FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended August 31, 1997
Commission file number 0-6953
LILLY INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-0471010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
733 SOUTH WEST STREET
INDIANAPOLIS, INDIANA 46225
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(317) 687-6700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Number of shares outstanding at September 30, 1997:
Class A Common 22,750,000
Class B Common 358,000
Page 1 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
Three Months Ended
August 31 August 31
1997 1996
-----------------------
Net sales $ 150,904 $ 150,859
Costs and expenses:
Cost of products sold 93,832 94,671
Selling, general and administrative 33,638 33,322
Research and development 4,757 4,757
--------- ---------
132,227 132,750
--------- ---------
OPERATING INCOME 18,677 18,109
Other income (expense):
Sundry 38 132
Interest expense (4,752) (5,449)
--------- ---------
(4,714) (5,317)
--------- ---------
INCOME BEFORE INCOME TAXES 13,963 12,792
Income Taxes 6,284 5,780
--------- ---------
NET INCOME $ 7,679 $ 7,012
========= =========
Cash dividends per share $ 0.08 $ 0.08
========= =========
Average number of shares and equivalent shares
of capital stock outstanding--Note B 23,400 23,100
========= =========
Net income per share--Note B $ 0.33 $ 0.30
========= =========
See notes to consolidated condensed financial statements.
Page 2 of 13
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
Nine Months Ended
August 31 August 31
1997 1996
----------------------
Net sales $ 447,302 $ 355,841
Costs and expenses:
Cost of products sold 278,989 228,118
Selling, general and administrative 103,701 76,776
Research and development 14,008 12,547
Restructuring charge 0 9,607
--------- ---------
396,698 327,048
--------- ---------
OPERATING INCOME 50,604 28,793
Other income (expense):
Sundry 159 471
Interest expense (14,781) (9,073)
--------- ---------
(14,622) (8,602)
--------- ---------
INCOME BEFORE INCOME TAXES 35,982 20,191
Income Taxes 16,192 9,077
--------- ---------
NET INCOME $ 19,790 $ 11,114
========= =========
Cash dividends per share $ 0.24 $ 0.24
========= =========
Average number of shares and equivalent shares
of capital stock outstanding--Note B 23,400 23,050
========= =========
Net income per share--Note B $ 0.85 $ 0.48
========= =========
See notes to consolidated condensed financial statements.
Page 3 of 13
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands, except per share data)
August 31 November 30
1997 1996
-------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,185 $ 6,790
Accounts receivable, less allowances
for doubtful accounts (8/31/97, $2,793;
11/30/96, $2,706) 76,567 84,592
Inventories--Note C 46,504 47,546
Other 11,880 19,790
--------- ---------
TOTAL CURRENT ASSETS 141,136 158,718
OTHER ASSETS 24,502 23,749
INTANGIBLE ASSETS 248,569 258,811
PROPERTY AND EQUIPMENT
Land, buildings and equipment 134,101 127,538
Allowances for depreciation (deduction) (52,426) (46,956)
--------- ---------
81,675 80,582
--------- ---------
$ 495,882 $ 521,860
========= =========
See notes to consolidated condensed financial statements.
Page 4 of 13
<PAGE>
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
August 31 November 30
1997 1996
-----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 51,958 $ 56,593
Other 32,319 35,022
Current portion of long-term debt 29,645 16,524
--------- ---------
TOTAL CURRENT LIABILITIES 113,922 108,139
LONG-TERM DEBT 202,261 245,037
OTHER LIABILITIES 43,108 46,795
SHAREHOLDERS' EQUITY Capital stock:
Class A (limited voting) 15,341 15,103
Class B (voting) 300 300
Additional capital 78,671 75,433
Retained earnings 77,292 62,990
Currency translation adjustments (1,129) 88
Cost of capital stock in treasury
(deduction) (33,884) (32,025)
--------- ---------
136,591 121,889
--------- ---------
$ 495,882 $ 521,860
========= =========
See notes to consolidated condensed financial statements.
Page 5 of 13
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
August 31 August 31
1997 1996
----------------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 19,790 $ 11,114
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 6,583 4,618
Amortization of intangibles 8,669 6,096
Restructuring charge 0 9,607
Deferred income taxes 1,701 (3,000)
Changes in operating
assets and liabilities,
net of effects from acquired
business:
Accounts receivable 8,025 (4,238)
Inventories 1,042 (5,240)
Accounts payable and accrued expenses (7,338) (521)
Sundry (1,589) 3,870
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 36,883 22,306
INVESTING ACTIVITIES:
Purchases of property and equipment (9,618) (15,433)
Payment for acquired business 0 (235,000)
Sundry 5,656 1,598
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (3,962) (248,835)
FINANCING ACTIVITIES:
Cash dividends paid (5,491) (5,417)
Proceeds from short-term and long-term borrowings 0 292,000
Principal payments on short-term and long-term borrowings (29,655) (71,578)
Sundry 1,620 1,013
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (33,526) 216,018
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (605) (10,511)
Cash and cash equivalents at beginning of year 6,790 20,260
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,185 $ 9,749
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
Page 6 of 13
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
LILLY INDUSTRIES, INC. AND SUBSIDIARIES
AUGUST 31, 1997
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended November 30, 1996.
NOTE B--SHARE AND PER SHARE AMOUNTS
Equivalent shares of capital stock represent additional shares assumed issued
upon exercise of stock options.
NOTE C--INVENTORIES
The principal inventory classifications are summarized as follows (in
thousands):
August 31 November 30
1997 1996
---------- -----------
Finished products $ 25,540 $ 25,847
Raw materials 29,040 29,375
-------- --------
54,580 55,222
Less adjustment of certain
inventories to last in,
first out (LIFO) basis 8,076 7,676
-------- --------
$ 46,504 $ 47,546
======== ========
The Company uses the LIFO method in inventory valuation for approximately 82% of
inventories where an actual valuation can be made only at the end of each year
based on the inventory levels and costs at that time. Accordingly, interim LIFO
calculations must necessarily be based on management's estimates of expected
year-end inventory levels and costs. Since these are subject to many forces
beyond management's control, interim results are subject to the final year-end
LIFO inventory valuation. The Company estimates the annual adjustment for LIFO
and allocates it to quarters based on actual inflation experienced in a quarter
as it relates to anticipated inflation for the year.
Page 7 of 13
<PAGE>
NOTE D--RESTRUCTURING
In 1996 the Company implemented plans for the consolidation of manufacturing
facilities related to the Guardsman acquisition. These plans include the closure
of some Lilly and Guardsman plants and workforce reductions. It is anticipated
these plans will be completed by the end of the first half of fiscal 1998.
Costs associated with the planned closure of Lilly facilities and workforce
reductions were recorded in the 1996 second quarter as a restructuring charge
totaling $9,607,000, which reduced net income by $5,284,000 or $.23 per share.
The components of the restructuring charge and amounts paid or charged against
these reserves are as follows (in thousands):
Costs Paid Ending
Provision or Charged Balance
--------- ---------- -------
Facilities, equipment,
inventories, and other $7,827 $1,151 $6,676
Termination benefits 1,780 824 956
------ ------ ------
$9,607 $1,975 $7,632
====== ====== ======
Costs associated with the planned closure of Guardsman facilities and workforce
reductions were recorded as liabilities in the opening balance sheet of the
combined entity as of the acquisition date. The components of these liabilities
and amounts paid or charged against these reserves are as follows (in
thousands):
Costs Paid Ending
Liabilities or Charged Balance
----------- ---------- -------
Facilities, equipment,
inventories, and other $6,532 $3,345 $3,187
Termination benefits 2,476 1,217 1,259
------ ------ ------
$9,008 $4,562 $4,446
====== ====== ======
NOTE E--ACQUISITION
On April 8, 1996 the Company acquired all the outstanding shares of Guardsman
Products, Inc. ("Guardsman") for $235,000,000 in cash. The Company used
$275,000,000 of senior secured credit facilities to finance the acquisition,
pay-off existing debt and to pay related expenses. The acquisition was recorded
using the purchase method and the consolidated financial statements include the
results of operations of Guardsman since the date of acquisition.
Page 8 of 13
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
Record earnings were realized for the third quarter ended August 31, 1997. Net
income for the third quarter increased 9.5 percent to a record $7.7 million, or
33 cents per share, compared with $7.0 million, or 30 cents per share, for last
year's third quarter. The increase in earnings was the result of improved
operating margins and lower interest expense. Third quarter net sales were
$150.9 million, virtually even with those of the 1996 third quarter. Net sales
were affected by the absence of certain resin sales in the 1997 third quarter as
that business line was sold in August 1996, and negative foreign currency
exchange rates in 1997. For the nine months ended August 31, net sales were up
25.7 percent at $447.3 million compared with $355.8 million a year earlier. Net
sales gains largely reflected Lilly's ownership of Guardsman for the full nine
months of fiscal 1997 compared with five months in fiscal 1996. Gross profit
margin improved to 37.6% for the nine month period ended August 31, 1997 from
35.9% for the comparable period in fiscal 1996 due to efficiencies in purchasing
and manufacturing, as well as a better sales mix, realized through the Guardsman
acquisition and other Company initiatives, offset in part by start-up costs in
fiscal 1996 related to the Company's facilities in Bowling Green, Kentucky and
Charlotte, North Carolina. Net income was $19.8 million, or $0.85 per share,
compared with $11.1 million, or $0.48 per share, for the same period last year,
which included a restructuring charge of $9.6 million that reduced net income by
$5.3 million, or $0.23 per share.
This year's third quarter results were solid, but not as robust as anticipated.
Consequently, we are looking to enhance operating results primarily through
additional reductions in operating expenses.
Ongoing cash management efforts have materially strengthened the balance sheet.
Debt was reduced by $45 million in the past twelve months to $232 million at
August 31, 1997. This debt reduction helped to reduce interest expense by $700
thousand in this year's third quarter. Lower debt levels were accomplished with
improved cash flow from operating profits, lower working capital and sale of
certain nonoperating assets.
Sales and earnings for the full-year 1997 should be at record levels and
implementation of strategies for growing the company internally and through
acquisitions continue. The Company has entered into a non-binding letter of
intent to acquire a foreign industrial coatings company with annual sales of
less than $20 million for a purchase price of less than $15 million. This
acquisition, which is expected to close by fiscal year end, is subject to the
execution of a mutually agreeable stock purchase agreement, the completion of
due diligence and the satisfaction of other customary closing conditions. The
Company intends to fund all or a portion of the purchase price for the
acquisition with a local unsecured credit facility.
The Board of Directors declared a regular quarterly dividend of eight cents per
common share, payable January 2, 1998, to shareholders of record at the close of
business on December 10, 1997. This dividend marks the Company's 235th
consecutive cash dividend.
Page 9 of 13
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits are included herein:
EXHIBIT 10(1) Change in Control Agreement, dated September
26, 1997, by and between Registrant and Hugh
M. Cates
EXHIBIT 10(2) Change in Control Agreement, dated September
26, 1997, by and between Registrant and Larry
H. Dalton
EXHIBIT 10(3) Change in Control Agreement, dated September
26, 1997, by and between Registrant and
William C. Dorris
EXHIBIT 10(4) Change in Control Agreement, dated September
26, 1997, by and between Registrant and John
C. Elbin
EXHIBIT 10(5) Change in Control Agreement, dated September
26, 1997, by and between Registrant and Ned L.
Fox
EXHIBIT 10(6) Change in Control Agreement, dated September
26, 1997, by and between Registrant and
Douglas W. Huemme
EXHIBIT 10(7) Change in Control Agreement, dated September
26, 1997, by and between Registrant and A.
Barry Melnkovic
EXHIBIT 10(8) Change in Control Agreement, dated September
26, 1997, by and between Registrant and John
H. Dalton
EXHIBIT 10(9) Change in Control Agreement, dated September
26, 1997, by and between Registrant and
Kenneth L. Mills
EXHIBIT 10(10) Change in Control Agreement, dated September
26, 1997, by and between Registrant and Gary
D. Missildine
EXHIBIT 10(11) Change in Control Agreement, dated September
5, 1997, by and between Registrant and Robert
A. Taylor
EXHIBIT 10(12) Change in Control Agreement, dated September
26, 1997, by and between Registrant and Keith
C. Vander Hyde, Jr.
EXHIBIT 10(13) Change in Control Agreement, dated September
26, 1997, by and between Registrant and Jay M.
