is based; (iii) a description of any additional
material or information necessary for the Eligible Employee to perfect the claim
together with an explanation of why the material or information is necessary;
and (iv) an explanation of the Plan's claim review procedure, described below.

An Eligible Employee shall have a reasonable opportunity to appeal a denied
claim to the Company for a full and fair review. The Eligible Employee or
authorized representative shall have sixty (60) calendar days after receipt of
written notification of the denial of claim in which to request a review and to
review pertinent documents of the Plan. The Company shall notify the Eligible
Employee or his/her authorized representative of the time and place for the
claim review. The Company shall issue a decision on the reviewed claim promptly,
but no later than fifteen (15) calendar days after receipt of the request for
review. The Company's decision shall be in writing and shall include: (i) the
reasons for the decision, and (ii) references to the Plan provisions on which
the decision is based.

If the Eligible Employee shall dispute the Company's final decision, the dispute
shall be submitted to an arbitration proceeding, conducted before a panel of
three arbitrators, in accordance with the rules of the Center for Public
Resources (or such other organization selected by mutual agreement of the
Company and the Eligible Employee). Such arbitration shall take place in the
location most practicably proximate to the Eligible Employee's principal
workplace. Judgment may be entered on the arbitrators' award in any court having
jurisdiction. Notwithstanding the foregoing, if an Eligible Employee believes
the claims procedure or dispute resolution mechanism provided under this Section
13 would be futile or would cause such Eligible Employee irreparable harm, the
Eligible Employee may, in his/her sole discretion, elect to enforce his/her
rights under the Plan pursuant to Section 502 of ERISA.

The Company shall bear the expense of any enforcement proceeding brought by an
Eligible Employee under the Plan and shall reimburse the Eligible Employee for
all of his/her reasonable costs and expenses relating to such enforcement
proceeding, including, without limitation, reasonable attorneys' fees and
expenses, provided that the Eligible Employee is the prevailing party in such
proceeding. For purposes hereof, the trier of fact in such enforcement
proceeding shall be requested to make a determination as to the reimbursement of
the Eligible Employee's costs and expenses as a prevailing party hereunder. In
no event shall the Eligible Employee be required to reimburse the Company for
any of the costs or expenses relating to such enforcement proceeding.

       14.    TERM AND AMENDMENT

The Plan became effective on March 1, 1995 (the "Effective Date"), and shall
continue to be effective until the "Expiration Date." The Expiration Date shall
initially be the third anniversary of the Effective Date, but as of the first
anniversary of the Effective Date and each anniversary date

                                       12



thereafter, the Expiration Date shall be extended by an additional one (1) year
unless, not later than ninety (90) calendar days prior to the respective
anniversary date of the Effective Date, the Board shall specify by resolution or
other written action that the Expiration Date shall not be so extended.
Notwithstanding the foregoing, in the event of a Change in Control, the Plan
shall continue in effect, and the Expiration Date shall not occur, until the
satisfaction of all severance payments and benefits to which Eligible Employees
are or may become entitled to under the Plan. The Board shall have the right, by
resolution or other written action, to amend the Plan; provided, however, that
                                                       --------  -------
the Plan may only be amended prior to a Change in Control, and then only to the
extent such amendment is of a technical or clarifying nature, or increases the
rights or benefits of all affected Eligible Employees, and does not in any
manner reduce the rights or benefits of any Eligible Employee, unless the
Company has obtained the express written consent, in return for good and
valuable consideration, of all affected Eligible Employees in respect of any
such amendment.

       15.   SUCCESSORS AND ASSIGNS

The Plan shall be binding upon any person, firm or business that is a successor
to the business or interests of the Company, whether as a result of a Change in
Control of the Company or otherwise. All payments and benefits that become due
to an Eligible Employee under the Plan shall inure to the benefit of his/her
heirs, assigns, designees or legal representatives.

