Lilly, 30, who was 15-13 with a 4.31 ERA in 32 games for Toronto last season, agreed to a four-year, $40 million deal, O'Brien said.
"Ted Lilly is a Cub," O'Brien announced Wednesday night in the lobby of the Dolphin Hotel.
Cubs manager Lou Piniella had taken Hendry to the hospital because he was feeling ill. The Cubs GM is expected to stay overnight for observation and further tests, the team said. Hendry had not been feeling well this week.
"[Having Lilly call] certainly brought a smile to Jim's face," Piniella said.
"I spoke with Jim and I think he's doing fine," O'Brien said. "I said, 'Geez, I hope the pressure of this didn't do this to you because we've got some postseason pressures to worry about.' Jim was hooked up to the EKG machine and we got it done."
Lilly had narrowed his decision to two teams, the Cubs and New York Yankees.
"He was intrigued by the opportunity to maybe be involved in something special and get Chicago back to the postseason and a world championship," O'Brien said.
"At the end of the day, Ted thinks they have a great opportunity to go from last to first," O'Brien said. "Detroit did it, so why not Chicago?"
Piniella had recruited Lilly, and Cubs pitching coach Larry Rothschild also talked to the left-hander.
"I think everything was helpful," O'Brien said. "I can't point to one thing. Chicago from the get-go said, 'We want Ted, and we're going to do whatever it takes.' He liked the fact that he was pursued. It was hard -- Toronto was right in there to the end.
"[Lilly] just decided that at this point in his career, he liked the challenge of pitching in the National League," O'Brien said. "He hadn't done that in a long time. Now he has a great opportunity and thinks the National League will be suited to the way he pitches."
Lilly is the seventh free agent to sign with the Cubs this offseason, joining Alfonso Soriano, Aramis Ramirez, Mark DeRosa, Kerry Wood, Henry Blanco and Wade Miller. The Cubs have been on a spending spree as they try to bounce back from a 66-96 season and last-place finish in the National League Central.
The left-hander still has to pass a physical, to be done next week in Chicago, before the deal is finalized. The final package may also include a $4 million signing bonus.
"I'm happy -- I think Lou Piniella is a winner and I like Larry Rothschild, I love the organization," O'Brien said. "I think Ted -- as we went through the process -- became convinced that was where he belonged. He wants to be part of something special."
Lilly pitched for the Yankees from 2000-02, and has spent all but one season in the American League. He began his career with Montreal in 1999, but appeared in just nine games.
"From the get-go, the Chicago Cubs have been right there," O'Brien said. "Jim Hendry has been totally upfront with me, and they've put their best foot foward every step of the way."
Lilly told O'Brien he was not interested in returning to the Toronto Blue Jays, where he played from 2004-06, and wanted to switch because he needed a change of scenery. That decision came after some "soul searching" Tuesday night, O'Brien said.
The Yankees have won 26 world championships; the Cubs have not won a World Series in 98 years. But Lilly apparently is intrigued about changing the Cubs' luck.
"That's definitely something he's been thinking about the last week," O'Brien said. "It's been awhile. That mystique is fun to think about."
What about hitting? Lilly hasn't had to pick up a bat except in Interleague games.
"He likes to hit," O'Brien said. "Jim Hendry was saying, 'Tell Ted we're still not finished. We're going to go out and get a good left-handed bat.' And Ted said, 'Why? You've got me.' He likes to think he can hit."
Piniella was happy to add another arm to the Cubs rotation.
"He's a competitive guy, he likes to pitch," Piniella said. "He's a left-hander, has a good breaking ball. The good thing about him is he gives you innings and gives you a chance to win. We think he'd be a fine addition to our pitching staff."
Lilly struck out 160 over 181 2/3 innings. The left-hander has averaged 170 innings and 30 starts over the last four seasons, and his 15 wins last season was a career high.
The Cubs need to fill some holes in the rotation after using 15 different starters in 2006. The team has Carlos Zambrano, Rich Hill and possibly Sean Marshall for the rotation. Mark Prior also could be in the mix, but Hendry has said he doesn't want to be caught short-handed in 2007. Prior had trouble with his shoulder and then injured his oblique, making just nine starts last season.
Carrie Muskat is a reporter for MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.