Wiegner
EXHIBIT 11 Computation of Earnings Per Share
EXHIBIT 27 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the three months
ended August 31, 1997.
Note: All other item numbers under this section are not applicable.
Page 10 of 13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LILLY INDUSTRIES, INC. (Registrant)
October 10, 1997 /s/ Douglas W. Huemme
------------------------------------
Douglas W. Huemme
Chairman, President and
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER
October 10, 1997 /s/ John C. Elbin
------------------------------------
John C. Elbin
Vice President and
Chief Financial Officer
Page 11 of 13
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
HUGH M. CATES
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and HUGH M. CATES, an individual
residing at 202 Edwards Lane, Jamestown, North Carolina 27282 (the "Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
- 1 -
<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
- 2 -
<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(c) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(d) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such
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<PAGE>
termination of employment to exercise any outstanding stock options and
after such ninety (90) days any and all unexpired stock options shall
lapse; and, provided, further, however, any tax benefit provisions with
respect to any stock options shall apply to any and all unmatured stock
options (whether or not such stock options are otherwise exercisable).
If as a result of such acceleration of incentive stock options the
$100,000 limitation would be exceeded with respect to an optionee, such
incentive stock options shall be converted, as of the date such
incentive stock options become exercisable, to non-qualified stock
options to the extent necessary to comply with the $100,000 limitation
and the Company shall pay to such optionee an additional cash payment
equal to the tax benefit to be received by the Company attributable to
its federal income tax deduction resulting from the exercise of such
converted non-qualified stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more
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<PAGE>
than 20% of the combined voting power of the
then outstanding Class A Stock of the
Company.
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of the Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the
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<PAGE>
Change in Control; the assignment to
Executive of any material duties or
responsibilities which are clearly
inconsistent with Executive's status,
position or responsibilities; or any removal
of Executive from, or failure to reappoint
or reelect Executive to, any of such
positions, except in connection with the
termination of Executive's employment for
Disability, death, Good Cause, or by
Executive other than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially
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<PAGE>
similar to, or of substantially the same
aggregate value to the Executive, as those
enjoyed by all other corporate officers of
the Company or any Affiliated Employer from
time to time either before or after a Change
in Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder)
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<PAGE>
the sum of (i) all excise tax imposed on
Executive by Section 4999 of the Code and
(ii) all additional state and federal income
taxes attributable to the additional
payments to the Executive pursuant to this
Section 4(a)(1), including all state and
federal income taxes on the additional
income tax payments hereunder ("Additional
Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at
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<PAGE>
the applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code.
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under
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<PAGE>
this Agreement or in the event that the Company or any other person
(including the Internal Revenue Service) takes any action to declare
this Agreement void or unenforceable, or institutes any litigation or
other legal action designed to deny, diminish or to recover from
Executive the benefits entitled to be provided to Executive hereunder,
and Executive has complied with all of his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to
time to retain counsel of Executive's choice, at the expense of the
Company as provided in this subsection, to represent Executive in
connection with the initiation or defense of any litigation or other
legal action, whether such action is by or against the Company or any
director, officer, shareholder, or other person affiliated with the
Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and in that connection
the Company and Executive agree that a confidential relationship shall
exist between Executive and such counsel. The reasonable fees and
expenses of counsel selected from time to time by Executive as herein
above provided shall be paid or reimbursed to Executive by the Company
on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Company, and
the Company shall not take any action to seek reimbursement from
Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall
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<PAGE>
assign this Agreement to any corporation or other business entity
succeeding to substantially all of the business and assets of the
Company by merger, consolidation, sale of assets, or otherwise and
shall obtain the assumption of this Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have
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<PAGE>
under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that the Executive is entitled to receive, and
the Executive will not be entitled to participate in, or receive
benefits from, any other severance plan or severance policy or program
of the Company, and the Executive shall not be entitled to any
severance benefits other than as identified in this Agreement and the
Executive hereby waives any and all rights to any such other severance
benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ Hugh M. Cates
- -----------------------------------------------------
Hugh M. Cates
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Hugh M. Cates
Date
WITNESS:
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
LARRY H. DALTON
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and LARRY H. DALTON, an individual
residing at 5071 South State Road 421, Zionsville, Indiana 46077 (the
"Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
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<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) SERP Benefit. If Executive was listed as an eligible
participant in the Company's Unfunded Supplemental Retirement Plans
(individually, a "SERP") as of the day before the Change in Control,
and, if the Executive is not, as a result of the termination, entitled
to any benefits under the SERP, the Company shall pay to Executive in a
single lump sum cash payment an amount equal to the present value of
the aggregate of the retirement benefits Executive would have been
eligible to receive under the SERP, had Executive retired at age
sixty-five (65) and received benefits under the SERP and his employment
had continued uninterrupted until age sixty-five (65). For purposes of
determining the present value of SERP benefits, an interest rate per
annum equal to the most recent interest rate for Ten Year United States
Treasuries shall be used as the interest factor and Executive shall be
assumed to live at least until age eighty (80).
(c) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(d) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
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<PAGE>
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(e) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such termination of employment to exercise any outstanding stock
options and after such ninety (90) days any and all unexpired stock
options shall lapse; and, provided, further, however, any tax benefit
provisions with respect to any stock options shall apply to any and all
unmatured stock options (whether or not such stock options are
otherwise exercisable). If as a result of such acceleration of
incentive stock options the $100,000 limitation would be exceeded with
respect to an optionee, such incentive stock options shall be
converted, as of the date such incentive stock options become
exercisable, to non-qualified stock options to the extent necessary to
comply with the $100,000 limitation and the Company shall pay to such
optionee an additional cash payment equal to the tax benefit to be
received by the Company attributable to its federal income tax
deduction resulting from the exercise of such converted non-qualified
stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred
if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
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<PAGE>
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good
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<PAGE>
faith. Notwithstanding anything herein to the contrary, no act or
failure to act of the Executive shall be considered to be "Good Cause"
under this Agreement unless it shall be done, or omitted to be done, by
Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with Executive's
status, position or responsibilities; or any
removal of Executive from, or failure to
reappoint or reelect Executive to, any of
such positions, except in connection with
the termination of Executive's employment
for Disability, death, Good Cause, or by
Executive other than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive
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<PAGE>
offices in Indianapolis, Indiana immediately
before the Change in Control, the Company's
requiring Executive to be based at any place
more than forty (40) miles distance from the
location which Executive performed his
principal duties prior to a Change in
Control, except for required travel on the
Company's business to an extent
substantially consistent with Executive's
business travel obligations at the time of a
Change in Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the Company or any
Affiliated Employer from time to time either
before or after a Change in Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
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<PAGE>
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes attributable
to the additional payments to the Executive
pursuant to this Section 4(a)(1), including
all state and federal income taxes on the
additional income tax payments hereunder
("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made
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<PAGE>
by the Company which should not have been
made (an "Overpayment") or that an increase
in the Additional Payment which will not
have been made by the Company could have
been made (an "Underpayment"), consistent in
each case with the calculation of such
excess parachute payment hereunder. In the
event that the Auditor, based upon the
assertion of a deficiency by the Internal
Revenue Service against the Company or
Executive which the Auditor believes has a
high probability of success, determines that
an Overpayment has been made, such
Overpayment shall be treated for all
purposes as a loan to Executive which
Executive shall repay to the Company,
together with interest at the applicable
federal rate provided for in Section
7872(f)(2)(A) of the Code. In the event that
the Auditor, based upon controlling
precedent, determines that an Underpayment
has occurred, such Underpayment shall
promptly be paid by the Company to or for
the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
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<PAGE>
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from Executive the benefits entitled to be provided to
Executive hereunder, and Executive has complied with all of his
obligations under this Agreement, the Company irrevocably authorizes
Executive from time to time to retain counsel of Executive's choice, at
the expense of the Company as provided in this subsection, to represent
Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against
the Company or any director, officer, shareholder, or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between the Company and
such counsel, the Company irrevocably consents to Executive entering
into an attorney-client relationship with such counsel, and in that
connection the Company and Executive agree that a confidential
relationship shall exist between Executive and such counsel. The
reasonable fees and expenses of counsel selected from time to time by
Executive as herein above provided shall be paid or reimbursed to
Executive by the Company on a regular, periodic basis upon presentation
by Executive of a statement or statements prepared by such counsel in
accordance with its customary practices. Any legal expenses incurred by
the Company by reason of any dispute between the parties as to
enforceability of or the terms contained in this Agreement,
notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any
action to seek reimbursement from Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts
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<PAGE>
which might have been earned by Executive in other employment, had
Executive sought such other employment, or any set-off, counterclaim,
recoupment, defense, or any other claim, right, or action which the
Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall assign this Agreement to any
corporation or other business entity succeeding to substantially all of
the business and assets of the Company by merger, consolidation, sale
of assets, or otherwise and shall obtain the assumption of this
Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
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<PAGE>
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that the Executive is entitled to receive, and
the Executive will not be entitled to participate in, or receive
benefits from, any other severance plan or severance policy or program
of the Company, and the Executive shall not be entitled to any
severance benefits other than as identified in this Agreement and the
Executive hereby waives any and all rights to any such other severance
benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
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<PAGE>
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ Larry H. Dalton
- -----------------------------------------------------
Larry H. Dalton
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
- 13 -
<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Larry H. Dalton
Date
WITNESS:
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
WILLIAM C. DORRIS
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and WILLIAM C. DORRIS, an
individual residing at 10548 Chatham Court, Carmel, Indiana 46032 (the
"Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
- 2 -
<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) SERP Benefit. If Executive was listed as an eligible
participant in the Company's Unfunded Supplemental Retirement Plans
(individually, a "SERP") as of the day before the Change in Control,
and, if the Executive is not, as a result of the termination, entitled
to any benefits under the SERP, the Company shall pay to Executive in a
single lump sum cash payment an amount equal to the present value of
the aggregate of the retirement benefits Executive would have been
eligible to receive under the SERP, had Executive retired at age
sixty-five (65) and received benefits under the SERP and his employment
had continued uninterrupted until age sixty-five (65). For purposes of
determining the present value of SERP benefits, an interest rate per
annum equal to the most recent interest rate for Ten Year United States
Treasuries shall be used as the interest factor and Executive shall be
assumed to live at least until age eighty (80).