       16.   ENFORCEABILITY

The Company intends the Plan to constitute a legally enforceable obligation
between it and each Eligible Employee, and that the Plan confer vested rights on
each Eligible Employee in accordance with the terms of the Plan, with each
Eligible Employee being a third-party beneficiary thereof. Nothing in the Plan,
however, shall be construed to confer on any Eligible Employee any right to
continue in the employ of a Participating Employer or affect the right of a
Participating Employer to terminate the employment or change the terms and
conditions of employment of an Eligible Employee, with or without notice or
cause, prior to a Change in Control, or to take any such action following a
Change in Control, subject to the consequences specified by the Plan.

The Plan shall be construed and enforced in accordance with ERISA and the laws
of the State of Indiana to the extent not preempted by ERISA, regardless of the
law that might otherwise govern under applicable principles or provisions of
choice or conflict of law doctrines. To the extent any provision of the Plan
shall be invalid or unenforceable under any applicable law, it shall be
considered deleted herefrom and all other provisions of the Plan shall be
unaffected and shall continue in full force and effect.

                                       13



IN WITNESS WHEREOF, the Board has caused this amended and restated Plan to be
approved and executed by its duly authorized representative as of October 15,
2001.

                                            ELI LILLY AND COMPANY



                                            By:_________________________________
                                               Title: Senior Vice President

                                       14

                                                                    Exhibit 10.4

[Eli Lilly and Company Letterhead]


September 17, 2001

Mr. Sidney Taurel
Chairman of the Board, President,
and Chief Executive Officer
Eli Lilly and Company
Lilly Corporate Center
Indianapolis, IN  46285

Dear Sidney:

You recently requested that the Compensation Committee ("Committee") reduce your
base salary during the 2002 calendar year only from $1,391,100 to $1.00 in light
of the expected financial impact in that year from the loss of U.S. market
exclusivity for Prozac. The Committee has agreed to honor your request. The
purpose of this letter is to set forth our agreement relative to the impact of
the reduction in your base pay on certain employee benefits.

In general, it is our mutual intent to preserve your salary-dependent employee
benefits during the 2002 calendar year at essentially the same level as if your
salary had not been reduced. To achieve this goal, we have agreed that during
the period from January 1, 2002 to December 31, 2002, those benefits will be
administered as follows:

         1. Benefits based on Earnings. Where plan benefit calculations are
            --------------------------
based, in part, on earnings, wages or base pay such as your extended disability
benefit, they will be based on your 2001 year-end base salary prior to your
requested reduction.

         2. Benefit Allowance. We also will provide you with a benefit allowance
            -----------------
intended to maintain your same level of contributions to The Lilly Employee
Savings Plan and insurance coverages you elected for 2001 under various
components of the Welfare Plan, including Life Insurance, Health Plan and
Extended Disability.

         3. Excess Retirement and Savings Plans.  Appropriate amendments will
            -----------------------------------
be made to the Excess Retirement and Savings Plans effective January 1, 2002, to
ensure that your benefits and contributions are unaffected by the salary waiver.

         4. Change-in Control Severance Pay Plan. Should a change-in control (as
            ------------------------------------
defined in the Company's Change-in Control Severance Pay Plans) occur during the
2002 calendar year, your annual base salary would automatically revert back to
the 2001 rate of $1,391,100. In addition, should you become eligible for a
severance payment under the Change-in Control Severance Pay Plan during 2002,
your "Monthly Base Salary" for purposes of calculating the severance benefit
will be considered to be your 2001 year-end base salary prior to your requested
reduction.



Mr. Sidney Taurel
September 17, 2001
Page 2

This salary reduction is for 2002 only. It is the Committee's intent to
re-establish your base salary at a competitive level for 2003.

If you have any questions, please let us know.

                                           Sincerely,

                                           ELI LILLY AND COMPANY


                                           By: /s/ Steven C. Beering
                                               ---------------------
                                               Steven C. Beering, M.D.
                                               Chairman, Compensation Committee


                                           By: /s/ Pedro P. Granadillo
                                               -------------------------
                                               Pedro P. Granadillo
                                               Senior Vice President

ACCEPTED this 17th day of September, 2001.