(c) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(d) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
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<PAGE>
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(e) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such termination of employment to exercise any outstanding stock
options and after such ninety (90) days any and all unexpired stock
options shall lapse; and, provided, further, however, any tax benefit
provisions with respect to any stock options shall apply to any and all
unmatured stock options (whether or not such stock options are
otherwise exercisable). If as a result of such acceleration of
incentive stock options the $100,000 limitation would be exceeded with
respect to an optionee, such incentive stock options shall be
converted, as of the date such incentive stock options become
exercisable, to non-qualified stock options to the extent necessary to
comply with the $100,000 limitation and the Company shall pay to such
optionee an additional cash payment equal to the tax benefit to be
received by the Company attributable to its federal income tax
deduction resulting from the exercise of such converted non-qualified
stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
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<PAGE>
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good
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<PAGE>
faith. Notwithstanding anything herein to the contrary, no act or
failure to act of the Executive shall be considered to be "Good Cause"
under this Agreement unless it shall be done, or omitted to be done, by
Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with Executive's
status, position or responsibilities; or any
removal of Executive from, or failure to
reappoint or reelect Executive to, any of
such positions, except in connection with
the termination of Executive's employment
for Disability, death, Good Cause, or by
Executive other than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive
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<PAGE>
offices in Indianapolis, Indiana immediately
before the Change in Control, the Company's
requiring Executive to be based at any place
more than forty (40) miles distance from the
location which Executive performed his
principal duties prior to a Change in
Control, except for required travel on the
Company's business to an extent
substantially consistent with Executive's
business travel obligations at the time of a
Change in Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the Company or any
Affiliated Employer from time to time either
before or after a Change in Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
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<PAGE>
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes attributable
to the additional payments to the Executive
pursuant to this Section 4(a)(1), including
all state and federal income taxes on the
additional income tax payments hereunder
("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made
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<PAGE>
by the Company which should not have been
made (an "Overpayment") or that an increase
in the Additional Payment which will not
have been made by the Company could have
been made (an "Underpayment"), consistent in
each case with the calculation of such
excess parachute payment hereunder. In the
event that the Auditor, based upon the
assertion of a deficiency by the Internal
Revenue Service against the Company or
Executive which the Auditor believes has a
high probability of success, determines that
an Overpayment has been made, such
Overpayment shall be treated for all
purposes as a loan to Executive which
Executive shall repay to the Company,
together with interest at the applicable
federal rate provided for in Section
7872(f)(2)(A) of the Code. In the event that
the Auditor, based upon controlling
precedent, determines that an Underpayment
has occurred, such Underpayment shall
promptly be paid by the Company to or for
the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
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<PAGE>
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from Executive the benefits entitled to be provided to
Executive hereunder, and Executive has complied with all of his
obligations under this Agreement, the Company irrevocably authorizes
Executive from time to time to retain counsel of Executive's choice, at
the expense of the Company as provided in this subsection, to represent
Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against
the Company or any director, officer, shareholder, or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between the Company and
such counsel, the Company irrevocably consents to Executive entering
into an attorney-client relationship with such counsel, and in that
connection the Company and Executive agree that a confidential
relationship shall exist between Executive and such counsel. The
reasonable fees and expenses of counsel selected from time to time by
Executive as herein above provided shall be paid or reimbursed to
Executive by the Company on a regular, periodic basis upon presentation
by Executive of a statement or statements prepared by such counsel in
accordance with its customary practices. Any legal expenses incurred by
the Company by reason of any dispute between the parties as to
enforceability of or the terms contained in this Agreement,
notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any
action to seek reimbursement from Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts
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<PAGE>
which might have been earned by Executive in other employment, had
Executive sought such other employment, or any set-off, counterclaim,
recoupment, defense, or any other claim, right, or action which the
Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall assign this Agreement to any
corporation or other business entity succeeding to substantially all of
the business and assets of the Company by merger, consolidation, sale
of assets, or otherwise and shall obtain the assumption of this
Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
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<PAGE>
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that the Executive is entitled to receive, and
the Executive will not be entitled to participate in, or receive
benefits from, any other severance plan or severance policy or program
of the Company, and the Executive shall not be entitled to any
severance benefits other than as identified in this Agreement and the
Executive hereby waives any and all rights to any such other severance
benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein, including but not limited to, a certain Termination
Agreement dated as of December 1, 1990. This Agreement may be signed in
any number of counterparts, each of which shall be deemed to be the
original.
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<PAGE>
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ William C. Dorris
- -----------------------------------------------------
William C. Dorris
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
William C. Dorris
Date
WITNESS:
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
JOHN C. ELBIN
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and JOHN C. ELBIN, an individual
residing at 10499 Hyde Park, Carmel, Indiana 46032 (the "Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
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<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(c) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(d) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such
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<PAGE>
termination of employment to exercise any outstanding stock options and
after such ninety (90) days any and all unexpired stock options shall
lapse; and, provided, further, however, any tax benefit provisions with
respect to any stock options shall apply to any and all unmatured stock
options (whether or not such stock options are otherwise exercisable).
If as a result of such acceleration of incentive stock options the
$100,000 limitation would be exceeded with respect to an optionee, such
incentive stock options shall be converted, as of the date such
incentive stock options become exercisable, to non-qualified stock
options to the extent necessary to comply with the $100,000 limitation
and the Company shall pay to such optionee an additional cash payment
equal to the tax benefit to be received by the Company attributable to
its federal income tax deduction resulting from the exercise of such
converted non-qualified stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
- 4 -
<PAGE>
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of the Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with
- 5 -
<PAGE>
Executive's status, position or
responsibilities; or any removal of
Executive from, or failure to reappoint or
reelect Executive to, any of such positions,
except in connection with the termination of
Executive's employment for Disability,
death, Good Cause, or by Executive other
than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the
- 6 -
<PAGE>
Company or any Affiliated Employer from time
to time either before or after a Change in
Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes
- 7 -
<PAGE>
attributable to the additional payments to
the Executive pursuant to this Section
4(a)(1), including all state and federal
income taxes on the additional income tax
payments hereunder ("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
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<PAGE>
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from
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<PAGE>
Executive the benefits entitled to be provided to Executive hereunder,
and Executive has complied with all of his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to
time to retain counsel of Executive's choice, at the expense of the
Company as provided in this subsection, to represent Executive in
connection with the initiation or defense of any litigation or other
legal action, whether such action is by or against the Company or any
director, officer, shareholder, or other person affiliated with the
Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and in that connection
the Company and Executive agree that a confidential relationship shall
exist between Executive and such counsel. The reasonable fees and
expenses of counsel selected from time to time by Executive as herein
above provided shall be paid or reimbursed to Executive by the Company
on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Company, and
the Company shall not take any action to seek reimbursement from
Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall assign this Agreement to any
corporation or other business entity succeeding to substantially all of
the business and assets of the Company by merger, consolidation, sale
of assets, or otherwise and shall obtain the assumption of this
Agreement by such successor.
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<PAGE>
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in
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<PAGE>
accordance with such plan, policy, practice, program, contract or
agreement except as explicitly modified by this Agreement; provided,
however, this Agreement shall be the sole source of any and all
severance benefits that the Executive is entitled to receive, and the
Executive will not be entitled to participate in, or receive benefits
from, any other severance plan or severance policy or program of the
Company, and the Executive shall not be entitled to any severance
benefits other than as identified in this Agreement and the Executive
hereby waives any and all rights to any such other severance benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ John C. Elbin
- -----------------------------------------------------
John C. Elbin
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
John C. Elbin
Date
WITNESS:
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
NED L. FOX
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and NED L. FOX, an individual
residing at 1477 Eagle Trace Drive, Greenwood, Indiana 46143 (the "Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
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<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) SERP Benefit. If Executive was listed as an eligible
participant in the Company's Unfunded Supplemental Retirement Plans
(individually, a "SERP") as of the day before the Change in Control,
and, if the Executive is not, as a result of the termination, entitled
to any benefits under the SERP, the Company shall pay to Executive in a
single lump sum cash payment an amount equal to the present value of
the aggregate of the retirement benefits Executive would have been
eligible to receive under the SERP, had Executive retired at age
sixty-five (65) and received benefits under the SERP and his employment
had continued uninterrupted until age sixty-five (65). For purposes of
determining the present value of SERP benefits, an interest rate per
annum equal to the most recent interest rate for Ten Year United States
Treasuries shall be used as the interest factor and Executive shall be
assumed to live at least until age eighty (80).
(c) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(d) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
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<PAGE>
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(e) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such termination of employment to exercise any outstanding stock
options and after such ninety (90) days any and all unexpired stock
options shall lapse; and, provided, further, however, any tax benefit
provisions with respect to any stock options shall apply to any and all
unmatured stock options (whether or not such stock options are
otherwise exercisable). If as a result of such acceleration of
incentive stock options the $100,000 limitation would be exceeded with
respect to an optionee, such incentive stock options shall be
converted, as of the date such incentive stock options become
exercisable, to non-qualified stock options to the extent necessary to
comply with the $100,000 limitation and the Company shall pay to such
optionee an additional cash payment equal to the tax benefit to be
received by the Company attributable to its federal income tax
deduction resulting from the exercise of such converted non-qualified
stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
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<PAGE>
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good
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<PAGE>
faith. Notwithstanding anything herein to the contrary, no act or
failure to act of the Executive shall be considered to be "Good Cause"
under this Agreement unless it shall be done, or omitted to be done, by
Executive not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with Executive's
status, position or responsibilities; or any
removal of Executive from, or failure to
reappoint or reelect Executive to, any of
such positions, except in connection with
the termination of Executive's employment
for Disability, death, Good Cause, or by
Executive other than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive
- 6 -
<PAGE>
offices in Indianapolis, Indiana immediately
before the Change in Control, the Company's
requiring Executive to be based at any place
more than forty (40) miles distance from the
location which Executive performed his
principal duties prior to a Change in
Control, except for required travel on the
Company's business to an extent
substantially consistent with Executive's
business travel obligations at the time of a
Change in Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the Company or any
Affiliated Employer from time to time either
before or after a Change in Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
- 7 -
<PAGE>
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes attributable
to the additional payments to the Executive
pursuant to this Section 4(a)(1), including
all state and federal income taxes on the
additional income tax payments hereunder
("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made
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<PAGE>
by the Company which should not have been
made (an "Overpayment") or that an increase
in the Additional Payment which will not
have been made by the Company could have
been made (an "Underpayment"), consistent in
each case with the calculation of such
excess parachute payment hereunder. In the
event that the Auditor, based upon the
assertion of a deficiency by the Internal
Revenue Service against the Company or
Executive which the Auditor believes has a
high probability of success, determines that
an Overpayment has been made, such
Overpayment shall be treated for all
purposes as a loan to Executive which
Executive shall repay to the Company,
together with interest at the applicable
federal rate provided for in Section
7872(f)(2)(A) of the Code. In the event that
the Auditor, based upon controlling
precedent, determines that an Underpayment
has occurred, such Underpayment shall
promptly be paid by the Company to or for
the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
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<PAGE>
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from Executive the benefits entitled to be provided to
Executive hereunder, and Executive has complied with all of his
obligations under this Agreement, the Company irrevocably authorizes
Executive from time to time to retain counsel of Executive's choice, at
the expense of the Company as provided in this subsection, to represent
Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against
the Company or any director, officer, shareholder, or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between the Company and
such counsel, the Company irrevocably consents to Executive entering
into an attorney-client relationship with such counsel, and in that
connection the Company and Executive agree that a confidential
relationship shall exist between Executive and such counsel. The
reasonable fees and expenses of counsel selected from time to time by
Executive as herein above provided shall be paid or reimbursed to
Executive by the Company on a regular, periodic basis upon presentation
by Executive of a statement or statements prepared by such counsel in
accordance with its customary practices. Any legal expenses incurred by
the Company by reason of any dispute between the parties as to
enforceability of or the terms contained in this Agreement,
notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any
action to seek reimbursement from Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts
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<PAGE>
which might have been earned by Executive in other employment, had
Executive sought such other employment, or any set-off, counterclaim,
recoupment, defense, or any other claim, right, or action which the
Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall assign this Agreement to any
corporation or other business entity succeeding to substantially all of
the business and assets of the Company by merger, consolidation, sale
of assets, or otherwise and shall obtain the assumption of this
Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
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<PAGE>
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that the Executive is entitled to receive, and
the Executive will not be entitled to participate in, or receive
benefits from, any other severance plan or severance policy or program
of the Company, and the Executive shall not be entitled to any
severance benefits other than as identified in this Agreement and the
Executive hereby waives any and all rights to any such other severance
benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
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<PAGE>
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ Ned L. Fox
- -----------------------------------------------------
Ned L. Fox
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Ned L. Fox
Date
WITNESS:
218344.1
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
DOUGLAS W. HUEMME
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and DOUGLAS W. HUEMME, an
individual residing at 1135 Laurelwood, Carmel, Indiana 46032 (the "Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(h) hereof), death, Disability (as defined in subsection 3(g)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(i) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two and ninety-nine one hundredths (2.99) times
the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two and ninety-nine one hundredths (2.99)
times an amount equal to any contributions
the Company would have otherwise made on
Executive's behalf to the Company's Employee
Stock Purchase Plan and the Company's
Supplemental Employee Stock Purchase Plan
during the twelve (12) months following
Executive's date of termination, had
Executive's employment and/or the plan or
amounts contributed thereto by the Company
on Executive's behalf not been reduced or
terminated (or, at Executive's election, two
and ninety-nine one hundredths (2.99) times
an amount equal to any contributions the
Company made on Executive's behalf to such
plans for any plan year ending either in the
twelve (12) months before a Change in
Control or any fiscal year after a Change in
Control), plus
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(3) two and ninety-nine one hundredths (2.99)
times an amount equal to any employer
matching contributions the Company would
have otherwise made on Executive's behalf to
the Company's Employee 401(k) Savings Plan
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two and ninety-nine one hundredths
(2.99) times an amount equal to any employer
matching contributions made on Executive's
behalf to such plan or plans for any plan
year ending either in the twelve (12) months
before a Change in Control or any fiscal
year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) SERP Benefit. If Executive was listed as an eligible
participant in the Company's Unfunded Supplemental Retirement Plans
(individually, a "SERP") as of the day before the Change in Control,
and, if the Executive is not, as a result of the termination, entitled
to any benefits under the SERP, the Company shall pay to Executive in a
single lump sum cash payment an amount equal to the present value of
the aggregate of the retirement benefits Executive would have been
eligible to receive under the SERP, had Executive retired at age
sixty-five (65) and received benefits under the SERP and his employment
had continued uninterrupted until age sixty-five (65). For purposes of
determining the present value of SERP benefits, an interest rate per
annum equal to the most recent interest rate for Ten Year United States
Treasuries shall be used as the interest factor and Executive shall be
assumed to live at least until age eighty (80).
(c) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
three (3) additional "Years of Service" as defined in such plan after
the date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(d) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for three (3)
years following the date of termination, at the
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Company's cost, Executive's coverage under the Company's group
insurance, health and accident, life, and disability benefit plans in
which Executive was entitled to participate immediately prior to the
Change in Control provided that continued participation is possible
under the general terms and provisions of such plans, programs, and
arrangements; provided, however, such continuation coverage shall run
concurrently with any COBRA continuation coverage otherwise available
to the Executive under the terms of such plans. In the event
Executive's participation in any such plan, program, or arrangement is
barred, or any such plan, program, or arrangement is discontinued or
the benefits thereunder are materially reduced, the Company shall
arrange to provide Executive with benefits substantially similar to
those which Executive would have otherwise been entitled to receive
under such plans, programs, and arrangements prior thereto at the
Company's cost.
(e) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such termination of employment to exercise any outstanding stock
options and after such ninety (90) days any and all unexpired stock
options shall lapse; and, provided, further, however, any tax benefit
provisions with respect to any stock options shall apply to any and all
unmatured stock options (whether or not such stock options are
otherwise exercisable). If as a result of such acceleration of
incentive stock options the $100,000 limitation would be exceeded with
respect to an optionee, such incentive stock options shall be
converted, as of the date such incentive stock options become
exercisable, to non-qualified stock options to the extent necessary to
comply with the $100,000 limitation and the Company shall pay to such
optionee an additional cash payment equal to the tax benefit to be
received by the Company attributable to its federal income tax
deduction resulting from the exercise of such converted non-qualified
stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the
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Company will be a constituent corporation
and the Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Competition" means any of the activities described within
this subsection. The Executive engages in Competition if he at any time
(1) directly or indirectly engages in any activity or business that is
the same as or substantially similar to or competitive with that of the
Company or any Affiliated Employer, (2) directly or indirectly engages
in, owns, manages, operates, joins, controls, lends money or other
assistance to, or participates in or is connected with, as an officer,
employee, partner, stockholder, consultant, or otherwise, any
individual, partnership, firm, corporation, or other business
organization or entity that is engaged in any activity or business that
is the same as or substantially similar to or competitive with that of
the Company or any Affiliated Employer, or (3) discloses or sues, other
than in the normal and ordinary performance of service for the Company
or any Affiliated Employer, any Confidential Information of the Company
or any Affiliated Employer. Nothing contained in the foregoing,
however, shall prohibit an Executive from owning shares of stock
representing less than one percent (1%) of the outstanding shares of
any publicly-held competitor of the Company or any Affiliated Employer.
The restrictions of this subsection shall only apply within the
geographical areas served either by the Company or an Affiliated
Employer during the two (2) years prior to termination of the
Executive's employment with the Company; provided, however, in the
event of termination of the Executive's employment within six (6)
months following a Change in Control, the geographical area shall only
include the geographical area serviced by the Company or any
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Affiliated Employer immediately prior to the Change in Control. In the
event a court of competent jurisdiction determines that the foregoing
restrictions are unreasonable in terms of geographic scope or otherwise
then the court is hereby authorized to reduce the scope of said
restrictions and enforce this subsection as so reduced. If any
sentence, word or provision of this subsection shall be determined to
be unenforceable, the same shall be severed herefrom and the remainder
shall be enforced as if the unenforceable sentence, word or provision
did not exist.
(f) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(g) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(h) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer; or (5) engaging in
Competition with the Company or an Affiliated Employer. The
determination as to whether Good Cause exists shall be made by the
Committee in good faith. Notwithstanding anything herein to the
contrary, no act or failure to act of the Executive shall be considered
to be "Good Cause" under this Agreement unless it shall be done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that his action or omission was in the best interest
of the Company.
(i) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the
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Change in Control; the assignment to
Executive of any material duties or
responsibilities which are clearly
inconsistent with Executive's status,
position or responsibilities; or any removal
of Executive from, or failure to reappoint
or reelect Executive to, any of such
positions, except in connection with the
termination of Executive's employment for
Disability, death, Good Cause, or by
Executive other than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially
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similar to, or of substantially the same
aggregate value to the Executive, as those
enjoyed by all other corporate officers of
the Company or any Affiliated Employer from
time to time either before or after a Change
in Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(j) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(j) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder)
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the sum of (i) all excise tax imposed on
Executive by Section 4999 of the Code and
(ii) all additional state and federal income
taxes attributable to the additional
payments to the Executive pursuant to this
Section 4(a)(1), including all state and
federal income taxes on the additional
income tax payments hereunder ("Additional
Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at
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the applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code.
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
(c) Non-Competition and Prohibition on Disclosure of
Confidential Information. Notwithstanding anything in this Agreement to
the contrary, Executive shall forfeit any and all rights he may have to
any and all of the payments and benefits under Section 2 of this
Agreement if (i) the employment of the Executive is involuntarily
terminated by the Company for Good Cause (as defined in subsection
3(h)), or (ii) Executive, either before or after any termination of
employment with the Company (including, without limitation, retirement
from the Company), engages in Competition.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action
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to deny Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is
the intent of the Company that Executive not be required to incur the
expenses associated with the enforcement of Executive's rights under
this Agreement by litigation or other legal action, nor that Executive
be bound to negotiate any settlement of Executive's rights hereunder,
because the cost and expense of such legal action or settlement would
substantially detract from the benefits intended to be extended to
Executive hereunder. Accordingly, if following a Change in Control it
should appear to Executive that the Company has failed to comply with
any of its obligations under this Agreement or in the event that the
Company or any other person (including the Internal Revenue Service)
takes any action to declare this Agreement void or unenforceable, or
institutes any litigation or other legal action designed to deny,
diminish or to recover from Executive the benefits entitled to be
provided to Executive hereunder, and Executive has complied with all of
his obligations under this Agreement, the Company irrevocably
authorizes Executive from time to time to retain counsel of Executive's
choice, at the expense of the Company as provided in this subsection,
to represent Executive in connection with the initiation or defense of
any litigation or other legal action, whether such action is by or
against the Company or any director, officer, shareholder, or other
person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship
between the Company and such counsel, the Company irrevocably consents
to Executive entering into an attorney-client relationship with such
counsel, and in that connection the Company and Executive agree that a
confidential relationship shall exist between Executive and such
counsel. The reasonable fees and expenses of counsel selected from time
to time by Executive as herein above provided shall be paid or
reimbursed to Executive by the Company on a regular, periodic basis
upon presentation by Executive of a statement or statements prepared by
such counsel in accordance with its customary practices. Any legal
expenses incurred by the Company by reason of any dispute between the
parties as to enforceability of or the terms contained in this
Agreement, notwithstanding the outcome of any such dispute, shall be
the sole responsibility of the Company, and the Company shall not take
any action to seek reimbursement from Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(j) hereof and shall provide at least ten (10)
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business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall assign this Agreement to any
corporation or other business entity succeeding to substantially all of
the business and assets of the Company by merger, consolidation, sale
of assets, or otherwise and shall obtain the assumption of this
Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the
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<PAGE>
Executive or the Company may have hereunder, including, without
limitation, the right of Executive to terminate Executive's employment
for Good Reason, shall not be deemed to be a waiver of such provision
or right, or of any other provision or right of this Agreement.
(m) Non-Exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that the Executive is entitled to receive, and
the Executive will not be entitled to participate in, or receive
benefits from, any other severance plan or severance policy or program
of the Company, and the Executive shall not be entitled to any
severance benefits other than as identified in this Agreement and the
Executive hereby waives any and all rights to any such other severance
benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ Douglas W. Huemme
- -----------------------------------------------------
Douglas W. Huemme
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Douglas W. Huemme
Date
WITNESS:
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
A. BARRY MELNKOVIC
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and A. BARRY MELNKOVIC, an
individual residing at 10440 High Grove, Carmel, Indiana 46032 (the
"Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
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<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(c) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(d) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such
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<PAGE>
termination of employment to exercise any outstanding stock options and
after such ninety (90) days any and all unexpired stock options shall
lapse; and, provided, further, however, any tax benefit provisions with
respect to any stock options shall apply to any and all unmatured stock
options (whether or not such stock options are otherwise exercisable).
If as a result of such acceleration of incentive stock options the
$100,000 limitation would be exceeded with respect to an optionee, such
incentive stock options shall be converted, as of the date such
incentive stock options become exercisable, to non-qualified stock
options to the extent necessary to comply with the $100,000 limitation
and the Company shall pay to such optionee an additional cash payment
equal to the tax benefit to be received by the Company attributable to
its federal income tax deduction resulting from the exercise of such
converted non-qualified stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
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<PAGE>
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of the Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with
- 5 -
<PAGE>
Executive's status, position or
responsibilities; or any removal of
Executive from, or failure to reappoint or
reelect Executive to, any of such positions,
except in connection with the termination of
Executive's employment for Disability,
death, Good Cause, or by Executive other
than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the
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<PAGE>
Company or any Affiliated Employer from time
to time either before or after a Change in
Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes
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<PAGE>
attributable to the additional payments to
the Executive pursuant to this Section
4(a)(1), including all state and federal
income taxes on the additional income tax
payments hereunder ("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
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<PAGE>
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from
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Executive the benefits entitled to be provided to Executive hereunder,
and Executive has complied with all of his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to
time to retain counsel of Executive's choice, at the expense of the
Company as provided in this subsection, to represent Executive in
connection with the initiation or defense of any litigation or other
legal action, whether such action is by or against the Company or any
director, officer, shareholder, or other person affiliated with the
Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and in that connection
the Company and Executive agree that a confidential relationship shall
exist between Executive and such counsel. The reasonable fees and
expenses of counsel selected from time to time by Executive as herein
above provided shall be paid or reimbursed to Executive by the Company
on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Company, and
the Company shall not take any action to seek reimbursement from
Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall
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<PAGE>
assign this Agreement to any corporation or other business entity
succeeding to substantially all of the business and assets of the
Company by merger, consolidation, sale of assets, or otherwise and
shall obtain the assumption of this Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have
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<PAGE>
under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that the Executive is entitled to receive, and
the Executive will not be entitled to participate in, or receive
benefits from, any other severance plan or severance policy or program
of the Company, and the Executive shall not be entitled to any
severance benefits other than as identified in this Agreement and the
Executive hereby waives any and all rights to any such other severance
benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ A. Barry Meinkovic
- -----------------------------------------------------
A. Barry Melnkovic
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
A. Barry Melnkovic
Date
WITNESS:
218352.1
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
JOHN D. MILLION
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and JOHN D. MILLION, an individual
residing at 2778 Delpha Court, Thousand Oaks, California 91362 (the
"Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
- 2 -
<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(c) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(d) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such
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<PAGE>
termination of employment to exercise any outstanding stock options and
after such ninety (90) days any and all unexpired stock options shall
lapse; and, provided, further, however, any tax benefit provisions with
respect to any stock options shall apply to any and all unmatured stock
options (whether or not such stock options are otherwise exercisable).