By:  /s/ Sidney Taurel
     -----------------
     Sidney Taurel

EXHIBIT 11.   STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
                               (Unaudited)

                     ELI LILLY AND COMPANY AND SUBSIDIARIES



                                                          Three Months Ended            Nine Months Ended
                                                             September 30,                September 30,
                                                          2001         2000             2001         2000
                                                        ------------ --------         ---------- ----------
                                                             (Dollars and shares in millions except
                                                                          per-share data)
 BASIC
                                                                                       
 Net income ..........................................  $  570.1     $  778.8         $2,204.6     $2,290.5
                                                        --------     --------         --------     --------
 Average number of common shares outstanding .........   1,077.1      1,081.0          1,077.4      1,081.9
 Contingently issuable shares ........................       -            -                 .1           .2
                                                        --------     --------         --------     --------
 Adjusted average shares .............................   1,077.1      1,081.0          1,077.5      1,082.1
                                                        --------     --------         --------     --------
 Basic earnings per share ............................  $    .53     $    .72         $   2.04     $   2.12
                                                        --------     --------         --------     --------

 DILUTED

 Net income ..........................................  $  570.1     $  778.8         $2,204.6     $2,290.5
                                                        --------     --------         --------     --------
 Average number of common shares outstanding .........   1,077.1      1,081.0          1,077.4      1,081.9
 Incremental shares - stock options and contingently
   issuable shares ...................................      12.8         16.5             13.8         16.0
                                                        --------     --------         --------     --------
 Adjusted average shares .............................   1,089.9      1,097.5          1,091.2      1,097.9
                                                        --------     --------         --------     --------
 Diluted earnings per share ..........................  $    .52     $    .71         $   2.02     $   2.09
                                                        --------     --------         --------     --------
 

EXHIBIT 12.   STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS FROM CONTINUING
                            OPERATIONS TO FIXED CHARGES
                                   (Unaudited)

                     ELI LILLY AND COMPANY AND SUBSIDIARIES
                              (Dollars in millions)




                                      Nine Months
                                         Ended
                                     September 30,                           Years Ended December 31,
                                         2001             2000          1999           1998          1997           1996
                                   ------------------ ------------- -------------- ------------- -------------- --------------
                                                                                                
Consolidated pretax
  income from continuing
  operations before
  extraordinary item ..............    $2,810.8           $3,858.7    $3,245.5       $2,665.0      $2,901.1       $2,131.3

Interest from continuing
  operations and other
  fixed charges ...................       169.1              225.4       213.1          198.3         253.1          323.8

Less interest capitalized
  during the period from
  continuing operations ...........       (45.4)             (43.1)      (29.3)         (17.0)        (20.4)         (35.8)
                                   ------------------ ------------- -------------- ------------- -------------- --------------

Earnings ..........................    $2,934.5           $4,041.0    $3,429.2       $2,846.3      $3,133.8       $2,419.3
                                   ------------------ ------------- -------------- ------------- -------------- --------------

Fixed charges/1/ ..................    $  169.1          $   225.4   $   213.2      $   200.5     $   256.8     $    328.5
                                   ------------------ ------------- -------------- ------------- -------------- --------------
Ratio of earnings to
  fixed charges ...................        17.4               17.9        16.1           14.2          12.2            7.4
                                   ------------------ ------------- -------------- ------------- -------------- --------------


/1/ Fixed charges include interest from continuing operations for all years
    presented and preferred stock dividends for 1996 through 1999.