If as a result of such acceleration of incentive stock options the
$100,000 limitation would be exceeded with respect to an optionee, such
incentive stock options shall be converted, as of the date such
incentive stock options become exercisable, to non-qualified stock
options to the extent necessary to comply with the $100,000 limitation
and the Company shall pay to such optionee an additional cash payment
equal to the tax benefit to be received by the Company attributable to
its federal income tax deduction resulting from the exercise of such
converted non-qualified stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
- 4 -
<PAGE>
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of the Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with
- 5 -
<PAGE>
Executive's status, position or
responsibilities; or any removal of
Executive from, or failure to reappoint or
reelect Executive to, any of such positions,
except in connection with the termination of
Executive's employment for Disability,
death, Good Cause, or by Executive other
than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the
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<PAGE>
Company or any Affiliated Employer from time
to time either before or after a Change in
Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes
- 7 -
<PAGE>
attributable to the additional payments to
the Executive pursuant to this Section
4(a)(1), including all state and federal
income taxes on the additional income tax
payments hereunder ("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
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<PAGE>
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from
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<PAGE>
Executive the benefits entitled to be provided to Executive hereunder,
and Executive has complied with all of his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to
time to retain counsel of Executive's choice, at the expense of the
Company as provided in this subsection, to represent Executive in
connection with the initiation or defense of any litigation or other
legal action, whether such action is by or against the Company or any
director, officer, shareholder, or other person affiliated with the
Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and in that connection
the Company and Executive agree that a confidential relationship shall
exist between Executive and such counsel. The reasonable fees and
expenses of counsel selected from time to time by Executive as herein
above provided shall be paid or reimbursed to Executive by the Company
on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Company, and
the Company shall not take any action to seek reimbursement from
Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall assign this Agreement to any
corporation or other business entity succeeding to substantially all of
the business and assets of the Company by merger, consolidation, sale
of assets, or otherwise and shall obtain the assumption of this
Agreement by such successor.
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<PAGE>
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in
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<PAGE>
accordance with such plan, policy, practice, program, contract or
agreement except as explicitly modified by this Agreement; provided,
however, this Agreement shall be the sole source of any and all
severance benefits that the Executive is entitled to receive, and the
Executive will not be entitled to participate in, or receive benefits
from, any other severance plan or severance policy or program of the
Company, and the Executive shall not be entitled to any severance
benefits other than as identified in this Agreement and the Executive
hereby waives any and all rights to any such other severance benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ John D. Million
- -----------------------------------------------------
John D. Million
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
John D. Million
Date
WITNESS:
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
KENNETH L. MILLS
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and KENNETH L. MILLS, an individual
residing at 6515 Creek Bay Drive, Apartment B, Indianapolis, Indiana 46217 (the
"Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
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<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) SERP Benefit. If Executive was listed as an eligible
participant in the Company's Unfunded Supplemental Retirement Plans
(individually, a "SERP") as of the day before the Change in Control,
and, if the Executive is not, as a result of the termination, entitled
to any benefits under the SERP, the Company shall pay to Executive in a
single lump sum cash payment an amount equal to the present value of
the aggregate of the retirement benefits Executive would have been
eligible to receive under the SERP, had Executive retired at age
sixty-five (65) and received benefits under the SERP and his employment
had continued uninterrupted until age sixty-five (65). For purposes of
determining the present value of SERP benefits, an interest rate per
annum equal to the most recent interest rate for Ten Year United States
Treasuries shall be used as the interest factor and Executive shall be
assumed to live at least until age eighty (80).
(c) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(d) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
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<PAGE>
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(e) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such termination of employment to exercise any outstanding stock
options and after such ninety (90) days any and all unexpired stock
options shall lapse; and, provided, further, however, any tax benefit
provisions with respect to any stock options shall apply to any and all
unmatured stock options (whether or not such stock options are
otherwise exercisable). If as a result of such acceleration of
incentive stock options the $100,000 limitation would be exceeded with
respect to an optionee, such incentive stock options shall be
converted, as of the date such incentive stock options become
exercisable, to non-qualified stock options to the extent necessary to
comply with the $100,000 limitation and the Company shall pay to such
optionee an additional cash payment equal to the tax benefit to be
received by the Company attributable to its federal income tax
deduction resulting from the exercise of such converted non-qualified
stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or
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<PAGE>
resulting entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and
- 5 -
<PAGE>
ordinary performance of service for the Company or an Affiliated
Employer. The determination as to whether Good Cause exists shall be
made by the Committee in good faith. Notwithstanding anything herein to
the contrary, no act or failure to act of the Executive shall be
considered to be "Good Cause" under this Agreement unless it shall be
done, or omitted to be done, by Executive not in good faith and without
reasonable belief that his action or omission was in the best interest
of the Company.
(h) "Good Reason" means, without Executive's written
consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with Executive's
status, position or responsibilities; or any
removal of Executive from, or failure to
reappoint or reelect Executive to, any of
such positions, except in connection with
the termination of Executive's employment
for Disability, death, Good Cause, or by
Executive other than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are
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<PAGE>
contiguous to Marion County, Indiana), or if
Executive performed his principal duties at
a location other than the Company's
executive offices in Indianapolis, Indiana
immediately before the Change in Control,
the Company's requiring Executive to be
based at any place more than forty (40)
miles distance from the location which
Executive performed his principal duties
prior to a Change in Control, except for
required travel on the Company's business to
an extent substantially consistent with
Executive's business travel obligations at
the time of a Change in Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the Company or any
Affiliated Employer from time to time either
before or after a Change in Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
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<PAGE>
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes attributable
to the additional payments to the Executive
pursuant to this Section 4(a)(1), including
all state and federal income taxes on the
additional income tax payments hereunder
("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made
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<PAGE>
by the Company which should not have been
made (an "Overpayment") or that an increase
in the Additional Payment which will not
have been made by the Company could have
been made (an "Underpayment"), consistent in
each case with the calculation of such
excess parachute payment hereunder. In the
event that the Auditor, based upon the
assertion of a deficiency by the Internal
Revenue Service against the Company or
Executive which the Auditor believes has a
high probability of success, determines that
an Overpayment has been made, such
Overpayment shall be treated for all
purposes as a loan to Executive which
Executive shall repay to the Company,
together with interest at the applicable
federal rate provided for in Section
7872(f)(2)(A) of the Code. In the event that
the Auditor, based upon controlling
precedent, determines that an Underpayment
has occurred, such Underpayment shall
promptly be paid by the Company to or for
the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
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<PAGE>
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from Executive the benefits entitled to be provided to
Executive hereunder, and Executive has complied with all of his
obligations under this Agreement, the Company irrevocably authorizes
Executive from time to time to retain counsel of Executive's choice, at
the expense of the Company as provided in this subsection, to represent
Executive in connection with the initiation or defense of any
litigation or other legal action, whether such action is by or against
the Company or any director, officer, shareholder, or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any
existing or prior attorney-client relationship between the Company and
such counsel, the Company irrevocably consents to Executive entering
into an attorney-client relationship with such counsel, and in that
connection the Company and Executive agree that a confidential
relationship shall exist between Executive and such counsel. The
reasonable fees and expenses of counsel selected from time to time by
Executive as herein above provided shall be paid or reimbursed to
Executive by the Company on a regular, periodic basis upon presentation
by Executive of a statement or statements prepared by such counsel in
accordance with its customary practices. Any legal expenses incurred by
the Company by reason of any dispute between the parties as to
enforceability of or the terms contained in this Agreement,
notwithstanding the outcome of any such dispute, shall be the sole
responsibility of the Company, and the Company shall not take any
action to seek reimbursement from Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts
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<PAGE>
which might have been earned by Executive in other employment, had
Executive sought such other employment, or any set-off, counterclaim,
recoupment, defense, or any other claim, right, or action which the
Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall assign this Agreement to any
corporation or other business entity succeeding to substantially all of
the business and assets of the Company by merger, consolidation, sale
of assets, or otherwise and shall obtain the assumption of this
Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
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<PAGE>
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that the Executive is entitled to receive, and
the Executive will not be entitled to participate in, or receive
benefits from, any other severance plan or severance policy or program
of the Company, and the Executive shall not be entitled to any
severance benefits other than as identified in this Agreement and the
Executive hereby waives any and all rights to any such other severance
benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein, including but not limited to, a certain Termination
Agreement dated as of December 1, 1990. This Agreement may be signed in
any number of counterparts, each of which shall be deemed to be the
original.
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<PAGE>
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ Kenneth L. Mills
- -----------------------------------------------------
Kenneth L. Mills
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
- 13 -
<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Kenneth L. Mills
Date
WITNESS:
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
GARY D. MISSILDINE
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and GARY D. MISSILDINE, an
individual residing at 5160 Sunset Drive, Kansas City, Missouri 64112 (the
"Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
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<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(c) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(d) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such
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<PAGE>
termination of employment to exercise any outstanding stock options and
after such ninety (90) days any and all unexpired stock options shall
lapse; and, provided, further, however, any tax benefit provisions with
respect to any stock options shall apply to any and all unmatured stock
options (whether or not such stock options are otherwise exercisable).
If as a result of such acceleration of incentive stock options the
$100,000 limitation would be exceeded with respect to an optionee, such
incentive stock options shall be converted, as of the date such
incentive stock options become exercisable, to non-qualified stock
options to the extent necessary to comply with the $100,000 limitation
and the Company shall pay to such optionee an additional cash payment
equal to the tax benefit to be received by the Company attributable to
its federal income tax deduction resulting from the exercise of such
converted non-qualified stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
- 4 -
<PAGE>
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of the Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written
consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with
- 5 -
<PAGE>
Executive's status, position or
responsibilities; or any removal of
Executive from, or failure to reappoint or
reelect Executive to, any of such positions,
except in connection with the termination of
Executive's employment for Disability,
death, Good Cause, or by Executive other
than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the
- 6 -
<PAGE>
Company or any Affiliated Employer from time
to time either before or after a Change in
Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes
- 7 -
<PAGE>
attributable to the additional payments to
the Executive pursuant to this Section
4(a)(1), including all state and federal
income taxes on the additional income tax
payments hereunder ("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
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<PAGE>
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from
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<PAGE>
Executive the benefits entitled to be provided to Executive hereunder,
and Executive has complied with all of his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to
time to retain counsel of Executive's choice, at the expense of the
Company as provided in this subsection, to represent Executive in
connection with the initiation or defense of any litigation or other
legal action, whether such action is by or against the Company or any
director, officer, shareholder, or other person affiliated with the
Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and in that connection
the Company and Executive agree that a confidential relationship shall
exist between Executive and such counsel. The reasonable fees and
expenses of counsel selected from time to time by Executive as herein
above provided shall be paid or reimbursed to Executive by the Company
on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Company, and
the Company shall not take any action to seek reimbursement from
Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall
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<PAGE>
assign this Agreement to any corporation or other business entity
succeeding to substantially all of the business and assets of the
Company by merger, consolidation, sale of assets, or otherwise and
shall obtain the assumption of this Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have
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<PAGE>
under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that the Executive is entitled to receive, and
the Executive will not be entitled to participate in, or receive
benefits from, any other severance plan or severance policy or program
of the Company, and the Executive shall not be entitled to any
severance benefits other than as identified in this Agreement and the
Executive hereby waives any and all rights to any such other severance
benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ Gary D. Missildine
- -----------------------------------------------------
Gary D. Missildine
"LILLY INDUSTRIES, INC."
Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Gary D. Missildine
Date
WITNESS:
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
ROBERT A. TAYLOR
This CHANGE IN CONTROL AGREEMENT, dated as of September 5, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and ROBERT A. TAYLOR, an individual
residing at 12776 Norfolk Lane, Carmel, Indiana (the "Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
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<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(c) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(d) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such
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<PAGE>
termination of employment to exercise any outstanding stock options and
after such ninety (90) days any and all unexpired stock options shall
lapse; and, provided, further, however, any tax benefit provisions with
respect to any stock options shall apply to any and all unmatured stock
options (whether or not such stock options are otherwise exercisable).
If as a result of such acceleration of incentive stock options the
$100,000 limitation would be exceeded with respect to an optionee, such
incentive stock options shall be converted, as of the date such
incentive stock options become exercisable, to non-qualified stock
options to the extent necessary to comply with the $100,000 limitation
and the Company shall pay to such optionee an additional cash payment
equal to the tax benefit to be received by the Company attributable to
its federal income tax deduction resulting from the exercise of such
converted non-qualified stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
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<PAGE>
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of the Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written
consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with
- 5 -
<PAGE>
Executive's status, position or
responsibilities; or any removal of
Executive from, or failure to reappoint or
reelect Executive to, any of such positions,
except in connection with the termination of
Executive's employment for Disability,
death, Good Cause, or by Executive other
than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the
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<PAGE>
Company or any Affiliated Employer from time
to time either before or after a Change in
Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes
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<PAGE>
attributable to the additional payments to
the Executive pursuant to this Section
4(a)(1), including all state and federal
income taxes on the additional income tax
payments hereunder ("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
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<PAGE>
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from
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<PAGE>
Executive the benefits entitled to be provided to Executive hereunder,
and Executive has complied with all of his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to
time to retain counsel of Executive's choice, at the expense of the
Company as provided in this subsection, to represent Executive in
connection with the initiation or defense of any litigation or other
legal action, whether such action is by or against the Company or any
director, officer, shareholder, or other person affiliated with the
Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and in that connection
the Company and Executive agree that a confidential relationship shall
exist between Executive and such counsel. The reasonable fees and
expenses of counsel selected from time to time by Executive as herein
above provided shall be paid or reimbursed to Executive by the Company
on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Company, and
the Company shall not take any action to seek reimbursement from
Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall
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<PAGE>
assign this Agreement to any corporation or other business entity
succeeding to substantially all of the business and assets of the
Company by merger, consolidation, sale of assets, or otherwise and
shall obtain the assumption of this Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have
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<PAGE>
under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that the Executive is entitled to receive, and
the Executive will not be entitled to participate in, or receive
benefits from, any other severance plan or severance policy or program
of the Company, and the Executive shall not be entitled to any
severance benefits other than as identified in this Agreement and the
Executive hereby waives any and all rights to any such other severance
benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ Robert A. Taylor
- -----------------------------------------------------
Robert A. Taylor
"LILLY INDUSTRIES, INC."
Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
/s/ Robert A. Taylor
-----------------------------
Robert A. Taylor
September 5, 1997
-----------------------------
Date
WITNESS:
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
KEITH C. VANDER HYDE, JR.
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and KEITH C. VANDER HYDE, JR., an
individual residing at 1011 San Lucia Southeast, East Grand Rapids, Michigan
49506 (the "Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
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<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(c) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(d) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such
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<PAGE>
termination of employment to exercise any outstanding stock options and
after such ninety (90) days any and all unexpired stock options shall
lapse; and, provided, further, however, any tax benefit provisions with
respect to any stock options shall apply to any and all unmatured stock
options (whether or not such stock options are otherwise exercisable).
If as a result of such acceleration of incentive stock options the
$100,000 limitation would be exceeded with respect to an optionee, such
incentive stock options shall be converted, as of the date such
incentive stock options become exercisable, to non-qualified stock
options to the extent necessary to comply with the $100,000 limitation
and the Company shall pay to such optionee an additional cash payment
equal to the tax benefit to be received by the Company attributable to
its federal income tax deduction resulting from the exercise of such
converted non-qualified stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
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<PAGE>
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of the Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with
- 5 -
<PAGE>
Executive's status, position or
responsibilities; or any removal of
Executive from, or failure to reappoint or
reelect Executive to, any of such positions,
except in connection with the termination of
Executive's employment for Disability,
death, Good Cause, or by Executive other
than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the
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<PAGE>
Company or any Affiliated Employer from time
to time either before or after a Change in
Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes
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<PAGE>
attributable to the additional payments to
the Executive pursuant to this Section
4(a)(1), including all state and federal
income taxes on the additional income tax
payments hereunder ("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
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<PAGE>
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from
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<PAGE>
Executive the benefits entitled to be provided to Executive hereunder,
and Executive has complied with all of his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to
time to retain counsel of Executive's choice, at the expense of the
Company as provided in this subsection, to represent Executive in
connection with the initiation or defense of any litigation or other
legal action, whether such action is by or against the Company or any
director, officer, shareholder, or other person affiliated with the
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<PAGE>
Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and in that connection
the Company and Executive agree that a confidential relationship shall
exist between Executive and such counsel. The reasonable fees and
expenses of counsel selected from time to time by Executive as herein
above provided shall be paid or reimbursed to Executive by the Company
on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Company, and
the Company shall not take any action to seek reimbursement from
Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall assign this Agreement to any
corporation or other business entity succeeding to substantially all of
the business and assets of the Company by merger, consolidation, sale
of assets, or otherwise and shall obtain the assumption of this
Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
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<PAGE>
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in
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<PAGE>
accordance with such plan, policy, practice, program, contract or
agreement except as explicitly modified by this Agreement; provided,
however, this Agreement shall be the sole source of any and all
severance benefits that the Executive is entitled to receive, and the
Executive will not be entitled to participate in, or receive benefits
from, any other severance plan or severance policy or program of the
Company, and the Executive shall not be entitled to any severance
benefits other than as identified in this Agreement and the Executive
hereby waives any and all rights to any such other severance benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ Keith C. Vander Hyde, Jr.
- -----------------------------------------------------
Keith C. Vander Hyde, Jr.
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
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<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Keith C. Vander Hyde, Jr.
Date
WITNESS:
218350.1
Exhibit 1
LILLY INDUSTRIES, INC.
CHANGE IN CONTROL AGREEMENT
JAY M. WIEGNER
This CHANGE IN CONTROL AGREEMENT, dated as of September 26, 1997
evidences an agreement by and between LILLY INDUSTRIES, INC., an Indiana
corporation having its principal executive offices at 733 South West Street,
Indianapolis, Indiana 46225 (the "Company"), and JAY M. WIEGNER, an individual
residing at 215 Sam Hill Road, Guilford, Connecticut 06437 (the "Executive").
Background
A. The Board of Directors of the Company has determined that it is in
the best interests of the Company and its shareholders to assure that the
Company will have the continued undivided time, attention, loyalty, and
dedication of Executive, notwithstanding the possibility, threat or occurrence
of a Change in Control (as defined in subsection 3(b) hereof) of the Company.
B. The Board believes it is imperative to diminish the inevitable
distraction of Executive by virtue of the personal uncertainties and risks
created by pending or threatened Change in Control and to encourage Executive's
full undivided time, attention, loyalty, and dedication to the Company currently
and in the event of any threatened or pending Change in Control.
C. By this Agreement, the Board intends upon a Change in Control to
assure Executive with compensation and benefits arrangements if his employment
terminates as a result of a Change in Control which are competitive with those
of other corporations similarly situated to the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
D. In reliance on this Agreement, Executive is willing to continue his
employment with the Company on the terms agreed to by the Executive and Company
from time to time.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Undertaking. Subject to Section 4, the Company agrees to pay or
provide to Executive the termination benefits specified in Section 2 hereof if:
(a) within three (3) years after, a Change in Control (as defined in subsection
3(b) hereof): either (i) the Company terminates the employment of Executive
before age sixty-five (65) for any reason other than Good Cause (as defined in
subsection 3(g) hereof), death, Disability (as defined in subsection 3(f)
hereof), or (ii) Executive voluntarily terminates his employment for Good Reason
(as defined in subsection 3(h) hereof), or (b) the employment of the Executive
is terminated before such a Change in Control, or an anticipated Change in
Control, and the Executive reasonably demonstrates that such termination
occurred in connection with, or in anticipation of such a Change in Control
(whether or not such Change in Control actually occurs).
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<PAGE>
2. Termination Benefits. Subject to Section 4, if Executive is entitled
to termination benefits pursuant to Section 1 hereof, the Company shall pay or
provide the following:
(a) Severance Pay. The Company shall pay to Executive in a
cash lump sum amount equal to the sum of:
(1) two (2) times the sum of (i) plus (ii) below:
(i) the Executive's annual base salary,
inclusive of any elective deferrals
made by Executive to the Company's
Employee 401(k) Savings Plan and
the Replacement Plan, at the rate
in effect as of the date of
termination of employment (or, at
Executive's election, at the rate
in effect on any date during the
period beginning on the first day
of the month immediately prior to
the occurrence of events
constituting "Good Reason" or a
Change in Control), plus
(ii) an amount equal to the targeted
variable compensation of the
Executive for the year in which
such termination occurs (or, if
Executive is advised of the amount
of such targeted amount after
events specified herein which
constitute "Good Reason," or the
targeted amount constitutes "Good
Reason," at Executive's election,
the variable compensation paid for
any fiscal year for which Executive
has actually received a variable
compensation payment either in the
twelve (12) months before a Change
in Control or any fiscal year after
a Change in Control), plus
(2) two (2) times an amount equal to any
contributions the Company would have
otherwise made on Executive's behalf to the
Company's Employee Stock Purchase Plan and
the Company's Supplemental Employee Stock
Purchase Plan during the twelve (12) months
following Executive's date of termination,
had Executive's employment and/or the plan
or amounts contributed thereto by the
Company on Executive's behalf not been
reduced or terminated (or, at Executive's
election, two (2) times an amount equal to
any contributions the Company made on
Executive's behalf to such plans for any
plan year ending either in the twelve (12)
months before a Change in Control or any
fiscal year after a Change in Control), plus
(3) two (2) times an amount equal to any
employer matching contributions the Company
would have otherwise made on Executive's
behalf to the Company's Employee 401(k)
Savings Plan
- 2 -
<PAGE>
and under the Company's Executive
Replacement Plan during the twelve (12)
months following Executive's date of
termination, had Executive's employment
and/or the amounts contributed thereto by
the Company on Executive's behalf not been
reduced or terminated, and assuming
Executive made elective deferrals to the
maximum extent permitted by Section 402(g)
of the Internal Revenue Code of 1986, as
amended (the "Code") (or, at Executive's
election, two (2) times an amount equal to
any employer matching contributions made on
Executive's behalf to such plan or plans for
any plan year ending either in the twelve
(12) months before a Change in Control or
any fiscal year after a Change in Control).
The Company shall make such lump sum payments within an administratively
reasonable period (but not to exceed sixty (60) days) after the Release
Effective Date (as defined in Section 4(b) hereof). Such payments shall be in
addition to any salary, variable compensation or benefits earned or accrued by
the Executive for services rendered prior to his termination.
(b) Executive Retirement Benefit. If Executive was a
participant in the Company's Executive Retirement Plan as of the day
before the Change in Control, the Executive shall be entitled to
benefits under such plan in accordance with and subject to its terms
and conditions; provided, however, the Executive shall be credited with
two (2) additional "Years of Service" as defined in such plan after the
date of termination of employment of the Executive. Such Retirement
Plan refers to a "Severance Agreement" and such shall be deemed to be
this Change in Control Agreement.
(c) Health, Accident, and Life Insurance and Disability
Benefits. The Executive shall be entitled to continue for two (2) years
following the date of termination, at the Company's cost, Executive's
coverage under the Company's group insurance, health and accident,
life, and disability benefit plans in which Executive was entitled to
participate immediately prior to the Change in Control provided that
continued participation is possible under the general terms and
provisions of such plans, programs, and arrangements; provided,
however, such continuation coverage shall run concurrently with any
COBRA continuation coverage otherwise available to the Executive under
the terms of such plans. In the event Executive's participation in any
such plan, program, or arrangement is barred, or any such plan,
program, or arrangement is discontinued or the benefits thereunder are
materially reduced, the Company shall arrange to provide Executive with
benefits substantially similar to those which Executive would have
otherwise been entitled to receive under such plans, programs, and
arrangements prior thereto at the Company's cost.