EXHIBIT 99.       Cautionary Statement Under Private Securities
                  Litigation Reform Act Of 1995 - "Safe Harbor" For
                  Forward-Looking Disclosures

Certain forward-looking statements are included in this Form 10-Q and may be
made by company spokespersons based on then-current expectations of management.
All forward-looking statements made by the company are subject to risks and
uncertainties. One can identify forward-looking statements by their use of words
such as "expects," "plans," "will," "estimates," "forecasts," "projects,"
"believes," "anticipates" and other words of similar meaning. One can also
identify them by the fact that they do not relate strictly to historical or
current facts. These statements are likely to address the company's growth
strategy, financial results, regulatory issues, status of product approvals,
development programs, litigation and investigations.

Certain factors, including but not limited to those listed below, may cause
actual results to differ materially from current expectations and historical
results.

- -    Competitive factors, including generic competition as patents on key
     products, such as Prozac, expire; pricing pressures, both in the U.S. and
     abroad, primarily from managed care groups and government agencies; and new
     patented products or expanded indications for existing products introduced
     by competitors, which can lead to declining demand for the company's
     products.

- -    Changes in inventory levels maintained by pharmaceutical wholesalers that
     can cause reported sales for a particular period to differ significantly
     from underlying prescriber demand.

- -    Economic factors over which the company has no control, including changes
     in inflation, interest rates and foreign currency exchange rates, and
     overall economic conditions in volatile areas such as Latin America.

- -    Governmental factors, including federal, state and foreign laws and
     regulations that affect pharmaceutical pricing, such as Medicaid, Medicare,
     pharmaceutical importation laws, and other laws and regulations that could,
     directly or indirectly, impose governmental controls on the prices at which
     the company's products are sold.

- -    The difficulties and uncertainties inherent in new product development. New
     product candidates that appear promising in development may fail to reach
     the market or may have only limited commercial success because of efficacy
     or safety concerns, inability to obtain necessary regulatory approvals,
     difficulty or excessive costs to manufacture, or infringement of the
     patents or intellectual property rights of others.

- -    Delays and uncertainties in the FDA approval process and the approval
     processes in other countries, resulting in lost market opportunity.

- -    Regulatory issues concerning compliance with current Good Manufacturing
     Practices (cGMP) regulations for pharmaceutical products. In particular, as
     a result of observations noted by the FDA in two recent Lilly plant
     inspections, one of which resulted in a warning letter from the agency, the
     company is in the process of implementing comprehensive, company-wide
     improvements in its manufacturing quality operations to assure compliance
     with current Good Manufacturing Practices (cGMP) regulations. The company
     is working closely with the FDA to implement the improvements and does not
     currently expect a material financial impact from the issues raised by the
     FDA or the cost of the improvements the company is implementing. However,
     the timing and nature of the resolution of the cGMP issues will depend on
     the company's ability to demonstrate to the satisfaction of the FDA the
     quality and reliability of its manufacturing controls and procedures. A
     failure to correct cGMP deficiencies to the satisfaction of the FDA could
     lead to product recalls and seizures, interruption of production, and the
     withholding of approvals of new drug applications pending resolution of the
     cGMP issues. Similar issues can arise with other companies that perform
     third-party manufacturing for Lilly.





- -    Unexpected safety or efficacy concerns arising with respect to marketed
     products, whether or not scientifically justified, leading to product
     recalls, withdrawals or declining sales.

- -    Legal factors including unanticipated litigation of product liability or
     other liability claims; antitrust litigation; environmental matters; and
     patent disputes with competitors that could preclude commercialization of
     products or negatively affect the profitability of existing products.

- -    Changes in tax laws, including laws related to the remittance of foreign
     earnings or investments in foreign countries with favorable tax rates, and
     settlements of federal, state, and foreign tax audits.

- -    Changes in accounting standards promulgated by the Financial Accounting
     Standards Board, the Securities and Exchange Commission, the American
     Institute of Certified Public Accountants, and the Emerging Issues Task
     Force, which are adverse to the company.

- -    Internal factors such as changes in business strategies and the impact of
     restructurings and business combinations.

The company undertakes no duty to update forward-looking statements.