(d) Acceleration of Stock Options. The Company shall
accelerate and make immediately exercisable any and all unmatured stock
options (whether or not such stock options are otherwise exercisable)
which Executive then holds to acquire securities from the Company;
provided, however, that Executive shall have ninety (90) days after
such
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<PAGE>
termination of employment to exercise any outstanding stock options and
after such ninety (90) days any and all unexpired stock options shall
lapse; and, provided, further, however, any tax benefit provisions with
respect to any stock options shall apply to any and all unmatured stock
options (whether or not such stock options are otherwise exercisable).
If as a result of such acceleration of incentive stock options the
$100,000 limitation would be exceeded with respect to an optionee, such
incentive stock options shall be converted, as of the date such
incentive stock options become exercisable, to non-qualified stock
options to the extent necessary to comply with the $100,000 limitation
and the Company shall pay to such optionee an additional cash payment
equal to the tax benefit to be received by the Company attributable to
its federal income tax deduction resulting from the exercise of such
converted non-qualified stock options.
3. Definitions. When the initial letter of a word or phrase is
capitalized herein, such word or phrase shall have the meaning hereinafter set
forth:
(a) "Affiliated Employer" means:
(1) a member of a controlled group of
corporations (as defined in Code Section
414(b)) of which the Company is a member; or
(2) an unincorporated trade or business which is
under common control (as defined in Code
Section 414(c)) with the Company.
(b) "Change in Control" shall be deemed to have occurred if:
(1) the Company shall become a party to an
agreement of merger, consolidation, or other
reorganization pursuant to which the Company
will be a constituent corporation and the
Company will not be the surviving or
resulting corporation, or which will result
in less than 50% of the outstanding voting
securities of the surviving or resulting
entity being owned by the former
shareholders of the Company;
(2) the Company shall become a party to an
agreement providing for the sale or other
disposition by the Company of all or
substantially all of the assets of the
Company to any individual, partnership,
joint venture, association, trust,
corporation, or other entity which is not an
Affiliated Employer;
(3) the acquisition by any individual, entity,
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended from time
to time) of an aggregate of more than 20% of
the combined voting power of the then
outstanding Class A Stock of the Company.
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<PAGE>
(c) "Committee" means the Compensation Committee of the Board
to which the Board has delegated authority to administer and interpret
this Agreement.
(d) "Company" means Lilly Industries, Inc. and any successors
to Lilly Industries, Inc.
(e) "Confidential Information" means any information not in
the public domain and not previously disclosed to the public by the
Board or management of the Company or an Affiliated Employer with
respect to the products, facilities, methods, trade secrets and other
intellectual property, systems, procedures, manuals, confidential
reports, product price lists, customer lists, financial information,
business plans, prospects, or opportunities of the Company or an
Affiliated Employer, or any information which the Company or an
Affiliated Employer has designated as Confidential Information.
(f) "Disability" means a disability as determined for purposes
of any group disability insurance policy of the Company in effect for
the Executive which qualifies the Executive for permanent disability
insurance payments in accordance with such policy. The Committee may
require subsequent proof of continued Disability, prior to the
sixty-fifth (65th) birthday of the Executive, at intervals of not less
than six (6) months.
(g) "Good Cause" means: (1) conviction for a felony or
conviction for any crime or offense lesser than a felony involving the
property of the Company or an Affiliated Employer, whether such
conviction occurs before or after termination of employment; (2)
engaging in conduct that has caused demonstrable and material injury to
the Company or an Affiliated Employer, monetary or otherwise; (3) gross
dereliction of duties or other gross misconduct and the failure to cure
such situation within thirty (30) days after receipt of notice thereof
from the Committee; or (4) the disclosure or use of Confidential
Information to a party unrelated to the Company or an Affiliated
Employer other than in the normal and ordinary performance of service
for the Company or an Affiliated Employer. The determination as to
whether Good Cause exists shall be made by the Committee in good faith.
Notwithstanding anything herein to the contrary, no act or failure to
act of the Executive shall be considered to be "Good Cause" under this
Agreement unless it shall be done, or omitted to be done, by Executive
not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
(h) "Good Reason" means, without Executive's written consent:
(1) a substantial change in Executive's status,
position or responsibilities which does not
represent a promotion from Executive's
status, position or responsibilities as in
effect immediately prior to the Change in
Control; the assignment to Executive of any
material duties or responsibilities which
are clearly inconsistent with
- 5 -
<PAGE>
Executive's status, position or
responsibilities; or any removal of
Executive from, or failure to reappoint or
reelect Executive to, any of such positions,
except in connection with the termination of
Executive's employment for Disability,
death, Good Cause, or by Executive other
than for Good Reason;
(2) a reduction by the Company in Executive's
annual base salary as in effect on the date
hereof, or as the same may be increased from
time to time during the term of this
Agreement, or the Company's failure to
increase (within twelve (12) months of
Executive's last increase in annual base
salary) Executive's annual base salary after
a Change in Control in an amount which at
least equals, on a percentage basis, eighty
percent (80%) of the average percentage
increase in annual base salary for all
corporate officers of the Company effected
in the preceding twelve (12) months;
(3) a change by the Company in the methodology
of computing Executive's bonus under the
Variable Compensation Plan or the
termination of such Plan or its replacement
with a plan using a methodology less
favorable to Executive than that used for
any fiscal year for which Executive has
actually received a variable compensation
payment either in the last fiscal year
before a Change in Control or any fiscal
year after a Change in Control;
(4) if Executive performed his principal duties
at the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the relocation of the
Company's principal executive offices to a
location outside of the Indianapolis,
Indiana metropolitan area (which consists of
all counties which are contiguous to Marion
County, Indiana), or if Executive performed
his principal duties at a location other
than the Company's executive offices in
Indianapolis, Indiana immediately before the
Change in Control, the Company's requiring
Executive to be based at any place more than
forty (40) miles distance from the location
which Executive performed his principal
duties prior to a Change in Control, except
for required travel on the Company's
business to an extent substantially
consistent with Executive's business travel
obligations at the time of a Change in
Control;
(5) the failure by the Company to continue to
provide Executive with benefits (including
any variable compensation program)
substantially similar to, or of
substantially the same aggregate value to
the Executive, as those enjoyed by all other
corporate officers of the
- 6 -
<PAGE>
Company or any Affiliated Employer from time
to time either before or after a Change in
Control;
(6) the failure of the Company to obtain an
agreement satisfactory to Executive (which
satisfaction may not be unreasonably
withheld) from any successor or assign of
the Company to assume and agree to perform
this Agreement;
(7) any purported termination of Executive's
employment which is not effected pursuant to
a Notice of Termination satisfying the
requirements of subsection 4(i) hereof; or
(8) any request by the Company that Executive
participate in an unlawful act or take any
action constituting a breach of Executive's
professional standard of conduct.
Notwithstanding anything in this subsection to the contrary, Executive's right
to terminate his employment for Good Reason pursuant to this subsection shall
not be affected by Executive's incapacity due to physical or mental illness.
(i) "Notice of Termination" means a notice which shall
indicate the date on which Executive's employment shall terminate and
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment
under the provision so indicated.
4. Conditions to Payments and Benefits.
(a) Internal Revenue Code Limits and Other Limits.
(1) Notwithstanding anything in this Agreement
to the contrary, in the event that Ernst &
Young or any other independent auditor
substituted for Ernst & Young pursuant to an
agreement in writing by and between the
Company and Executive (the "Auditor")
determines that any payment by the Company
to or for the benefit of Executive, whether
paid or payable pursuant to the terms of
this Agreement or otherwise (a "Payment"),
would be an "excess parachute payment"
within the meaning of Section 280G of the
Code, then the Company shall pay an
additional amount of money to the Executive
that will equal (based on the Executive's
good faith representations of the
Executive's income tax position for the year
of payment hereunder) the sum of (i) all
excise tax imposed on Executive by Section
4999 of the Code and (ii) all additional
state and federal income taxes
- 7 -
<PAGE>
attributable to the additional payments to
the Executive pursuant to this Section
4(a)(1), including all state and federal
income taxes on the additional income tax
payments hereunder ("Additional Payment").
(2) If the Auditor determines that any Payment
would be such an "excess parachute payment"
because of Section 280G of the Code, then
the Company shall promptly give Executive
notice to that effect and a copy of the
detailed calculation thereof and the
Executive shall provide in writing within
ten (10) days of Executive's receipt of such
notice, a good faith representation of the
Executive's income tax position so that such
Additional Payment may be calculated. All
determinations made by the Auditor under
this Section 4 shall be binding upon the
Company and Executive and shall be made
within sixty (60) calendar days of
Executive's termination of employment.
Following such determination and the notices
hereunder and subject to the other
conditions set forth in this Section 4, the
Company shall pay to or distribute to, or
for the benefit of, Executive such amounts
as are then due to Executive under this
Agreement in the manner identified in
Section 2 and this Section 4 of this
Agreement, and shall promptly pay to or
distribute for the benefit of Executive in
the future such amounts as become due to
Executive under this Agreement.
(3) As a result of the uncertainty in the
application of Section 280G of the Code at
the time of the initial determination by the
Auditor hereunder, it is possible that
Additional Payment will have been made by
the Company which should not have been made
(an "Overpayment") or that an increase in
the Additional Payment which will not have
been made by the Company could have been
made (an "Underpayment"), consistent in each
case with the calculation of such excess
parachute payment hereunder. In the event
that the Auditor, based upon the assertion
of a deficiency by the Internal Revenue
Service against the Company or Executive
which the Auditor believes has a high
probability of success, determines that an
Overpayment has been made, such Overpayment
shall be treated for all purposes as a loan
to Executive which Executive shall repay to
the Company, together with interest at the
applicable federal rate provided for in
Section 7872(f)(2)(A) of the Code. In the
event that the Auditor, based upon
controlling precedent, determines that an
Underpayment has occurred, such Underpayment
shall promptly be paid by the Company to or
for the benefit of Executive, together with
interest at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the
Code.
- 8 -
<PAGE>
(b) Release of Claims. As a condition of the Executive
receiving from the Company the payments and benefits provided for in
this Agreement, which payments and benefits the Executive is not
otherwise entitled to receive, the Executive understands and agrees
that he will be required to execute a release of all claims against the
Company (arising out of matters occurring on or prior to such
termination) in the form attached hereto as Exhibit 1 (the "Release").
Executive acknowledges that he has been advised in writing to consult
with an attorney prior to executing the Release, and the Executive
agrees that he will consult with his attorney prior to executing the
Release. The Executive and the Company agree that Executive has a
period of twenty-one (21) days within which to consider this Release,
and has a period of seven (7) days following the execution of the
Release within which to revoke the Release. The parties also
acknowledge and agree that the Release shall not be effective or
enforceable until the seven (7) day revocation period expires. The date
on which this seven (7) day period expires shall be the effective date
of the Release (the "Release Effective Date").
THE EXECUTIVE AGREES THAT EXECUTION AND DELIVERY TO THE
COMPANY OF THE RELEASE REQUESTED BY THE COMPANY, AND THE PASSAGE OF ALL
NECESSARY WAITING PERIODS IN CONNECTION THEREWITH, SHALL BE A CONDITION
TO THE RECEIPT OF ANY PAYMENT OR BENEFITS TO BE PROVIDED BY THE COMPANY
UNDER THIS AGREEMENT. IF THE EXECUTIVE ELECTS NOT TO EXECUTE AND
DELIVER TO THE COMPANY THE RELEASE REQUESTED BY THE COMPANY, THE
EXECUTIVE SHALL NOT BE ENTITLED TO ANY PAYMENTS OR BENEFITS UNDER THIS
AGREEMENT AND ALL SUCH PAYMENTS AND BENEFITS SHALL BE FORFEITED.
5. Additional Provisions.
(a) Enforcement of Agreement. The Company is aware that upon
the occurrence of a Change in Control, the Board or a shareholder of
the Company may then cause or attempt to cause the Company to refuse to
comply with its obligations under this Agreement, or may cause or
attempt to cause the Company to institute, or may institute, litigation
seeking to have this Agreement declared unenforceable, or may take or
attempt to take other action to deny Executive the benefits intended
under this Agreement. In these circumstances, the purpose of this
Agreement could be frustrated. It is the intent of the Company that
Executive not be required to incur the expenses associated with the
enforcement of Executive's rights under this Agreement by litigation or
other legal action, nor that Executive be bound to negotiate any
settlement of Executive's rights hereunder, because the cost and
expense of such legal action or settlement would substantially detract
from the benefits intended to be extended to Executive hereunder.
Accordingly, if following a Change in Control it should appear to
Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or
any other person (including the Internal Revenue Service) takes any
action to declare this Agreement void or unenforceable, or institutes
any litigation or other legal action designed to deny, diminish or to
recover from
- 9 -
<PAGE>
Executive the benefits entitled to be provided to Executive hereunder,
and Executive has complied with all of his obligations under this
Agreement, the Company irrevocably authorizes Executive from time to
time to retain counsel of Executive's choice, at the expense of the
Company as provided in this subsection, to represent Executive in
connection with the initiation or defense of any litigation or other
legal action, whether such action is by or against the Company or any
director, officer, shareholder, or other person affiliated with the
Company, in any jurisdiction. Notwithstanding any existing or prior
attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive entering into an
attorney-client relationship with such counsel, and in that connection
the Company and Executive agree that a confidential relationship shall
exist between Executive and such counsel. The reasonable fees and
expenses of counsel selected from time to time by Executive as herein
above provided shall be paid or reimbursed to Executive by the Company
on a regular, periodic basis upon presentation by Executive of a
statement or statements prepared by such counsel in accordance with its
customary practices. Any legal expenses incurred by the Company by
reason of any dispute between the parties as to enforceability of or
the terms contained in this Agreement, notwithstanding the outcome of
any such dispute, shall be the sole responsibility of the Company, and
the Company shall not take any action to seek reimbursement from
Executive for such expenses.
(b) Severance Pay; No Duty to Mitigate. The amounts payable to
Executive under this Agreement shall not be treated as damages but as
severance compensation to which Executive is entitled by reason of
termination of Executive's employment in the circumstances contemplated
by this Agreement. The Company shall not be entitled to set off against
the amounts payable to Executive any amounts earned by Executive in
other employment after termination of Executive's employment with the
Company, or any amounts which might have been earned by Executive in
other employment, had Executive sought such other employment, or any
set-off, counterclaim, recoupment, defense, or any other claim, right,
or action which the Company may have against Executive or others.
(c) Notice of Termination. Any purported termination of
employment by the Company or by Executive shall be communicated by
written Notice of Termination to the other party hereto in accordance
with subsection 3(i) hereof and shall provide at least ten (10)
business days notice prior to the date of termination. Solely for
purposes of this Agreement, no such purported termination shall be
effective without such Notice of Termination.
(d) Assignment. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be
assignable by Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by Executive's legal representatives. This Agreement shall
inure to the benefit of and be binding upon the Company and its
successors and assigns. The Company shall
- 10 -
<PAGE>
assign this Agreement to any corporation or other business entity
succeeding to substantially all of the business and assets of the
Company by merger, consolidation, sale of assets, or otherwise and
shall obtain the assumption of this Agreement by such successor.
(e) Termination. The Board shall have the right to terminate
this Agreement, for any reason, upon twelve (12) months' written notice
to the Executive prior to a Change in Control.
(f) Amendment. The Board shall have the right to amend this
Agreement, for any reason, upon twelve (12) months' written notice to
the Executive prior to a Change in Control.
(g) Governing Law. This Agreement shall be governed by and
subject to the laws of the State of Indiana.
(h) Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other
provisions, and this Agreement shall be construed in all respects as if
such invalid or unenforceable provision had not been contained herein.
(i) Captions. The captions in this Agreement are for
convenience and identification purposes only, are not an integral part
of this Agreement, and are not to be considered in the interpretation
of any part hereof.
(j) Source of Payment. For purposes of this Agreement,
employment and compensation paid by any direct or indirect subsidiary
of the Company will be deemed to be employment and compensation paid by
the Company.
(k) Notices. Except as specifically set forth in this
Agreement, all notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered in
person or sent by registered or certified mail, postage prepaid,
addressed as set forth above, or to such other address as shall be
furnished in writing by any party to the other.
(l) Waivers. The Executive's or the Company's failure to
insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of Executive to
terminate Executive's employment for Good Reason, shall not be deemed
to be a waiver of such provision or right, or of any other provision or
right of this Agreement.
(m) Non-exclusivity of Right. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
Affiliated Employers and for which Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as Executive may
have
- 11 -
<PAGE>
under any contract or agreement with the Company or any Affiliated
Employer. Amounts which are vested benefits or which Executive is
otherwise entitled to receive under any plan, policy, practice or
program of, or any contract or agreement with, the Company or any
Affiliated Employer at or subsequent to the date of termination shall
be payable in accordance with such plan, policy, practice, program,
contract or agreement except as explicitly modified by this Agreement;
provided, however, this Agreement shall be the sole source of any and
all severance benefits that the Executive is entitled to receive, and
the Executive will not be entitled to participate in, or receive
benefits from, any other severance plan or severance policy or program
of the Company, and the Executive shall not be entitled to any
severance benefits other than as identified in this Agreement and the
Executive hereby waives any and all rights to any such other severance
benefits.
(n) Integration and Counterparts. This Agreement supercedes
all prior agreements between the parties with respect to the matters
covered herein. This Agreement may be signed in any number of
counterparts, each of which shall be deemed to be the original.
IN WITNESS WHEREOF, the Executive has executed and, pursuant to the
authorization from its Board, the Company has caused to be executed in its name
and on its behalf, all as of the day and year first above written.
"EXECUTIVE"
/s/ Jay M. Wiegner
- -----------------------------------------------------
Jay M. Wiegner
"LILLY INDUSTRIES, INC."
/s/ Douglas W. Huemme
- -----------------------------------------------------
Chairman of the Board
/s/ Van P. Smith
- -----------------------------------------------------
Chairman of the Compensation Committee
- 12 -
<PAGE>
RELEASE OF ALL CLAIMS
In consideration of receiving from LILLY INDUSTRIES, INC. (the
"Company"), the payments and benefits provided for in the Change in Control
Agreement, dated as of ______________, (the "Change in Control Agreement")
between the Company and the undersigned (the "Executive"), which payments and
benefits the Executive was not otherwise entitled to receive, the Executive
unconditionally releases and discharges the Company from any and all claims,
causes of action, demands, lawsuits or other charges whatsoever, known or
unknown, directly or indirectly related to the Executive's employment with the
Company, except for a breach of the Company's obligations under the Change in
Control Agreement. The claims or actions released herein include, but are not
limited to, those based on allegations of wrongful discharge, breach of
contract, promissory estoppel, defamation, infliction of emotional distress, and
those alleging discrimination on the basis of race, color, sex, religion,
national origin, age, disability, or any other basis, including, but not limited
to, any claim or action under Title VII of the Civil Rights Act of 1964, the Age
Discrimination in Employment Act of 1967, the Rehabilitation Act of 1973, the
Americans with Disabilities Act of 1990, the Equal Pay Act of 1963, the Civil
Rights Act of 1991, the Employee Retirement Income Security Act of 1974, or any
other federal, state, or local law, rule, ordinance, or regulation as presently
enacted or adopted and as each may hereafter be amended; PROVIDED, HOWEVER, THAT
THE EXECUTIVE DOES NOT WAIVE RIGHTS OR CLAIMS THAT MAY ARISE AFTER THE DATE OF
THIS RELEASE, OR THAT ARISE EITHER BEFORE OR AFTER THE DATE OF THIS RELEASE, OUT
OF CLAIMS FOR BENEFITS UNDER ANY EMPLOYEE PENSION, WELFARE, OR BENEFIT PLAN OR
PROGRAM OF THE COMPANY OR AS A RESULT OF THE COMPANY'S BREACH OF THE CHANGE IN
CONTROL AGREEMENT.
With respect to any claim that the Executive might have under the Age
Discrimination in Employment Act of 1967, as amended:
(i) The Executive's waiver of said rights or claims under the Age
Discrimination in Employment Act of 1967 is in exchange for the consideration
reflected in this Release;
(ii) The Executive acknowledges that he has been advised in writing to
consult with an attorney prior to executing this Release and that he has
consulted with his attorney prior to executing this Release;
(iii) The Executive acknowledges that he has been given a period of at
least twenty-one (21) days within which to consider this Release; and
(iv) The Executive and the Company agree that the Executive has a
period of seven (7) days following the execution of this Release within which to
revoke the Release.
Exhibit 1
<PAGE>
The parties also acknowledge and agree that this Release shall not be effective
or enforceable until the seven (7) day revocation period expires. The date on
which this seven (7) day period expires shall be the effective date of this
Release.
The Executive further agrees, in consideration of receiving the
payments and benefits provided for in the Change in Control Agreement, not to
initiate or instigate any claims, causes of action or demands against the
Company in any way directly or indirectly related to the Executive's employment
with the Company or the termination of his employment except for a breach of the
Company's obligations under the Change in Control Agreement, and the Executive
agrees to reimburse, defend, and hold harmless the Company against any such
claims, causes of action or demands.
The Executive agrees that he or she will not seek, nor be entitled to,
employment with the Company, and hereby waives any future right to consideration
for employment by the Company. The Executive further agrees that if he or she
seeks employment with the Company in violation of this Agreement and is hired,
the Company shall have the right to immediately and unconditionally terminate
his or her employment without any reason and without recourse by the Executive.
The Executive understands that as used in this Release, the "Company"
includes its past, present and future officers, directors, trustees,
shareholders, parent corporations, employees, agents, subsidiaries, affiliates,
distributors, successors, and assigns, any and all employee benefit plans (and
any fiduciary of such plans) sponsored by the Company, and any other persons
related to the Company.
Jay M. Wiegner
Date
WITNESS:
Exhibit 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
LILLY INDUSTRIES, INC.
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- ----------------------
August 31 August 31 August 31 August 31
1997 1996 1997 1996
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Primary:
Average shares outstanding 23,000 22,650 22,900 22,600
Net income $ 7,679 $ 7,012 $19,790 $11,114
Net income per common share $ 0.33 $ 0.31 $ 0.86 $ 0.49
======= ======= ======= =======
Average shares outstanding 23,000 22,650 22,900 22,600
Dilutive stock options based
on treasury stock method
using average market
price 400 400 500 400
------- ------- ------- -------
23,400 23,050 23,400 23,000
Net income $ 7,679 $ 7,012 $19,790 $11,114
Net income per common
and common equivalent
share $ 0.33 $ 0.30 $ 0.85 $ 0.48
======= ======= ======= =======
Fully diluted:
Average shares outstanding 23,000 22,650 22,900 22,600
Dilutive stock options based
on the treasury stock
method using the higher
of quarter end or average
market price 400 450 500 450
------- ------- ------- -------
23,400 23,100 23,400 23,050
Net income $ 7,679 $ 7,012 $19,790 $11,114
Net income per common
and common equivalent
share $ 0.33 $ 0.30 $ 0.85 $ 0.48
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000059479
<NAME> Lilly Industries, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> JUN-1-1997
<PERIOD-END> AUG-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 6,185
<SECURITIES> 0
<RECEIVABLES> 79,360
<ALLOWANCES> 2,793
<INVENTORY> 46,504
<CURRENT-ASSETS> 141,136
<PP&E> 134,101
<DEPRECIATION> (52,426)
<TOTAL-ASSETS> 495,882
<CURRENT-LIABILITIES> 113,922
<BONDS> 0
<COMMON> 0
0
94,312
<OTHER-SE> 42,279
<TOTAL-LIABILITY-AND-EQUITY> 495,882
<SALES> 150,904
<TOTAL-REVENUES> 150,904
<CGS> 93,832
<TOTAL-COSTS> 132,227
<OTHER-EXPENSES> (38)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,752
<INCOME-PRETAX> 13,963
<INCOME-TAX> 6,284
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,679
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
